QUARTERLY REPORT FOR THE PERIOD ENDED AUG 3, 2008
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
|
|
|
(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 3, 2008
|
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
|
Commission file number
001-33608
lululemon
athletica inc.
(Exact
name of registrant as specified in its charter)
|
|
|
Delaware
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|
20-3842867
|
(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 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 o
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Accelerated
filer o
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|
Non-accelerated
filer þ
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|
Smaller reporting
company o
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|
|
(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, 2008, there were 47,892,534 shares of
the registrants common stock, par value $0.01 per share,
outstanding.
Exchangeable and Special Voting Shares:
At September 8, 2008 there were outstanding 20,312,272
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, 2008, the registrant had
outstanding 20,312,272 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. and Subsidiaries
|
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August 3,
|
|
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February 3,
|
|
|
|
2008
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
43,735,233
|
|
|
$
|
52,545,025
|
|
Accounts receivable
|
|
|
4,505,235
|
|
|
|
4,302,436
|
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Inventories
|
|
|
43,433,339
|
|
|
|
37,932,073
|
|
Prepaid expenses and other current assets
|
|
|
3,776,355
|
|
|
|
1,043,149
|
|
Assets of discontinued operations
|
|
|
2,740,468
|
|
|
|
3,038,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98,190,630
|
|
|
|
98,861,057
|
|
Property and equipment, net
|
|
|
55,473,226
|
|
|
|
43,605,035
|
|
Goodwill and intangible assets, net
|
|
|
7,374,000
|
|
|
|
8,124,047
|
|
Deferred income taxes and other assets
|
|
|
13,431,078
|
|
|
|
4,502,003
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
174,468,934
|
|
|
$
|
155,092,142
|
|
|
|
|
|
|
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LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities
|
|
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|
|
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Accounts payable
|
|
$
|
1,321,988
|
|
|
$
|
5,159,024
|
|
Accrued liabilities
|
|
|
6,968,012
|
|
|
|
7,506,898
|
|
Accrued compensation and related expenses
|
|
|
10,954,435
|
|
|
|
7,964,745
|
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Income taxes payable
|
|
|
|
|
|
|
5,719,820
|
|
Unredeemed gift card liability
|
|
|
6,547,739
|
|
|
|
8,113,972
|
|
Other current liabilities
|
|
|
684,964
|
|
|
|
780,688
|
|
Liabilities of discontinued operations
|
|
|
1,738,496
|
|
|
|
895,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,215,634
|
|
|
|
36,140,373
|
|
Deferred income taxes and other non-current liabilities
|
|
|
9,745,396
|
|
|
|
6,917,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,961,030
|
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|
|
43,058,133
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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,
5,000,000 shares authorized, none issued and outstanding
|
|
|
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|
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|
|
Exchangeable stock, no par value, 30,000,000 shares
authorized, issued and outstanding 20,935,041 and
20,935,041 shares
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|
|
|
|
|
|
|
|
Special voting stock, $0.00001 par value,
30,000,000 shares authorized, issued and outstanding
20,935,041 and 20,935,041 shares
|
|
|
209
|
|
|
|
209
|
|
Common stock, $0.01 par value, 200,000,000 shares
authorized, issued and outstanding 47,259,565 and
46,684,700 shares
|
|
|
472,596
|
|
|
|
466,847
|
|
Additional paid-in capital
|
|
|
142,733,505
|
|
|
|
136,004,955
|
|
Accumulated deficit
|
|
|
(10,211,029
|
)
|
|
|
(29,834,956
|
)
|
Accumulated other comprehensive income
|
|
|
3,512,623
|
|
|
|
5,396,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136,507,904
|
|
|
|
112,034,009
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
174,468,934
|
|
|
$
|
155,092,142
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the interim consolidated financial
statements
1
lululemon
athletica inc. and Subsidiaries
|
|
|
|
|
|
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Thirteen Weeks
|
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Three Months
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|
Twenty Six Weeks
|
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Six Months
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Ended August 3,
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Ended July 31,
|
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Ended August 3,
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Ended July 31,
|
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2008
|
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2007
|
|
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2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
Net revenue
|
|
$
|
85,484,223
|
|
|
$
|
57,900,213
|
|
|
$
|
162,424,449
|
|
|
$
|
102,039,474
|
|
Cost of goods sold
|
|
|
41,107,858
|
|
|
|
27,166,744
|
|
|
|
76,947,579
|
|
|
|
48,900,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
44,376,365
|
|
|
|
30,733,469
|
|
|
|
85,476,870
|
|
|
|
53,138,942
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
28,832,643
|
|
|
|
20,489,710
|
|
|
|
57,986,943
|
|
|
|
35,782,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
15,543,722
|
|
|
|
10,243,759
|
|
|
|
27,489,927
|
|
|
|
17,356,351
|
|
Other expense (income), net
|
|
|
(211,008
|
)
|
|
|
(70,517
|
)
|
|
|
(488,636
|
)
|
|
|
(177,452
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
15,754,730
|
|
|
|
10,314,276
|
|
|
|
27,978,563
|
|
|
|
17,533,803
|
|
Provision for income taxes
|
|
|
3,415,346
|
|
|
|
4,798,355
|
|
|
|
7,168,577
|
|
|
|
8,247,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
12,339,384
|
|
|
|
5,515,921
|
|
|
|
20,809,986
|
|
|
|
9,286,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from discontinued operations
|
|
|
(1,191,847
|
)
|
|
|
(393,920
|
)
|
|
|
(1,186,059
|
)
|
|
|
(622,732
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
11,147,537
|
|
|
$
|
5,122,001
|
|
|
$
|
19,623,927
|
|
|
$
|
8,664,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings/(loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.18
|
|
|
$
|
0.08
|
|
|
$
|
0.31
|
|
|
$
|
0.14
|
|
Discontinued operations
|
|
|
(0.02
|
)
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net basic earnings per share
|
|
$
|
0.16
|
|
|
$
|
0.07
|
|
|
$
|
0.29
|
|
|
$
|
0.13
|
|
Diluted earnings/(loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.18
|
|
|
$
|
0.08
|
|
|
$
|
0.29
|
|
|
$
|
0.13
|
|
Discontinued operations
|
|
|
(0.02
|
)
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net diluted earnings per share
|
|
$
|
0.16
|
|
|
$
|
0.07
|
|
|
$
|
0.27
|
|
|
$
|
0.12
|
|
Basic weighted-average number of shares outstanding
|
|
|
68,106,601
|
|
|
|
65,225,819
|
|
|
|
67,892,456
|
|
|
|
65,225,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average number of shares outstanding
|
|
|
70,375,980
|
|
|
|
68,891,237
|
|
|
|
70,799,684
|
|
|
|
68,878,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the interim consolidated financial
statements
2
lululemon
athletica inc. and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special Voting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchangeable Stock
|
|
|
Stock
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Par
|
|
|
|
|
|
Par
|
|
|
|
|
|
Par
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Value
|
|
|
Shares
|
|
|
Value
|
|
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income (Loss)
|
|
|
Total
|
|
|
|
(Unaudited)
|
|
|
Balance at February 3, 2008
|
|
|
20,935,041
|
|
|
$
|
|
|
|
|
20,935,041
|
|
|
$
|
209
|
|
|
|
46,684,700
|
|
|
$
|
466,847
|
|
|
$
|
136,004,955
|
|
|
$
|
(29,834,956
|
)
|
|
$
|
5,396,954
|
|
|
$
|
112,034,009
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,623,927
|
|
|
|
|
|
|
|
19,623,927
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,884,331
|
)
|
|
|
(1,884,331
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,739,596
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,740,890
|
|
|
|
|
|
|
|
|
|
|
|
3,740,890
|
|
Excess tax benefits from stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,660,672
|
|
|
|
|
|
|
|
|
|
|
|
2,660,672
|
|
Stock options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
567,515
|
|
|
|
5,675
|
|
|
|
327,062
|
|
|
|
|
|
|
|
|
|
|
|
332,737
|
|
Restricted stock issuance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,350
|
|
|
|
74
|
|
|
|
(74
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at August 3, 2008
|
|
|
20,935,041
|
|
|
$
|
|
|
|
|
20,935,041
|
|
|
$
|
209
|
|
|
|
47,259,565
|
|
|
$
|
472,596
|
|
|
$
|
142,733,505
|
|
|
$
|
(10,211,029
|
)
|
|
$
|
3,512,623
|
|
|
$
|
136,507,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the interim consolidated financial
statements
3
lululemon
athletica inc. and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
Twenty Six Weeks
|
|
|
Six Months
|
|
|
|
Ended August 3,
|
|
|
Ended July 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
19,623,927
|
|
|
$
|
8,664,063
|
|
Net loss from discontinued operations
|
|
|
(1,186,059
|
)
|
|
|
(622,732
|
)
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
20,809,986
|
|
|
|
9,286,795
|
|
Items not affecting cash
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
7,198,908
|
|
|
|
3,320,334
|
|
Stock-based compensation
|
|
|
3,740,890
|
|
|
|
2,968,524
|
|
Deferred income taxes
|
|
|
(2,402,908
|
)
|
|
|
2,234,304
|
|
Excess tax benefits from stock-based compensation
|
|
|
(2,660,671
|
)
|
|
|
|
|
Other, including net changes in other non-cash balances
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
(899,007
|
)
|
|
|
(364,963
|
)
|
Inventory
|
|
|
(5,501,266
|
)
|
|
|
3,607,168
|
|
Accounts payable
|
|
|
(3,837,035
|
)
|
|
|
335,652
|
|
Accrued liabilities
|
|
|
2,450,805
|
|
|
|
(850,192
|
)
|
Other non-cash balances
|
|
|
(7,712,348
|
)
|
|
|
(6,267,116
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities continuing
operations
|
|
|
11,187,354
|
|
|
|
14,270,506
|
|
Net cash (used in) operating activities discontinued
operations
|
|
|
(44,884
|
)
|
|
|
(1,581,441
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
11,142,470
|
|
|
|
12,689,065
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(19,284,184
|
)
|
|
|
(10,334,248
|
)
|
Investment in and advances to franchises
|
|
|
(2,796,424
|
)
|
|
|
|
|
Acquisition of franchises
|
|
|
|
|
|
|
(5,000,822
|
)
|
|
|
|
|
|
|
|
|
|
Net cash (used in) operating activities continuing
operations
|
|
|
(22,080,608
|
)
|
|
|
(15,335,070
|
)
|
Net cash provided by / (used in) operating
activities discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,080,608
|
)
|
|
|
(15,335,070
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
332,810
|
|
|
|
|
|
Restricted stock issuance
|
|
|
(74
|
)
|
|
|
|
|
Excess tax benefits from stock-based compensation
|
|
|
2,660,671
|
|
|
|
|
|
Payment of initial public offering costs
|
|
|
|
|
|
|
(4,716,788
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by/(used in) operating activities
continuing operations
|
|
|
2,993,407
|
|
|
|
(4,716,788
|
)
|
Net cash provided by/(used in) operating activities
discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,993,407
|
|
|
|
(4,716,788
|
)
|
Effect of exchange rate changes on cash
|
|
|
(865,061
|
)
|
|
|
1,152,968
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents from continuing operations
|
|
|
(8,809,792
|
)
|
|
|
(6,209,825
|
)
|
Cash and cash equivalents from continuing operations, beginning
of period
|
|
|
52,545,025
|
|
|
|
15,493,831
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents from continuing operations, end of
period
|
|
$
|
43,735,233
|
|
|
$
|
9,284,006
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents from discontinued operations, end of
period.
