lululemon(US:LULU)2022-12-07 16:00Financial Performance - Net revenue for Q3 2022 increased by 28% to $1.9 billion compared to $1.5 billion in Q3 2021, with a 31% increase on a constant dollar basis [90]. - Gross profit increased by 25% to $1.0 billion, while gross margin decreased by 130 basis points to 55.9% due to higher costs and unfavorable foreign currency impacts [93][107]. - Income from operations rose by 37% to $352.4 million, with an operating margin increase of 120 basis points to 19.0% [93]. - Diluted earnings per share for Q3 2022 were $2.00, up from $1.44 in Q3 2021, which included costs related to the MIRROR acquisition [93]. - Net income for Q3 2022 rose to $255.5 million, reflecting a 36.0% increase from $187.8 million in Q3 2021 [122]. - Income from operations for Q3 2022 was $352.4 million, a 36.6% increase from $257.9 million in Q3 2021 [115]. - Net revenue for the first three quarters of 2022 increased by $1.2 billion, or 29%, to $5.3 billion from $4.1 billion in the same period of 2021 [125]. - Net income for the first three quarters of 2022 was $734,989 thousand, a 35.9% increase from $540,818 thousand in the same period of 2021, driven by a gross profit increase of $592.3 million [146]. Sales and Revenue Growth - Total comparable sales rose by 22%, or 25% on a constant dollar basis, driven by a 14% increase in comparable store sales and a 31% increase in direct to consumer net revenue [93][102]. - Total comparable sales increased by 24% for the first three quarters of 2022 compared to the same period in 2021 [125]. - Direct to consumer net revenue increased by 31%, or 34% on a constant dollar basis, primarily due to increased traffic [105]. - Company-operated stores generated $2,537,741 in revenue, up 30.9% year-over-year, with comparable store sales increasing by 17% [126]. - Direct to consumer revenue increased by 31% to $2,264,029, driven by higher traffic despite lower conversion rates [127]. Expenses and Costs - Selling, general and administrative expenses increased by $139.1 million, or 25.5%, to $684.2 million in Q3 2022 compared to Q3 2021 [109]. - Selling, general and administrative expenses rose to $1,954,340, a 23.5% increase, primarily due to higher employee costs and operating expenses [131]. - The effective tax rate for Q3 2022 was 27.6%, compared to 27.2% in Q3 2021, with income tax expense rising by 39% to $97.3 million [93]. - The effective tax rate for the first three quarters of 2022 was 27.5%, up from 27.2% in 2021, influenced by withholding taxes on unremitted foreign earnings [144]. Inventory and Supply Chain - Inventory balance increased by 85% compared to October 31, 2021, due to supply chain disruptions, with expectations for moderated growth in Q4 2022 [98]. - Inventory balance as of October 30, 2022, was $1.7 billion, reflecting an 85% increase from October 31, 2021 [169]. Store Operations - The company opened 71 net new company-operated stores since Q3 2021, contributing $112.8 million to revenue growth [104]. - As of October 30, 2022, the total number of company-operated stores increased to 623 from 574, representing an 8.5% growth [176]. - The number of stores in the People's Republic of China rose to 105 from 86, a 22.1% increase [176]. - The company has 22 licensed locations, including 11 in Mexico and seven in the United Arab Emirates, which are not included in the total store count [176]. Economic and Market Conditions - Macroeconomic conditions, including inflation and supply chain disruptions, continue to impact operating costs and consumer purchasing behaviors [95][96]. - Inflationary pressures, including increased air freight costs and wage rates, have adversely affected operating margins during 2021 and the first three quarters of 2022 [186]. Cash Flow and Capital Management - Cash and cash equivalents as of October 30, 2022, were $352,624 thousand, with working capital excluding cash at $958,722 thousand [167]. - Cash used in operating activities for the first three quarters of 2022 was $(79,801) thousand, a decrease of $737,925 thousand compared to $658,124 thousand in the same period of 2021 [161]. - The company repurchased 1.2 million shares for $375.0 million in the first three quarters of 2022, compared to 1.4 million shares for $491.3 million in the same period of 2021 [164]. - The company expects liquidity needs to be met through cash and cash equivalents, cash generated from operations, and available borrowings under its credit facility for at least the next 12 months [165]. Other Financial Metrics - Other income (expense), net increased significantly by 2,106.7% to $331, primarily due to higher interest income from increased interest rates [119]. - Other income increased by 34.3% to $454, primarily due to higher interest income from increased interest rates [143]. - The company reported a gain of $10,180 from the disposal of assets, specifically from the sale of an administrative office building [136]. - The fair value of the lululemon Studio reporting unit was approximately 4% higher than its carrying value, indicating no impairment recognized [173]. Currency and Hedging - The company has entered into forward currency contracts to hedge foreign currency exposure, particularly related to its Canadian and Chinese subsidiaries [179]. - The company does not currently engage in interest rate hedging activities but may consider it in the future if there is a meaningful outstanding balance under its revolving credit facility [183]. - During the first three quarters of 2022, the change in the relative value of the U.S. dollar against the Canadian dollar resulted in an $83.0 million increase in accumulated other comprehensive loss [181]. - A 10% appreciation of the U.S. dollar against the Canadian dollar would have led to a decrease in income from operations of approximately $26.9 million [182].