10-Q
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
August 2, 2009
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OR
|
o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number
001-33608
lululemon athletica
inc.
(Exact name of registrant as
specified in its charter)
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Delaware
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20-3842867
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(State or other jurisdiction
of
incorporation or organization)
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|
(I.R.S. Employer
Identification No.)
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2285 Clark Drive,
Vancouver, British Columbia
(Address of principal
executive offices)
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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):
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Large
accelerated
filer þ
|
Accelerated
filer o
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Non-accelerated
filer o
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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 September 8, 2009, there were 50,843,956 shares of the
registrants common stock, par value $0.01 per share,
outstanding.
Exchangeable and Special Voting Shares:
At September 8, 2009 there were outstanding 19,408,346
exchangeable shares of Lulu Canadian Holding, Inc., a
wholly-owned subsidiary of the registrant. Exchangeable
shares are exchangeable for an equal number of shares of the
registrants common stock.
In addition, at September 8, 2009, the registrant had
outstanding 19,408,346 shares of special voting stock, through
which the holders of exchangeable shares of Lulu Canadian
Holding, Inc. may exercise their voting rights with respect to
the registrant. The special voting stock and the
registrants common stock generally vote together as a
single class on all matters on which the common stock is
entitled to vote.
PART I
FINANCIAL
INFORMATION
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|
ITEM 1.
|
FINANCIAL
STATEMENTS
|
lululemon
athletica inc.
(Amounts
in thousands, except per share amounts)
|
|
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|
|
|
|
|
|
|
|
August 2,
|
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|
February 1,
|
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|
|
2009
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|
2009
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|
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|
(Unaudited)
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ASSETS
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Current assets
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Cash and cash equivalents
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$
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83,797
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$
|
56,797
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Accounts receivable
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5,789
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|
4,029
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|
Inventories
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46,542
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|
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|
52,051
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|
Prepaid expenses and other current assets
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6,604
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4,111
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|
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142,732
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116,988
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Property and equipment, net
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61,265
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|
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|
61,662
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|
Goodwill and intangible assets, net
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8,525
|
|
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|
8,160
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|
Deferred income taxes
|
|
|
6,974
|
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19,373
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Other non-current assets
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6,330
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|
5,453
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|
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|
|
|
|
|
|
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|
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$
|
225,826
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|
|
$
|
211,636
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities
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Accounts payable
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$
|
3,073
|
|
|
$
|
5,269
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|
Accrued liabilities
|
|
|
17,936
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|
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|
22,103
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|
Accrued compensation and related expenses
|
|
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6,996
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|
|
5,862
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|
Income taxes payable
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|
|
|
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2,133
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|
Unredeemed gift card liability
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|
6,758
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|
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9,278
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|
Other current liabilities
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|
505
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|
690
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|
|
|
|
|
|
|
|
|
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35,268
|
|
|
|
45,335
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|
Other non-current liabilities
|
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|
13,298
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|
|
|
11,301
|
|
Deferred income taxes
|
|
|
181
|
|
|
|
158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,747
|
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56,794
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|
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|
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|
|
|
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Stockholders equity
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|
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|
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Undesignated preferred stock, $0.01 par value,
5,000 shares authorized, none issued and outstanding
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Exchangeable stock, no par value, 30,000 shares authorized,
issued and outstanding 19,420 and 19,517 shares
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Special voting stock, $0.00001 par value,
30,000 shares authorized, issued and outstanding 19,420 and
19,517 shares
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Common stock, $0.01 par value, 200,000 shares
authorized, issued and outstanding 50,829 and 50,422 shares
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|
508
|
|
|
|
504
|
|
Additional paid-in capital
|
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|
146,919
|
|
|
|
155,961
|
|
Retained earnings
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|
25,290
|
|
|
|
9,528
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|
Accumulated other comprehensive income (loss)
|
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|
4,362
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|
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|
(11,151
|
)
|
|
|
|
|
|
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177,079
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|
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|
154,842
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|
|
|
|
|
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$
|
225,826
|
|
|
$
|
211,636
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the interim consolidated financial
statements
3
lululemon
athletica inc.
(Amounts
in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
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|
Thirteen Weeks
|
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Thirteen Weeks
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Twenty-Six Weeks
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Twenty-Six Weeks
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Ended August 2,
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Ended August 3,
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Ended August 2,
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Ended August 3,
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2009
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|
2008
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2009
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2008
|
|
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(Unaudited)
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|
Net revenue
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|
$
|
97,721
|
|
|
$
|
85,484
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|
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$
|
179,401
|
|
|
$
|
162,424
|
|
Cost of goods sold
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|
|
52,557
|
|
|
|
41,108
|
|
|
|
99,213
|
|
|
|
76,947
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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Gross profit
|
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45,164
|
|
|
|
44,376
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|
|
|
80,188
|
|
|
|
85,477
|
|
Selling, general and administrative expenses
|
|
|
30,832
|
|
|
|
28,832
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|
|
|
56,003
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|
|
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57,987
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|
|
|
|
|
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|
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Income from operations
|
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|
14,332
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|
|
|
15,544
|
|
|
|
24,185
|
|
|
|
27,490
|
|
Other income, net
|
|
|
23
|
|
|
|
211
|
|
|
|
101
|
|
|
|
489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Income before income taxes
|
|
|
14,355
|
|
|
|
15,755
|
|
|
|
24,286
|
|
|
|
27,979
|
|
Provision for income taxes
|
|
|
5,111
|
|
|
|
3,415
|
|
|
|
8,524
|
|
|
|
7,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
9,244
|
|
|
|
12,340
|
|
|
|
15,762
|
|
|
|
20,810
|
|
Net loss from discontinued operations
|
|
|
|
|
|
|
(1,192
|
)
|
|
|
|
|
|
|
(1,186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
9,244
|
|
|
$
|
11,148
|
|
|
$
|
15,762
|
|
|
$
|
19,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.13
|
|
|
$
|
0.18
|
|
|
$
|
0.22
|
|
|
$
|
0.31
|
|
Discontinued operations
|
|
|
|
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net basic earnings per share
|
|
$
|
0.13
|
|
|
$
|
0.16
|
|
|
$
|
0.22
|
|
|
$
|
0.29
|
|
Diluted earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.13
|
|
|
$
|
0.18
|
|
|
$
|
0.22
|
|
|
$
|
0.29
|
|
Discontinued operations
|
|
|
|
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net diluted earnings per share
|
|
$
|
0.13
|
|
|
$
|
0.16
|
|
|
$
|
0.22
|
|
|
$
|
0.27
|
|
Basic weighted-average number of shares outstanding
|
|
|
69,948
|
|
|
|
68,107
|
|
|
|
70,176
|
|
|
|
67,892
|
|
Diluted weighted-average number of shares outstanding
|
|
|
70,401
|
|
|
|
70,376
|
|
|
|
70,473
|
|
|
|
70,800
|
|
See accompanying notes to the interim consolidated financial
statements
4
lululemon
athletica inc.
