lululemon athletica inc. - Quarter Report: 2009 May (Form 10-Q)
Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
Washington, D.C. 20549
Form 10-Q
(Mark One) | ||
þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
For the quarterly period ended May 3, 2009 | ||
OR
|
||
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
For the transition period from to |
Commission file number
001-33608
lululemon athletica
inc.
(Exact name of registrant as
specified in its charter)
Delaware
|
20-3842867 | |
(State or other jurisdiction
of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
2285 Clark Drive,
Vancouver, British Columbia (Address of principal executive offices) |
V5N 3G9 (Zip Code) |
Registrants telephone number, including area code:
604-732-6124
Former
name, former address and former fiscal year, if changed since
last report: N/A
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
At June 8, 2009, there were 50,729,300 shares of the
registrants common stock, par value $0.01 per share,
outstanding.
Exchangeable and Special Voting Shares:
At June 8, 2009, there were outstanding
19,482,981 exchangeable shares of Lulu Canadian Holding,
Inc., a wholly-owned subsidiary of the registrant. Exchangeable
shares are exchangeable for an equal number of shares of the
registrants common stock.
In addition, at June 8, 2009, the registrant had
outstanding 19,482,981 shares of special voting stock,
through which the holders of exchangeable shares of Lulu
Canadian Holding, Inc. may exercise their voting rights with
respect to the registrant. The special voting stock and the
registrants common stock generally vote together as a
single class on all matters on which the common stock is
entitled to vote.
TABLE OF
CONTENTS
2
Table of Contents
PART I
FINANCIAL
INFORMATION
ITEM 1. | FINANCIAL STATEMENTS |
lululemon
athletica inc. and Subsidiaries
May 3, |
February 1, |
|||||||
2009 | 2009 | |||||||
(Unaudited) | ||||||||
(Amounts in thousands, except per share amounts) | ||||||||
ASSETS
|
||||||||
Current assets
|
||||||||
Cash and cash equivalents
|
$ | 59,271 | $ | 56,797 | ||||
Accounts receivable
|
3,868 | 4,029 | ||||||
Inventories
|
44,635 | 52,051 | ||||||
Prepaid expenses and other current assets
|
6,135 | 4,111 | ||||||
113,909 | 116,988 | |||||||
Property and equipment, net
|
60,960 | 61,662 | ||||||
Goodwill and intangible assets, net
|
8,166 | 8,160 | ||||||
Deferred income taxes
|
19,097 | 19,373 | ||||||
Other non-current assets
|
5,654 | 5,453 | ||||||
$ | 207,786 | $ | 211,636 | |||||
LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
Current liabilities
|
||||||||
Accounts payable
|
$ | 5,218 | $ | 5,269 | ||||
Accrued liabilities
|
10,128 | 22,103 | ||||||
Accrued compensation and related expenses
|
5,084 | 5,862 | ||||||
Income taxes payable
|
| 2,133 | ||||||
Unredeemed gift card liability
|
6,493 | 9,278 | ||||||
Other current liabilities
|
452 | 690 | ||||||
27,375 | 45,335 | |||||||
Other non-current liabilities
|
11,976 | 11,301 | ||||||
Deferred income taxes
|
165 | 158 | ||||||
39,516 | 56,794 | |||||||
Stockholders equity
|
||||||||
Undesignated preferred stock, $0.01 par value,
5,000 shares authorized, none issued and outstanding
|
| | ||||||
Exchangeable stock, no par value, 30,000 shares authorized,
issued and outstanding 19,502 and 19,517 shares
|
| | ||||||
Special voting stock, $0.00001 par value,
30,000 shares authorized, issued and outstanding 19,502 and
19,517 shares
|
| | ||||||
Common stock, $0.01 par value, 200,000 shares
authorized, issued and outstanding 50,710 and 50,422 shares
|
507 | 504 | ||||||
Additional paid-in capital
|
157,677 | 155,961 | ||||||
Retained earnings
|
16,046 | 9,528 | ||||||
Accumulated other comprehensive loss
|
(5,960 | ) | (11,151 | ) | ||||
168,270 | 154,842 | |||||||
$ | 207,786 | $ | 211,636 | |||||
See accompanying notes to the interim consolidated financial
statements
3
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lululemon
athletica inc. and Subsidiaries
Thirteen Weeks |
Thirteen Weeks |
|||||||
Ended May 3, |
Ended May 4, |
|||||||
2009 | 2008 | |||||||
(Unaudited) | ||||||||
(Amounts in thousands, except |
||||||||
per share amounts) | ||||||||
Net revenue
|
$ | 81,680 | $ | 77,030 | ||||
Cost of goods sold
|
46,731 | 35,929 | ||||||
Gross profit
|
34,949 | 41,101 | ||||||
Selling, general and administrative expenses
|
25,096 | 29,154 | ||||||
Income from operations
|
9,853 | 11,947 | ||||||
Other income (expense), net
|
78 | 277 | ||||||
Income before income taxes
|
9,931 | 12,224 | ||||||
Provision for income taxes
|
3,413 | 3,753 | ||||||
Net income from continuing operations
|
6,518 | 8,471 | ||||||
Net income from discontinued operations
|
| 5 | ||||||
Net income
|
$ | 6,518 | $ | 8,476 | ||||
Basic earnings per share:
|
||||||||
Continuing operations
|
$ | 0.09 | $ | 0.13 | ||||
Discontinued operations
|
| | ||||||
Net basic earnings per share
|
$ | 0.09 | $ | 0.13 | ||||
Diluted earnings per share:
|
||||||||
Continuing operations
|
$ | 0.09 | $ | 0.12 | ||||
Discontinued operations
|
| | ||||||
Net diluted earnings per share
|
$ | 0.09 | $ | 0.12 | ||||
Basic weighted-average number of shares outstanding
|
70,131 | 67,678 | ||||||
Diluted weighted-average number of shares outstanding
|
70,331 | 71,651 |
See accompanying notes to the interim consolidated financial
statements
4
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lululemon
athletica inc. and Subsidiaries
Special Voting |
Accumulated |
|||||||||||||||||||||||||||||||||||||||
Exchangeable Stock | Stock | Common Stock |
Additional |
Other |
||||||||||||||||||||||||||||||||||||
Par |
Par |
Par |
Paid-in |
Retained |
Comprehensive |
|||||||||||||||||||||||||||||||||||
Shares | Value | Shares | Value | Shares | Value | Capital | Earnings | Loss | Total | |||||||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||||||||||||||||||||||||
Balance at February 1, 2009
|
19,517 | $ | | 19,517 | $ | | 50,422 | $ | 504 | $ | 155,961 | $9,528 | $(11,151 | ) | $ | 154,842 | ||||||||||||||||||||||||
Comprehensive income:
|
||||||||||||||||||||||||||||||||||||||||
Net income
|
6,518 | 6,518 | ||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment
|
5,191 | 5,191 | ||||||||||||||||||||||||||||||||||||||
Comprehensive income
|
11,709 | |||||||||||||||||||||||||||||||||||||||
Stock-based compensation
|
1,369 | 1,369 | ||||||||||||||||||||||||||||||||||||||
Excess tax benefit from stock-based compensation
|
192 | 192 | ||||||||||||||||||||||||||||||||||||||
Stock options exercised
|
273 | 3 | 155 | 158 | ||||||||||||||||||||||||||||||||||||
Common stock issued upon exchange of exchangeable shares
|
(15 | ) | (15 | ) | 15 | | | | ||||||||||||||||||||||||||||||||
Balance at May 3, 2009
|
19,502 | $ | | 19,502 | $ | | 50,710 | $ | 507 | $ | 157,677 | $16,046 | $(5,960 | ) | $ | 168,270 | ||||||||||||||||||||||||
See accompanying notes to the interim consolidated financial
statements
5
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lululemon
athletica inc. and Subsidiaries
Thirteen Weeks |
Thirteen Weeks |
|||||||
Ended May 3, |
Ended May 4, |
|||||||
2009 | 2008 | |||||||
(Unaudited) | ||||||||
(Amounts in thousands) | ||||||||
Cash flows from operating activities
|
||||||||
Net income
|
$ | 6,518 | $ | 8,476 | ||||
Net income from discontinued operations
|
| 5 | ||||||
Net income from continuing operations
|
6,518 | 8,471 | ||||||
Items not affecting cash
|
||||||||
Depreciation and amortization
|
4,278 | 3,381 | ||||||
Stock-based compensation
|
1,369 | 2,172 | ||||||
Deferred income taxes
|
508 | (144 | ) | |||||
Excess tax benefit from stock-based compensation
|
(192 | ) | | |||||
Other, including net changes in other non-cash balances
|
||||||||
Prepaid expenses and other current assets
|
(1,965 | ) | (2,325 | ) | ||||
Inventories
|
8,269 | (16,262 | ) | |||||
Accounts payable
|
(622 | ) | (719 | ) | ||||
Accrued liabilities
|
(11,590 | ) | 1,838 | |||||
Other non-cash balances
|
(3,754 | ) | (6,669 | ) | ||||
Net cash provided by (used in) operating activity
continuing operations