|
|
$
|
1,720,486
|
|
|
$
|
442,547
|
|
See accompanying notes to the interim consolidated financial
statements
4
lululemon
athletica inc. and Subsidiaries
(unaudited)
|
|
NOTE 1.
|
NATURE OF
OPERATIONS AND BASIS OF PRESENTATION
|
Nature
of operations
lululemon athletica inc., a Delaware corporation
(lululemon or LAI and, together with its
subsidiaries unless the context otherwise requires, the
Company) is engaged in the design, manufacture and
distribution of healthy lifestyle inspired athletic apparel,
which is sold through a chain of corporate-owned and operated
retail stores, independent franchises and a network of wholesale
accounts. The Companys primary markets are Canada and the
United States where 40 and 39 corporate-owned stores were in
operation as at August 3, 2008, respectively. There were a
total of 80 and 71 corporate-owned stores in operation as of
August 3, 2008, and February 3, 2008 respectively.
Basis
of presentation
The unaudited interim consolidated financial statements as of
August 3, 2008 and for the 26-week period ended
August 3, 2008 and as of July 31, 2007 and for the six
months ended July 31, 2007 are presented using the United
States dollar and have been prepared by the Company under the
rules and regulations of the Securities and Exchange Commission
(SEC). In the opinion of management, the financial
information is presented in accordance with United States
generally accepted accounting principles (GAAP) for
interim financial information and, accordingly, do not include
all of the information and footnotes required by GAAP for
complete financial statements. The financial information as of
February 3, 2008 is derived from the Companys audited
consolidated financial statements and notes for the fiscal year
ended February 3, 2008, included in Item 8 in the
Fiscal 2007 Annual Report on Form 10-K. These unaudited
interim consolidated financial statements should be read in
conjunction with the Companys 2007 Annual Report on
Form 10-K
filed with the SEC on April 8, 2008.
The Company reorganized its corporate structure on July 26,
2007. This reorganization was accounted for as a transfer of
entities under common control, and accordingly, the financial
statements for periods prior to the reorganization have been
restated on an as if pooling basis. Prior to the
reorganization, the Company had prepared combined consolidated
financial statements combining LAI and LIPO Investments (Canada)
Inc., an entity owned by a principal stockholder of the Company.
Through fiscal 2006, the Companys fiscal year ended on
January 31st in the year following the year mentioned.
Commencing with fiscal 2007, the Companys fiscal year ends
on the first Sunday following January 30th in the year
following the year mentioned.
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.
|
RECENTLY
ISSUED ACCOUNTING STANDARDS
|
In March 2008, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standard (SFAS) No. 161, Disclosures about
Derivative Instruments and Hedging Activities
(FAS 161). FAS 161 is intended to
improve financial reporting about derivative instruments and
hedging activities by requiring enhanced disclosures to enable
investors to better understand their effects on an entitys
financial position, financial performance, and cash flows. The
provisions of FAS 161 are effective for the fiscal years
and interim periods beginning after November 15, 2008. The
Company is currently evaluating the impact of adopting
FAS 161 on its consolidated financial statement disclosures.
In December 2007, the FASB issued SFAS No. 141R,
Business Combinations (revised 2007)
(FAS 141R). FAS 141R replaces
FAS 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. SFAS 141R is effective for
5
lululemon
athletica inc. and Subsidiaries
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
business combinations for which the acquisition date is on or
after fiscal years beginning after December 15, 2008. The
Company is currently evaluating the impact of adopting
SFAS 141R on its consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160
Noncontrolling Interests in Consolidated Financial Statements
(FAS 160). FAS 160 changes the
classification of non-controlling (minority) interests on the
balance sheet and the accounting for and reporting of
transactions between the reporting entity and holders of such
non-controlling interests. Under the new standard,
non-controlling interests are considered equity and are to be
reported as an element of stockholders equity rather than
within the mezzanine or liability sections of the balance sheet.
In addition, the current practice of reporting minority interest
expense or benefit also will change. Under the new standard, net
income will encompass the total income before minority interest
expense. The income statement will include separate disclosure
of the attribution of income between the controlling and
non-controlling interests. Increases and decreases in the
non-controlling ownership interest amount are to be accounted
for as equity transactions. FAS 160 is effective for fiscal
years beginning after December 15, 2008 and earlier
application is prohibited. Upon adoption, the balance sheet and
the income statement will be recast retrospectively for the
presentation of non-controlling interests. The other accounting
provisions of the statement are required to be adopted
prospectively. The Company is currently evaluating the impact
that adopting FAS 160 will have on its financial position
and results of operations.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities
(FAS 159). This Statement permits entities
to choose to measure various financial assets and financial
liabilities at fair value. Unrealized gains and losses on items
for which the fair value option has been elected are reported in
earnings. The Company adopted FAS 159 on February 4,
2008 and did not elect the fair value option for any of its
eligible financial assets or liabilities.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements (FAS 157).
FAS 157 defines fair value, establishes a framework for
measuring fair value in accordance with GAAP, and expands
disclosures about fair value measurements. FAS 157 applies
under other accounting pronouncements that require or permit
fair value measurements and accordingly does not require any new
fair value measurements. The provisions of FAS 157 are to
be applied prospectively as of the beginning of the fiscal year
in which it is initially applied, with any transition adjustment
recognized as a cumulative-effect adjustment to the opening
balance of retained earnings. The provisions of FAS 157 are
effective for fiscal years beginning after November 15,
2007, however the FASB has delayed the effective date of
FAS 157 to fiscal years beginning after November 15,
2008 for nonfinancial assets and nonfinancial liabilities,
except for items that are recognized or disclosed at fair value
in the financial statements on a recurring basis. The adoption
of FAS 157 for financial assets and liabilities in the
first two quarters of fiscal 2008 did not have a material impact
on the Companys consolidated financial statements. The
Company is currently evaluating the impact of the adoption of
FAS 157 for nonfinancial assets and nonfinancial
liabilities on its financial position and results of operations.
|
|
NOTE 3.
|
ADVANCES
TO FRANCHISES
|
During the thirteen weeks ended August 3, 2008 the Company
entered into a Credit Agreement (the Agreement) with
our Australian franchise partner, under which advances were
provided by the Company to the franchisee. The Agreement
provides for a secured non-revolving credit facility of up to
AUD$3.9 million. As at August 3, 2008 a total of
AUD$2.2 million has been drawn on the line of credit.
The loan is presented on the Companys balance sheet as
other non-current assets. The loan bears interest at 8% per
annum which will accrue and capitalize to the loan principal.
The loan will be convertible into equity of the franchise three
years after the effective date of the Agreement.
6
lululemon
athletica inc. and Subsidiaries
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 4.
|
STOCK-BASED
COMPENSATION
|
Share
option plans
The Companys employees participate in various stock-based
compensation plans which are either provided by a principal
stockholder of the Company or by the Company directly.