(Amounts
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special Voting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchangeable Stock
|
|
|
Stock
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Par
|
|
|
|
|
|
Par
|
|
|
|
|
|
Par
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Value
|
|
|
Shares
|
|
|
Value
|
|
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 1, 2009
|
|
|
19,517
|
|
|
$
|
|
|
|
|
19,517
|
|
|
$
|
|
|
|
|
50,422
|
|
|
$
|
504
|
|
|
$
|
155,961
|
|
|
|
$9,528
|
|
|
|
$(11,151
|
)
|
|
$
|
154,842
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,762
|
|
|
|
|
|
|
|
15,762
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,513
|
|
|
|
15,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,275
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,816
|
|
|
|
|
|
|
|
|
|
|
|
2,816
|
|
Excess tax benefit from stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,024
|
)
|
|
|
|
|
|
|
|
|
|
|
(12,024
|
)
|
Common stock issued upon exchange of exchangeable shares
|
|
|
(97
|
)
|
|
|
|
|
|
|
(97
|
)
|
|
|
|
|
|
|
97
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock issuance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
295
|
|
|
|
3
|
|
|
|
167
|
|
|
|
|
|
|
|
|
|
|
|
170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at August 2, 2009
|
|
|
19,420
|
|
|
$
|
|
|
|
|
19,420
|
|
|
$
|
|
|
|
|
50,829
|
|
|
$
|
508
|
|
|
$
|
146,919
|
|
|
|
$25,290
|
|
|
|
$4,362
|
|
|
$
|
177,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the interim consolidated financial
statements
5
lululemon
athletica inc.
(Amounts
in thousands)
|
|
|
|
|
|
|
|
|
|
|
Twenty-Six Weeks
|
|
|
Twenty-Six Weeks
|
|
|
|
Ended August 2,
|
|
|
Ended August 3,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
15,762
|
|
|
$
|
19,624
|
|
Net loss from discontinued operations
|
|
|
|
|
|
|
(1,186
|
)
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
15,762
|
|
|
|
20,810
|
|
Items not affecting cash
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
9,552
|
|
|
|
7,199
|
|
Stock-based compensation
|
|
|
2,816
|
|
|
|
3,741
|
|
Deferred income taxes
|
|
|
518
|
|
|
|
(2,403
|
)
|
Excess tax benefits from stock-based compensation
|
|
|
|
|
|
|
(2,661
|
)
|
Other, including net changes in other non-cash balances
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
(2,269
|
)
|
|
|
(899
|
)
|
Inventory
|
|
|
8,514
|
|
|
|
(5,501
|
)
|
Accounts payable
|
|
|
(1,955
|
)
|
|
|
(3,837
|
)
|
Accrued liabilities
|
|
|
(2,996
|
)
|
|
|
2,451
|
|
Income taxes payable
|
|
|
(1,882
|
)
|
|
|
(7,554
|
)
|
Other non-cash balances
|
|
|
1,070
|
|
|
|
(158
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities continuing
operations
|
|
|
29,130
|
|
|
|
11,187
|
|
Net cash used in operating activities discontinued
operations
|
|
|
|
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
29,130
|
|
|
|
11,142
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(5,344
|
)
|
|
|
(19,284
|
)
|
Investment in and advances to franchises
|
|
|
(959
|
)
|
|
|
(2,796
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities continuing
operations
|
|
|
(6,303
|
)
|
|
|
(22,081
|
)
|
Net cash used in investing activities discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,303
|
)
|
|
|
(22,081
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
171
|
|
|
|
333
|
|
Excess tax benefits from stock-based compensation
|
|
|
|
|
|
|
2,661
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities continuing
operations
|
|
|
171
|
|
|
|
2,994
|
|
Net cash provided by financing activities
discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
171
|
|
|
|
2,994
|
|
Effect of exchange rate changes on cash
|
|
|
4,002
|
|
|
|
(865
|
)
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents from continuing
operations
|
|
|
27,000
|
|
|
|
(8,810
|
)
|
Cash and cash equivalents from continuing operations, beginning
of period
|
|
$
|
56,797
|
|
|
$
|
52,545
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents from continuing operations, end of
period
|
|
$
|
83,797
|
|
|
$
|
43,735
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the interim consolidated financial
statements
6
lululemon
athletica inc.
(unaudited)
(Amounts in thousands, except per share amounts 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, 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. At August 2, 2009 the
Companys primary markets are Canada and the United States
where 42 and 62 corporate-owned stores were in operation,
respectively, and Australia where 6 franchised stores were in
operation. There were 104 and 103 corporate-owned stores in
operation as of August 2, 2009 and February 1, 2009
respectively.
Basis
of presentation
The unaudited interim consolidated financial statements as of
August 2, 2009 and for the twenty-six week periods ended
August 2, 2009 and August 3, 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, does 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 in the opinion of management are
necessary to provide 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 thirteen and twenty-six weeks ended
August 2, 2009, net revenue recognized on unredeemed gift
card balances was $189 and $1,626, respectively. There was no
net revenue recognized on unredeemed gift card balances during
the year ended February 1, 2009.
7
lululemon
athletica inc.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Income
Taxes
The Company follows the liability method with respect to
accounting for income taxes. Deferred tax assets and liabilities
are determined based on temporary differences between the
carrying amounts and the tax basis of assets and liabilities.
Deferred income tax assets and liabilities are measured using
enacted tax rates that will be in effect when these differences
are expected to reverse, except for the amount of earnings
related to our foreign operations where repatriation is not
contemplated in the foreseeable future. Deferred income tax
assets are reduced by a valuation allowance, if based on the
weight of available evidence, it is more likely than not that
some portion or all of the deferred tax assets will not be
realized.
The recognition of a deferred income tax asset is based
primarily on managements forecasts, including current and
proposed tax legislation, current and anticipated taxable
income, utilization of previously unrealized non-operating loss
carryforwards and regulatory reviews of tax filings. Given
judgments and estimates required and the sensitivity of the
results to the significant assumptions used, the accounting
estimates used in relation to the recognition of deferred income
tax assets are subject to measurement uncertainty and are
susceptible to a material change if the underlying assumptions
change.
We file income tax returns in the U.S., Canada and various
foreign and state jurisdictions. We are subject to income tax
examination by tax authorities in all jurisdictions from our
inception to date. Our policy is to recognize interest expense
and penalties related to income tax matters as tax expense. At
February 1, 2009, we do not have any significant accruals
for interest related to unrecognized tax benefits or tax
penalties. Our intercompany transfer pricing policies will be
subject to audits by various foreign tax jurisdictions. Although
we believe that our intercompany transfer pricing policies and
tax positions are reasonable, the final determination of tax
audits or potential tax disputes may be materially different
from that which is reflected in our income tax provisions and
accruals.
United States income taxes and foreign withholding taxes are not
provided on undistributed earnings of foreign subsidiaries which
are considered to be indefinitely reinvested in the operations
of such subsidiaries. The amount of these earnings was
approximately $85,311 at August 2, 2009.
During the second quarter of fiscal 2009, an adjustment was made
to deferred tax assets and additional paid-in capital in the
amount of $12,024 relating to windfall recorded in the year
ended February 1, 2009 in excess of taxes payable. A
similar entry for $192 was recorded in the same period related
to windfall recorded in the first quarter of fiscal 2009. The
Company has concluded that the adjustment was not material to
the financial statements.
Recent
accounting pronouncements
In June 2009, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standard No. 168 (SFAS 168), The FASB
Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles. This standard replaces
SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles, and establishes only two levels of GAAP,
authoritative and non-authoritative. The FASB Accounting
Standards Codification (the Codification) will
become the source of authoritative, nongovernmental GAAP, except
for rules and interpretive releases of the SEC, which are
sources of authoritative GAAP for SEC registrants. All other
non-grandfathered, non-SEC accounting literature not included in
the Codification will become non-authoritative. This standard is
effective for financial statements for interim or annual
reporting periods ending after September 15, 2009. As the
Codification was not intended to change or alter existing GAAP,
it will not have any impact on our consolidated financial
statements.