|
2,819 | (10,257 | ) | |||||
Net cash provided by operating activity discontinued
operations
|
| 7 | ||||||
2,819 | (10,264 | ) | ||||||
Cash flows from investing activities
|
||||||||
Purchase of property and equipment
|
(2,281 | ) | (8,438 | ) | ||||
Advances to and investments in franchise
|
(274 | ) | | |||||
Net cash used in investing activity continuing
operations
|
(2,555 | ) | (8,438 | ) | ||||
Net cash used in investing activity discontinued
operations
|
| (122 | ) | |||||
(2,555 | ) | (8,560 | ) | |||||
Cash flows from financing activities
|
||||||||
Proceeds from exercise of stock options
|
158 | 54 | ||||||
Excess tax benefit from stock-based compensation
|
192 | | ||||||
Net cash provided by financing activity continuing
operations
|
350 | 54 | ||||||
Net cash provided by financing activity discontinued
operations
|
| | ||||||
350 | 54 | |||||||
Effect of exchange rate changes on cash
|
1,860 | (577 | ) | |||||
Increase (decrease) in cash and cash equivalents
|
2,474 | (19,347 | ) | |||||
Cash and cash equivalents from continuing operations, beginning
of period
|
$ | 56,797 | $ | 52,545 | ||||
Cash and cash equivalents from continuing operations, end of
period
|
$ | 59,271 | $ | 33,198 | ||||
See accompanying notes to the interim consolidated financial
statements
6
Table of Contents
lululemon
athletica inc. and Subsidiaries
(Amounts
in thousands, except per share and store count information,
unless otherwise indicated)
NOTE 1. | NATURE OF OPERATIONS AND BASIS OF PRESENTATION |
Nature
of operations
lululemon athletica inc., a Delaware corporation
(lululemon or LAI and, together with its
subsidiaries unless the context otherwise requires, the
Company) is engaged in the design, manufacture and
distribution of healthy lifestyle inspired athletic apparel,
which is sold through a chain of corporate-owned and operated
retail stores, direct to consumers through our
e-commerce
sales channel, through independent franchises and through a
network of wholesale accounts. The Companys primary
markets are Canada, the United States and Australia, where 42,
61 and nil corporate-owned stores were in operation as at
May 3, 2009, respectively. There were 103 corporate-owned
stores in operation as of both May 3, 2009 and
February 1, 2009.
Basis
of presentation
The unaudited interim consolidated financial statements as of
May 3, 2009 and for the thirteen week periods ended
May 3, 2009 and May 4, 2008 are presented using the
United States dollar and have been prepared by the Company under
the rules and regulations of the Securities and Exchange
Commission (SEC). In the opinion of management, the
financial information is presented in accordance with United
States generally accepted accounting principles
(GAAP) for interim financial information and,
accordingly, do not include all of the information and footnotes
required by GAAP for complete financial statements. The
financial information as of February 1, 2009 is derived
from the Companys audited consolidated financial
statements and notes for the fiscal year ended February 1,
2009, included in Item 8 in the fiscal 2008 Annual Report
on
Form 10-K.
These unaudited interim consolidated financial statements
reflect all adjustments which are in the opinion of management
are necessary to a fair statement of the results for the interim
periods presented. These unaudited interim consolidated
financial statements should be read in conjunction with the
Companys consolidated financial statements and related
notes included in the Companys 2008 Annual Report on
Form 10-K
filed with the SEC on March 27, 2009.
The Companys fiscal year ends on the Sunday closest to
January 31st of the following year. This typically
results in a fifty-two week year, but occasionally gives rise to
an additional week, resulting in a fifty-three week year.
Our business is affected by the pattern of seasonality common to
most retail apparel businesses. The results for the periods
presented are not necessarily indicative of future financial
results.
NOTE 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Revenue
recognition
Revenues from the Companys gift cards are recognized when
tendered for payment, or upon redemption. Outstanding customer
balances are included in Unredeemed gift card
liability on the consolidated balance sheets. There are no
expiration dates on the Companys gift cards, and lululemon
does not charge any service fees that cause a decrement to
customer balances.
While the Company will continue to honor all gift cards
presented for payment, management may determine the likelihood
of redemption to be remote for certain card balances due to,
among other things, long periods of inactivity. In these
circumstances, to the extent management determines there is no
requirement for remitting card balances to government agencies
under unclaimed property laws, card balances may be recognized
in the consolidated statements of earnings in Net
revenue. For the first quarter of fiscal 2009, net revenue
recognized on unredeemed gift card balances was
$1.5 million, of which $1.3 million relates to periods
prior to fiscal 2009. There was no net revenue recognized on
unredeemed gift card balances during the fiscal years ended
February 1, 2009 or February 3, 2008.
7
Table of Contents
lululemon
athletica inc. and Subsidiaries
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Recent
accounting pronouncements
In December 2007, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standard No. 141R, Business Combinations (revised 2007)
(SFAS 141R). SFAS 141R replaces
SFAS 141 and requires the acquirer of a business to
recognize and measure the identifiable assets acquired, the
liabilities assumed, and any non-controlling interest in the
acquiree at fair value. SFAS 141R also requires transaction
costs related to the business combination to be expensed as
incurred. The effective date, as well as the adoption date for
the Company, was February 2, 2009. Although SFAS 141R
may impact the Companys reporting in future financial
periods, the Company has determined that the standard did not
have any impact on its historical consolidated financial
statements at the time of adoption.
In February 2008, the FASB issued FASB Staff Position
(FSP)
No. FAS 157-2
(FSP 157-2)
that partially delays the effective date of
SFAS No. 157, Fair Value Measurements
(SFAS 157) for one year for non-financial
assets and liabilities that are recognized or disclosed at fair
value in the financial statements on a non-recurring basis. The
effective date, as well as the adoption date for the Company,
was February 2, 2009 for non-financial assets and
liabilities that are recognized or disclosed at fair value on a
recurring basis. The Company has determined that the provisions
of the standard which have been adopted did not have any impact
on its consolidated financial statements at the time of
adoption. The Company is currently evaluating the potential
impact of adopting the remaining provisions of SFAS 157.
In April 2008 the FASB issued FSP
No. 142-3,
Determination of the Useful Life of Intangible Assets,
(FSP 142-3) which amends the factors that
should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized
intangible asset under SFAS 142. This pronouncement
requires enhanced disclosures concerning a companys
treatment of costs incurred to renew or extend the term of a
recognized intangible asset.
FSP 142-3
is effective for financial statements issued for fiscal years
beginning after December 15, 2008. The effective date, as
well as the adoption date for the Company, was February 2,
2009. Although
FSP 142-3
may impact the Companys reporting in future financial
periods, the Company has determined that the standard did not
have any impact on its historical consolidated financial
statements at the time of adoption.
NOTE 3. | STOCK-BASED COMPENSATION |
Share
option plans
The Companys employees participate in various stock-based
compensation plans, which are either provided by a principal
stockholder of the Company or by the Company directly.
