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lululemon (LULU) Up on Q1 Earnings & Sales Beat, Raised View
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lululemon athletica inc. (LULU - Free Report) reported a strong start to fiscal 2022, with revenues and earnings surpassing the Zacks Consensus Estimate and improving year over year in first-quarter fiscal 2022. The results were driven by the continued momentum in its business.
Shares of lululemon rose 2.1% in the after-hours trading session on Jun 3, backed by the strong results and raised view. The Zacks Rank #3 (Hold) company’s shares have fallen 5.6% in the past three months compared with the industry’s decline of 13.6%.
lululemon’s fiscal first-quarter earnings of $1.48 per share beat the Zacks Consensus Estimate of $1.43 and increased 28% from adjusted earnings of $1.16 in the year-ago quarter. The metric improved 26%, witnessing a three-year compounded annual growth rate (CAGR).
lululemon athletica inc. Price, Consensus and EPS Surprise
The Vancouver, Canada-based company’s quarterly revenues advanced 32% year over year to $1,613.5 million and surpassed the Zacks Consensus Estimate of $1,546 million. On a constant-dollar basis, revenues also increased 32%. Revenue growth was mainly driven by the strong performance in North America. The company’s net revenues grew 32% in North America and 29% internationally. Compared with the fourth quarter of fiscal 2019, net revenues improved 106%, reflecting a three-year CAGR of 27%.
The company’s total comparable sales rose 28% year over year and 29% on a constant-dollar basis. Comps were driven by robust traffic trends in both stores and e-commerce, with 40% traffic growth in both channels. Comparable store sales advanced 24%.
Direct-to-consumer net revenues climbed 32% (up 33% on a constant-dollar basis). Direct-to-consumer net revenues accounted for 45% of the company’s total net revenues compared with 44% in the first quarter of fiscal 2021. The company’s e-commerce business delivered an impressive performance, with revenues increasing 51% on a three-year CAGR basis.
In the company’s store channel, sales increased 36% year over year and 13% on a three-year CAGR basis. Management highlighted that productivity was higher than the 2019 levels in first-quarter fiscal 2022 and continued to be at similar levels in the second quarter of fiscal 2022. The company currently has 97% of its stores open. The closures mainly relate to the impact of COVID-19 in China.
Image Source: Zacks Investment Research
Margins
The gross profit improved 24% year over year to $870.4 million. However, the gross margin contracted 320 basis points (bps) to 53.9%, thanks to a 370-bps decline in product margin. Product margin in the fiscal first quarter was impacted by a 340-bps increase in air freight due to the ongoing supply-chain headwinds and a 10-bps deleverage from foreign currency.
This was partly negated by flat markdowns from last year and a 60-bps leverage on fixed costs, driven by occupancy, and depreciation. The gross margin was flat with the first quarter of fiscal 2019.
SG&A expenses of $607.9 million increased 22.4% from the year-ago quarter. SG&A expenses, as a percentage of net revenues, were 37.7%, down 280 bps from 40.5% reported in the prior-year quarter, owing to the leverage in store and digital channels. This was somewhat offset by higher investments in corporate SG&A and depreciation.
Income from operations jumped 29% to $260.3 million from adjusted income from operations of $201.5 million reported in the prior-year quarter. The operating margin contracted 30 bps to 16.1% from the prior-year quarter’s adjusted operating margin of 16.4%. The metric contracted 40 bps from the first quarter of fiscal 2019.
Store Updates
In the fiscal first quarter, the company opened six company-operated stores and closed one store. As of Mar 31, 2022, it operated 579 stores. Management expects to open 20 net new company-operated stores in the second quarter of fiscal 2022. It anticipates opening approximately 70 net new company-operated stores in fiscal 2022. The store openings in fiscal 2022 will include about 40 stores in the international markets. Moreover, the total store openings in fiscal 2022 will imply a square footage increase in the low 20% range.
