e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
|
|
|
(Mark One)
|
|
|
þ
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the quarterly period ended
November 1, 2009
|
OR
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the transition period
from to
|
Commission file number
001-33608
lululemon athletica
inc.
(Exact name of registrant as
specified in its charter)
|
|
|
Delaware
|
|
20-3842867
|
(State or other jurisdiction
of
incorporation or organization)
|
|
(I.R.S. Employer
Identification No.)
|
|
|
|
2285 Clark Drive,
|
|
V5N 3G9
|
Vancouver, British Columbia
|
|
(Zip Code)
|
(Address of principal executive
offices)
|
|
|
Registrants telephone number, including area code:
604-732-6124
Former name, former address and former fiscal year, if
changed since last report: N/A
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
|
|
|
|
Large
accelerated
filer þ
|
Accelerated
filer o
|
Non-accelerated
filer o
|
Smaller
reporting
company o
|
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
At December 7, 2009, there were 50,908,883 shares of the
registrants common stock, par value $0.01 per share,
outstanding.
Exchangeable and Special Voting Shares:
At December 7, 2009 there were outstanding 19,408,346
exchangeable shares of Lulu Canadian Holding, Inc., a
wholly-owned subsidiary of the registrant. Exchangeable shares
are exchangeable for an equal number of shares of the
registrants common stock.
In addition, at December 7, 2009, the registrant had
outstanding 19,408,346 shares of special voting stock, through
which the holders of exchangeable shares of Lulu Canadian
Holding, Inc. may exercise their voting rights with respect to
the registrant. The special voting stock and the
registrants common stock generally vote together as a
single class on all matters on which the common stock is
entitled to vote.
PART I
FINANCIAL
INFORMATION
|
|
ITEM 1.
|
FINANCIAL
STATEMENTS
|
lululemon
athletica inc.
(Amounts
in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
November 1,
|
|
|
February 1,
|
|
|
|
2009
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
101,832
|
|
|
$
|
56,797
|
|
Accounts receivable
|
|
|
6,515
|
|
|
|
4,029
|
|
Inventories
|
|
|
52,103
|
|
|
|
52,051
|
|
Prepaid expenses and other current assets
|
|
|
5,618
|
|
|
|
4,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
166,068
|
|
|
|
116,988
|
|
Property and equipment, net
|
|
|
59,900
|
|
|
|
61,662
|
|
Goodwill and intangible assets, net
|
|
|
8,257
|
|
|
|
8,160
|
|
Deferred income taxes
|
|
|
6,128
|
|
|
|
19,373
|
|
Other non-current assets
|
|
|
6,415
|
|
|
|
5,453
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
246,768
|
|
|
$
|
211,636
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
5,866
|
|
|
$
|
5,269
|
|
Accrued liabilities
|
|
|
19,420
|
|
|
|
22,103
|
|
Accrued compensation and related expenses
|
|
|
7,351
|
|
|
|
5,862
|
|
Income taxes payable
|
|
|
|
|
|
|
2,133
|
|
Unredeemed gift card liability
|
|
|
6,259
|
|
|
|
9,278
|
|
Other current liabilities
|
|
|
551
|
|
|
|
690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,447
|
|
|
|
45,335
|
|
Other non-current liabilities
|
|
|
14,541
|
|
|
|
11,301
|
|
Deferred income taxes
|
|
|
181
|
|
|
|
158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,169
|
|
|
|
56,794
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
Undesignated preferred stock, $0.01 par value,
5,000 shares authorized, none issued and outstanding
|
|
|
|
|
|
|
|
|
Exchangeable stock, no par value, 30,000 shares authorized,
issued and outstanding 19,408 and 19,517 shares
|
|
|
|
|
|
|
|
|
Special voting stock, $0.00001 par value,
30,000 shares authorized, issued and outstanding 19,408 and
19,517 shares
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 200,000 shares
authorized, issued and outstanding 50,908 and 50,422 shares
|
|
|
509
|
|
|
|
504
|
|
Additional paid-in capital
|
|
|
148,413
|
|
|
|
155,961
|
|
Retained earnings
|
|
|
39,358
|
|
|
|
9,528
|
|
Accumulated other comprehensive income (loss)
|
|
|
4,319
|
|
|
|
(11,151
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
192,599
|
|
|
|
154,842
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
246,768
|
|
|
$
|
211,636
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the interim consolidated financial
statements
3
lululemon
athletica inc.