Stock-based compensation expense charged to income for the plans
was $1,369 and $2,172 for the thirteen weeks ended May 3,
2009 and May 4, 2008, respectively. Total unrecognized
compensation cost as at May 3, 2009 was $13,267 for all
stock option plans, which is expected to be recognized over a
weighted-average period of 2.7 years.
8
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lululemon
athletica inc. and Subsidiaries
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Company
stock options
A summary of the Companys stock options and restricted
shares activity as of May 3, 2009 and changes during the
period then ended is presented below:
Weighted- |
Weighted- |
|||||||||||||||
Number of |
Average |
Number of |
Average |
|||||||||||||
Stock |
Exercise |
Restricted |
Grant |
|||||||||||||
Options | Price | Shares | Fair Value | |||||||||||||
Balance at February 1, 2009
|
1,905 | $ | 10.83 | 9 | $ | 24.04 | ||||||||||
Granted
|
497 | $ | 8.28 | | | |||||||||||
Exercised
|
273 | $ | 0.58 | | | |||||||||||
Forfeited
|
| $ | | | | |||||||||||
Balance at May 3, 2009
|
2,129 | $ | 11.54 | 9 | $ | 24.04 | ||||||||||
Exercisable at May 3, 2009
|
354 | $ | 8.26 | | $ | | ||||||||||
Stockholder-
sponsored stock options
During the thirteen weeks ended May 3, 2009 holders of the
exchangeable shares converted 15 exchangeable shares into
15 shares of common stock of the Company for no additional
consideration. In connection with the exchange of exchangeable
shares, an equal number of outstanding shares of the
Companys special voting stock were cancelled.
During the thirteen weeks ended May 3, 2009 there were no
grants or forfeitures related to any of the stock options issued
and outstanding under the stockholder-sponsored awards.
Employee
stock purchase plan
The Companys Board of Directors and stockholders approved
the Companys Employee Stock Purchase Plan
(ESPP) in September 2007. The ESPP allows for the
purchase of common stock of the Company by all eligible
employees. Eligible employees may elect to have whatever portion
of his or her base salary equates, after deduction of applicable
taxes, to either 3%, 6% or 9% of his or her base salary withheld
during each payroll period for purposes of purchasing shares of
our common stock under the ESPP. Additionally, we, or the
subsidiary employing the participant, will make a cash
contribution as additional compensation to each participant
equal to one-third of the aggregate amount of that
participants contribution for that pay period, which will
be used to purchase shares of our common stock, subject to
certain limits as defined in the ESPP. The maximum number of
shares available under the ESPP is 3,000 shares. During the
quarter ended May 3, 2009, there were 26 shares
purchased under the ESPP, which were funded by the Company
through open market purchases.
NOTE 4. | PROVISION FOR IMPAIRMENT AND LEASE EXIT COSTS |
In accordance with Statement of Financial Accounting Standards
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets (SFAS 144), the Company
reviews its long-lived assets for impairment when changes in
circumstances indicate that the carrying amount of the asset may
not be recoverable. SFAS 144 requires that long-lived
assets to be held and used be recorded at the lower of carrying
amount or fair value. Long-lived assets to be disposed of are to
be recorded at the lower of carrying amount or fair value, less
estimated cost to sell.
In conjunction with the Companys ongoing assessment to
ensure that each of the Companys corporate-owned stores
fit into the Companys long-term growth strategy, the
Company closed one of its corporate-owned stores in the fourth
quarter of fiscal 2008. The Company recorded a $738 charge
during fiscal 2008, which included a $521 provision for asset
impairment and a $216 accrual for lease exit costs. The fair
market values were estimated using an expected present value
technique.
9
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lululemon
athletica inc. and Subsidiaries
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company has identified four other corporate-owned store
locations where the carrying amount of the assets exceeded
managements estimate of the fair value of the location.
The Company recorded a $3,667 charge during fiscal 2008, which
included a provision for asset impairment of $2,478 and a $1,189
accrual for lease exit costs. At May 3, 2009 the accrual
for lease exit costs was $1,147.
NOTE 5. | LEGAL PROCEEDINGS |
On April 2, 2009, three former hourly Company employees
filed a class action lawsuit in San Diego Superior Court
entitled Mia Stephens et al v. lululemon athletica
inc. The lawsuit alleges that the Company violated various
California Labor Code sections by requiring employees to wear
lululemon clothing during working hours without reimbursing such
employees for the cost of the clothing and by paying certain
bonus payments to its employees in the form of lululemon gift
cards redeemable only for lululemon merchandise. The complaint
also alleges that the Company owes waiting time penalties as the
result of failing to pay employees all wages due at the time of
termination. The plaintiffs are seeking an unspecified amount of
damages. The Company intends to vigorously defend the matter.
On March 26, 2009, a former hourly Company employee filed a
class action lawsuit in Orange County Superior Court, California
entitled Brett Kohlenberg et al v. lululemon
athletica inc. The lawsuit alleges that the Company violated
various California Labor Code sections by failing to pay its
employees for certain rest and meal breaks and off the
clock work, and for penalties related to waiting times and
failure to provide itemized wage statements. The plaintiff is
seeking an unspecified amount of damages. The Company intends to
vigorously defend the matter.
Brian Bacon, a former employee, filed suit against the Company
in the Supreme Court of British Columbia, Canada on May 6,
2008. In the action, captioned Brian Bacon v. Lululemon
Athletica Canada Inc., Case No. S083254, Mr. Bacon
claims that we terminated his employment contract without cause
and without reasonable notice resulting in breach of contract,
losses and damages. Mr. Bacon seeks damages in an
unspecified amount, plus costs and interest related primarily to
loss from participation in the stockholder sponsored LIPO USA
awards. We believe this claim is without merit and are
vigorously defending against it.
We are a party to various other legal proceedings arising in the
ordinary course of our business, but we are not currently a
party to any legal proceeding that management believes would
have a material adverse effect on our consolidated financial
position or results of operations.
10
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lululemon
athletica inc. and Subsidiaries
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 6. | EARNINGS PER SHARE |
The details of the computation of basic and diluted earnings per
share are as follows:
Thirteen Weeks |
Thirteen Weeks |
|||||||
Ended May 3, |
Ended May 4, |
|||||||
2009 | 2008 | |||||||
Net income from continuing operations
|
$ | 6,518 | $ | 8,471 | ||||
Net income from discontinued operations
|
| 5 | ||||||
Net income
|
$ | 6,518 | $ | 8,476 | ||||
Basic weighted-average number of shares outstanding
|
70,131 | 67,678 | ||||||
Basic earnings per share
|
||||||||
Net income from continuing operations
|
$ | 0.09 | $ | 0.13 | ||||
Net income from discontinued operations
|
| | ||||||
Net basic earnings per share
|
$ | 0.09 | $ | 0.13 | ||||
Basic weighted-average number of shares outstanding
|
70,131 | 67,678 | ||||||
Effect of stock options assume exercised
|
200 | 3,973 | ||||||
Diluted weighted-average number of shares outstanding
|
70,331 | 71,651 | ||||||
Diluted earnings per share
|
||||||||
Net income from continuing operations
|
$ | 0.09 | $ | 0.12 | ||||
Net income from discontinued operations
|
| | ||||||
Diluted earnings per share
|
$ | 0.09 | $ | 0.12 |
Our calculation of weighted-average shares includes the common
stock of the Company as well as the exchangeable shares.
Exchangeable shares are the equivalent of common shares in all
respects. All classes of stock have in effect the same rights
and share equally in undistributed net income. For the thirteen
weeks ended May 3, 2009 and May 4, 2008, 2,171 and 249
stock options, respectively, were anti-dilutive to earnings and
therefore have been excluded from the computation of diluted
earnings per share.