In April 2008 the FASB issued FASB Staff Position
(FSP)
No. FAS 142-3
(FSP 142-3),
Determination of the Useful Life of Intangible Assets,
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 No. 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
8
lululemon
athletica inc.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
In February 2008, the FASB issued
FSP 157-2
that partially delays the effective date of Statement of
Financial Accounting Standard No. 157, Fair Value
Measurements (SFAS No. 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 non-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 the remaining
provisions of SFAS 157.
In December 2007, the 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.
|
|
NOTE 3.
|
STOCK-BASED
COMPENSATION
|
Share
option plans
The Companys employees participate in various stock-based
compensation plans, which are either provided by the Company or
by a principal stockholder of the Company.
Stock-based compensation expense charged to income for the plans
was $2,816 and $3,741 for the twenty-six weeks ended
August 2, 2009 and August 3, 2008, respectively. Total
unrecognized compensation cost as at August 2, 2009 was
$12,546 for all stock option plans, which is expected to be
recognized over a weighted-average period of 2.7 years.
Company
stock options
A summary of the Companys stock options and restricted
shares activity as of August 2, 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
|
|
|
631
|
|
|
$
|
9.36
|
|
|
|
15
|
|
|
$
|
13.83
|
|
Exercised
|
|
|
295
|
|
|
$
|
0.58
|
|
|
|
|
|
|
$
|
|
|
Forfeited
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
Balance at August 2, 2009
|
|
|
2,241
|
|
|
$
|
11.76
|
|
|
|
24
|
|
|
$
|
17.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at August 2, 2009
|
|
|
445
|
|
|
$
|
11.25
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
lululemon
athletica inc.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stockholder-
sponsored stock options
During the twenty-six weeks ended August 2, 2009 holders of
the exchangeable shares converted 97 exchangeable shares into
97 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 twenty-six weeks ended August 2, 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 August 2, 2009, there were 15 shares
purchased under the ESPP, which were funded by the Company
through open market purchases.
|
|
NOTE 4.
|
PROVISION
FOR IMPAIRMENT AND LEASE EXIT COSTS
|
During the twenty-six weeks ended August 2, 2009, in
conjunction with the Companys ongoing assessment to ensure
that each of the Companys properties fit into the
Companys strategy, the Company recorded a charge of $820
in lease exit costs related certain locations and reversed lease
exit costs of $714 previously recorded in the fourth quarter of
fiscal 2008. The fair market values were estimated using an
expected present value technique.
A reconciliation of the associated provision for impairment and
lease exit costs is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Exit
|
|
|
|
|
|
|
|
|
|
and Other
|
|
|
Asset
|
|
|
|
|
|
|
Related Costs
|
|
|
Impairment
|
|
|
Total
|
|
|
Provision for impairment and lease exit costs at
February 1, 2009
|
|
$
|
1,189
|
|
|
$
|
|
|
|
$
|
1,189
|
|
Costs incurred
|
|
|
1,620
|
|
|
|
|
|
|
|
1,620
|
|
Cash payments
|
|
|
(800
|
)
|
|
|
|
|
|
|
(800
|
)
|
Reversals
|
|
|
(714
|
)
|
|
|
|
|
|
|
(714
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for impairment and lease exit costs at August 2,
2009
|
|
$
|
1,295
|
|
|
$
|
|
|
|
$
|
1,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
10
lululemon
athletica inc.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
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.
|
|
NOTE 6.
|
EARNINGS
PER SHARE
|
The details of the computation of basic and diluted earnings per
share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks
|
|
|
Thirteen Weeks
|
|
|
Twenty-six
|
|
|
Twenty-six
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Weeks Ended
|
|
|
Weeks Ended
|
|
|
|
August 2, 2009
|
|
|
August 3, 2008
|
|
|
August 2, 2009
|
|
|
August 3, 2008
|
|
|
Net income from continuing operations
|
|
$
|
9,244
|
|
|
$
|
12,340
|
|
|
$
|
15,762
|
|
|
$
|
20,810
|
|
Net loss from discontinued operations
|
|
|
|
|
|
|
(1,192
|
)
|
|
|
|
|
|
|
(1,186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
9,244
|
|
|
$
|
11,148
|
|
|
$
|
15,762
|
|
|
$
|
19,624
|
|
Basic weighted-average number of shares outstanding
|
|
|
69,948
|
|
|
|
68,107
|
|
|
|
70,176
|
|
|
|
67,892
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
0.13
|
|
|
$
|
0.18
|
|
|
$
|
0.22
|
|
|
$
|
0.31
|
|
Net loss from discontinued operations
|
|
|
|
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.13
|
|
|
$
|
0.16
|
|
|
$
|
0.22
|
|
|
$
|
0.29
|
|
Basic weighted-average number of shares outstanding
|
|
|
69,948
|
|
|
|
68,107
|
|
|
|
70,176
|
|
|
|
67,892
|
|
Effect of stock options assumed exercised
|
|
|
453
|
|
|
|
2,269
|
|
|
|
297
|
|
|
|
2,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average number of shares outstanding
|
|
|
70,401
|
|
|
|
70,376
|
|
|
|
70,473
|
|
|
|
70,800
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
0.13
|
|
|
$
|
0.18
|
|
|
$
|
0.22
|
|
|
$
|
0.29
|
|
Net loss from discontinued operations
|
|
|
|
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.13
|
|
|
$
|
0.16
|
|
|
$
|
0.22
|
|
|
$
|
0.27
|
|
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. For the thirteen and twenty-six weeks ended
August 2, 2009, 896 and 1,313 stock options were
anti-dilutive to earnings and therefore have been excluded from
the computation of diluted earnings per share.
11
lululemon
athletica inc.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 7.
|
SUPPLEMENTARY
FINANCIAL INFORMATION
|
A summary of certain balance sheet accounts is as follows:
|
|
|
|
|
|
|
|
|
|
|
August 2,
|
|
|
February 1,
|
|
|
|
2009
|
|
|
2009
|
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
$
|
3,690
|
|
|
$
|
3,171
|
|
Other accounts receivable
|
|
|
2,104
|
|
|
|
863
|
|
Allowance for doubtful accounts
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,789
|
|
|
$
|
4,029
|
|
|
|
|
|
|
|
|
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Finished goods
|
|
$
|
45,558
|
|
|
$
|
52,828
|
|
Raw materials
|
|
|
2,009
|
|
|
|
558
|
|
Provision to reduce inventory to market value
|
|
|
(1,025
|
)
|
|
|
(1,335
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
46,542
|
|
|
$
|
52,051
|
|
|
|
|
|
|
|
|
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
Leasehold improvements
|
|
$
|
56,235
|
|
|
$
|
52,101
|
|
Furniture and fixtures
|
|
|
17,715
|
|
|
|
16,581
|
|
Computer hardware and software
|
|
|
23,099
|
|
|
|
19,411
|
|
Equipment and vehicles
|
|
|
271
|
|
|
|
279
|
|
Accumulated amortization and depreciation
|
|
|
(36,055
|
)
|
|
|
(26,710
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
61,265
|
|
|
$
|
61,662
|
|
|
|
|
|
|
|
|
|
|
Goodwill and intangible assets:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
738
|
|
|
$
|
738
|
|
Changes in foreign currency exchange rates
|
|
|
149
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
887
|
|
|
|
774
|
|
|
|
|
|
|
|
|
|
|
Reacquired franchise rights
|
|
|
10,162
|
|
|
|
10,162
|
|
Non-competition agreements
|
|
|
694
|
|
|
|
694
|
|
Accumulated amortization
|
|
|
(4,161
|
)
|
|
|
(3,162
|
)
|
Changes in foreign currency exchange rates
|
|
|
943
|
|
|
|
(308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
7,638
|
|
|
|
7,386
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,525
|
|
|
$
|
8,160
|
|
|
|
|
|
|
|
|
|
|
Other non-current assets:
|
|
|
|
|
|
|
|
|
Prepaid rent and security deposits
|
|
$
|
889
|
|
|
$
|
872
|
|
Deferred lease cost
|
|
|
1,619
|
|
|
|
1,718
|
|
Advances to and investments in franchise
|
|
|
3,822
|
|
|
|
2,863
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,330
|
|
|
$
|
5,453
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
|
Inventory purchases
|
|
$
|
9,672
|
|
|
$
|
15,772
|
|
Sales tax collected
|
|
|
2,679
|
|
|
|
1,681
|
|
Accrued rent
|
|
|
1,401
|
|
|
|
1,147
|
|
Impairment and lease exit costs
|
|
|
1,295
|
|
|
|
1,189
|
|
Other
|
|
|
2,889
|
|
|
|
2,314
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,936
|
|
|
$
|
22,103
|
|
|
|
|
|
|
|
|
|
|
Other non-current liabilities:
|
|
|
|
|
|
|
|
|
Deferred lease liability
|
|
$
|
9,242
|
|
|
$
|
7,326
|
|
Tenant inducements
|
|
|
4,056
|
|
|
|
3,975
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,298
|
|
|
$
|
11,301
|
|
|
|
|
|
|
|
|
|
|
12
lululemon
athletica inc.