Financials
lululemon exited the quarter with cash and cash equivalents of $649 million, and stockholders’ equity of $2,668.1 million. At the end of first-quarter fiscal 2022, the company had $396.9 million remaining under its committed revolving credit facility.
At the end of the fiscal first quarter, the company’s inventories grew 74% to $1,275 million. On a unit basis, inventory was up 56%, witnessing a three-year CAGR of 36%.
In first-quarter fiscal 2022, management repurchased 0.7 million shares for $232.6 million. As of Mar 31, 2022, the company had $955 million remaining under its recently authorized $1 billion share repurchase program.
Outlook
For the second quarter of fiscal 2022, management anticipates net revenues of $1.75-$1.775 billion, indicating growth of 21-22%. The company expects the quarterly gross margin to be down 200 bps year over year. The gross margin view includes a 150-bps impact from air freight costs due to port congestions and capacity constraints. It anticipates a relatively flat SG&A expense rate for the fiscal second quarter. Earnings per share (EPS) are projected to be $1.82-$1.87 in the fiscal second quarter.
Management’s EPS guidance excludes the anticipated gain of 7 cents per share on a real estate sale, which is expected to be realized in the fiscal second quarter.
Backed by the strong start to fiscal 2022, the company raised its guidance for fiscal 2022. It anticipates net revenues of $7.61-$7.71 billion compared with the prior mentioned $7.490-7.615 billion. The sales view assumes e-commerce growth in the high-teens to low-20s range compared with the second quarter of fiscal 2021. It also expects to see a three-year CAGR of 24-25%, which is higher than the 3-year revenue CAGR of 19% leading up to fiscal 2020.
The company anticipates a gross margin decline of 100-150 bps for fiscal 2022 compared with a 50-100 bps decline mentioned earlier. The decline is expected to result from higher investments in the distribution center network and an increase in content development costs for lululemon studio, MIRROR. The higher costs and gross margin decline will be partly offset by lower digital marketing, which is likely to get reflected in SG&A. The company anticipates air freight costs to hurt the gross margin by a modest 30 bps compared with flat air freight costs mentioned earlier.
For the fiscal year, LULU expects the SG&A rate to leverage 50-100 bps year over year, driven by increased sales and the shift in lululemon studio, MIRROR investments. The company expects the operating margin for fiscal 2022 to be flat with the last year, including the aforementioned air freight costs. The company expects an effective tax rate of 28-25.5% for fiscal 2022.
Adjusted EPS for the fiscal year is envisioned to be $9.35-$9.50 compared with $9.15-$9.35 expected earlier. The company expects capital expenditure of $600-$625 million for fiscal 2022, representing about 8% of revenues. This is in line with the company’s power of three X2 initiative’s target of 7-9% of revenues.
Eye These Solid Picks
Some better-ranked stocks are Delta Apparel , Caleres (CAL - Free Report) and GIII Apparel Group (GIII - Free Report) .
Delta Apparel currently sports a Zacks Rank of 1 (Strong Buy). DLA has a trailing four-quarter earnings surprise of 41.1%, on average. Shares of DLA have increased 3.9% in the past three months. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Delta Apparel's current financial year’s sales and EPS suggests growth of 14.6% and 45.8%, respectively, from the year-ago period's reported numbers.
Caleres flaunts a Zacks Rank #1 at present. Shares of CAL have rallied 48% in the past three months. The company has a trailing four-quarter earnings surprise of 62.9%, on average.
The Zacks Consensus Estimate for Caleres’ current-year sales and EPS suggests growth of 5.2% and 0.7%, respectively, from the year-ago reported figures.
GIII Apparel currently carries a Zacks Rank #2 (Buy). GIII has a trailing four-quarter earnings surprise of 160.6%, on average. Shares of GIII have gained 5% in the past three months.
The Zacks Consensus Estimate for GIII Apparel's current financial-year sales and earnings suggests growth of 10% and 5.4%, respectively, from the year-ago period's reported figures.