(Amounts
in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks
|
|
|
Thirteen Weeks
|
|
|
Thirty-Nine Weeks
|
|
|
Thirty-Nine Weeks
|
|
|
|
Ended November 1,
|
|
|
Ended November 2,
|
|
|
Ended November 1,
|
|
|
Ended November 2,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Net revenue
|
|
$
|
112,891
|
|
|
$
|
87,047
|
|
|
$
|
292,292
|
|
|
$
|
249,565
|
|
Cost of goods sold
|
|
|
56,553
|
|
|
|
45,154
|
|
|
|
155,766
|
|
|
|
122,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
56,338
|
|
|
|
41,893
|
|
|
|
136,526
|
|
|
|
127,406
|
|
Selling, general and administrative expenses
|
|
|
35,412
|
|
|
|
28,838
|
|
|
|
91,415
|
|
|
|
86,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
20,926
|
|
|
|
13,055
|
|
|
|
45,111
|
|
|
|
40,520
|
|
Other income (expense), net
|
|
|
(3
|
)
|
|
|
145
|
|
|
|
98
|
|
|
|
612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
20,923
|
|
|
|
13,200
|
|
|
|
45,209
|
|
|
|
41,132
|
|
Provision for income taxes
|
|
|
6,855
|
|
|
|
4,370
|
|
|
|
15,379
|
|
|
|
11,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
14,068
|
|
|
|
8,830
|
|
|
|
29,830
|
|
|
|
29,561
|
|
Net income (loss) from discontinued operations
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
(1,136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
14,068
|
|
|
$
|
8,834
|
|
|
$
|
29,830
|
|
|
$
|
28,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.20
|
|
|
$
|
0.13
|
|
|
$
|
0.42
|
|
|
$
|
0.44
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net basic earnings per share
|
|
$
|
0.20
|
|
|
$
|
0.13
|
|
|
$
|
0.42
|
|
|
$
|
0.42
|
|
Diluted earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.20
|
|
|
$
|
0.13
|
|
|
$
|
0.42
|
|
|
$
|
0.42
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net diluted earnings per share
|
|
$
|
0.20
|
|
|
$
|
0.13
|
|
|
$
|
0.42
|
|
|
$
|
0.40
|
|
Basic weighted-average number of shares outstanding
|
|
|
70,279
|
|
|
|
69,162
|
|
|
|
70,205
|
|
|
|
68,316
|
|
Diluted weighted-average number of shares outstanding
|
|
|
71,100
|
|
|
|
70,609
|
|
|
|
70,759
|
|
|
|
71,008
|
|
See accompanying notes to the interim consolidated financial
statements
4
lululemon
athletica inc.
(Amounts
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchangeable Stock
|
|
|
Special Voting Stock
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Par
|
|
|
|
|
|
Par
|
|
|
|
|
|
Par
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Value
|
|
|
Shares
|
|
|
Value
|
|
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 1, 2009
|
|
|
19,517
|
|
|
$
|
|
|
|
|
19,517
|
|
|
$
|
|
|
|
|
50,422
|
|
|
$
|
504
|
|
|
$
|
155,961
|
|
|
|
$9,528
|
|
|
|
$(11,151
|
)
|
|
$
|
154,842
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,830
|
|
|
|
|
|
|
|
29,830
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,470
|
|
|
|
15,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,300
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,229
|
|
|
|
|
|
|
|
|
|
|
|
4,229
|
|
Excess tax benefits from stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,024
|
)
|
|
|
|
|
|
|
|
|
|
|
(12,024
|
)
|
Common stock issued upon exchange of exchangeable shares
|
|
|
(109
|
)
|
|
|
|
|
|
|
(109
|
)
|
|
|
|
|
|
|
109
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock issuance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
362
|
|
|
|
4
|
|
|
|
248
|
|
|
|
|
|
|
|
|
|
|
|
252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 1, 2009
|
|
|
19,408
|
|
|
$
|
|
|
|
|
19,408
|
|
|
$
|
|
|
|
|
50,908
|
|
|
$
|
509
|
|
|
$
|
148,413
|
|
|
|
$39,358
|
|
|
|
$4,319
|
|
|
$
|
192,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the interim consolidated financial
statements
5
lululemon
athletica inc.