NOTES TO THE 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 other.
Information for these segments from continuing operations is
detailed in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks
|
|
|
Thirteen Weeks
|
|
|
Twenty-six
|
|
|
Twenty-six
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Weeks Ended
|
|
|
Weeks Ended
|
|
|
|
August 2, 2009
|
|
|
August 3, 2008
|
|
|
August 2, 2009
|
|
|
August 3, 2008
|
|
|
Net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate-owned stores
|
|
$
|
85,091
|
|
|
$
|
78,334
|
|
|
$
|
157,993
|
|
|
$
|
147,685
|
|
Franchises
|
|
|
2,989
|
|
|
|
4,267
|
|
|
|
5,680
|
|
|
|
8,804
|
|
Other
|
|
|
9,641
|
|
|
|
2,883
|
|
|
|
15,728
|
|
|
|
5,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
97,721
|
|
|
$
|
85,484
|
|
|
$
|
179,401
|
|
|
$
|
162,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations before general corporate expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate-owned stores
|
|
$
|
23,466
|
|
|
$
|
23,758
|
|
|
$
|
41,648
|
|
|
$
|
46,824
|
|
Franchises
|
|
|
1,112
|
|
|
|
2,290
|
|
|
|
2,051
|
|
|
|
4,369
|
|
Other
|
|
|
5,141
|
|
|
|
674
|
|
|
|
7,033
|
|
|
|
1,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,719
|
|
|
|
26,722
|
|
|
|
50,732
|
|
|
|
52,489
|
|
General corporate expense
|
|
|
15,387
|
|
|
|
11,179
|
|
|
|
26,547
|
|
|
|
24,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
14,332
|
|
|
|
15,544
|
|
|
|
24,185
|
|
|
|
27,490
|
|
Other income, net
|
|
|
23
|
|
|
|
211
|
|
|
|
101
|
|
|
|
489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
14,355
|
|
|
$
|
15,755
|
|
|
$
|
24,286
|
|
|
$
|
27,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate-owned stores
|
|
$
|
1,919
|
|
|
$
|
8,124
|
|
|
$
|
3,011
|
|
|
$
|
13,176
|
|
Corporate
|
|
|
1,066
|
|
|
|
2,560
|
|
|
|
2,333
|
|
|
|
6,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,985
|
|
|
$
|
10,684
|
|
|
$
|
5,344
|
|
|
$
|
19,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate-owned stores
|
|
$
|
3,463
|
|
|
$
|
2,520
|
|
|
$
|
6,583
|
|
|
$
|
4,621
|
|
Corporate
|
|
|
1,811
|
|
|
|
1,095
|
|
|
|
2,969
|
|
|
|
2,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,274
|
|
|
$
|
3,615
|
|
|
$
|
9,552
|
|
|
$
|
6,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
lululemon
athletica inc.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The results of discontinued operations are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Twenty-six
|
|
|
Twenty-six Weeks
|
|
|
|
Weeks Ended
|
|
|
Ended
|
|
|
|
August 2, 2009
|
|
|
August 3, 2008
|
|
|
Revenue
|
|
$
|
|
|
|
$
|
2,541
|
|
Expenses
|
|
|
|
|
|
|
(3,812
|
)
|
Minority interest
|
|
|
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
Net loss on discontinued operations
|
|
$
|
|
|
|
$
|
(1,186
|
)
|
|
|
|
|
|
|
|
|
|
The net loss from discontinued operations represents all
activity up to August 2, 2009.
14
|
|
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 and to protect the lululemon brand and related goodwill;
|
|
|
|
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;
|
|
|
|
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.
|
15
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 and twenty-six week
periods ended August 2, 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 continue 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 to 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 August 2, 2009, our branded apparel
was principally sold through 115 corporate-owned and franchise
stores that are primarily located in Canada and the United
States. 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
second quarter of fiscal 2009, approximately 62% of our net
revenue was derived from sales of our products in Canada, 38% 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 net revenue from
continuing operations also increased from $162.4 million in
the first two quarters of fiscal 2008 to $179.4 million in
the first two quarters of fiscal 2009, representing a 10%
increase. 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
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
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 two quarters 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 two quarters of
fiscal 2009, fiscal 2008 and fiscal 2007.
Results
of Continuing Operations
Thirteen
Weeks Results
The following table summarizes key components of our results of
operations for the thirteen weeks ended August 2, 2009 and
August 3, 2008. The operating results are expressed in
dollar amounts as well as relevant percentages, presented as a
percentage of net revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
|
August 2, 2009 and August 3, 2008
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
(Percentages)
|
|
|
Net revenue
|
|
$
|
97,721
|
|
|
$
|
85,484
|
|
|
|
100.0
|
|
|
|
100.0
|
|
Cost of goods sold
|
|
|
52,557
|
|
|
|
41,108
|
|
|
|
53.8
|
|
|
|
48.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
45,164
|
|
|
|
44,376
|
|
|
|
46.2
|
|
|
|
51.9
|
|
Selling, general and administrative expenses
|
|
|
30,832
|
|
|
|
28,832
|
|
|
|
31.6
|
|
|
|
33.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
14,332
|
|
|
|
15,544
|
|
|
|
14.7
|
|
|
|
18.2
|
|
Other income, net
|
|
|
23
|
|
|
|
211
|
|
|
|
0.0
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
14,355
|
|
|
|
15,755
|
|
|
|
14.7
|
|
|
|
18.4
|
|
Provision for income taxes
|
|
|
5,111
|
|
|
|
3,415
|
|
|
|
5.2
|
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
9,244
|
|
|
|
12,340
|
|
|
|
9.5
|
|
|
|
14.4
|
|
Net loss from discontinued operations
|
|
|
|
|
|
|
(1,192
|
)
|
|
|
|
|
|
|
(1.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
9,244
|
|
|
$
|
11,148
|
|
|
|
9.5
|
|
|
|
13.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Revenue
Net revenue increased $12.2 million, or 14%, to
$97.7 million for the second quarter of fiscal 2009 from
$85.5 million for the second 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 second quarter of fiscal 2008
remained constant, our net revenue would have increased
$19.1 million, or 22%, for the second quarter of fiscal
2009.