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lululemon (LULU) Up on Q1 Earnings & Sales Beat, Raised View
lululemon athletica inc. (LULU - Free Report) reported a strong start to fiscal 2022, with revenues and earnings surpassing the Zacks Consensus Estimate and improving year over year in first-quarter fiscal 2022. The results were driven by the continued momentum in its business.
Shares of lululemon rose 2.1% in the after-hours trading session on Jun 3, backed by the strong results and raised view. The Zacks Rank #3 (Hold) company’s shares have fallen 5.6% in the past three months compared with the industry’s decline of 13.6%.
lululemon’s fiscal first-quarter earnings of $1.48 per share beat the Zacks Consensus Estimate of $1.43 and increased 28% from adjusted earnings of $1.16 in the year-ago quarter. The metric improved 26%, witnessing a three-year compounded annual growth rate (CAGR).
lululemon athletica inc. Price, Consensus and EPS Surprise
lululemon athletica inc. price-consensus-eps-surprise-chart | lululemon athletica inc. Quote
The Vancouver, Canada-based company’s quarterly revenues advanced 32% year over year to $1,613.5 million and surpassed the Zacks Consensus Estimate of $1,546 million. On a constant-dollar basis, revenues also increased 32%. Revenue growth was mainly driven by the strong performance in North America. The company’s net revenues grew 32% in North America and 29% internationally. Compared with the fourth quarter of fiscal 2019, net revenues improved 106%, reflecting a three-year CAGR of 27%.
The company’s total comparable sales rose 28% year over year and 29% on a constant-dollar basis. Comps were driven by robust traffic trends in both stores and e-commerce, with 40% traffic growth in both channels. Comparable store sales advanced 24%.
Direct-to-consumer net revenues climbed 32% (up 33% on a constant-dollar basis). Direct-to-consumer net revenues accounted for 45% of the company’s total net revenues compared with 44% in the first quarter of fiscal 2021. The company’s e-commerce business delivered an impressive performance, with revenues increasing 51% on a three-year CAGR basis.
In the company’s store channel, sales increased 36% year over year and 13% on a three-year CAGR basis. Management highlighted that productivity was higher than the 2019 levels in first-quarter fiscal 2022 and continued to be at similar levels in the second quarter of fiscal 2022. The company currently has 97% of its stores open. The closures mainly relate to the impact of COVID-19 in China.
Image Source: Zacks Investment Research
Margins
The gross profit improved 24% year over year to $870.4 million. However, the gross margin contracted 320 basis points (bps) to 53.9%, thanks to a 370-bps decline in product margin. Product margin in the fiscal first quarter was impacted by a 340-bps increase in air freight due to the ongoing supply-chain headwinds and a 10-bps deleverage from foreign currency.
This was partly negated by flat markdowns from last year and a 60-bps leverage on fixed costs, driven by occupancy, and depreciation. The gross margin was flat with the first quarter of fiscal 2019.
SG&A expenses of $607.9 million increased 22.4% from the year-ago quarter. SG&A expenses, as a percentage of net revenues, were 37.7%, down 280 bps from 40.5% reported in the prior-year quarter, owing to the leverage in store and digital channels. This was somewhat offset by higher investments in corporate SG&A and depreciation.
Income from operations jumped 29% to $260.3 million from adjusted income from operations of $201.5 million reported in the prior-year quarter. The operating margin contracted 30 bps to 16.1% from the prior-year quarter’s adjusted operating margin of 16.4%. The metric contracted 40 bps from the first quarter of fiscal 2019.
Store Updates
In the fiscal first quarter, the company opened six company-operated stores and closed one store. As of Mar 31, 2022, it operated 579 stores. Management expects to open 20 net new company-operated stores in the second quarter of fiscal 2022. It anticipates opening approximately 70 net new company-operated stores in fiscal 2022. The store openings in fiscal 2022 will include about 40 stores in the international markets. Moreover, the total store openings in fiscal 2022 will imply a square footage increase in the low 20% range.