11
Table of Contents
lululemon
athletica inc. and Subsidiaries
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 7. | SUPPLEMENTARY FINANCIAL INFORMATION |
A summary of certain balance sheet accounts is as follows:
May 3, |
February 1, |
|||||||
2009 | 2009 | |||||||
Accounts receivable:
|
||||||||
Trade accounts receivable
|
$ | 3,284 | $ | 3,171 | ||||
Other accounts receivable
|
589 | 863 | ||||||
Allowance for doubtful accounts
|
(5 | ) | (5 | ) | ||||
$ | 3,868 | $ | 4,029 | |||||
Inventories:
|
||||||||
Finished goods
|
$ | 43,004 | $ | 52,828 | ||||
Raw materials
|
2,040 | 558 | ||||||
Provision to reduce inventory to market value
|
(409 | ) | (1,335 | ) | ||||
$ | 44,635 | $ | 52,051 | |||||
Property and equipment:
|
||||||||
Leasehold improvements
|
$ | 53,570 | $ | 52,101 | ||||
Furniture and fixtures
|
17,358 | 16,581 | ||||||
Computer hardware and software
|
21,263 | 19,411 | ||||||
Equipment and vehicles
|
289 | 279 | ||||||
Accumulated amortization and depreciation
|
(31,520 | ) | (26,710 | ) | ||||
$ | 60,960 | $ | 61,662 | |||||
Goodwill and intangible assets:
|
||||||||
Goodwill
|
$ | 738 | $ | 738 | ||||
Changes in foreign currency exchange rates
|
68 | 36 | ||||||
806 | 774 | |||||||
Reacquired franchise rights
|
10,162 | 10,162 | ||||||
Non-competition agreements
|
694 | 694 | ||||||
Accumulated amortization
|
(3,544 | ) | (3,162 | ) | ||||
Changes in foreign currency exchange rates
|
48 | (308 | ) | |||||
7,360 | 7,386 | |||||||
$ | 8,166 | $ | 8,160 | |||||
Other non-current assets:
|
||||||||
Prepaid rent and security deposits
|
$ | 848 | $ | 872 | ||||
Deferred lease cost
|
1,668 | 1,718 | ||||||
Advances to and investments in franchise
|
3,138 | 2,863 | ||||||
$ | 5,654 | $ | 5,453 | |||||
Accrued liabilities:
|
||||||||
Inventory purchases
|
$ | 3,764 | $ | 15,772 | ||||
Sales tax collected
|
1,968 | 1,681 | ||||||
Accrued rent
|
1,127 | 1,147 | ||||||
Lease exit costs
|
1,147 | 1,189 | ||||||
Other
|
2,122 | 2,314 | ||||||
$ | 10,128 | $ | 22,103 | |||||
Other non-current liabilities:
|
||||||||
Deferred lease liability
|
$ | 8,360 | $ | 7,326 | ||||
Tenant inducements
|
3,616 | 3,975 | ||||||
$ | 11,976 | $ | 11,301 | |||||
12
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lululemon
athletica inc. and Subsidiaries
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 8. | SEGMENT REPORTING |
The Companys reportable segments are comprised of
corporate-owned stores, franchises and other. Phone sales,
warehouse sales,
e-commerce
sales and showrooms sales have been combined into our other
segment. Information for these segments is detailed in the table
below:
Thirteen Weeks |
Thirteen Weeks |
|||||||
Ended May 3, |
Ended May 4, |
|||||||
2009 | 2008 | |||||||
Net revenue:
|
||||||||
Corporate-owned stores
|
$ | 72,902 | $ | 69,351 | ||||
Franchises
|
2,691 | 4,538 | ||||||
Other
|
6,087 | 3,141 | ||||||
$ | 81,680 | $ | 77,030 | |||||
Income from operations before general corporate expense:
|
||||||||
Corporate-owned stores
|
$ | 18,045 | $ | 23,167 | ||||
Franchises
|
939 | 2,079 | ||||||
Other
|
1,891 | 1,886 | ||||||
20,875 | 27,132 | |||||||
General corporate expense
|
11,022 | 15,185 | ||||||
Income from operations
|
9,853 | 11,947 | ||||||
Other income (expense), net
|
78 | 277 | ||||||
Income before income taxes
|
$ | 9,931 | $ | 12,224 | ||||
Capital expenditures:
|
||||||||
Corporate-owned stores
|
$ | 1,013 | $ | 5,052 | ||||
Corporate
|
1,267 | 3,548 | ||||||
$ | 2,280 | $ | 8,600 | |||||
Depreciation:
|
||||||||
Corporate-owned stores
|
$ | 3,121 | $ | 2,100 | ||||
Corporate
|
1,157 | 1,243 | ||||||
$ | 4,278 | $ | 3,343 | |||||
NOTE 9. | DISCONTINUED OPERATIONS |
During the first quarter of fiscal 2008 the Company committed to
plans to
wind-up
operations in Japan and in the second quarter of fiscal 2008 the
plans were finalized and disposition of the assets commenced
with closure of three of the four corporate-owned stores that
the Company was operating as a joint venture with Descente Ltd.
The fourth corporate-owned store was closed during the third
quarter of fiscal 2008. The shut down costs related to the
closure of the stores in Japan were fully accrued in the second
quarter of fiscal 2008. The Company and Descente Ltd. agreed to
end all operations as a joint venture in the third quarter of
fiscal 2008.
13
Table of Contents
lululemon
athletica inc. and Subsidiaries
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The results of discontinued operations are summarized as follows:
Thirteen Weeks |
Thirteen Weeks |
|||||||
Ended May 3, |
Ended May 4, |
|||||||
2009 | 2008 | |||||||
Revenue
|
$ | | $ | 1,137 | ||||
Expenses
|
| 1,077 | ||||||
Minority interest
|
| (55 | ) | |||||
Net income from discontinued operations
|
$ | | $ | 5 | ||||
14
Table of Contents
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Some of the statements contained in this
Form 10-Q
and any documents incorporated herein by reference constitute
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and the Private
Securities Litigation Reform Act of 1995. All statements, other
than statements of historical facts, included or incorporated in
this
Form 10-Q
are forward-looking statements, particularly statements which
relate to expectations, beliefs, projections, future plans and
strategies, anticipated events or trends and similar expressions
concerning matters that are not historical facts, such as
statements regarding our future financial condition or results
of operations, our prospects and strategies for future growth,
the development and introduction of new products, and the
implementation of our marketing and branding strategies. In many
cases, you can identify forward-looking statements by terms such
as may, will, should,
expects, plans, anticipates,
believes, estimates,
intends, predicts, potential
or the negative of these terms or other comparable terminology.
The forward-looking statements contained in this
Form 10-Q
and any documents incorporated herein by reference reflect our
current views about future events and are subject to risks,
uncertainties, assumptions and changes in circumstances that may
cause events or our actual activities or results to differ
significantly from those expressed in any forward-looking
statement. Although we believe that the expectations reflected
in the forward-looking statements are reasonable, we cannot
guarantee future events, results, actions, levels of activity,
performance or achievements. Readers are cautioned not to place
undue reliance on these forward-looking statements. A number of
important factors could cause actual results to differ
materially from those indicated by the forward-looking
statements, including, but not limited to, those factors
described in Risk Factors and
Managements Discussion and Analysis of Financial
Condition and Results of Operations of our Annual Report
on
Form 10-K
for fiscal 2008 filed on March 27, 2009. These factors
include without limitation:
| our ability to sustain operational and performance levels in a volatile worldwide economy; | |
| our ability to manage operations at our current size or manage growth effectively; | |
| our ability to locate suitable locations to open new stores and to attract customers to our stores; | |
| our ability to successfully expand in new markets outside of North America; | |
| our ability to finance our growth and maintain sufficient levels of cash flow; | |
| increased competition causing us to reduce the prices of our products or to increase significantly our marketing efforts in order to avoid losing market share; | |
| our ability to effectively market and maintain a positive brand image; | |
| our ability to maintain our historical levels of comparable store sales or average sales per square foot; | |
| our ability to continually innovate and provide our consumers with improved products; | |
| the ability of our suppliers or manufacturers to produce or deliver our products in a timely or cost-effective manner; | |
| our lack of long-term supplier contracts; | |
| our lack of patents or exclusive intellectual property rights in our fabrics and manufacturing technology; | |
| our ability to attract and maintain the services of our senior management and key employees; | |
| the availability and effective operation of management information systems and other technology; | |
| changes in consumer preferences or changes in demand for technical athletic apparel and other products; | |
| our ability to accurately forecast consumer demand for our products; | |
| our ability to accurately anticipate and respond to seasonal or quarterly fluctuations in our operating results; |
15
Table of Contents
| our ability to maintain effective internal controls; and | |
| changes in general economic or market conditions, including as a result of political or military unrest or terrorist attacks. |
The forward-looking statements contained in this
Form 10-Q
reflect our views and assumptions only as of the date of this
Form 10-Q
and are expressly qualified in their entirety by the cautionary
statements included in this
Form 10-Q.