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks
|
|
|
Thirteen Weeks
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
August 2, 2009
|
|
|
August 3, 2008
|
|
|
|
(In thousands)
|
|
Net revenue by segment:
|
|
|
|
|
|
|
|
|
Corporate-owned stores
|
|
$
|
85,091
|
|
|
$
|
78,334
|
|
Franchises
|
|
|
2,989
|
|
|
|
4,267
|
|
Other
|
|
|
9,641
|
|
|
|
2,883
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
97,721
|
|
|
$
|
85,484
|
|
|
|
|
|
|
|
|
|
|
17
Corporate-Owned Stores. Net revenue from our
corporate-owned stores segment increased $6.8 million, or
9%, to $85.1 million for the second quarter of fiscal 2009
from $78.3 million for the second quarter of fiscal 2008.
The following contributed to the $6.8 million increase in
net revenue from our corporate-owned stores segment:
|
|
|
|
|
Net revenue from corporate-owned stores we opened during the
first two quarters of fiscal 2009, and other corporate-owed
stores we opened, or reacquired the franchise rights for,
subsequent to August 3, 2008 and therefore not included in
the comparable store sales growth, contributed
$14.6 million of the increase. Net new store openings since
the second quarter of fiscal 2008 included two stores in Canada
and 22 stores in the United States; and
|
|
|
|
Comparable store sales decline of 2% in the second quarter of
fiscal 2009 resulted in a $1.7 million decrease to net
revenue, excluding the effect of foreign currency fluctuations.
Including the effect of foreign currency fluctuations,
comparable stores sales declined 10%, or $7.8 million, in
the second quarter of fiscal 2009.
|
Franchises. Net revenue from our franchises
segment decreased $1.3 million, or 30%, to
$3.0 million for the second quarter of fiscal 2009 from
$4.3 million for the second quarter of fiscal 2008. The
decrease in net revenue from our franchises segment resulted
primarily from our reacquisition of two franchise stores in
Victoria, British Columbia and one franchised store in Bellevue,
Washington in the third quarter of fiscal 2008.
Other. Net revenue from our other segment
increased $6.8 million, or 234%, to $9.6 million for
the second quarter of fiscal 2009 from $2.9 million for the
second quarter of fiscal 2008. The $6.8 million increase
was primarily the result of an increase in sales from the launch
of our
e-commerce
channel in the first quarter of fiscal 2009 which contributed
$2.8 million in net revenues, as well as increased sales
from wholesale, outlet and warehouse sales which contributed
$3.9 million in net revenues.
Gross
Profit
Gross profit increased $0.8 million, or 2%, to
$45.2 million for the second quarter of fiscal 2009 from
$44.4 million for the second quarter of fiscal 2008. The
increase in gross profit was driven principally by:
|
|
|
|
|
an increase of $6.8 million in net revenue from our
corporate-owned stores segment related to an increase in
corporate-owned stores;
|
|
|
|
an increase of $6.8 million in net revenue from our other
segment related primarily to an increase in sales from the
launch of our
e-commerce
channel in the first quarter of fiscal 2009 as well as increased
sales from wholesale, outlet and warehouse sales; and
|
|
|
|
a decrease in the cost of sales support departments of
$0.9 million related to reduced costs for distribution,
design, merchandising and production.
|
These amounts were partially offset by:
|
|
|
|
|
an increase in product costs of $6.5 million associated
with our sale of goods through corporate-owned stores related
primarily to increased revenues and unfavorable foreign exchange
differences;
|
|
|
|
an increase in product costs of $3.4 million associated
with the increase in the sale of our goods through our other
segment including the launch of our
e-commerce
channel in the first fiscal quarter of 2009 as well as increased
sales from outlet and warehouse locations;
|
|
|
|
an increase in fixed costs, such as occupancy costs and
depreciation, of $2.7 million related to an increase in
corporate-owned stores which has a deleveraging effect on gross
profit; and
|
|
|
|
a decrease of $1.2 million in gross profit from our
franchise segment related primarily to the reacquisition of
franchised stores late in the third quarter of fiscal 2008.
|
Gross profit as a percentage of net revenue, or gross margin,
decreased 5.7%, to 46.2% for the second quarter of fiscal 2009
from 51.9% for the second quarter of fiscal 2008. The decrease
in gross margin resulted primarily from:
|
|
|
|
|
strategic pricing initiatives, sourcing initiatives and other of
3.5%;
|
|
|
|
unfavorable foreign exchange differences of 2.6%; and
|
18
|
|
|
|
|
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 1.4%.
|
This was offset by expenses related to our production, design,
merchandising and distribution departments which had a
leveraging effect on gross profit as a percentage of revenue,
and contributed to an increase in gross margin of 1.8%.
Our costs of goods sold in the second quarter of fiscal 2009 and
the second quarter of fiscal 2008 included $0.2 million and
$0.4 million, respectively, of stock-based compensation
expense.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses increased
$2.0 million, or 7%, to $30.8 million for the second
quarter of fiscal 2009 from $28.8 million for the second
quarter of fiscal 2008. As a percentage of net revenue, selling,
general and administrative expenses decreased 2.1%, to 31.6%
from 33.7%. The $2.0 million increase in selling, general
and administrative expenses was principally comprised of:
|
|
|
|
|
an increase of $1.0 million primarily related to lease
cancellations and employment related legal matters;
|
|
|
|
an increase in administrative costs associated with the launch
in the first fiscal quarter of 2009 of our new
e-commerce
channel of $0.8 million;
|
|
|
|
an increase in administrative costs associated with increased
net revenue in our other sales channel of $0.5 million;
|
|
|
|
an increase in foreign exchange losses of $0.5 million
related to unfavorable fluctuations in the
Canadian-United
States dollar exchange rates; and
|
|
|
|
an increase in depreciation costs of $0.4 million primarily
related to the retirement of legacy IT systems.
|
These amounts were partially offset:
|
|
|
|
|
a decrease in costs associated with our corporate store segment
of $0.9 million primarily related to lower employee and
distribution costs; and
|
|
|
|
a decrease in employee compensation of $0.3 million related
to a decrease in employee head count in our store support
center, as part of our efforts to reduce operating expenses.
|
Our selling, general and administrative expenses in the second
quarter of fiscal 2009 and the second quarter of fiscal 2008
included $1.2 million and $1.1 million, respectively,
of stock-based compensation expense.
Income
from Operations
Income from operations decreased $1.2 million, or 8% to $14.3
million for the second quarter of fiscal 2009 from $15.5 million
for the second quarter of fiscal 2008. The decrease of
$1.2 million in income from operations for the second
quarter of fiscal 2009 was primarily due to a $2.0 million
increase in selling, general and administrative expenses,
partially offset by an increase of $0.8 million in gross
profit resulting from increased comparable store sales and
additional sales from corporate-owned stores opened.
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 remained consistent with the
second quarter of fiscal 2008 with less than a 1% increase, at
$23.5 million for the second quarter of fiscal 2009. The
increase in corporate-owned stores net revenue of
$6.8 million was offset by an increase of $6.5 million
cost of goods sold and a decrease in store operating expenses of
$0.4 million;
|
19
|
|
|
|
|
our franchises segment decreased $1.2 million, or 53%, to
$1.1 million for the second quarter of fiscal 2009 from
$2.3 million for the second 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 reacquired two franchised stores in
Victoria, British Columbia and one franchised store in Bellevue,
Washington; and
|
|
|
|
our other segment increased $4.4 million, or 635%, to
$5.1 million for the second quarter of fiscal 2009 from
$0.7 million for the second quarter of fiscal 2008,
primarily due to the introduction of online sales through our
e-commerce
channel as well as increased outlet, warehouse and wholesale
activity.
|
Other income, net decreased $0.2 million to $nil for the
second quarter of fiscal 2009 from $0.2 million for the
second quarter of fiscal 2008. The decrease was primarily due to
lower interest rates earned on cash balances.