Financials
lululemon exited the quarter with cash and cash equivalents of $649 million, and stockholders’ equity of $2,668.1 million. At the end of first-quarter fiscal 2022, the company had $396.9 million remaining under its committed revolving credit facility.
At the end of the fiscal first quarter, the company’s inventories grew 74% to $1,275 million. On a unit basis, inventory was up 56%, witnessing a three-year CAGR of 36%.
In first-quarter fiscal 2022, management repurchased 0.7 million shares for $232.6 million. As of Mar 31, 2022, the company had $955 million remaining under its recently authorized $1 billion share repurchase program.
Outlook
For the second quarter of fiscal 2022, management anticipates net revenues of $1.75-$1.775 billion, indicating growth of 21-22%. The company expects the quarterly gross margin to be down 200 bps year over year. The gross margin view includes a 150-bps impact from air freight costs due to port congestions and capacity constraints. It anticipates a relatively flat SG&A expense rate for the fiscal second quarter. Earnings per share (EPS) are projected to be $1.82-$1.87 in the fiscal second quarter.
Management’s EPS guidance excludes the anticipated gain of 7 cents per share on a real estate sale, which is expected to be realized in the fiscal second quarter.
Backed by the strong start to fiscal 2022, the company raised its guidance for fiscal 2022. It anticipates net revenues of $7.61-$7.71 billion compared with the prior mentioned $7.490-7.615 billion. The sales view assumes e-commerce growth in the high-teens to low-20s range compared with the second quarter of fiscal 2021. It also expects to see a three-year CAGR of 24-25%, which is higher than the 3-year revenue CAGR of 19% leading up to fiscal 2020.
The company anticipates a gross margin decline of 100-150 bps for fiscal 2022 compared with a 50-100 bps decline mentioned earlier. The decline is expected to result from higher investments in the distribution center network and an increase in content development costs for lululemon studio, MIRROR. The higher costs and gross margin decline will be partly offset by lower digital marketing, which is likely to get reflected in SG&A. The company anticipates air freight costs to hurt the gross margin by a modest 30 bps compared with flat air freight costs mentioned earlier.
For the fiscal year, LULU expects the SG&A rate to leverage 50-100 bps year over year, driven by increased sales and the shift in lululemon studio, MIRROR investments. The company expects the operating margin for fiscal 2022 to be flat with the last year, including the aforementioned air freight costs. The company expects an effective tax rate of 28-25.5% for fiscal 2022.
Adjusted EPS for the fiscal year is envisioned to be $9.35-$9.50 compared with $9.15-$9.35 expected earlier. The company expects capital expenditure of $600-$625 million for fiscal 2022, representing about 8% of revenues. This is in line with the company’s power of three X2 initiative’s target of 7-9% of revenues.
Eye These Solid Picks
Some better-ranked stocks are Delta Apparel , Caleres (CAL - Free Report) and GIII Apparel Group (GIII - Free Report) .
Delta Apparel currently sports a Zacks Rank of 1 (Strong Buy). DLA has a trailing four-quarter earnings surprise of 41.1%, on average. Shares of DLA have increased 3.9% in the past three months. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Delta Apparel's current financial year’s sales and EPS suggests growth of 14.6% and 45.8%, respectively, from the year-ago period's reported numbers.
Caleres flaunts a Zacks Rank #1 at present. Shares of CAL have rallied 48% in the past three months. The company has a trailing four-quarter earnings surprise of 62.9%, on average.
The Zacks Consensus Estimate for Caleres’ current-year sales and EPS suggests growth of 5.2% and 0.7%, respectively, from the year-ago reported figures.
GIII Apparel currently carries a Zacks Rank #2 (Buy). GIII has a trailing four-quarter earnings surprise of 160.6%, on average. Shares of GIII have gained 5% in the past three months.
The Zacks Consensus Estimate for GIII Apparel's current financial-year sales and earnings suggests growth of 10% and 5.4%, respectively, from the year-ago period's reported figures.