Stock-based compensation expense charged to income for the plans
was $3,740,890 and $2,968,524 for the twenty six weeks ended
August 3, 2008 and the six months ended July 31, 2007
respectively. Total unrecognized compensation cost at
August 3, 2008 was $13,054,308 for all stock option plans,
which is expected to be recognized over a weighted-average
period of 2.6 years.
Company
stock options
A summary of the Companys stock options and restricted
share activity as of August 3, 2008 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 3, 2008
|
|
|
4,800,339
|
|
|
$
|
2.74
|
|
|
|
10,458
|
|
|
$
|
19.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
249,815
|
|
|
$
|
26.57
|
|
|
|
7,350
|
|
|
$
|
28.58
|
|
Exercised
|
|
|
567,515
|
|
|
$
|
0.59
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
961,661
|
|
|
$
|
0.65
|
|
|
|
|
|
|
|
|
|
Balance at August 3, 2008
|
|
|
3,520,978
|
|
|
$
|
5.34
|
|
|
|
17,808
|
|
|
$
|
23.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at August 3, 2008
|
|
|
2,037,818
|
|
|
$
|
1.18
|
|
|
|
10,458
|
|
|
$
|
19.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholder-sponsored
stock options
During the twenty six weeks ended August 3, 2008 there were
no grants or exercises related to 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 that 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 3,000,000 shares. During
the quarter ended August 3, 2008, 8,684 shares were
purchased under the ESPP, through open market purchases.
Stock
option modification
Stock options issued to a former officer of the Company were
modified during the thirteen weeks ended August 3, 2008.
The modification resulted in the cancellation of the last year
and one half of the time vested option grant. The Company
performed a stock option modification analysis and determined
the impact of the modification to be immaterial.
7
lululemon
athletica inc. and Subsidiaries
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The modification analysis was performed using the Black-Scholes
option pricing model and resulted in the following values:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Fair Value of
|
|
Fair Value of
|
|
Total Incremental
|
Strike Price
|
|
Options
|
|
Original Award
|
|
Modified Award
|
|
Value
|
$
|
0.49
|
|
|
|
301,081
|
|
|
$
|
32.62
|
|
|
$
|
32.60
|
|
|
$
|
(5,343
|
)
|
$
|
0.60
|
|
|
|
1,371,253
|
|
|
$
|
32.52
|
|
|
$
|
32.49
|
|
|
$
|
(29,797
|
)
|
|
|
NOTE 5.
|
LEGAL
PROCEEDINGS
|
Brian Bacon, a former employee, filed suit against the Company
in the Supreme Court of British Columbia, Canada on May 6,
2008. In the action, captioned Brian Bacon v. Lululemon
Athletica Canada Inc., Case No. S083254, Mr. Bacon
claims that we terminated his employment contract without cause
and without reasonable notice resulting in breach of contract,
losses and damages. Mr. Bacon seeks damages in an
unspecified amount, plus costs and interest related primarily to
loss from participation in the stockholder sponsored LIPO USA
awards. We believe this claim is without merit and are
vigorously defending against it.
We are a party to various other legal proceedings arising in the
ordinary course of our business, but we are not currently a
party to any legal proceeding that management believes would
have a material adverse effect on our consolidated financial
position or results of operations.
During the second quarter of fiscal 2008, following an IRC
section 956 inclusion, the Company recapitalized its US
subsidiary and received distributions from its Canadian
subsidiary. This resulted in the utilization of all net
operating loss carryforwards (NOLs) generated
in the United States prior to February 3, 2008.
As of February 3, 2008, we maintained a valuation allowance
against substantially all of our net deferred income tax assets
generated in the United States prior to February 3, 2008
since we had determined, based primarily on a history of
cumulative losses in recent years and uncertainty regarding the
timing and amounts of future taxable income together with the
utilization of previous years NOLs, that realization of
our deferred income tax assets did not meet the more likely than
not criteria. 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. As a
result of this analysis the Company recorded deferred tax assets
of (i) $1,388,549 related primarily to historical tax
differences between financial and tax bases of assets and
liabilities, (ii) $902,606 cumulative tax benefit recorded
from stock-based compensation expense prior to the second
quarter of fiscal 2008, and (iii) $2,660,671 excess tax
benefit from the exercise of stock options during and prior to
the second quarter of fiscal 2008.
8
lululemon
athletica inc. and Subsidiaries
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 7.
|
EARNINGS
PER SHARE
|
The details of the computation of basic and diluted earnings per
share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks
|
|
|
Three Months
|
|
|
Twenty Six Weeks
|
|
|
Six Months
|
|
|
|
Ended August 3,
|
|
|
Ended July 31,
|
|
|
Ended August 3,
|
|
|
Ended July 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Net income from continuing operations
|
|
$
|
12,339,384
|
|
|
$
|
5,515,921
|
|
|
$
|
20,809,986
|
|
|
$
|
9,286,795
|
|
Net loss from discontinued operations
|
|
|
(1,191,847
|
)
|
|
|
(393,920
|
)
|
|
|
(1,186,059
|
)
|
|
|
(622,732
|
)
|
Net income
|
|
$
|
11,147,537
|
|
|
$
|
5,122,001
|
|
|
$
|
19,623,927
|
|
|
$
|
8,664,063
|
|
Basic weighted-average number of shares outstanding
|
|
|
68,106,601
|
|
|
|
65,225,819
|
|
|
|
67,892,456
|
|
|
|
65,225,819
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
0.18
|
|
|
$
|
0.08
|
|
|
$
|
0.31
|
|
|
$
|
0.14
|
|
Net loss from discontinued operations
|
|
|
(0.02
|
)
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.16
|
|
|
$
|
0.07
|
|
|
$
|
0.29
|
|
|
$
|
0.13
|
|
Basic weighted-average number of shares outstanding
|
|
|
68,106,601
|
|
|
|
65,225,819
|
|
|
|
67,892,456
|
|
|
|
65,225,819
|
|
Effect of stock options assumed exercised
|
|
|
2,269,379
|
|
|
|
3,665,418
|
|
|
|
2,907,228
|
|
|
|
3,653,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average number of shares outstanding
|
|
|
70,375,980
|
|
|
|
68,891,237
|
|
|
|
70,799,684
|
|
|
|
68,878,832
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
0.18
|
|
|
$
|
0.08
|
|
|
$
|
0.29
|
|
|
$
|
0.13
|
|
Net loss from discontinued operations
|
|
|
(0.02
|
)
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.16
|
|
|
$
|
0.07
|
|
|
$
|
0.27
|
|
|
$
|
0.12
|
|
Our calculation of weighted-average shares include the common
stock of the Company as well as the exchangeable shares.
Exchangeable shares are the equivalent of common shares in all
respects. All classes of stock have in effect the same rights
and share equally in undistributed net income. For the thirteen
and twenty six weeks ended August 3, 2008, 419,208 stock
options were anti-dilutive to earnings (July 27,
2007 nil) and therefore have been excluded from the
computation of diluted earnings per share.
|
|
NOTE 8.
|
SUPPLEMENTARY
FINANCIAL INFORMATION
|
A summary of certain balance sheet accounts is as follows:
|
|
|
|
|
|
|
|
|
|
|
August 3,
|
|
|
February 3,
|
|
|
|
2008
|
|
|
2008
|
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
$
|
2,363,896
|
|
|
$
|
2,494,199
|
|
Other accounts receivable
|
|
|
2,146,946
|
|
|
|
1,819,190
|
|
Allowance for doubtful accounts
|
|
|
(5,607
|
)
|
|
|
(10,953
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,505,235
|
|
|
$
|
4,302,436
|
|
|
|
|
|
|
|
|
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Finished goods
|
|
$
|
43,438,473
|
|
|
$
|
37,971,425
|
|
Raw materials
|
|
|
453,597
|
|
|
|
541,651
|
|
Provision to reduce inventory to market value
|
|
|
(458,731
|
)
|
|
|
(581,003
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
43,433,339
|
|
|
$
|
37,932,073
|
|
|
|
|
|
|
|
|
|
|
9
lululemon
athletica inc. and Subsidiaries
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
August 3,
|
|
|
February 3,
|
|
|
|
2008
|
|
|
2008
|
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
Leasehold improvements
|
|
$
|
41,803,996
|
|
|
$
|
32,922,443
|
|
Furniture and fixtures
|
|
|
17,361,604
|
|
|
|
13,597,290
|
|
Computer hardware and software
|
|
|
18,078,058
|
|
|
|
12,648,156
|
|
Equipment and vehicles
|
|
|
274,644
|
|
|
|
243,407
|
|
Accumulated amortization and depreciation
|
|
|
(22,045,076
|
)
|
|
|
(15,806,261
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
55,473,226
|
|
|
$
|
43,605,035
|
|
|
|
|
|
|
|
|
|
|
Goodwill and intangible assets:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
738,242
|
|
|
$
|
738,242
|
|
Changes in foreign currency exchange rates
|
|
|
194,907
|
|
|
|
224,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
933,149
|
|
|
|
962,618
|
|
|
|
|
|
|
|
|
|
|
Reacquired franchise rights
|
|
|
7,566,037
|
|
|
|
7,566,037
|
|
Non-competition agreements
|
|
|
694,177
|
|
|
|
694,177
|
|
Accumulated amortization
|
|
|
(3,239,164
|
)
|
|
|
(2,793,406
|
)
|
Changes in foreign currency exchange rates
|
|
|
1,419,801
|
|
|
|
1,694,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,440,851
|
|
|
|
7,161,429
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,374,000
|
|
|
$
|
8,124,047
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes and other assets:
|
|
|
|
|
|
|
|
|
Deferred tax asset
|
|
$
|
6,182,160
|
|
|
$
|
1,124,597
|
|
Prepaid rent and security deposits
|
|
|
2,801,968
|
|
|
|
2,369,098
|
|
Deferred lease costs
|
|
|
1,650,525
|
|
|
|
1,013,746
|
|
Investment in and advances to Australian franchise
|
|
|
2,796,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,431,078
|
|
|
$
|
4,502,003
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
|
Inventory purchases
|
|
$
|
1,887,325
|
|
|
$
|
3,304,872
|
|
Sales tax collected
|
|
|
2,187,125
|
|
|
|
2,132,053
|
|
Accrued rent
|
|
|
1,078,193
|
|
|
|
1,388,295
|
|
Other
|
|
|
1,815,369
|
|
|
|
681,678
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,968,012
|
|
|
$
|
7,506,898
|
|
|
|
|
|
|
|
|
|
|
Other non-current liabilities:
|
|
|
|
|
|
|
|
|
Deferred lease liability
|
|
$
|
5,148,070
|
|
|
$
|
3,585,699
|
|
Tenant inducements
|
|
|
4,406,804
|
|
|
|
3,135,523
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,554,874
|
|
|
$
|
6,721,222
|
|
|
|
|
|
|
|
|
|
|
10
lululemon
athletica inc. and Subsidiaries
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 9.