(Amounts
in thousands)
|
|
|
|
|
|
|
|
|
|
|
Thirty-Nine Weeks
|
|
|
Thirty-Nine Weeks
|
|
|
|
Ended November 1,
|
|
|
Ended November 2,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
29,830
|
|
|
$
|
28,425
|
|
Net loss from discontinued operations
|
|
|
|
|
|
|
(1,136
|
)
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
29,830
|
|
|
|
29,561
|
|
Items not affecting cash
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
15,236
|
|
|
|
11,102
|
|
Stock-based compensation
|
|
|
4,229
|
|
|
|
5,234
|
|
Deferred income taxes
|
|
|
1,365
|
|
|
|
(3,470
|
)
|
Excess tax benefits from stock-based compensation
|
|
|
|
|
|
|
(9,720
|
)
|
Other, including net changes in other non-cash balances
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
(1,189
|
)
|
|
|
(221
|
)
|
Inventory
|
|
|
2,987
|
|
|
|
(16,311
|
)
|
Accounts payable
|
|
|
842
|
|
|
|
3,051
|
|
Accrued liabilities
|
|
|
(1,876
|
)
|
|
|
16,510
|
|
Other non-cash balances
|
|
|
70
|
|
|
|
(7,539
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities continuing
operations
|
|
|
51,494
|
|
|
|
28,197
|
|
Net cash provided by operating activities
discontinued operations
|
|
|
|
|
|
|
1,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,494
|
|
|
|
29,204
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(9,024
|
)
|
|
|
(30,043
|
)
|
Investment in and advances to franchise
|
|
|
(1,190
|
)
|
|
|
(2,566
|
)
|
Acquisition of franchises
|
|
|
|
|
|
|
(3,030
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities continuing
operations
|
|
|
(10,214
|
)
|
|
|
(35,639
|
)
|
Net cash used in investing activities discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,214
|
)
|
|
|
(35,639
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
252
|
|
|
|
1,405
|
|
Excess tax benefits from stock-based compensation
|
|
|
|
|
|
|
9,720
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities continuing
operations
|
|
|
252
|
|
|
|
11,125
|
|
Net cash provided by financing activities
discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
252
|
|
|
|
11,125
|
|
Effect of exchange rate changes on cash
|
|
|
3,503
|
|
|
|
(5,196
|
)
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents from continuing
operations
|
|
|
45,035
|
|
|
|
(506
|
)
|
Cash and cash equivalents from continuing operations, beginning
of period
|
|
$
|
56,797
|
|
|
$
|
52,545
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents from continuing operations, end of
period
|
|
$
|
101,832
|
|
|
$
|
52,039
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the interim consolidated financial
statements
6
lululemon
athletica inc.
(unaudited)
(Amounts in thousands, except per share amounts and store
count information, unless otherwise indicated)
|
|
NOTE 1.
|
NATURE OF
OPERATIONS AND BASIS OF PRESENTATION
|
Nature
of operations
lululemon athletica inc., a Delaware corporation
(lululemon, together with its subsidiaries unless
the context otherwise requires, the Company) is
engaged in the design, manufacture and distribution of healthy
lifestyle inspired athletic apparel, which is sold through a
chain of corporate-owned and operated retail stores, direct to
consumers through our
e-commerce
sales channel, through independent franchises and through a
network of wholesale accounts. At November 1, 2009 the
Companys primary markets were Canada and the United States
where 41 and 65 corporate-owned stores were in operation,
respectively. Additionally, at November 1, 2009, there were
8 franchised stores in operation in Australia. There were 106
and 103 corporate-owned stores in operation as of
November 1, 2009 and February 1, 2009 respectively.
Basis
of presentation
The unaudited interim consolidated financial statements as of
November 1, 2009 and for the thirty-nine week periods ended
November 1, 2009 and November 2, 2008 are presented
using the United States dollar and have been prepared by the
Company under the rules and regulations of the Securities and
Exchange Commission (SEC). In the opinion of
management, the financial information is presented in accordance
with United States generally accepted accounting principles
(GAAP) for interim financial information and,
accordingly, does not include all of the information and
footnotes required by GAAP for complete financial statements.