Provision
for Income Taxes
Income tax expense for the second quarter of fiscal 2009 was
$5.1 million compared to $3.4 million for the
corresponding period in fiscal 2008. The Companys
financial statement effective tax rate for the thirteen weeks
ended August 2, 2009 was 36%. The effective tax rate will
vary from the statutory rate because (i) stock-based
compensation expense recorded is a permanent difference in
certain jurisdictions, (ii) the realization of the benefits
of the tax assets recorded prior to the second quarter of fiscal
2008, and (iii) the realization of the benefits of the tax
assets related primarily to historical tax differences between
financial and tax bases of assets and liabilities prior to
February 1, 2009.
During the second quarter of fiscal 2008, after considering a
number of factors, including a history of cumulative earnings,
utilization of previously generated NOLs and estimated taxable
income in future years, we determined we would more likely than
not realize substantial future tax benefits from our deferred
income tax assets generated in the United States prior to
February 1, 2009. As a result of this analysis the Company
recorded deferred tax assets of (i) $1.4 million
related primarily to historical tax differences between
financial and tax bases of assets and liabilities,
(ii) $0.9 million cumulative tax benefit recorded from
stock-based compensation expense prior to the second quarter of
fiscal 2008, and (iii) $2.7 million excess tax benefit
from the exercise of stock options during and prior to the
second quarter of fiscal 2008.
During the second quarter of fiscal 2009, an adjustment was made
to deferred tax assets and additional paid-in capital in the
amount of $12.0 million relating to windfall taxes recorded
in the year ended February 1, 2009 in excess of US taxes
payable. A similar entry for $0.2 million was recorded in
the same period related to windfall taxes recorded in the first
quarter of fiscal 2009. The Company has concluded that the
adjustment was not material to the financial statements.
Net
Income from Continuing Operations
Net income from continuing operations decreased
$3.1 million, to $9.2 million for the second quarter
of fiscal 2009 from $12.3 million for the second quarter of
fiscal 2008. The decrease in net income of $3.1 million for
the second quarter of fiscal 2009 was a result of a
$2.0 million increase in selling, general and
administrative expenses, a $1.7 million increase in
provision for income taxes and a $0.2 million decrease in
other income, net, partially offset by an increase of
$0.8 million in gross profit resulting from additional
sales from corporate-owned stores opened.
Discontinued
Operations
During the second quarter of fiscal 2009, revenues, expenses and
loss from discontinued operations were $nil. The loss from
discontinued operations was $1.2 million for the second
quarter of fiscal 2008, resulting in a reduction of basic and
diluted earnings per share of $0.02. The shut down costs related
to the closure of the stores in Japan were fully accrued in the
second quarter of fiscal 2008.
20
Twenty-six
Weeks Results
The following table summarizes key components of our results of
operations for the twenty-six weeks ended August 2, 2009
and August 3, 2008. The operating results are expressed in
dollar amounts as well as relevant percentages, presented as a
percentage of net revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-six Weeks Ended
|
|
|
|
August 2, 2009 and August 3, 2008
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
(Percentages)
|
|
|
Net revenue
|
|
$
|
179,401
|
|
|
$
|
162,424
|
|
|
|
100.0
|
|
|
|
100.0
|
|
Cost of goods sold
|
|
|
99,213
|
|
|
|
76,947
|
|
|
|
55.3
|
|
|
|
47.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
80,188
|
|
|
|
85,477
|
|
|
|
44.7
|
|
|
|
52.6
|
|
Selling, general and administrative expenses
|
|
|
56,003
|
|
|
|
57,987
|
|
|
|
31.2
|
|
|
|
35.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
24,185
|
|
|
|
27,490
|
|
|
|
13.5
|
|
|
|
16.9
|
|
Other income, net
|
|
|
101
|
|
|
|
489
|
|
|
|
0.1
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
24,286
|
|
|
|
27,979
|
|
|
|
13.5
|
|
|
|
17.2
|
|
Provision for income taxes
|
|
|
8,524
|
|
|
|
7,169
|
|
|
|
4.5
|
|
|
|
4.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
15,762
|
|
|
|
20,810
|
|
|
|
8.8
|
|
|
|
12.8
|
|
Net loss from discontinued operations
|
|
|
|
|
|
|
(1,186
|
)
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
15,762
|
|
|
$
|
19,624
|
|
|
|
8.8
|
|
|
|
12.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Revenue
Net revenue increased $17.0 million, or 10%, to
$179.4 million for the first twenty-six weeks of fiscal
2009 from $162.4 million for the first twenty-six weeks 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 twenty-six
weeks of fiscal 2008 remained constant, our net revenue would
have increased $34.7 million, or 21%, for the first
twenty-six weeks of fiscal 2009.
|
|
|
|
|
|
|
|
|
|
|
Twenty-six Weeks
|
|
|
Twenty-six Weeks
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
August 2, 2009
|
|
|
August 3, 2008
|
|
|
|
(In thousands)
|
|
|
Net revenue by segment:
|
|
|
|
|
|
|
|
|
Corporate-owned stores
|
|
$
|
157,993
|
|
|
$
|
147,685
|
|
Franchises
|
|
|
5,680
|
|
|
|
8,804
|
|
Other
|
|
|
15,728
|
|
|
|
5,935
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
179,401
|
|
|
$
|
162,424
|
|
|
|
|
|
|
|
|
|
|
Corporate-Owned Stores. Net revenue from our
corporate-owned stores segment increased $10.3 million, or
7%, to $158.0 million for the first twenty-six weeks of
fiscal 2009 from $147.7 million for the first twenty-six
weeks of fiscal 2008. The following contributed to the
$10.3 million increase in net revenue from our
corporate-owned stores segment:
|
|
|
|
|
Net revenue from corporate-owned stores we opened during the
first twenty-six weeks of fiscal 2009, and other corporate-owed
stores we opened, or reacquired franchise rights for, subsequent
to August 3, 2008 and therefore not included in the
comparable store sales growth, contributed $30.8 million of
the increase. Net new store openings from the second quarter of
fiscal 2008 included two stores in Canada and 22 stores in the
United States;
|
|
|
|
Comparable store sales decline of 5% in the first twenty-six
weeks of fiscal 2009 resulted in a $7.0 million decrease to
net revenue, excluding the effect of foreign currency
fluctuations. Including the effect of foreign currency
fluctuations, comparable store sales declined 15%, or
$22.2 million, in the first twenty-six weeks of fiscal
2009; and
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21
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Net revenue related to gift card breakage contributed
$1.6 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 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 $3.1 million, or 36%, to
$5.7 million for the first twenty-six weeks of fiscal 2009
from $8.8 million for the first twenty-six weeks of fiscal
2008. The decrease in net revenue from our franchises segment
resulted primarily from our reacquisition of two franchise
stores in Victoria, British Columbia and one franchised store in
Bellevue, Washington in the third quarter of fiscal 2008.