Except as required by applicable securities law, we undertake no
obligation to update any forward-looking statement to reflect
events or circumstances after the date on which the statement is
made or to reflect the occurrence of unanticipated events.
Our fiscal year ends on the Sunday closest to
January 31st of the following year. This typically
results in a fifty-two week year, but occasionally gives rise to
an additional week, resulting in a fifty-three week year.
Overview
The world economy slowed considerably during fiscal 2008 as
problems in global financial markets became more widespread and
consumers cut back on retail spending amid fears of a global
recession. Our sales growth slowed in the latter part of the
third quarter of fiscal 2008, driven in part by this reduced
spending. This challenging economic climate and the continued
weakness of the Canadian dollar continued to negatively affect
our financial results during the thirteen week period ended
May 3, 2009.
In response to the changes in the world economy and the impact
on our operating results, we have taken several steps to address
the deterioration in the retail environment and address our
support structure. These steps, which we discussed in our Annual
Report on
Form 10-K
for fiscal 2008 filed with the SEC on March 27, 2009,
included the development and implementation of several important
initiatives as part of our strategy designed to increase
customer traffic in our corporate-owned store locations, reduce
infrastructure expenses and improve our operating results.
We have started to realize the positive effects of our cost
reductions and efficiency initiatives and expect the impact of
such initiatives on our financial results to continue through
the remainder of fiscal 2009. These targeted cost reductions and
associated efficiency efforts were designed to structure our
business for long-term profitable growth and protect our brand
integrity. We believe our continued strong cash flow generation,
solid balance sheet and healthy liquidity provide us with the
financial flexibility to continue executing the initiatives we
implemented at the end of fiscal 2008 as well as make
investments at strategic times which will benefit our company.
Operating
Segment Overview
lululemon is a designer and retailer of technical athletic
apparel operating primarily in North America and Australia. Our
yoga-inspired apparel is marketed under the lululemon athletica
brand name. We offer a comprehensive line of apparel and
accessories including fitness pants, shorts, tops and jackets
designed for athletic pursuits such as yoga, dance, running and
general fitness. As of May 3, 2009, our branded apparel was
principally sold through 114 corporate-owned and franchise
stores that are primarily located in North America and
Australia. We believe our vertical retail strategy allows us to
interact more directly with and gain insights from our customers
while providing us with greater control of our brand. For the
first quarter of fiscal 2009, approximately 57% of our net
revenue was derived from sales of our products in Canada, 43% of
our net revenue was derived from the sales of our products in
the United States and an immaterial amount of our net revenue
was derived from sales of our products outside of North America.
Our net revenue has grown from $40.7 million in fiscal 2004
to $353.5 million in fiscal 2008. This represents a
compound annual growth rate of 72%. Our increase in net revenue
from fiscal 2004 to fiscal 2008 resulted from the addition of
retail locations in North America, including 34 net
openings in fiscal 2008 and 31 net openings in fiscal 2007,
and comparable store sales growth as high as 34%, which we
realized in fiscal 2007. Our net revenue from continuing
operations also increased from $77.0 million in the first
quarter of fiscal 2008 to $81.7 million in the first
quarter of fiscal 2009, representing a 6% increase. Our ability
to open new stores and grow sales in existing stores has been
driven by increasing demand for our technical athletic apparel
and a growing recognition of the lululemon athletica brand. We
believe our superior products, strategic store locations,
inviting store environment, grassroots marketing approach and
distinctive corporate culture are responsible for our strong
financial performance.
16
Table of Contents
We have three reportable segments: corporate-owned stores,
franchises and other. We report our segments based on the
financial information we use in managing our businesses. While
we receive financial information for each corporate-owned store,
we have aggregated all of the corporate-owned stores into one
reportable segment due to the similarities in the economic and
other characteristics of these stores. Our franchises segment
accounted for 3% of our net revenues from continuing operations
in the first quarter of fiscal 2009, 5% of our net revenues from
continuing operations in fiscal 2008 and 7% of our net revenues
from continuing operations in fiscal 2007. Opening new franchise
stores is not a significant part of our near-term growth
strategy, and we therefore expect that if the revenue derived
from our franchise stores continues to comprise less than 10% of
the net revenue we report in future fiscal years, we will
re-evaluate our segment reporting disclosures. Our other
operations accounted for less than 10% of our net revenues from
continuing operations in each of the first quarter of fiscal
2009, fiscal 2008 and fiscal 2007.
Results
of Operations
First
Quarter Results
The following table summarizes key components of our results of
operations for the thirteen week periods ended May 3, 2009
and May 4, 2008. The operating results are expressed in
dollar amounts as well as relevant percentages, presented as a
percentage of net revenue.
Thirteen Weeks Ended May 3, 2009 |
||||||||||||||||
and May 4, 2008 | ||||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
(In thousands) | (Percentages) | |||||||||||||||
Net revenue
|
$ | 81,680 | $ | 77,030 | 100.0 | 100.0 | ||||||||||
Cost of goods sold
|
46,731 | 35,929 | 57.2 | 46.6 | ||||||||||||
Gross profit
|
34,949 | 41,101 | 42.8 | 53.4 | ||||||||||||
Selling, general and administrative expenses
|
25,096 | 29,154 | 30.7 | 37.9 | ||||||||||||
Income from operations
|
9,853 | 11,947 | 12.1 | 15.5 | ||||||||||||
Other income (expense), net
|
78 | 277 | 0.1 | 0.4 | ||||||||||||
Income before income taxes
|
9,931 | 12,224 | 12.2 | 15.9 | ||||||||||||
Provision for income taxes
|
3,413 | 3,753 | 4.2 | 4.9 | ||||||||||||
Net income from continuing operations
|
6,518 | 8,471 | 8.0 | 11.0 | ||||||||||||
Net income from discontinued operations
|
| 5 | | | ||||||||||||
Net income
|
$ | 6,518 | $ | 8,476 | 8.0 | 11.0 | ||||||||||
Net
Revenue
Net revenue increased $4.7 million, or 6%, to
$81.7 million for the first quarter of fiscal 2009 from
$77.0 million for the first quarter of fiscal 2008. This
increase was the result of sales from new stores opened.
Assuming the average exchange rate between the Canadian and
United States dollars for the first quarter of fiscal 2008
remained constant, our net revenue would have increased
$15.6 million, or 20%, for the first quarter of fiscal 2009.
Thirteen Weeks |
Thirteen Weeks |
|||||||
Ended May 3, |
Ended May 4, |
|||||||
2009 | 2008 | |||||||
(In thousands) | ||||||||
Net revenue by segment:
|
||||||||
Corporate-owned stores
|
$ | 72,902 | $ | 69,351 | ||||
Franchises
|
2,691 | 4,538 | ||||||
Other
|
6,087 | 3,141 | ||||||
Net revenue
|
$ | 81,680 | $ | 77,030 | ||||
17
Table of Contents
Corporate-Owned Stores. Net revenue from our
corporate-owned stores segment increased $3.6 million, or
5%, to $72.9 million for the first quarter of fiscal 2009
from $69.4 million for the first quarter of fiscal 2008.