The financial information as of February 1, 2009 is derived
from the Companys audited consolidated financial
statements and notes for the fiscal year ended February 1,
2009, included in Item 8 in the fiscal 2008 Annual Report
on
Form 10-K.
These unaudited interim consolidated financial statements
reflect all adjustments which in the opinion of management are
necessary to provide a fair statement of the results for the
interim periods presented. These unaudited interim consolidated
financial statements should be read in conjunction with the
Companys consolidated financial statements and related
notes included in the Companys 2008 Annual Report on
Form 10-K
filed with the SEC on March 27, 2009.
The Companys fiscal year ends on the Sunday closest to
January 31st of the following year. This typically
results in a fifty-two week year, but occasionally gives rise to
an additional week, resulting in a fifty-three week year.
Our business is affected by the pattern of seasonality common to
most retail apparel businesses. The results for the periods
presented are not necessarily indicative of future financial
results.
|
|
NOTE 2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Revenue
recognition
Revenues from the Companys gift cards are recognized when
tendered for payment, or upon redemption. Outstanding customer
balances are included in Unredeemed gift card
liability on the consolidated balance sheets. There are no
expiration dates on the Companys gift cards, and lululemon
does not charge any service fees that cause a decrement to
customer balances.
While the Company will continue to honor all gift cards
presented for payment, management may determine the likelihood
of redemption to be remote for certain card balances due to,
among other things, long periods of inactivity. In these
circumstances, to the extent management determines there is no
requirement for remitting card balances to government agencies
under unclaimed property laws, card balances may be recognized
in the consolidated statements of operations in Net
revenue. For the thirteen and thirty-nine weeks ended
November 1, 2009, net revenue recognized on unredeemed gift
card balances was $230 and $1,886, respectively. There was no
net revenue recognized on unredeemed gift card balances during
the year ended February 1, 2009.
7
lululemon
athletica inc.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Income
Taxes
The Company follows the liability method with respect to
accounting for income taxes. Deferred tax assets and liabilities
are determined based on temporary differences between the
carrying amounts and the tax basis of assets and liabilities.
Deferred income tax assets and liabilities are measured using
enacted tax rates that will be in effect when these differences
are expected to reverse, except for the amount of earnings
related to our foreign operations where repatriation is not
contemplated in the foreseeable future. Deferred income tax
assets are reduced by a valuation allowance, if based on the
weight of available evidence, it is more likely than not that
some portion or all of the deferred tax assets will not be
realized.
The recognition of a deferred income tax asset is based
primarily on managements forecasts, including current and
proposed tax legislation, current and anticipated taxable
income, utilization of previously unrealized non-operating loss
carryforwards and regulatory reviews of tax filings. Given
judgments and estimates required and the sensitivity of the
results to the significant assumptions used, the accounting
estimates used in relation to the recognition of deferred income
tax assets are subject to measurement uncertainty and are
susceptible to a material change if the underlying assumptions
change.
We file income tax returns in the United States, Canada and
various foreign and state jurisdictions. We are subject to
income tax examination by tax authorities in all such
jurisdictions from our inception to date. Our policy is to
recognize interest expense and penalties related to income tax
matters as tax expense. At February 1, 2009, we did not
have any significant accruals for interest related to
unrecognized tax benefits or tax penalties. Our intercompany
transfer pricing policies will be subject to audits by various
foreign tax jurisdictions. Although we believe that our
intercompany transfer pricing policies and tax positions are
reasonable, the final determination of tax audits or potential
tax disputes may be materially different from that which is
reflected in our income tax provisions and accruals.
United States income taxes and foreign withholding taxes are not
provided on undistributed earnings of foreign subsidiaries which
are considered to be indefinitely reinvested in the operations
of such subsidiaries. The amount of these earnings was
approximately $89,369 at November 1, 2009.
During the second quarter of fiscal 2009, an adjustment was made
to deferred tax assets and additional paid-in capital in the
amount of $12,024 relating to windfall taxes recorded in the
year ended February 1, 2009 in excess of taxes payable. A
similar entry for $192 was recorded in the same period related
to windfall taxes recorded in the first quarter of fiscal 2009.
The Company has concluded that the adjustment was not material
to the financial statements.
