lululemon(LULU) - 2024 Q2 - Quarterly Report

Revenue Growth - Net revenue increased 7% to $2.4 billion in Q2 2024, with an 8% increase on a constant dollar basis[90] - Net revenue increased by$ 370.0 million (9%) to $4.6 billion in the first two quarters of 2024 compared to$ 4.2 billion in 2023, driven by growth in China Mainland and Rest of World regions[115] - Total net revenue increased by 8% on a constant dollar basis, with China Mainland leading at 39% growth[139] - Revenue was $43.9 million lower in the first two quarters of 2024 compared to the same period in 2023 due to foreign currency exchange fluctuations[156] Comparable Sales Performance - Comparable sales increased 2% overall, with China Mainland showing a 21% increase and Rest of World a 17% increase[90] - Americas comparable sales decreased 3%, primarily due to lower conversion rates, despite increased traffic[98] - Comparable sales increased by 4% on a constant dollar basis, with China Mainland contributing 24% growth[139] Gross Profit and Margin - Gross profit increased 9% to$ 1.4 billion, with gross margin rising 80 basis points to 59.6%[90] - Gross profit increased by $237.9 million (9.7%) to$ 2.69 billion, with gross margin improving by 50 basis points to 58.7%[120] - China Mainland gross profit increased by $118.9 million, driven by higher net revenue and gross margin, partially offset by unfavorable foreign currency exchange rates[128] - Rest of World gross profit increased by$ 79.6 million, primarily due to higher net revenue and gross margin, partially offset by unfavorable foreign currency exchange rates[129] Operating Income and Margin - Income from operations increased 13% to $540.2 million, with operating margin up 110 basis points to 22.8%[90][92] - Income from operations increased by$ 92.2 million (10.5%) to $972.9 million, with operating margin improving by 30 basis points to 21.2%[127] Net Income and Earnings Per Share - Diluted earnings per share rose to$ 3.15 in Q2 2024, compared to $2.68 in Q2 2023[92] - Net income increased by$ 51.3 million (15.0%) to $392.9 million in Q2 2024, driven by higher gross profit and other income[113] - Net income increased by$ 82.3 million (13.0%) year-over-year, driven by a $237.9 million increase in gross profit and a$ 25.9 million increase in other income[132] Regional Performance - China Mainland net revenue increased by $79.7 million, driven by a 21% rise in comparable sales and new store openings[99] - Rest of World net revenue increased by$ 60.5 million, with comparable sales up 17% due to higher traffic and transaction values[100] - China Mainland net revenue increased by $173.5 million (39%) to$ 618.0 million, with comparable sales growth of 24% (28% on a constant dollar basis)[118] - Rest of World net revenue increased by $120.4 million (25%) to$ 598.3 million, with comparable sales growth of 20% (23% on a constant dollar basis)[119] - Americas net revenue increased by $76.2 million (2%) to$ 3.36 billion, driven by new store openings, despite a 1% decline in comparable sales[117] Expenses - Selling, general, and administrative expenses increased 6.7% to $871.9 million, primarily due to higher head office and operating channel costs[102][103] - Selling, general and administrative expenses increased by$ 149.5 million (9.6%) to $1.71 billion, primarily due to higher marketing and technology costs[123] - Income tax expense increased by$ 35.8 million (13.5%), with the effective tax rate rising by 10 basis points to 29.6%[131] Store Expansion and Operations - The company opened 15 net new stores in the Americas, 25 in China Mainland, and 9 in Rest of World since Q2 2023[117][118][119] - Company-operated stores in China Mainland increased from 127 to 132, while total Americas stores grew from 438 to 441[153] - Total company-operated stores decreased from 711 to 721 as of July 28, 2024 compared to January 28, 2024[154] - Total retail locations operated by third parties increased from 39 to 45 as of July 28, 2024 compared to January 28, 2024[154] Cash Flow and Financial Position - Cash provided by operating activities increased by $48.5 million, primarily due to higher net income[143] - Cash used in financing activities increased by$ 610.9 million, driven by higher stock repurchases of 2.6 million shares at a cost of $888.9 million[145] - The company held cash and cash equivalents of$ 1.6 billion as of July 28, 2024[162] - The company has a committed revolving credit facility of up to $400.0 million, with no borrowings outstanding as of July 28, 2024 except for$ 6.3 million in letters of credit[161] Inventory and Derivatives - Inventory balance decreased by 14% to $1.4 billion as of July 28, 2024[149] - The net fair value of outstanding derivatives as of July 28, 2024 was$ 0.1 million, with a hypothetical 10% depreciation in the U.S. dollar potentially causing a $21.5 million depreciation in derivative value[159] Foreign Currency and Inflation Risks - Foreign currency fluctuations reduced net revenue growth by$ 43.9 million in the first two quarters of 2024 compared to 2023[94] - The impact of translation on Canadian subsidiaries resulted in an increased loss of $42.5 million, including net investment hedge gains[157] - The company is exposed to inflationary risks, including potential increases in transportation costs, wages, and raw material costs, which could adversely affect operating margins[166] - The company may enter into further derivative financial instruments to hedge additional currency pairs in the future to reduce foreign currency exchange risks[159] - The company does not engage in interest rate hedging activities currently but may consider it in the future if there is a meaningful outstanding balance under the revolving credit facility[161] Other Income and Expenses - Other income (expense), net increased by$ 10.6 million (144.4%) to $18.0 million in Q2 2024, primarily due to higher interest income[108]