|
SEGMENT
REPORTING
|
The Companys reportable segments are comprised of
corporate-owned stores, franchises and other. Phone sales,
warehouse sales and showrooms sales have been combined into
other. Information for these segments from continuing operations
is detailed in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks
|
|
|
Three Months
|
|
|
Twenty Six Weeks
|
|
|
Six Months
|
|
|
|
Ended August 3,
|
|
|
Ended July 31,
|
|
|
Ended August 3,
|
|
|
Ended July 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate-owned stores
|
|
$
|
78,333,636
|
|
|
$
|
52,310,913
|
|
|
$
|
147,684,917
|
|
|
$
|
89,668,497
|
|
Franchises
|
|
|
4,266,591
|
|
|
|
3,401,038
|
|
|
|
8,804,187
|
|
|
|
8,318,544
|
|
Other
|
|
|
2,883,996
|
|
|
|
2,188,262
|
|
|
|
5,935,345
|
|
|
|
4,052,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
85,484,223
|
|
|
$
|
57,900,213
|
|
|
$
|
162,424,449
|
|
|
$
|
102,039,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations before general corporate expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate-owned stores
|
|
$
|
23,758,033
|
|
|
$
|
16,942,585
|
|
|
$
|
46,823,853
|
|
|
$
|
28,764,994
|
|
Franchises
|
|
|
2,289,962
|
|
|
|
1,685,989
|
|
|
|
4,368,570
|
|
|
|
4,025,269
|
|
Other
|
|
|
674,314
|
|
|
|
374,985
|
|
|
|
1,296,974
|
|
|
|
747,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,722,309
|
|
|
|
19,003,559
|
|
|
|
52,489,397
|
|
|
|
33,537,693
|
|
General corporate expense
|
|
|
11,178,587
|
|
|
|
8,759,800
|
|
|
|
24,999,470
|
|
|
|
16,181,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income
|
|
|
15,543,722
|
|
|
|
10,243,759
|
|
|
|
27,489,927
|
|
|
|
17,356,351
|
|
Other expense (income), net
|
|
|
(211,008
|
)
|
|
|
(70,516
|
)
|
|
|
(488,636
|
)
|
|
|
(177,452
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
$
|
15,754,730
|
|
|
$
|
10,314,276
|
|
|
$
|
27,978,563
|
|
|
$
|
17,533,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate-owned stores
|
|
$
|
8,124,571
|
|
|
$
|
4,870,385
|
|
|
$
|
13,176,324
|
|
|
$
|
7,531,762
|
|
Corporate
|
|
|
2,559,639
|
|
|
|
1,696,426
|
|
|
|
6,107,860
|
|
|
|
2,802,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,684,210
|
|
|
$
|
6,566,811
|
|
|
$
|
19,284,184
|
|
|
$
|
10,334,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate-owned stores
|
|
$
|
2,520,321
|
|
|
$
|
1,242,878
|
|
|
$
|
4,620,661
|
|
|
$
|
2,441,121
|
|
Corporate
|
|
|
1,094,733
|
|
|
|
231,113
|
|
|
|
2,067,728
|
|
|
|
400,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,615,054
|
|
|
$
|
1,473,991
|
|
|
$
|
6,688,389
|
|
|
$
|
2,842,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 10.
|
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 stores that the
Company was operating as a joint venture with Descente Ltd. The
fourth store was closed in August 2008. The shut down costs
related to the closure of the stores in Japan have been fully
accrued in the second quarter of fiscal 2008.
11
lululemon
athletica inc. and Subsidiaries
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The results of discontinued operations are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Twenty Six Weeks
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
August 3, 2008
|
|
|
July 31, 2008
|
|
|
Revenue
|
|
$
|
2,541,359
|
|
|
$
|
1,430,925
|
|
Expenses
|
|
|
(3,812,428
|
)
|
|
|
(2,169,558
|
)
|
Minority interest
|
|
|
85,010
|
|
|
|
115,901
|
|
|
|
|
|
|
|
|
|
|
Net loss on discontinued operations
|
|
$
|
(1,186,059
|
)
|
|
$
|
(622,732
|
)
|
|
|
|
|
|
|
|
|
|
Following is the summary of net assets held for discontinued
operations as at August 3, 2008:
|
|
|
|
|
|
|
August 3, 2008
|
|
|
Cash
|
|
$
|
1,720,446
|
|
Other current assets
|
|
|
337,848
|
|
Prepaid rent and deposits
|
|
|
506,732
|
|
Property and equipment
|
|
|
175,243
|
|
|
|
|
|
|
Assets of discontinued operations
|
|
|
2,740,268
|
|
Accounts payable
|
|
|
267,224
|
|
Accrual for shut-down costs
|
|
|
631,760
|
|
Other current liabilities
|
|
|
616,169
|
|
|
|
|
|
|
Liabilities
|
|
|
1,515,153
|
|
Minority interest
|
|
|
223,343
|
|
|
|
|
|
|
Liabilities of discontinued operations
|
|
|
(1,738,496
|
)
|
|
|
|
|
|
Net assets of discontinued operations
|
|
$
|
1,001,772
|
|
|
|
|
|
|
The net loss from discontinued operations represents all
activity up to August 3, 2008 as well as an accrual for all
shut-down costs expected to be incurred subsequent to the end of
the second quarter of fiscal 2008.
12
|
|
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. These factors include
without limitation:
|
|
|
|
|
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 the United States and
other new markets;
|
|
|
|
our ability to find suitable joint venture partners to
facilitate our expansion outside of North America;
|
|
|
|
our ability to finance our growth and maintain sufficient levels
of cash flow;
|
|
|
|
increased competition causing us to reduce the prices of our
products or to increase significantly our marketing efforts in
order to avoid losing market share;
|
|
|
|
our ability to effectively market and maintain a positive brand
image;
|
|
|
|
our ability to maintain recent 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.
|
13
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.
Overview
lululemon is a designer and retailer of technical athletic
apparel. 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 3, 2008, our
branded apparel was principally sold through 92 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 2008, 71.8% of our net
revenue was derived from sales of our products in Canada and
28.2% of our net revenue was derived from the sales of our
products in the United States. After reevaluating our operating
performance in Japan and our strategic priorities, we decided to
discontinue our operations in Japan in fiscal 2008. In the
second quarter of fiscal 2008 we closed three of our stores in
Japan and closed our fourth and final store in Japan during the
third quarter of fiscal 2008 and classified as discontinued
operations in the second quarter of fiscal 2008. We opened our
first store in Japan in 2005 and have operated in Japan through
a joint venture with Japanese apparel company, Descente, Ltd.,
since 2006. Japan represented less than 1.5% of our revenues in
fiscal 2007 and required a disproportionate amount of management
time and attention during fiscal 2007. We believe that our time,
attention and capital resources are best spent focused on our
top priorities, which are growth in the United States, where we
plan to open 22 stores during the third and fourth fiscal
quarters of 2008, and the development of an
e-commerce
business.
Our net revenue has grown from $40.7 million for fiscal
2004 to $274.7 million for fiscal 2007. This represents a
compound annual growth rate of 88.9%. Our net revenue also
increased from $57.9 million for the second quarter of
fiscal 2007 to $85.5 million for the second quarter of
fiscal 2008, representing a 47.6% increase. By the end of fiscal
2004, we operated 20 stores including 14 corporate-owned stores
and six franchise stores in Canada, the United States and
Australia. The majority of our stores were located in Canada,
with only three corporate-owned stores in the United States and
one franchise store in Australia. Our increase in net revenue
from fiscal 2004 to fiscal 2007 resulted from the addition of 17
retail locations in fiscal 2005, 14 retail locations in fiscal
2006, 31 retail locations in fiscal 2007, and 14 retail
locations in the first two quarters of fiscal 2008 and strong
comparable store sales growth of 19%, 25%, 34%, and 22% in
fiscal 2005, fiscal 2006, fiscal 2007, and the first two
quarters of fiscal 2008, respectively. 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.