Recent
accounting pronouncements
On July 1, 2009, the Accounting Standards Codification
(ASC) became the Financial Accounting Standards
Boards (FASB) officially recognized source of
authoritative GAAP, superseding existing FASB, the American
Institute of Certified Accountants, the Emerging Issues Task
Force and related literature. Rules and interpretive releases of
the SEC under the authority of federal securities law are also
sources of authoritative GAAP for SEC registrants. All other
accounting literature is considered non-authoritative. The
switch to the ASC affects the way companies refer to GAAP in
financial statements and accounting policies. Citing particular
content in the ASC involves specifying the unique numeric path
to the content through the Topic, Section and Paragraph
structure. This standard was effective prospectively for
reporting periods ended after September 15, 2009 and,
accordingly, the Company adopted it during the third quarter of
fiscal 2009. The adoption of this standard did not have an
effect on the Companys consolidated financial position,
results of operations or cash flows. As a result of adopting
this standard, the Companys references to GAAP standards
have been changed to refer to topics, subtopics, sections or
subsections of the ASC, as appropriate.
In June 2009, the FASB amended ASC topic 810 Consolidation
(ASC 810), which requires a qualitative approach
to identifying a controlling financial interest in a variable
interest entity (VIE), and requires ongoing
assessment of whether an entity is a VIE and whether an interest
in a VIE makes the holder a primary beneficiary of
8
lululemon
athletica inc.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the VIE. The amendment will be effective for the Company at the
beginning of fiscal 2010. The Company is currently evaluating
the impact that adoption may have on its consolidated financial
statements.
In May 2009, the FASB issued ASC topic 855 Subsequent Events
(ASC 855). ASC 855 establishes general standards
of accounting for and disclosures of events that occur after the
balance sheet date but before financial statements are issued or
are available to be issued. In particular, ASC 855 sets forth
the period after the balance sheet date during which management
of a reporting entity should evaluate events or transactions
that may occur for potential recognition or disclosure in the
consolidated financial statements, the circumstances under which
an entity should recognize events or transactions occurring
after the balance sheet date in its consolidated financial
statements, and the disclosures that an entity should make about
events or transactions that occurred after the balance sheet
date. Subsequent events were evaluated through December 9,
2009 which is the date the financial statements were issued. The
Company has determined that the standard does not have any
impact on its consolidated financial statements.
In April 2008, the FASB amended ASC topic 350, Intangibles
and Other (ASC 350). This new accounting
standard, currently contained in ASC
350-30-35,
specifically amends the factors that should be considered in
developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset. The objective
of this amendment is to improve the consistency between the
useful life of a recognized intangible asset and the period of
expected cash flows used to measure the fair value of the asset.
This new standard is effective for fiscal years beginning after
December 15, 2008. The effective date, as well as the
adoption date for the Company, was February 2, 2009.
Although ASC 350 may impact the Companys reporting in
future financial periods, the Company has determined that the
standard did not have any impact on its historical consolidated
financial statements at the time of adoption.
In December 2007, the FASB revised the accounting standards for
business combinations. This new standard (currently contained in
ASC topic 805, Business Combinations (ASC
805)), among other things, generally requires that an
acquirer recognize the assets acquired and liabilities assumed
at their full fair values on the acquisition date.
This practice replaces the practice, under predecessor
accounting standards, of allocating the cost of an acquisition
to the individual assets acquired and liabilities assumed based
on their relative estimated fair values. This new standard
further requires that acquisition-related costs be recognized
separately from the related acquisition. In April 2009, the FASB
issued ASC
805-20,
Business Combinations Identifiable Assets and
Liabilities and Any Non-controlling Interest, which further
amends and clarifies ASC 805 and applies to assets acquired and
liabilities assumed that arise from contingencies in a business
combination. This new standard and the amendment must be applied
prospectively to business combinations consummated on or after
the first annual reporting period beginning on or after
December 15, 2008. The effective date, as well as the
adoption date for the Company, was February 2, 2009.
Although ASC 805 may impact the Companys reporting in
future financial periods, the Company has determined that the
standard did not have any impact on its historical consolidated
financial statements at the time of adoption.
|
|
NOTE 3.
|
STOCK-BASED
COMPENSATION
|
Share
option plans
The Companys employees participate in various stock-based
compensation plans, which are either provided by the Company or
by a principal stockholder of the Company.
Stock-based compensation expense charged to income for the plans
was $4,229 and $5,234 for the thirty-nine weeks ended
November 1, 2009 and November 2, 2008, respectively.