Other. Net revenue from our other segment
increased $9.8 million, or 165%, to $15.7 million for
the first twenty-six weeks of fiscal 2009 from $5.9 million
for the first twenty-six weeks of fiscal 2008. The
$9.8 million increase was primarily the result of an
increase in sales from the launch of our
e-commerce
channel in the first quarter of fiscal 2009 which contributed
$3.2 million in net revenues, as well as increased sales
from wholesale, outlet and warehouse sales which contributed
$6.6 million in net revenues.
Gross
Profit
Gross profit decreased $5.3 million, or 6%, to
$80.2 million for the first twenty-six weeks of fiscal 2009
from $85.5 million for the first twenty-six weeks of fiscal
2008. The decrease in gross profit was driven principally by:
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an increase in product costs of $11.5 million associated
with our sale of goods through corporate-owned stores related
primarily to increased revenues and unfavorable foreign exchange
differences;
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|
an increase in fixed costs, such as occupancy costs and
depreciation, of $6.8 million related to an increase in
corporate-owned stores which has a deleveraging effect of gross
profit; and
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|
a decrease of $2.3 million in gross profit from our
franchises segment related primarily to the reacquisition of
franchised stores in the third quarter of fiscal 2008.
|
These amounts were partially offset by:
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|
|
an increase of $10.3 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 in the first quarter of fiscal 2009;
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|
an increase of $4.2 million in net revenue from our other
segment related primarily to increased sales from the launch of
our
e-commerce
channel in the first quarter of fiscal 2009; as well as
wholesale, outlet, and warehouse sales; and
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|
a decrease of $1.2 million in the cost of our distribution
centers related primarily to decreased employee costs as well as
other fees we pay to third parties to operate our distribution
centers.
|
Gross profit as a percentage of net revenue, or gross margin,
decreased 7.9%, to 44.7% for the first twenty-six weeks of
fiscal 2009 from 52.6% for the first twenty-six weeks of fiscal
2008. The decrease in gross margin resulted primarily from:
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|
strategic pricing initiatives, sourcing initiatives, shrinkage
and other of 3.7%;
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|
|
an increase in fixed costs, such as occupancy costs and
depreciation, which has a deleveraging effect of gross profit as
a percentage of revenue, which contributed to a decrease in
gross margin of 2.8%; and
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|
unfavorable foreign exchange differences of 2.7%.
|
This was offset by expenses related to our production, design,
merchandising and distribution departments which had a
leveraging effect on gross profit as a percentage of revenue,
and contributed to an increase in gross margin of 1.3%.
Our cost of goods sold in the first twenty-six weeks of fiscal
2009 and the first twenty-six weeks of fiscal 2008 included
$0.4 million and $0.6 million, respectively, of
stock-based compensation expense.
22
Selling,
General and Administrative Expenses
Selling, general and administrative expenses decreased
$2.0 million, or 3.5%, to $56.0 million for the first
twenty-six weeks of fiscal 2009 from $58.0 million for the
first twenty-six weeks of fiscal 2008. As a percentage of net
revenue, selling, general and administrative expenses decreased
4.5%, to 31.2% from 35.7%. The $2.0 million decrease in
selling, general and administrative expenses was principally
comprised of:
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|
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|
|
a decrease in employee compensation, including options expense,
of $3.2 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;
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a decrease in travel and meals and entertainment expense of
$1.1 million related to a reduction in discretionary
spending as part of our efforts to reduce operating expenses and
improve our income from operations; and
|
|
|
|
an increase in foreign exchange gains of $0.6 million
related to favorable fluctuations in the
Canadian-United
States dollar exchange rates.
|
These amounts were partially offset by:
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|
|
|
an increase of $1.6 million primarily related to employment
related legal matters;
|
|
|
|
an increase in administrative costs associated with the launch
in the first fiscal quarter of 2009 of our new
e-commerce
channel of $0.9 million; and
|
|
|
|
an increase in depreciation costs of $0.4 million related
to the retirement of legacy IT systems.
|
Our selling, general and administrative expenses in the first
twenty-six weeks of fiscal 2009 and the first twenty-six weeks
of fiscal 2008 included $2.4 million and $3.0 million,
respectively, of stock-based compensation expense.
Income
from Operations
Income from operations decreased $3.3 million, or 12%, to
$24.2 million for the first twenty-six weeks of fiscal 2009 from
$27.5 million for the first twenty-six weeks of fiscal 2008. The
decrease of $3.3 million in income from operations for the
first twenty-six weeks of fiscal 2009 was primarily due to a
$5.3 million decrease in gross profit resulting from
decreased comparable store sales offset by additional sales from
corporate-owned stores opened, partially offset by a decrease of
$2.0 million in selling, general and administrative
expenses.
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 and distribution departments
have been allocated to this segment.
Income from operations (before general corporate expenses) from:
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|
|
our corporate-owned stores segment decreased $5.3 million,
or 12%, to $41.6 million for the first twenty-six weeks of
fiscal 2009 from $46.8 million for the first twenty-six
weeks of fiscal 2008, primarily due to an increase in
corporate-owned stores costs of sales of $11.5 million and
$4.3 million in store operating expenses such as occupancy
and depreciation, offset by an increase of $10.3 million in
net revenues;
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|
|
our franchises segment decreased $2.3 million, or 53%, to
$2.1 million for the first twenty-six weeks of fiscal 2009
from $4.4 million for the first twenty-six weeks 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 reacquired two franchised stores in
Victoria, British Columbia and one franchised store in Bellevue,
Washington; and
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23
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|
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|
|
our other segment increased $5.7 million, or 438%, to
$7.0 million for the first twenty-six weeks of fiscal 2009
from $1.3 million for the first twenty-six weeks of fiscal
2008, primarily due to the introduction of online sales through
our
e-commerce
channel as well as increased outlet, warehouse and wholesale
activity.
|
Other income, net decreased $0.4 million to
$0.1 million for the first twenty-six weeks of fiscal 2009
from $0.5 million for the first twenty-six weeks of fiscal
2008. The decrease was primarily due to lower interest rates
offered on cash balances.
Provision
for Income Taxes
Income tax expense for the twenty-six weeks ended August 2,
2009 was $8.6 million compared to $7.2 million for the
corresponding period in fiscal 2008. The Companys
financial statement effective tax rate for the twenty-six weeks
ended August 2, 2009 was 35%. The effective tax rate will
vary from the statutory rate because (i) stock-based
compensation expense recorded is a permanent difference in
certain jurisdictions, (ii) the realization of the benefits
of the tax assets recorded prior to the second quarter of fiscal
2008, and (iii) the realization of the benefits of the tax
assets related primarily to historical tax differences between
financial and tax bases of assets and liabilities prior to
February 1, 2009.
During the second quarter of fiscal 2008, after considering a
number of factors, including a history of cumulative earnings,
utilization of previously generated NOL carryforwards and
estimated taxable income in future years, we determined we would
more likely than not realize substantial future tax benefits
from our deferred income tax assets generated in the United
States prior to February 1, 2009. As a result of this
analysis the Company recorded deferred tax assets of
(i) $1.4 million related primarily to historical tax
differences between financial and tax bases of assets and
liabilities, (ii) $0.9 million cumulative tax benefit
recorded from stock-based compensation expense prior to the
second quarter of fiscal 2008, and (iii) $2.7 million
excess tax benefit from the exercise of stock options during and
prior to the second quarter of fiscal 2008.
During the second quarter of fiscal 2009, an adjustment was made
to deferred tax assets and additional paid-in capital in the
amount of $12.0 million relating to windfall taxes recorded
in the year ended February 1, 2009 in excess of US taxes
payable. A similar entry for $0.2 million was recorded in
the same period related to windfall taxes recorded in the first
quarter of fiscal 2009. The Company has concluded that the
adjustment was not material to the financial statements.