The following contributed to the $3.6 million increase in
net revenue from our corporate-owned stores segment:
| Net revenue from corporate-owned stores we opened subsequent to May 4, 2008, and therefore not included in the comparable store sales growth, contributed $16.5 million of the increase. Of this increase, $2.0 million was contributed by franchised stores that were reacquired since the first quarter of fiscal 2008. New store openings since the first quarter of fiscal 2008 included four stores in Canada and 29 stores in the United States; | |
| Comparable store sales decline of 21% in the first quarter of fiscal 2009 resulted in a $14.4 million decrease to net revenue. Assuming the average exchange rate between the Canadian and the United States dollars for the first quarter of fiscal 2008 remained constant our comparable store sales would have declined 8% for the first quarter of fiscal 2009 and resulted in a $5.3 million decrease to net revenue; and | |
| Net revenue related to gift card breakage contributed $1.5 million of the increase. Based on historical gift card breakage, we recognize into revenue a portion of gift card sales for which we estimate redemption is remote over the estimated period of redemption. In the first quarter of fiscal 2009 we recorded a one-time charge of $1.3 million related to a change in our estimated rate of redemption. |
Franchises. Net revenue from our franchises
segment decreased $1.8 million, or 41%, to
$2.7 million for the first quarter of fiscal 2009 from
$4.5 million for the first quarter of fiscal 2008. The
decrease in net revenue from our franchises segment resulted
primarily from our reacquisition of three franchise stores in
the third quarter of fiscal 2008.
Other. Net revenue from our other segment
increased $2.9 million, or 94%, to $6.1 million for
the first quarter of fiscal 2009 from $3.1 million for the
first quarter of fiscal 2008. The $2.9 million increase was
primarily the result of increased outlet sales, wholesale and
showroom sales, and the launch of
e-commerce
in the first quarter of fiscal 2009.
Gross
Profit
Gross profit decreased $6.2 million, or 15%, to
$34.9 million for the first quarter of fiscal 2009 from
$41.1 million for the first quarter of fiscal 2008. The
decrease in gross profit was driven principally by:
| an increase in product costs of $5.0 million associated with our sale of goods through corporate-owned stores related primarily to unfavorable foreign exchange differences; | |
| an increase in fixed costs, such as occupancy costs and depreciation, of $4.1 million related to an increase in corporate-owned stores which has a deleveraging effect on gross profit; and | |
| a decrease of $1.1 million in gross profit from our franchises segment related primarily to the reacquisition of franchised stores late in the third quarter of fiscal 2008. |
This amount was partially offset by:
| an increase of $3.6 million in net revenue from our corporate-owned stores segment related to an increase in corporate-owned stores and a one-time charge related to gift card breakage; | |
| an increase of $0.3 million in our other segment related primarily to increased outlet sales, wholesale and showroom sales, and the launch of e-commerce in the first quarter of fiscal 2009; and | |
| a decrease in the cost of sales support departments of $0.3 million related to costs for distribution, design, merchandising and production. |
Gross profit as a percentage of net revenue, or gross margin,
decreased 10.6%, to 42.8% for the first quarter of fiscal 2009
from 53.4% for the first quarter of fiscal 2008. The decrease in
gross margin resulted primarily from
| an increase in fixed costs, such as occupancy costs and depreciation, which has a deleveraging effect on gross profit as a percentage of revenue, which contributed to a decrease in gross margin of 4.4%; |
18
Table of Contents
| unfavorable foreign exchange differences of 3.2%; and | |
| shrinkage, strategic pricing initiatives and other of 3.0%. |
Our costs of goods sold in the first quarter of fiscal 2009 and
the first quarter of fiscal 2008 included $0.2 million and
$0.2 million, respectively, of stock-based compensation
expense.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses decreased
$4.1 million, or 14%, to $25.1 million for the first
quarter of fiscal 2009 from $29.2 million for the first
quarter of fiscal 2008. As a percentage of net revenue, selling,
general and administrative expenses decreased 7.1%, to 30.7%
from 37.9%. The $4.1 million decrease in selling, general
and administrative expenses was principally comprised of:
| a decrease in employee compensation, including options expense, of $2.6 million related to a reduction in employee head count in our corporate-owned store locations and store support center, as part of our efforts to reduce operating expenses, as well as a one-time charge in the first quarter of fiscal 2008 related to the acceleration of performance-based awards; | |
| an increase in foreign exchange gains of $1.1 million related to favorable fluctuations in the Canadian-United States dollar exchange rates; | |
| a decrease in travel and miscellaneous expense of $1.0 million related to a reduction in discretionary spending as part of our efforts to reduce operating expenses and improve our income from operations; and | |
| a decrease in professional fees of $0.3 million related to recruiting, legal and accounting. |
This amount was partially offset by an increase in other
employee costs of $0.8 million related to a one-time charge
in the first quarter of fiscal 2009.
Our selling, general and administrative expenses in the first
quarter of fiscal 2009 and the first quarter of fiscal 2008
included $1.2 million and $2.0 million, respectively,
of stock-based compensation expense.
Income
from Operations
The decrease of $2.1 million in income from operations for
the first quarter of fiscal 2009 was primarily due to a
$6.2 million decrease in gross profit resulting from
increased product costs as a percentage of net revenue, as well
increases in fixed expenses, such as occupancy costs, which
created downward pressure on our margins. This was partially
offset by a decrease of $4.1 million in selling, general
and administrative expenses, a result of improved labor
management and reduced expenses in light of current business
volumes.
On a segment basis, we determine income from operations without
taking into account our general corporate expenses such as
corporate employee costs, travel expenses and corporate rent.
For purposes of our managements analysis of our financial
results, we have allocated some general product expenses to our
corporate-owned stores segment. For example, all expenses
related to our production, design, merchandise and distribution
departments have been allocated to this segment.
Income from operations before general corporate expenses from:
| our corporate-owned stores segment decreased $5.1 million, or 22%, to $18.0 million for the first quarter of fiscal 2009 from $23.2 million for the first quarter of fiscal 2008 primarily due to a decrease of $5.3 million related to gross margin, which was offset partially by a decrease in selling, general and administrative expenses as part of our efforts to improve labor management and reduce operating expenses; | |
| our franchises segment decreased $1.1 million, or 55%, to $1.0 million for the first quarter of fiscal 2009 from $2.1 million for the first quarter of fiscal 2008 primarily as a result of franchises net revenue included in the comparative period shifting to corporate-owned stores income from operations when we acquired two franchise stores in Victoria, British Columbia and one franchise store in Bellevue, Washington; and |
19
Table of Contents
| our other segment remained consistent with the first quarter of fiscal 2008 at $1.9 million for the first quarter of fiscal 2009 primarily due to the introduction of online sales through our e-commerce channel and offset by an increase in outlet locations, where our discounts offered to customers to move through inventory reduces our gross margins. |
Other income (expense), net decreased $0.2 million to
$0.1 million for the first quarter of fiscal 2009 from
$0.3 million for the first quarter of fiscal 2008. The
decrease was primarily due to interest income earned on higher
cash balances in the prior period compared to the current period.
Provision
for Income Taxes
Provision for income taxes decreased $0.3 million, to
$3.4 million, for the first quarter of fiscal 2009 from
$3.8 million for the first quarter of fiscal 2008. Our
effective tax rate was 34% for the first quarter of fiscal 2009
compared to 31% for the first quarter of fiscal 2008. The income
generated in the first quarters of fiscal 2009 and fiscal 2008
in the United States was fully offset by non-operating losses
generated in prior periods.
Net
Income
Net income decreased $2.0 million to $6.5 million for
the first quarter of fiscal 2009 from $8.5 million for the
first quarter of fiscal 2008. The decrease in net income of
$2.0 million for the first quarter of fiscal 2009 was a
result of a decrease in gross profit of $6.2 million
resulting from increased product costs and fixed costs, such as
occupancy, and a decrease in other income (expense), net of
$0.2 million, offset by decreases in selling, general and
administrative expenses of $4.1 million and a decrease of
$0.3 million in provision for income taxes.