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 17.3% of our net revenues for fiscal 2005, 14.3%
for fiscal 2006, 6.6% for fiscal 2007 and 5.4% for the first two
quarters of fiscal 2008. Opening new franchise stores is not a
significant part of our near-term store growth strategy, and we
therefore expect that the revenue derived from our franchise
stores will continue to comprise less than 10% of the net
revenue we report in future fiscal years. Our other operations
accounted for less than 10% of our revenues in each of fiscal
2005 and fiscal 2006, fiscal 2007 and the first two quarters of
fiscal 2008.
For fiscal years through fiscal 2006, our fiscal year ended on
January 31st in the year following the year mentioned.
Commencing with fiscal 2007, our fiscal year ends on the first
Sunday following January 30th in the year following
the year mentioned.
14
Results
of Continuing Operations
Thirteen
weeks ended August 3, 2008 compared to three months ended
July 31, 2007
The following table summarizes key components of our results of
operations for the thirteen weeks ended August 3, 2008 and
the three months ended July 31, 2007. The operating results
are expressed in dollar amounts as well as relevant percentages,
presented as a percentage of net revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended August 3, 2008 and
|
|
|
|
Three Months Ended July 31, 2007
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
(Percentages)
|
|
|
Net revenue
|
|
$
|
85,484
|
|
|
$
|
57,900
|
|
|
|
100.0
|
|
|
|
100.0
|
|
Cost of goods sold
|
|
|
41,108
|
|
|
|
27,167
|
|
|
|
48.1
|
|
|
|
46.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
44,376
|
|
|
|
30,733
|
|
|
|
51.9
|
|
|
|
53.1
|
|
Selling, general and administrative expenses
|
|
|
28,833
|
|
|
|
20,490
|
|
|
|
33.7
|
|
|
|
35.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
15,543
|
|
|
|
10,243
|
|
|
|
18.2
|
|
|
|
17.7
|
|
Other expenses (income)
|
|
|
(211
|
)
|
|
|
(71
|
)
|
|
|
(0.2
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
15,754
|
|
|
|
10,314
|
|
|
|
18.4
|
|
|
|
17.8
|
|
Provision for income taxes
|
|
|
3,415
|
|
|
|
4,798
|
|
|
|
4.0
|
|
|
|
8.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
12,339
|
|
|
|
5,516
|
|
|
|
14.4
|
|
|
|
9.5
|
|
Net loss from discontinued operations
|
|
|
(1,192
|
)
|
|
|
(394
|
)
|
|
|
(1.4
|
)
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
11,147
|
|
|
$
|
5,122
|
|
|
|
13.0
|
|
|
|
8.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Revenue
Net revenue increased $27.6 million, or 47.6%, to
$85.5 million for the second quarter of fiscal 2008 from
$57.9 million for the second quarter of fiscal 2007. This
increase was the result of increased comparable store sales and
sales from new stores opened. Assuming the average exchange rate
between the Canadian and United States dollars for the second
quarter of fiscal 2007 remained constant, our net revenue would
have increased $24.2 million, or 41.7%, for the second
quarter of fiscal 2008.
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
August 3, 2008
|
|
|
July 31, 2007
|
|
|
|
(In thousands)
|
|
|
Net revenue by segment:
|
|
|
|
|
|
|
|
|
Corporate-owned stores
|
|
$
|
78,334
|
|
|
$
|
52,311
|
|
Franchises
|
|
|
4,267
|
|
|
|
3,401
|
|
Other
|
|
|
2,883
|
|
|
|
2,188
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
85,484
|
|
|
$
|
57,900
|
|
|
|
|
|
|
|
|
|
|
Corporate-Owned Stores. Net revenue from our
corporate-owned stores segment increased $26.0 million, or
49.7%, to $78.3 million for the second quarter of fiscal
2008 from $52.3 million for the second quarter of fiscal
2007. The following contributed to the $26.0 million
increase in net revenue from our corporate-owned stores segment:
|
|
|
|
|
Net revenue from corporate-owned stores we opened during the
first two quarters, and corporate-owed stores we opened
subsequent to July 31, 2007 and therefore not included in
the comparable store sales growth, contributed
$16.7 million, or 64.2%, of the increase. New store
openings since the second quarter of fiscal 2007 included five
stores in Canada and 22 stores in the United States.
|
|
|
|
Comparable store sales growth of 18% in the second quarter of
fiscal 2008 contributed $9.3 million, or 35.8%, of the
increase. Assuming the average exchange rate between the
Canadian and the United States
|
15
|
|
|
|
|
dollars for the second quarter of fiscal 2007 remained constant
our comparable store sales would have increased 13% for the
second quarter of fiscal 2008 and contributed $6.6 million,
or 25.4%, of the increase. The increase in comparable store
sales was driven primarily by the strength of our existing
product lines, successful introduction of new products and
increasing recognition of the lululemon athletica brand name.
|
Franchises. Net revenue from our franchises
segment increased $0.9 million, or 25.4%, to
$4.3 million for the second quarter of fiscal 2008 from
$3.4 million for the second quarter of fiscal 2007. The
increase in net revenue from our franchises segment consisted
primarily of increased franchise revenue from our remaining
franchise locations.
Other. Net revenue from our other segment
increased $0.7 million, or 31.8%, to $2.9 million for
the second quarter of fiscal 2008 from $2.2 million for the
second quarter of fiscal 2007. The $0.7 million increase
was primarily the result of increased wholesale, phone sales and
showroom sales.
Gross
Profit
Gross profit increased $13.6 million, or 44.4%, to
$44.4 million for the second quarter of fiscal 2008 from
$30.7 million for the second quarter of fiscal 2007. The
increase in gross profit was driven principally by:
|
|
|
|
|
an increase of $26.0 million in net revenue from our
corporate-owned stores segment;
|
|
|
|
an increase of $0.9 million in net revenue from our
franchises segment; and
|
|
|
|
an increase of $0.7 million in net revenue from our other
segment.
|
This amount was partially offset by:
|
|
|
|
|
an increase in product costs of $7.1 million associated
with our sale of goods through corporate-owned stores,
franchises and other segments;
|
|
|
|
an increase in occupancy costs of $3.3 million related to
an increase in corporate-owned stores;
|
|
|
|
an increase in expenses of $2.3 million related to our
production, design, merchandising and distribution
departments; and
|
|
|
|
an increase in depreciation of $1.3 million primarily
related to an increase in corporate-owned stores.
|
Gross profit as a percentage of net revenue, or gross margin,
decreased 1.2% percentage points, to 51.9% for the second
quarter of fiscal 2008 from 53.1% for the second quarter of
fiscal 2007. The decrease in gross margin resulted from:
|
|
|
|
|
an increase in occupancy costs as a percentage of revenue, as a
result of increased costs related to new stores opened during
the quarter and new stores that have not yet opened, which
contributed to a decrease in gross margin of 1.8%;
|
|
|
|
an increase in expenses related to our production, design,
merchandising and distribution departments (including
stock-based compensation expense) as a percentage of net revenue
from the second quarter of fiscal 2007 to the second quarter
fiscal 2008 which contributed to a decrease in gross margin of
1.0%;
|
|
|
|
an increase in depreciation costs as a percentage of revenue,
which contributed to a decrease in gross margin of 0.8%; and
|
|
|
|
increased mark-downs in our stores during the second quarter of
fiscal 2008.
|
This amount was partially offset by:
|
|
|
|
|
a reduction in product costs as a percentage of net revenue that
contributed to an increase in gross margin of 2.5% which
included duty refunds of $0.7 million.
|
Our costs of goods sold in the second quarter of fiscal 2008 and
the second quarter of fiscal 2007 included $0.4 million and
$0.2 million, respectively, of stock-based compensation
expense.
16
Selling,
General and Administrative Expenses
Selling, general and administrative expenses increased
$8.3 million, or 40.7%, to $28.8 million for the
second quarter of fiscal 2008 from $20.5 million for the
second quarter of fiscal 2007. As a percentage of net revenue,
selling, general and administrative expenses decreased 1.7%
percentage points, to 33.7% from 35.4%. The $8.3 million
increase in selling, general and administrative expenses was
principally comprised of:
|
|
|
|
|
an increase in employee compensation of $5.9 million
related to opening additional corporate-owned stores;
|
|
|
|
an increase in other store operating expenses of
$1.1 million primarily related to packaging, distribution,
marketing and supplies; and
|
|
|
|
an increase in other corporate expenses of $1.4 million for
costs such as: professional fees, which includes costs for
executive recruiting as well as other legal costs; stock-based
compensation; amortization and depreciation costs, including
amortization for capitalized inventory ERP software costs that
became available for use in the second quarter of fiscal 2008;
and other corporate costs such as travel expenses and
communication costs associated with corporate facilities.
|
Our selling, general and administrative expenses in the second
quarter of fiscal 2008 and the second quarter of fiscal 2007
included $1.1 million and $1.4 million, respectively,
of stock-based compensation expense.