Net
Income from Continuing Operations
Net income from continuing operations decreased
$5.0 million to $15.8 million for the first twenty-six
weeks of fiscal 2009 from $20.8 million for the first
twenty-six weeks of fiscal 2008. The decrease in net income of
$5.0 million for the first twenty-six weeks of fiscal 2009
was a result of a decrease in gross profit of $5.3 million
resulting from decreased comparable store sales offset by
additional sales from corporate-owned stores opened, an increase
in provision for income taxes of $1.4 million and a
decrease in other income, net of $0.4 , partially offset by a
decrease of $2.0 million in selling, general and
administrative expenses.
Discontinued
Operations
During the twenty-six weeks ended August 2, 2009, revenues,
expenses and loss from discontinued operations were $nil. The
loss from discontinued operations was $1.2 million for the
twenty-six weeks ended August 3, 2008, resulting in a
reduction of basic and diluted earnings per share of $0.02. The
shut down costs related to the closure of the stores in Japan
were fully accrued in the second quarter of fiscal 2008.
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.
24
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 closed on
August 2, 2007.
At August 2, 2009, our working capital (excluding cash and
cash equivalents) was $23.7 million and our cash and cash
equivalents were $83.8 million.
The following presents the major components of net cash flows
provided by and used in operating, investing and financing
activities for the periods indicated:
Operating
Activities
Operating Activities consist primarily of net income
adjusted for certain non-cash items, including depreciation and
amortization, deferred income taxes, realized gains and losses
on property and equipment, stock-based compensation expense and
the effect of the changes in non-cash working capital items,
principally accounts receivable, inventories, accounts payable
and accrued expenses.
Cash provided by operating activities increased
$18.0 million, to $29.1 million for the twenty-six
weeks ended August 2, 2009 compared to cash used by
operating activities of $11.1 million for the twenty-six
weeks ended August 3, 2008. The $18.0 million increase
was primarily a result of a decrease in inventories and an
increase in items not affecting cash 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 increase in items not affecting cash
is primarily a result of increased depreciation and amortization
for a larger store base and increased deferred income tax
liabilities. The net change in 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 $15.8 million
to $6.3 million for the twenty-six weeks ended
August 2, 2009 from $22.1 million for the twenty-six
weeks ended August 3, 2008. The $15.8 million decrease
was a result of reduced corporate-owned store openings. In the
first twenty-six weeks of fiscal 2009 two new corporate-owned
stores were opened compared to nine new corporate-owned stores
opened in the first twenty-six weeks 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 competition. Cash provided by financing activities
decreased to $2.7 million for the twenty-six weeks ended
August 2, 2009 from $0.3 million of cash used in
financing activities for the twenty-six weeks ended
August 3, 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.
25
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 cancelled 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.
At August 2, 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 August 2, 2009, letters of credit and
letters of guarantee totaling $3.4 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 Annual Report on
Form 10-K
for our 2008 fiscal year end filed with the SEC on
March 27, 2009 and in Note 2 included in Item 1
of Part 1 of this Quarterly Report on
Form 10-Q.
We believe that there have been no other significant changes
during the twenty-six weeks ended August 2, 2009 to our
critical accounting policies.
26
Operating
Locations
Our operating locations by country, state and province as of
August 2, 2009 are summarized in the table below.
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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
|
|
|
6
|
|
|
|
|
|
|
|
6
|
|
Virginia
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
Washington
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total United States
|
|
|
62
|
|
|
|
4
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia
|
|
|
|
|
|
|
6
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total International
|
|
|
|
|
|
|
6
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overall total, as of August 2, 2009
|
|
|
104
|
|
|
|
11
|
|
|
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overall total, as of February 1, 2009
|
|
|
103
|
|
|
|
10
|
|
|
|
113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
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 August 2, 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
$5.0 million for the first two quarters 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 prior
credit facility. Because our revolving credit facility bears
interest at a variable rate, we will be exposed to market risks
relating to changes in interest rates, if we have a meaningful
outstanding balance. At August 2, 2009, we had no
outstanding borrowings under 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.
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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 August 2, 2009.
Based on that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that, at August 2, 2009, our
disclosure controls and procedures were effective.
There was no change in internal control over financial reporting
during the twenty-six weeks ended August 2, 2009 that has
materially affected or is reasonably likely to materially affect
our internal control over financial reporting.
28
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.
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 August 2, 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)
|
|
|
May 4, 2009 May 31, 2009
|
|
|
5,526
|
|
|
$
|
13.59
|
|
|
|
5,526
|
|
|
|
2,905,057
|
|
June 1, 2009 July 5, 2009
|
|
|
4,940
|
|
|
|
14.82
|
|
|
|
4,940
|
|
|
|
2,900,117
|
|
July 6, 2009 August 2, 2009
|
|
|
4,867
|
|
|
|
15.20
|
|
|
|
4,867
|
|
|
|
2,895,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
15,333
|
|
|
|
|
|
|
|
15,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Monthly information is presented by reference to our fiscal
months during our second 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 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
At the Companys Annual Meeting of Stockholders held on
June 10, 2009 the stockholders of the Company elected
Christine M. Day, Martha A.M. Morfitt and Rhoda M. Pitcher
to our Board of Directors as Class II Directors. The
following table sets forth the voting results for each Director:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Votes
|
|
|
Votes
|
|
|
Broker
|
|
Directors
|
|
Votes For
|
|
|
Against
|
|
|
Withheld/Abstained
|
|
|
Non-votes
|
|
|
Christine M. Day
|
|
|
59,376,356
|
|
|
|
nil
|
|
|
|
95,124
|
|
|
|
nil
|
|
Martha A.M. Morfitt
|
|
|
59,370,296
|
|
|
|
nil
|
|
|
|
101,184
|
|
|
|
nil
|
|
Rhoda M. Pitcher
|
|
|
59,372,936
|
|
|
|
nil
|
|
|
|
98,544
|
|
|
|
nil
|
|
After the meeting, our Board of Directors consisted of Michael
Casey, RoAnn Costin, R. Brad Martin, Christine M. Day, Martha
A.M. Morfitt, Rhoda M. Pitcher, David M. Mussafer, Thomas
G. Stemberg and Dennis J. Wilson. Steven J. Collins term
as a director ended immediately prior to the Annual Meeting of
Stockholders on June 10, 2009.
29
The stockholders of the Company also ratified the appointment of
PricewaterhouseCoopers LLP as the Companys independent
auditors for the fiscal year ending January 31, 2010 at the
Annual Meeting of Stockholders held on June 10, 2009. The
following table sets forth the voting results for the
ratification:
|
|
|
|
|
|
|
|
|
Votes
|
|
Votes
|
|
Broker
|
Votes For
|
|
Against
|
|
Withheld/Abstained
|
|
Non-votes
|
|
59,430,450
|
|
34,018
|
|
7,012
|
|
nil
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
Exhibit No.
|
|
Exhibit Title
|
|
Filed Herewith
|
|
Form
|
|
Exhibit No.
|
|
File No.
|
|
Filing Date
|
|
|
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
|
|
|
|
|
|
|
|
|
30
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.
John E. Currie
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Dated: September 10, 2009
31
Exhibit Index
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
Exhibit No.
|
|
Exhibit Title
|
|
Filed Herewith
|
|
Form
|
|
Exhibit No.
|
|
File No.
|
|
Filing Date
|
|
|
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
|
|
|
|
|
|
|
|
|
32