Seasonality
Historically, we have recognized a significant portion of our
income from operations in the fourth fiscal quarter of each year
as a result of increased sales during the holiday selling
season. Despite the fact that we have experienced a significant
amount of our net revenue and gross profit in the fourth quarter
of each fiscal year, we believe that the true extent of the
seasonality or cyclical nature of our business may have been
overshadowed by our rapid growth to date.
Liquidity
and Capital Resources
Our cash requirements are principally for working capital and
capital expenditures, including the build out cost of new
stores, renovations of existing stores, and improvements to our
distribution facility and corporate infrastructure. Our need for
working capital is seasonal, with the greatest requirements from
August through the end of November each year as a result of our
inventory
build-up and
concentration of new store openings during this period for our
holiday selling season. Historically, our main sources of
liquidity have been cash flow from operating activities and
borrowings under our existing and previous revolving credit
facilities, and our initial public offering that settled on
August 2, 2007.
At May 3, 2009, our working capital (excluding cash and
cash equivalents) was $27.3 million and our cash and cash
equivalents were $59.3 million.
The following table summarizes our net cash flows provided by
and used in operating, investing and financing activities for
the periods indicated:
Thirteen Weeks |
Thirteen Weeks |
|||||||
Ended May 3, |
Ended May 4, |
|||||||
2009 | 2008 | |||||||
(In thousands) | ||||||||
Total cash provided by (used in):
|
||||||||
Operating activities
|
$ | 2,819 | $ | (10,264 | ) | |||
Investing activities
|
(2,555 | ) | (8,560 | ) | ||||
Financing activities
|
350 | 54 | ||||||
Effect of exchange rate changes on cash
|
1,860 | (577 | ) | |||||
Increase (decrease) in cash and cash equivalents
|
$ | 2,474 | $ | (19,347 | ) | |||
20
Table of Contents
Operating
Activities
Operating Activities consist primarily of net income
adjusted for certain non-cash items, including depreciation and
amortization, deferred income taxes, stock-based compensation
expense and the effect of the changes in non-cash working
capital items, principally prepaid expenses and other current
assets, inventories, accounts payable and accrued liabilities.
Cash provided by operating activities increased
$13.1 million, to $2.8 million for the thirteen weeks
ended May 3, 2009 compared to cash used in operating
activities of $10.3 million for the thirteen weeks ended
May 4, 2008. The $13.1 million increase was primarily
a result of a decrease in inventories and an increase in wages
and income taxes payable, and was offset by a decrease in
miscellaneous accruals. The net decrease in the change in
inventories is a result of selling our on-hand spring
inventories we had built-up at the end of fiscal 2008 for a
larger store base. The net change in amounts payable and
miscellaneous accruals are a result of changes in the timing of
receipts and payments of invoices from and to third parties.
Investing
Activities
Investing Activities relate entirely to capital
expenditures and advances to and investments in franchise.
Cash used in investing activities decreased $6.0 million to
$2.6 million for the thirteen weeks ended May 3, 2009
from $8.6 million for the thirteen weeks ended May 4,
2008. The $6.0 million decrease was a result of reduced
corporate-owned store openings. In the first quarter of fiscal
2009 no new corporate-owned stores were opened compared to four
new corporate-owned stores opened in the first quarter of fiscal
2008.
Financing
Activities
Financing Activities consist primarily of cash received
on the exercise of stock options and excess tax benefits from
stock-based compensation. Cash provided by financing activities
increased to $0.4 million for the thirteen weeks ended
May 3, 2009 from $0.1 million of cash provided by
financing activities for the thirteen weeks ended May 4,
2008.
We believe that our cash from operations and borrowings
available to us under our revolving credit facility will be
adequate to meet our liquidity needs and capital expenditure
requirements for at least the next 24 months. Our cash from
operations may be negatively impacted by a decrease in demand
for our products as well as the other factors described in
Risk Factors of our Annual Report on
Form 10-K
for fiscal 2008 filed on March 27, 2009. In addition, we
may make discretionary capital improvements with respect to our
stores, distribution facility, headquarters, or other systems,
which we would expect to fund through the issuance of debt or
equity securities or other external financing sources to the
extent we were unable to fund such capital expenditures out of
our cash from operations.
Revolving
Credit Facility
In April 2007, we executed a credit facility with the Royal Bank
of Canada that provided for a CDN$20,000,000 uncommitted demand
revolving credit facility to fund our working capital
requirements. This agreement canceled our previous CDN$8,000,000
credit facility. Borrowings under this uncommitted credit
facility are made on a
when-and-as-needed
basis at our discretion.
Borrowings under the credit facility can be made either as
i) Revolving Loans Revolving loan
borrowings will bear interest at a rate equal to the Banks
CA$ or US$ annual base rate (defined as zero% plus the
lenders annual prime rate) per annum, ii) Offshore
Loans Offshore rate loan borrowings will bear
interest at a rate equal to a base rate based upon LIBOR for the
applicable interest period, plus 1.125% per annum,
iii) Bankers Acceptances Bankers
acceptance borrowings will bear interest at the bankers
acceptance rate plus 1.125% per annum, or iv) Letters of
Credit and Letters of Guarantee Borrowings
drawn down under letters of credit or guarantee issued by the
banks will bear a 1.125% per annum fee.
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Table of Contents
At May 3, 2009, aside from letters of credit and
guarantees, there were no borrowings outstanding under this
credit facility.
Off-Balance
Sheet Arrangements
We enter into documentary letters of credit to facilitate the
international purchase of merchandise. We also enter into
standby letters of credit to secure certain of our obligations,
including insurance programs and duties related to import
purchases. As of May 3, 2009, letters of credit and letters
of guarantee totaling $1.5 million have been issued.
Other than these standby letters of credit and guarantee, we do
not have any off-balance sheet arrangements, investments in
special purpose entities or undisclosed borrowings or debt. In
addition, we have not entered into any derivative contracts or
synthetic leases.
Critical
Accounting Policies
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions.
Predicting future events is inherently an imprecise activity
and, as such, requires the use of judgment. Actual results may
vary from estimates in amounts that may be material to the
financial statements. An accounting policy is deemed to be
critical if it requires an accounting estimate to be made based
on assumptions about matters that are highly uncertain at the
time the estimate is made, and if different estimates that
reasonably could have been used, or changes in the accounting
estimates that are reasonably likely to occur periodically,
could materially impact our consolidated financial statements.
Our critical accounting policies and estimates are discussed in
our recently filed Annual Report on
Form 10-K
for our 2008 fiscal year end and in Note 2 included in
Item 1 of Part I of this Quarterly Report on
Form 10-Q.
We believe that there have been no other significant changes
during the thirteen weeks ended May 3, 2009 to our critical
accounting policies.
22
Table of Contents
Operating
Locations
Our operating locations by country, state and province as of
May 3, 2009 are summarized in the table below.
Corporate-Owned |
Franchise |
Total |
||||||||||
Stores | Stores | Stores | ||||||||||
Canada
|
||||||||||||
Alberta
|
8 | | 8 | |||||||||
British Columbia
|
11 | | 11 | |||||||||
Manitoba
|
1 | | 1 | |||||||||
Nova Scotia
|
1 | | 1 | |||||||||
Ontario
|
17 | | 17 | |||||||||
Québec
|
4 | | 4 | |||||||||
Saskatchewan
|
| 1 | 1 | |||||||||
Total Canada
|
42 | 1 | 43 | |||||||||
United States
|
||||||||||||
California
|
19 | 1 | 20 | |||||||||
Colorado
|
| 3 | 3 | |||||||||
Connecticut
|
2 | | 2 | |||||||||
District of Columbia
|
2 | | 2 | |||||||||
Florida
|
2 | | 2 | |||||||||
Hawaii
|
1 | | 1 | |||||||||
Illinois
|
6 | | 6 | |||||||||
Maryland
|
2 | | 2 | |||||||||
Massachusetts
|
4 | | 4 | |||||||||
Michigan
|
1 | | 1 | |||||||||
Nevada
|
1 | | 1 | |||||||||
New Jersey
|
2 | | 2 | |||||||||
New York
|
7 | | 7 | |||||||||
Oregon
|
1 | | 1 | |||||||||
Pennsylvania
|
1 | | 1 | |||||||||
Texas
|
5 | | 5 | |||||||||
Virginia
|
2 | | 2 | |||||||||
Washington
|
3 | | 3 | |||||||||
Total United States
|
61 | 4 | 65 | |||||||||
International
|
||||||||||||
Australia
|
| 6 | 6 | |||||||||
Total International
|
| 6 | 6 | |||||||||
Overall total, as of May 3, 2009
|
103 | 11 | 114 | |||||||||
Overall total, as of February 1, 2009
|
103 | 10 | 113 | |||||||||
23
Table of Contents
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Market risk represents the risk of loss that may impact our
financial position due to adverse changes in financial market
prices and rates. Our market risk exposure is primarily a result
of fluctuations in interest rates and foreign currency exchange
rates. We do not hold or issue financial instruments for trading
purposes.
