lululemon(US:LULU)2025-06-05 20:13PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) For Q1 2025, lululemon reported net revenue of $2.37 billion (up 7%), a slight net income decrease to $314.6 million, and a significant shift to a $119.0 million net cash outflow from operations Consolidated Balance Sheets As of May 4, 2025, total assets slightly decreased to $7.43 billion, with cash and equivalents falling to $1.33 billion and inventories rising to $1.65 billion Consolidated Balance Sheet Highlights (in thousands) | Account | May 4, 2025 | February 2, 2025 | | :--- | :--- | :--- | | Current Assets | | | | Cash and cash equivalents | $1,325,272 | $1,984,336 | | Inventories | $1,652,091 | $1,442,081 | | Total current assets | $3,582,517 | $3,980,302 | | Total Assets | $7,430,543 | $7,603,292 | | Current Liabilities | | | | Accounts payable | $303,975 | $271,406 | | Total current liabilities | $1,572,385 | $1,839,630 | | Total Liabilities | $3,140,973 | $3,279,245 | | Total Stockholders' Equity | $4,289,570 | $4,324,047 | Consolidated Statements of Operations and Comprehensive Income Q1 2025 net revenue grew 7.3% to $2.37 billion and gross profit rose 8.5% to $1.38 billion, but net income slightly declined 2.1% to $314.6 million despite higher diluted EPS Q1 2025 Statement of Operations Highlights (in thousands, except per share data) | Metric | Q1 2025 (ended May 4) | Q1 2024 (ended Apr 28) | YoY Change | | :--- | :--- | :--- | :--- | | Net revenue | $2,370,660 | $2,208,891 | +7.3% | | Gross profit | $1,383,126 | $1,275,068 | +8.5% | | Income from operations | $438,625 | $432,642 | +1.4% | | Net income | $314,572 | $321,421 | -2.1% | | Diluted earnings per share | $2.60 | $2.54 | +2.4% | Consolidated Statements of Cash Flows Q1 2025 saw a net cash outflow of $119.0 million from operations, a reversal from prior year, driven by inventory increases and $434.4 million in stock repurchases Q1 Cash Flow Summary (in thousands) | Activity | Q1 2025 (ended May 4) | Q1 2024 (ended Apr 28) | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(118,954) | $127,524 | | Net cash used in investing activities | $(106,842) | $(131,537) | | Net cash used in financing activities | $(467,974) | $(328,628) | | Decrease in cash and cash equivalents | $(659,064) | $(343,299) | - The company repurchased $434.4 million of its common stock in Q1 2025, a significant increase from the $299.5 million repurchased in Q1 20241667 Notes to the Unaudited Interim Consolidated Financial Statements Notes detail accounting policies, credit facilities, stock-based compensation, segment performance with strong China Mainland growth, disaggregated revenue, and ongoing legal proceedings including a securities class action - The company operates through 770 company-operated stores as of May 4, 2025, an increase of 3 stores from the end of the prior fiscal year20 - The company has a $400.0 million Americas revolving credit facility and a 300.0 million Chinese Yuan facility, with no significant borrowings outstanding as of May 4, 2025293035 - A securities class action lawsuit was filed against the company and certain officers on August 8, 2024, alleging false and misleading statements. The company intends to defend the action vigorously81 Q1 2025 Segment Performance (in thousands) | Segment | Net Revenue | Income from Operations | YoY Revenue Growth | | :--- | :--- | :--- | :--- | | Americas | $1,674,558 | $589,331 | 3.2% | | China Mainland | $368,101 | $153,635 | 21.2% | | Rest of World | $328,001 | $72,856 | 16.0% | Q1 2025 Net Revenue by Category (in thousands) | Category | Q1 2025 | Q1 2024 | YoY Growth | | :--- | :--- | :--- | :--- | | Women's apparel | $1,535,172 | $1,435,241 | +7.0% | | Men's apparel | $544,788 | $505,698 | +7.7% | | Accessories and other | $290,700 | $267,952 | +8.5% | Q1 2025 Net Revenue by Channel (in thousands) | Channel | Q1 2025 | Q1 2024 | YoY Growth | | :--- | :--- | :--- | :--- | | Company-operated stores | $1,153,107 | $1,070,525 | +7.7% | | E-commerce | $960,890 | $905,787 | +6.1% | | Other channels | $256,663 | $232,579 | +10.4% | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management reported Q1 2025 net revenue growth of 7% to $2.4 billion, driven by international markets, while Americas comparable sales declined 2% and operating margin decreased due to higher SG&A expenses Q1 2025 Financial Highlights vs. Q1 2024 | Metric | Q1 2025 | Change | | :--- | :--- | :--- | | Net Revenue | $2.4 billion | +7% (+8% constant dollar) | | Comparable Sales | +1% | - | | Gross Margin | 58.3% | +60 bps | | Operating Margin | 18.5% | -110 bps | | Diluted EPS | $2.60 | from $2.54 | - The Americas region experienced lower