Income
from Operations
The increase of $5.3 million in income from operations for
the second quarter of fiscal 2008 was primarily due to a
$13.6 million increase in gross profit resulting from
increased comparable store sales and additional sales from
corporate-owned stores opened, partially offset by an increase
of $8.3 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, merchandise, and distribution
departments have been allocated to this segment.
Income from operations (before general corporate expenses) from:
|
|
|
|
|
our corporate-owned stores segment increased $6.8 million,
or 40.2%, to $23.8 million for the second quarter of fiscal
2008 from $16.9 million for the second quarter of fiscal
2007 primarily due to an increase in corporate-owned stores
gross profit of $12.3 million, offset by an increase of
$5.5 million in store operating expenses;
|
|
|
|
our franchises segment increased $0.6 million, or 35.8%, to
$2.3 million for the second quarter of fiscal 2008 from
$1.7 million for the second quarter of fiscal 2007
primarily from increased franchise revenue from our remaining
franchise locations; and
|
|
|
|
our other segment increased $0.3 million, or 79.8%, to
$0.7 million for the second quarter of fiscal 2008 from
$0.4 million for the second quarter of fiscal 2007
primarily due to an increase in revenue of $0.7 million.
|
Other income, net increased $0.1 million to
$0.2 million for the second quarter of fiscal 2008 from
$0.1 million for the second quarter of fiscal 2007. The
increase was primarily due to interest income earned on higher
cash balances.
Provision
for Income Taxes
Income tax expense for the second quarter of fiscal 2008 was
$3.4 million compared to $4.8 million for the
corresponding period in fiscal 2007. The Companys
financial statement effective tax rate for the thirteen weeks
ended August 3, 2008 was 21.7%. The effective tax rate will
vary from the statutory rate because (i) stock option
compensation expense recorded is a permanent difference in
certain jurisdictions, (ii) the realization of the benefits
of the tax assets from stock-based compensation recorded prior
to the second quarter of fiscal 2008, and (iii) the
17
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 3, 2008.
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 3, 2008. As a result of this analysis the
Company recorded deferred tax assets of (i) $1,388,549
related primarily to historical tax differences between
financial and tax bases of assets and liabilities,
(ii) $902,606 cumulative tax benefit recorded from
stock-based compensation expense prior to the second quarter of
fiscal 2008, and (iii) $2,660,671 excess tax benefit from
the exercise of stock options during and prior to the second
quarter of fiscal 2008.
Net
Income from Continuing Operations
Net income from continuing operations increased
$6.8 million, to $12.3 million for the second quarter
of fiscal 2008 from $5.5 million for the second quarter of
fiscal 2007. The increase in net income of $6.8 million for
the second quarter of fiscal 2008 was a result of an increase in
gross profit of $13.6 million resulting from increased
comparable store sales and additional sales from corporate-owned
stores opened, a decrease in the provision for income tax of
$1.4 million and offset by increases in selling, general
and administrative expenses of $8.3 million.
Discontinued
Operations
During the thirteen weeks ended August 3, 2008, revenues
from discontinued operations were $1.3 million and costs
and expenses were $1.6 million. The loss from discontinued
operations was $1.2 million, 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 have been
fully accrued in the second quarter of fiscal 2008.
Twenty
six weeks ended August 3, 2008 compared to six months ended
July 31, 2007
The following table summarizes key components of our results of
operations for the twenty six weeks ended August 3, 2008
and the six months ended July 31, 2007. 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 3, 2008 and
|
|
|
|
Three Months Ended July 31, 2007
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
(Percentages)
|
|
|
Net revenue
|
|
$
|
162,424
|
|
|
$
|
102,039
|
|
|
|
100.0
|
|
|
|
100.0
|
|
Cost of goods sold
|
|
|
76,948
|
|
|
|
48,901
|
|
|
|
47.4
|
|
|
|
47.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
85,476
|
|
|
|
53,138
|
|
|
|
52.6
|
|
|
|
52.1
|
|
Selling, general and administrative expenses
|
|
|
57,987
|
|
|
|
35,783
|
|
|
|
35.7
|
|
|
|
35.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
27,489
|
|
|
|
17,355
|
|
|
|
16.9
|
|
|
|
17.0
|
|
Other expenses (income)
|
|
|
(489
|
)
|
|
|
(178
|
)
|
|
|
(0.3
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
27,978
|
|
|
|
17,533
|
|
|
|
17.2
|
|
|
|
17.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
7,169
|
|
|
|
8,247
|
|
|
|
4.4
|
|
|
|
8.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
20,810
|
|
|
|
9,286
|
|
|
|
12.8
|
|
|
|
9.1
|
|
Net loss from discontinued operations
|
|
|
(1,186
|
)
|
|
|
(623
|
)
|
|
|
(0.7
|
)
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
19,624
|
|
|
$
|
8,663
|
|
|
|
12.1
|
|
|
|
8.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
Net
Revenue
Net revenue increased $60.4 million, or 59.2%, to
$162.4 million for the first twenty six weeks of fiscal
2008 from $102.0 million for the first six months of fiscal
2007. This increase was the result of increased comparable store
sales and sales from new stores opened. Assuming the average
exchange rate between the Canadian and United States dollars for
the first six months of fiscal 2007 remained constant, our net
revenue would have increased $49.9 million, or 48.7%, for
the first twenty six weeks of fiscal 2008.
|
|
|
|
|
|
|
|
|
|
|
Twenty Six Weeks
|
|
|
Six Months
|
|
|
|
Ended August 3,
|
|
|
Ended July 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Net revenue by segment:
|
|
|
|
|
|
|
|
|
Corporate-owned stores
|
|
$
|
147,685
|
|
|
$
|
89,669
|
|
Franchises
|
|
|
8,805
|
|
|
|
8,319
|
|
Other
|
|
|
5,935
|
|
|
|
4,052
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
162,425
|
|
|
$
|
102,040
|
|
|
|
|
|
|
|
|
|
|
Corporate-Owned Stores. Net revenue from our
corporate-owned stores segment increased $58.0 million, or
64.7%, to $147.7 million for the first twenty six weeks of
fiscal 2008 from $89.7 million for the first six months of
fiscal 2007. The following contributed to the $58.0 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, and corporate-owed stores we opened
subsequent to July 31, 2007 and therefore not included in
the comparable store sales growth, contributed
$37.9 million, or 66.7%, of the increase. New store
openings from the second quarter of fiscal 2007 included five
stores in Canada and 22 stores in the United States.
|
|
|
|
Comparable store sales growth of 22% in the first twenty six
weeks of fiscal 2008 contributed $20.1 million, or 33.3%,
of the increase. Assuming the average exchange rate between the
Canadian and the United States dollars for the first six months
of fiscal 2007 remained constant our comparable store sales
would have increased 14% for the first twenty six weeks of
fiscal 2008 and contributed $12.3 million, or 21.2%, of the
increase. The increase in comparable store sales was driven
primarily by the strength of our existing product lines,
successful introduction of new products and increasing
recognition of the lululemon athletica brand name.
|
Franchises. Net revenue from our franchises
segment increased $0.5 million, or 5.8%, to
$8.8 million for the first twenty six weeks of fiscal 2008
from $8.3 million for the first six months of fiscal
2007. The increase in net revenue from our franchises segment
consisted primarily of increased franchise revenue from our
remaining franchise locations.
Other. Net revenue from our other segment
increased $1.8 million, or 46.5%, to $5.9 million for
the first twenty six weeks of fiscal 2008 from $4.1 million
for the first six months of fiscal 2007. The $1.8 million
increase was primarily the result of increased wholesale, phone
sales and showroom sales.
Gross
Profit
Gross profit increased $32.3 million, or 60.9%, to
$85.5 million for the first twenty six weeks of fiscal 2008
from $53.1 million for the first six months of fiscal 2007.
The increase in gross profit was driven principally by:
|
|
|
|
|
an increase of $58.0 million in net revenue from our
corporate-owned stores segment;
|
|
|
|
an increase of $0.5 million in net revenue from our
franchises segment; and
|
|
|
|
an increase of $1.9 million in net revenue from our other
segment.
|
This amount was partially offset by:
|
|
|
|
|
an increase in product costs of $15.7 million associated
with our sale of goods through corporate-owned stores,
franchises and other segments;
|
|
|
|
an increase in occupancy costs of $6.0 million related to
an increase in corporate-owned stores;
|
19
|
|
|
|
|
an increase in the cost of sales support departments of
$4.2 million related to additional costs for distribution,
design, and production; and
|
|
|
|
an increase in depreciation of $2.2 million primarily
related to an increase in corporate-owned stores.
|
Gross profit as a percentage of net revenue, or gross margin,
increased 0.5% percentage points, to 52.6% for the first twenty
six weeks of fiscal 2008 from 52.1% for the first six months of
fiscal 2007. The increase in gross margin resulted from a
reduction in product costs as a percentage of net revenue, which
included a write-down of raw materials in the first six months
of fiscal 2007 as well as duty refunds of $0.7 million
received in the first twenty six weeks of fiscal 2008, that
contributed to an increase in gross margin of 2.9%.