Foreign Currency Exchange Risk. We currently
generate a majority of our net revenue in Canada. The reporting
currency for our consolidated financial statements is the United
States dollar. Historically, our operations were based largely
in Canada. As of May 3, 2009, we operated 42 stores in
Canada. As a result, we have been impacted by changes in
exchange rates and may be impacted materially for the
foreseeable future. For example, because we recognize net
revenue from sales in Canada in Canadian dollars, if the United
States dollar strengthens it would have a negative impact on our
Canadian operating results upon translation of those results
into United States dollars for the purposes of consolidation.
Any hypothetical loss in net revenue could be partially or
completely offset by lower cost of sales and lower selling,
general and administrative expenses that are generated in
Canadian dollars. A 10% appreciation in the relative value of
the United States dollar compared to the Canadian dollar would
have resulted in lost income from operations of approximately
$1.0 million for the first quarter of fiscal 2009. To the
extent the ratio between our net revenue generated in Canadian
dollars increases as compared to our expenses generated in
Canadian dollars, we expect that our results of operations will
be further impacted by changes in exchange rates. We do not
currently hedge foreign currency fluctuations. However, in the
future, in an effort to mitigate losses associated with these
risks, we may at times enter into derivative financial
instruments, although we have not historically done so. These
may take the form of forward sales contracts and option
contracts. We do not, and do not intend to, engage in the
practice of trading derivative securities for profit.
Interest Rate Risk. In April 2007, we entered
into an uncommitted senior secured demand revolving credit
facility with Royal Bank of Canada which replaced our previous
credit facility. Because our revolving credit facility bears
interest at a variable rate, we are exposed to market risks
relating to changes in interest rates, if we have a meaningful
outstanding balance. At May 3, 2009, we had no outstanding
borrowings on our revolving facility. We do not believe we
currently are significantly exposed to changes in interest rate
risk. We currently do not engage in any interest rate hedging
activity and currently have no intention to do so in the
foreseeable future. However, in the future, if we have a
meaningful outstanding balance, in an effort to mitigate losses
associated with these risks, we may at times enter into
derivative financial instruments, although we have not
historically done so. These may take the form of forward sales
contracts, option contracts, and interest rate swaps. We do not,
and do not intend to, engage in the practice of trading
derivative securities for profit.
ITEM 4. | CONTROLS AND PROCEDURES |
We maintain disclosure controls and procedures that are designed
to ensure that information required to be disclosed by us in the
reports we file or submit under the Securities Exchange Act of
1934, or the Exchange Act, is recorded, processed, summarized
and reported within the time periods specified in the SECs
rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive
Officer (principal executive officer) and Chief Financial
Officer (principal financial officer), to allow timely decisions
to be made regarding required disclosure. We have established a
Disclosure Committee, consisting of certain members of
management, to assist in this evaluation. The Disclosure
Committee meets on a regular quarterly basis, and as needed.
Our management, including our Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of our disclosure
controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
promulgated under the Exchange Act), at May 3, 2009. Based
on that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that, at May 3, 2009, our
disclosure controls and procedures were effective.
There was no change in internal control over financial reporting
during the fiscal quarter ended May 3, 2009 that has
materially affected or is reasonably likely to materially affect
our internal control over financial reporting.
24
Table of Contents
PART II
OTHER
INFORMATION
ITEM 1. | LEGAL PROCEEDINGS |
The Company is, from time to time, involved in routine legal
matters incidental to its business. Management believes that the
ultimate resolution of any such current proceedings will not
have a material adverse effect on the Companys continued
financial position, results of operations or cash flows. Refer
to Note 5 included in Item 1 of Part 1 of this
Quarterly Report on
Form 10-Q
for information regarding specific legal proceedings.
ITEM 1A. RISK
FACTORS
In addition to other information set forth in this report, you
should carefully consider the Risk Factors discussed
in our Annual Report on
Form 10-K
for our 2008 fiscal year filed on March 27, 2009. There
have been no material changes to the Risk Factors
previously disclosed in our Annual Report on
Form 10-K.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
(c) The following table provides information regarding the
Companys purchases of its common stock during the thirteen
week period ended May 3, 2009:
Maximum Number |
||||||||||||||||
Total Number of |
of Shares that |
|||||||||||||||
Shares Purchased |
May Yet be |
|||||||||||||||
Total Number |
Average |
as Part of Publicly |
Purchased Under |
|||||||||||||
of Shares |
Price Paid |
Announced Plans |
the Plans |
|||||||||||||
Period(1)
|
Purchased | per Share | or Programs(2) | or Programs(2) | ||||||||||||
February 2, 2009 March 1, 2009
|
9,367 | $ | 7.64 | 9,367 | 2,927,733 | |||||||||||
March 2, 2009 April 5, 2009
|
12,606 | 8.56 | 12,606 | 2,915,127 | ||||||||||||
April 6, 2009 May 3, 2009
|
4,544 | 15.98 | 4,544 | 2,910,583 | ||||||||||||
Total
|
26,517 | 26,517 | ||||||||||||||
(1) | Monthly information is presented by reference to our fiscal months during our first quarter of fiscal 2009. | |
(2) | Our Employee Share Purchase Plan (ESPP) was approved by our Board of Directors and stockholders in September 2007. All shares purchased under the ESPP are purchased on the Toronto Stock Exchange or the Nasdaq Global Select Market (or such other stock exchange as we may designate from time to time). Unless our Board of Directors terminates the ESPP earlier, the ESPP will continue until all shares authorized for purchase under the ESPP have been purchased. The maximum number of shares available for issuance under the ESPP is 3,000,000. |
ITEM 6. | EXHIBITS |
Exhibit |
Filed |
Incorporated by Reference | ||||||||||||
No.
|
Exhibit Title
|
Herewith
|
Form
|
Exhibit No.
|
File No.
|
Filing Date
|
||||||||
3 | .1 | Third Amended and Restated Bylaws of lululemon athletica inc. | 8-K | 3.1 | 001-33608 | 3/31/2009 | ||||||||
10 | .1 | 2009 Executive Bonus Plan | 8-K | 10.1 | 001-33608 | 3/31/2009 | ||||||||
31 | .1 | Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a) | X | |||||||||||
31 | .2 | Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a) | X | |||||||||||
32 | .1 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | X |
25
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
lululemon athletica inc.
By: |
/s/ John
E. Currie
|
John E. Currie
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Principal Accounting Officer)
Dated: June 10, 2009
26
Table of Contents
Exhibit Index
Exhibit |
Filed |
Incorporated by Reference | ||||||||||||
No.
|
Exhibit Title
|
Herewith
|
Form
|
Exhibit No.
|
File No.
|
Filing Date
|
||||||||
3 | .1 | Third Amended and Restated Bylaws of lululemon athletica inc. | 8-K | 3.1 | 001-33608 | 3/31/2009 | ||||||||
10 | .1 | 2009 Executive Bonus Plan | 8-K | 10.1 | 001-33608 | 3/31/2009 | ||||||||
31 | .1 | Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a) | X | |||||||||||
31 | .2 | Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a) | X | |||||||||||
32 | .1 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | X |
27