store traffic and a 2% decrease in comparable sales (1% on a constant dollar basis), which management attributes to economic uncertainty, inflationary pressures, and changes in discretionary spending93 - Growth was strong internationally, with China Mainland net revenue increasing 21% (22% constant dollar) and Rest of World net revenue increasing 16% (17% constant dollar)98 - Selling, general and administrative (SG&A) expenses increased by 11.9% to $942.9 million, rising to 39.8% of net revenue from 38.1% in the prior year, primarily due to higher head office costs and costs related to operating channels100102 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency fluctuations, which reduced Q1 2025 revenue by $21.3 million, and inflationary pressures, while interest rate risk remains low due to an undrawn credit facility - Foreign currency fluctuations reduced reported revenue by $21.3 million in Q1 2025 compared to Q1 2024144 - The company hedges a portion of its net investment in its Canadian subsidiary and also uses forward contracts to economically hedge revaluation gains and losses on monetary assets and liabilities in foreign currencies145146 - Interest rate risk is currently low, as the company's $400.0 million revolving credit facility, which bears a variable interest rate, had no borrowings outstanding as of May 4, 2025149 - Inflationary pressures on costs for products, transportation, labor, and raw materials may adversely affect operating results if they cannot be offset154 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of May 4, 2025, with no material changes to internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of May 4, 2025156 - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls157 PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in routine legal matters, with significant proceedings like a securities class action lawsuit detailed in Note 12, and expects no material adverse financial impact - The company refers to Note 12 for details on significant legal proceedings, including a securities class action and derivative lawsuits160 Item 1A. Risk Factors The company faces significant risks including brand reputation damage, intense competition, supply chain disruptions, economic downturns, cybersecurity threats, and evolving ESG pressures, alongside international operational and trade risks - Business Risks: Success is highly dependent on maintaining brand value, operating in a competitive market, and anticipating consumer trends. Failure to do so could lead to lower sales and excess inventory162164167 - Supply Chain Risks: The company relies on a limited number of international suppliers, primarily in Asia. Approximately 40% of products were made in Vietnam and 49% by the top five vendors in 2024. Disruptions could significantly impact product availability199202203 - Economic & Political Risks: Economic uncertainty, particularly in the Americas, has already led to lower store traffic. Tariffs, trade restrictions, and geopolitical instability pose significant risks to costs and consumer demand212214 - Information Security Risks: The company faces threats from cyber-attacks and must comply with a complex and evolving landscape of global privacy laws (e.g., GDPR, CCPA, PIPL), with non-compliance carrying risks of fines and reputational damage187193 - ESG Risks: The company faces increasing pressure and scrutiny regarding climate change and other ESG practices from investors, regulators, and other stakeholders, which could lead to increased costs and reputational risk244246 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2025, the company repurchased 1,363,227 shares of common stock, with approximately $1.14 billion remaining authorized under the repurchase program as of May 4, 2025 Q1 2025 Stock Repurchase Activity | Period (2025) | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Feb 3 - Mar 2 | 280,015 | $383.59 | | Mar 3 - Apr 6 | 858,823 | $308.61 | | Apr 7 - May 4 | 224,389 | $258.30 | | Total | 1,363,227 | N/A | - As of May 4, 2025, the remaining authorized amount for share repurchases under the current program was approximately $1.14 billion254 Item 5. Other Information No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the first quarter of 2025 - No directors or officers adopted or terminated pre-arranged stock trading plans (Rule 10b5-1 or non-Rule 10b5-1) during the first quarter of 2025255 Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and financial statements in iXBRL format - Key exhibits filed include CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1) and the interactive data file (iXBRL) for the financial statements (Exhibit 101)257