This amount was partially offset by:
|
|
|
|
|
an increase in occupancy costs as a percentage of revenue, as a
result of increased cost related to new stores opened during the
quarter and new stores that have not yet opened, contributed to
a decrease in gross margin of 1.2%;
|
|
|
|
an increase in expenses related to our production, design,
merchandising and distribution departments (including
stock-based compensation expense) as a percentage of net revenue
from the first six months of fiscal 2007 compared to the first
twenty six weeks of fiscal 2008 which contributed to an decrease
in gross margin of 0.7%;
|
|
|
|
an increase in depreciation costs as a percentage of revenue
contributed to a decrease in gross margin of 0.5%; and
|
|
|
|
increased
mark-downs
in our stores during the first twenty six weeks of fiscal 2008.
|
Our costs of goods sold in the first twenty six weeks of fiscal
2008 and the first six months of fiscal 2007 included
$0.6 million and $0.4 million, respectively, of
stock-based compensation expense.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses increased
$22.2 million, or 62.1%, to $58.0 million for the
first twenty six weeks of fiscal 2008 from $35.8 million
for the first six months of fiscal 2007. As a percentage of net
revenue, selling, general and administrative expenses increased
0.6% percentage points, to 35.7% from 35.1%. The
$22.2 million increase in selling, general and
administrative expenses was principally comprised of:
|
|
|
|
|
an increase in employee compensation of $13.3 million
related to opening additional corporate-owned stores;
|
|
|
|
an increase in other store operating expenses of
$4.5 million primarily related to packaging, distribution,
marketing and supplies; and
|
|
|
|
an increase in other corporate expenses of $4.4 million for
costs such as: professional fees, which includes costs for
executive recruiting as well as other legal costs; stock-based
compensation; amortization and depreciation costs, including
amortization for capitalized inventory ERP software costs that
became available for use in the first twenty six weeks of fiscal
2008 and other corporate costs such as travel expenses and
communication costs associated with corporate facilities.
|
Our selling, general and administrative expenses in the first
twenty six weeks of fiscal 2008 and the first six months of
fiscal 2007 included $3.0 million and $2.6 million,
respectively, of stock-based compensation expense.
Income
from Operations
The increase of $10.1 million in income from operations for
the first twenty six weeks of fiscal 2008 was primarily due to a
$32.3 million increase in gross profit resulting from
increased comparable store sales and additional sales from
corporate-owned stores opened, partially offset by an increase
of $22.2 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
20
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:
|
|
|
|
|
our corporate-owned stores segment increased $18.1 million,
or 62.8%, to $46.8 million for the first twenty six weeks
of fiscal 2008 from $28.8 million for the first six months
of fiscal 2007 primarily due to an increase in corporate-owned
stores gross profit of $30.3 million, offset by an increase
of $12.2 million in store operating expenses;
|
|
|
|
our franchises segment increased $0.3 million, or 8.5%, to
$4.4 million for the first twenty six weeks of fiscal 2008
from $4.1 million for the first six months of fiscal 2007
primarily from increased franchise revenue from our remaining
franchise locations; and
|
|
|
|
our other segment increased $0.5 million, or 73.5%, to
$1.3 million for the first twenty six weeks of fiscal 2008
from $0.8 million for the first six months of fiscal 2007
primarily due to an increase in revenue of $1.9 million,
offset by an increase in product costs of $0.2 million and
an increase in operating costs of $1.2 million.
|
Other income, net increased $0.3 million to
$0.5 million for the first twenty six weeks of fiscal 2008
from $0.2 million for the first six months of fiscal 2007.
The increase was primarily due to interest income earned on
higher cash balances.
Provision
for Income Taxes
Income tax expense for the twenty six weeks ended August 3,
2008 was $7.2 million compared to $8.2 million for the
corresponding period in fiscal 2007. The Companys
financial statement effective tax rate for the twenty six weeks
ended August 3, 2008 was 25.7%. The effective tax rate will
vary from the statutory rate because (i) stock option
compensation expense recorded is a permanent difference in
certain jurisdictions, (ii) the realization of the benefits
of the tax assets from stock-based compensation 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 3, 2008.
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 3, 2008. As a result of this
analysis the Company recorded deferred tax assets of
(i) $1,388,549 related primarily to historical tax
differences between financial and tax bases of assets and
liabilities, (ii) $902,606 cumulative tax benefit recorded
from stock-based compensation expense prior to the second
quarter of fiscal 2008, and (iii) $2,660,671 excess tax
benefit from the exercise of stock options during and prior to
the second quarter of fiscal 2008.
Net
Income from Continuing Operations
Net income from continuing operations increased
$11.5 million to $20.8 million for the first twenty
six weeks of fiscal 2008 from $9.3 million for the first
six months of fiscal 2007. The increase in net income of
$11.5 million for the first twenty six weeks of fiscal 2008
was a result of an increase in gross profit of
$32.3 million resulting from increased comparable store
sales and additional sales from corporate-owned stores opened, a
decrease in provision for income taxes of $1.1 million, and
an increase of $0.3 million in other income, which was
offset by increases in selling, general and administrative
expenses of $22.2 million.
Discontinued
Operations
During the twenty six weeks ended August 3, 2008, revenues
from discontinued operations were $2.5 million and costs
and expenses were $2.6 million. The loss from discontinued
operations was $1.2 million, resulting in a
21
reduction of basic and diluted earnings per share of $0.02. The
shut down costs related to the closure of the stores in Japan
have been 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.
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 3, 2008, our working capital (excluding cash and
cash equivalents) was $28.0 million and our cash and cash
equivalents were $43.7 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, stock-based compensation
expense and the effect of the changes in non-cash working
capital items, principally prepaid expenses, inventories,
accounts payable and accrued expenses.
For the twenty six weeks ended August 3, 2008, cash
provided by operating activities decreased $1.5 million to
$11.1 million compared to $12.7 million in the six
months ended July 31, 2007. The $1.5 million decrease
was due to a net decrease in non-cash working capital items of
$12.0 million, a net decrease in items not affect cash of
$2.6 million partially offset by an increase in net income
of $11.5 million and a decrease in cash used by
discontinued operations of $1.5 million. The increase in
non-cash working capital items was primarily driven by:
|
|
|
|
|
a net increase in inventory levels of $9.1 million as the
Company requires additional inventory to support new store
openings;
|
|
|
|
a net decrease in accounts payable of $4.2 million
primarily due to the payment in the first twenty six weeks of
fiscal 2008 of normal operating expenses that were in accounts
payable at the end of fiscal 2007;
|
|
|
|
a net decrease in income taxes payable of $3.7 million due
to the payment of income tax installments in the first twenty
six weeks of fiscal 2008; and
|
|
|
|
a net increase in key money of $0.7 million as the Company
continued to acquire new leases for store openings.
|
These amounts were partially offset by:
|
|
|
|
|
a net increase in accrued liabilities of $3.3 million due
to the payout of a lawsuit in the first quarter of fiscal 2007
that was accrued at the end of fiscal 2006;
|
|
|
|
a net increase in other non-current liabilities of
$1.4 million primarily due to an increase in deferred lease
costs related to new stores being opened; and
|
22
|
|
|
|
|
a net decrease in accounts receivable of $0.7 million due
to activity related to our Japan and Australia joint ventures.
|
Items not affecting cash decreased in the twenty six weeks ended
August 3, 2008 as compared to the six months ended
July 31, 2007 as a result of an increase in deferred income
taxes and the excess tax benefits from stock-based compensation
which was partially offset by higher depreciation and
amortization expense related to a higher store count and the
implementation of our inventory ERP system and higher
stock-based compensation expense due to the one-time
acceleration of performance based options.
Investing
Activities
Investing Activities relate entirely to capital
expenditures, investments in and advances to affiliates, and
acquisitions of franchises. Cash used in investing activities
increased $6.7 million, to $22.1 million, for the
twenty six weeks ended August 3, 2008 from
$15.3 million for the six months ended July 31, 2007.
The $6.7 million increase was a result of additional
purchases of property and equipment of $8.9 million
resulting primarily from new store openings and IT capital
expenditures including capitalized software costs, an increase
of $2.8 million in investment in and advances to our
Australian franchise offset by a decrease in the acquisition of
franchises of $5.0 million, as the three Calgary franchises
were purchased in the first quarter of fiscal 2007.
Financing
Activities
Financing Activities consist primarily of costs related
to our initial public offering, cash received on the exercise of
stock options and excess tax benefits from stock-based
compensation. Cash provided by financing activities increased to
$3.0 million for the twenty six weeks ended August 3,
2008 from $4.7 million of cash used by financing activities
for the six months ended July 31, 2007.
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. In addition, we may make discretionary
capital improvements with respect to our stores, distribution
facility, headquarters, or other systems, which we would expect
to fund through the issuance of debt or equity securities or
other external financing sources to the extent we were unable to
fund such capital expenditures out of our cash from operations.
Revolving
Credit Facility
In April 2007, we executed a new 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 cancels our previous CDN$8,000,000
credit facility. Borrowings under the uncommitted credit
facilities are made on a
when-and-as-needed
basis at our discretion.
Borrowings under the credit facility can be made either as
i) Revolving Loans Revolving loan
borrowings will bear interest at a rate equal to the Banks
CA$ 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 3, 2008, there were no borrowings outstanding
under this credit facility.
23
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 3, 2008, letters of credit and
letters of guarantee totaling $1.5 million have been issued.
Other than these standby letters of credit, we do not have any
off-balance sheet arrangements, investments in special purpose
entities or undisclosed borrowings or debt. In addition, we have
not entered into any derivative contracts or synthetic leases.
Critical
Accounting Policies
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions.
Predicting future events is inherently an imprecise activity
and, as such, requires the use of judgment. Actual results may
vary from estimates in amounts that may be material to the
financial statements. An accounting policy is deemed to be
critical if it requires an accounting estimate to be made based
on assumptions about matters that are highly uncertain at the
time the estimate is made, and if different estimates that
reasonably could have been used, or changes in the accounting
estimates that are reasonably likely to occur periodically,
could materially impact our consolidated financial statements.
Our critical accounting policies and estimates are discussed in
our recently filed Annual Report on
Form 10-K
for our 2007 fiscal year end. We believe that there have been no
other significant changes during the twenty six weeks ended
August 3, 2008 to our critical accounting policies.
Operating
Locations
Our operating locations by country, state and province as of
August 3, 2008, and the overall totals as of August 3,
2008, are summarized in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Operating
|
|
|
|
|
|
|
Locations
|
|
|
|
|
Country, Province/State
|
|
Corporate
|
|
|
Franchise
|
|
|
Total
|
|
|
Canada
|
|
|
|
|
|
|
|
|
|
|
|
|
Alberta
|
|
|
8
|
|
|
|
|
|
|
|
8
|
|
British Columbia
|
|
|
9
|
|
|
|
2
|
|
|
|
11
|
|
Nova Scotia
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Manitoba
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Ontario
|
|
|
17
|
|
|
|
|
|
|
|
17
|
|
Quebec
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
Saskatchewan
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Canadian
|
|
|
40
|
|
|
|
3
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
|
|
|
|
|
|
|
|
|
|
California
|
|
|
15
|
|
|
|
1
|
|
|
|
16
|
|
Colorado
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
Florida
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
Hawaii
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Illinois
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
Massachusetts
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
Maryland
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Michigan
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Nevada
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
New York
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
Oregon
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Texas
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Operating
|
|
|
|
|
|
|
Locations
|
|
|
|
|
Country, Province/State
|
|
Corporate
|
|
|
Franchise
|
|
|
Total
|
|
|
Virginia
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
Washington
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total United States
|
|
|
39
|
|
|
|
5
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
Japan
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total International
|
|
|
1
|
|
|
|
4
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overall total, as of August 3, 2008
|
|
|
80
|
|
|
|
12
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overall total, as of February 3, 2008
|
|
|
71
|
|
|
|
10
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
U.S. dollar. Historically, our operations were based
largely in Canada. As of August 3, 2008, we operated 40
stores in Canada and one store in Japan. 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 U.S. dollar strengthens it would have a negative
impact on our Canadian operating results upon translation of
those results into U.S. 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 U.S. dollar compared to the Canadian dollar would have
resulted in lost income from operations of approximately
$1.0 million for the second quarter of fiscal 2008. 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 3, 2008, 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.
|
|
ITEM 4.
|
CONTROLS
AND PROCEDURES
|
Under the supervision and with the participation of our
management, including our principal executive officer and
principal financial officer, we conducted an evaluation of the
effectiveness of the design and operation of our disclosure
controls and procedures, as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended, as of the
end of the period covered by this report, or the Evaluation
Date. Based upon the
25
evaluation, our principal executive officer and principal
financial officer concluded that our disclosure controls and
procedures were effective as of the Evaluation Date. Disclosure
controls and procedures are controls and procedures designed to
reasonably ensure that information required to be disclosed in
our reports filed under the Exchange Act, such as this report,
is recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms. Disclosure
controls and procedures include controls and procedures designed
to reasonably ensure that such information is accumulated and
communicated to our management, including our chief executive
officer and chief financial officer, as appropriate to allow
timely decisions regarding required disclosure.
During the twenty six weeks ended August 3, 2008, the
Company implemented a new inventory subledger system. The
implementation has involved changes to processes, and,
accordingly, has required changes to internal controls.
Other than the changes discussed above, there have not been any
changes in the Companys internal control over financial
reporting during the Companys most recently completed
fiscal quarter that have materially affected, or are reasonably
likely to materially affect, the Companys internal control
over financial reporting.
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 2007 fiscal year filed on April 8, 2008. 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
|
Our initial public offering of common stock was effected through
a Registration Statement on
Form S-1
(File No. 333-142477),
which was declared effective by the SEC on July 26, 2007.
We sold 2,290,909 shares of common stock in the offering
and the selling stockholders sold 18,639,091 shares of
common stock in the offering, including the over-allotment
option. We did not receive any of the proceeds from sales by the
selling stockholders. We received net proceeds of approximately
$31.4 million from the offering, and since August 2,
2007, the closing date of the offering, we have used all of the
net proceeds for capital expenditures, including new store
openings, and inventory purchases.
|
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
At the Companys Annual Meeting of Stockholders held on
June 4, 2008, the stockholders of the Company elected
Michael Casey, RoAnn Costin and R. Brad Martin to our Board of
Directors as Class I Directors, and elected Christine M.
Day to our Board of Directors as a Class II Director. The
following table sets forth the voting results for each Director:
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|
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|
|
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|
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|
|
|
|
|
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Votes
|
|
|
Votes
|
|
|
Broker
|
|
Directors
|
|
Votes For
|
|
|
Against
|
|
|
Withheld/Abstained
|
|
|
Non-votes
|
|
|
Michael Casey
|
|
|
62,707,701
|
|
|
|
nil
|
|
|
|
9,065
|
|
|
|
nil
|
|
RoAnn Costin
|
|
|
62,701,898
|
|
|
|
nil
|
|
|
|
8,868
|
|
|
|
nil
|
|
R. Brad Martin
|
|
|
62,701,098
|
|
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|
nil
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|
|
|
9,668
|
|
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|
nil
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|
Christine M. Day
|
|
|
62,616,121
|
|
|
|
nil
|
|
|
|
94,645
|
|
|
|
nil
|
|
26
After the meeting, our Board of Directors consisted of Michael
Casey, RoAnn Costin, R. Brad Martin, Christine M. Day, Steven J.
Collins, Rhoda M. Pitcher, David M. Mussafer, Thomas G. Stemberg
and Dennis J. Wilson. Robert Meers resigned from the
Board of Directors immediately prior to the Annual Meeting of
Stockholders on June 4, 2008.
The stockholders of the Company also ratified the appointment of
PricewaterhouseCoopers LLP as the Companys independent
auditors for the fiscal year ending February 1, 2009 at the
Annual Meeting of Stockholders held on June 4, 2008. The
following table sets forth the voting results for the
ratification:
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|
|
|
|
|
|
|
|
|
|
Votes
|
|
|
Votes
|
|
|
Broker
|
|
Votes For
|
|
|
Against
|
|
|
Withheld/Abstained
|
|
|
Non-votes
|
|
|
|
62,689,083
|
|
|
|
10,977
|
|
|
|
10,706
|
|
|
|
nil
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Incorporated by Reference
|
|
|
Exhibit
|
|
|
|
Filed
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
Exhibit Title
|
|
Herewith
|
|
Form
|
|
No.
|
|
File No.
|
|
Filing Date
|
|
|
10
|
.1
|
|
2008 Executive Bonus Plan
|
|
|
|
8-K
|
|
|
10
|
.1
|
|
001-33608
|
|
5/6/2008
|
|
10
|
.2
|
|
Retirement, Transition and Release Agreement between lululemon
athletica inc. and Robert Meers, dated May 6, 2008
|
|
|
|
8-K
|
|
|
10
|
.2
|
|
001-33608
|
|
5/6/2008
|
|
10
|
.3
|
|
Executive Employment Agreement between lululemon athletica inc.
and Christine Day, effective August 1, 2008
|
|
|
|
8-K
|
|
|
10
|
.1
|
|
001-33608
|
|
7/30/2008
|
|
31
|
.1
|
|
Certification of Chief Executive Officer Pursuant to Exchange
Act
Rule 13a-14(a)
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
31
|
.2
|
|
Certification of Chief Financial Officer Pursuant to Exchange
Act
Rule 13a-14(a)
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
32
|
.1
|
|
Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
X
|
|
|
|
|
|
|
|
|
|
|
27
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, 2008
28
Exhibit Index
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
|
|
Exhibit
|
|
|
|
Filed
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
Exhibit Title
|
|
Herewith
|
|
Form
|
|
No.
|
|
File No.
|
|
Filing Date
|
|
|
10
|
.1
|
|
2008 Executive Bonus Plan
|
|
|
|
8-K
|
|
|
10
|
.1
|
|
001-33608
|
|
5/6/2008
|
|
10
|
.2
|
|
Retirement, Transition and Release Agreement between lululemon
athletica inc. and Robert Meers, dated May 6, 2008
|
|
|
|
8-K
|
|
|
10
|
.2
|
|
001-33608
|
|
5/6/2008
|
|
10
|
.3
|
|
Executive Employment Agreement between lululemon athletica inc.
and Christine Day, effective August 1, 2008
|
|
|
|
8-K
|
|
|
10
|
.1
|
|
001-33608
|
|
7/30/2008
|
|
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
|
|
|
|
|
|
|
|
|
|
|
29