Total unrecognized compensation cost as at November 1, 2009
was $13,201 for all stock option plans, which is expected to be
recognized over a weighted-average period of 2.72 years.
9
lululemon
athletica inc.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Company
stock options
A summary of the Companys stock options and restricted
shares activity as of November 1, 2009 and changes during
the period then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
Number of
|
|
|
Average
|
|
|
Number of
|
|
|
Average
|
|
|
|
Stock
|
|
|
Exercise
|
|
|
Restricted
|
|
|
Grant
|
|
|
|
Options
|
|
|
Price
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Balance at February 1, 2009
|
|
|
1,905
|
|
|
$
|
10.83
|
|
|
|
9
|
|
|
$
|
24.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
867
|
|
|
$
|
13.21
|
|
|
|
15
|
|
|
$
|
13.83
|
|
Exercised
|
|
|
364
|
|
|
$
|
0.79
|
|
|
|
7
|
|
|
$
|
28.58
|
|
Forfeited
|
|
|
52
|
|
|
$
|
25.76
|
|
|
|
|
|
|
$
|
|
|
Balance at November 1, 2009
|
|
|
2,356
|
|
|
$
|
13.21
|
|
|
|
17
|
|
|
$
|
17.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at November 1, 2009
|
|
|
443
|
|
|
$
|
13.59
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholder-
sponsored stock options
During the thirty-nine weeks ended November 1, 2009 holders
of the exchangeable shares converted 109 exchangeable shares
into 109 shares of common stock of the Company for no
additional consideration. In connection with the exchange of
exchangeable shares, an equal number of outstanding shares of
the Companys special voting stock were cancelled.
During the thirty-nine weeks ended November 1, 2009 there
were no grants or forfeitures related to any of the stock
options issued and outstanding under the stockholder-sponsored
awards.
Employee
stock purchase plan
The Companys Board of Directors and stockholders approved
the Companys Employee Stock Purchase Plan
(ESPP) in September 2007. The ESPP allows for the
purchase of common stock of the Company by all eligible
employees. Eligible employees may elect to have whatever portion
of his or her base salary equates, after deduction of applicable
taxes, to either 3%, 6% or 9% of his or her base salary withheld
during each payroll period for purposes of purchasing shares of
our common stock under the ESPP. Additionally, we, or the
subsidiary employing the participant, will make a cash
contribution as additional compensation to each participant
equal to one-third of the aggregate amount of that
participants contribution for that pay period, which will
be used to purchase shares of our common stock, subject to
certain limits as defined in the ESPP. The maximum number of
shares available under the ESPP is 3,000 shares. During the
quarter ended November 1, 2009, there were 12 shares
purchased under the ESPP, which were funded by the Company
through open market purchases.
|
|
NOTE 4.
|
PROVISION
FOR IMPAIRMENT AND LEASE EXIT COSTS
|
In accordance with ASC topic 360, Property, Plant and
Equipment (ASC 360), the Company reviews its
long-lived assets for impairment when changes in circumstances
indicate that the carrying amount of the asset may not be
recoverable. ASC 360 requires that long-lived assets to be held
and used be recorded at the lower of the carrying amount or the
fair value. Long-lived assets to be disposed of are to be
recorded at the lower of the carrying amount or the fair value,
less estimated cost to sell.
During the thirty-nine weeks ended November 1, 2009, in
conjunction with the Companys ongoing assessment to ensure
that each of the Companys properties fit into the
Companys strategy, the Company recorded a charge of $820
in lease exit costs related to certain locations and reversed
lease exit costs of $714 previously recorded in the fourth
quarter of fiscal 2008. The fair market values were estimated
using an expected present value technique.
10
lululemon
athletica inc.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A reconciliation of the associated accrued liability is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Exit and
|
|
|
|
|
|
|
|
|
|
Other Related Costs
|
|
|
Asset Impairment
|
|
|
Total
|
|
|
Accrued liability at February 1, 2009
|
|
$
|
1,189
|
|
|
$
|
|
|
|
$
|
1,189
|
|
Costs incurred
|
|
|
1,620
|
|
|
|
|
|
|
|
1,620
|
|
Cash payments
|
|
|
(800
|
)
|
|
|
|
|
|
|
(800
|
)
|
Reversals
|
|
|
(714
|
)
|
|
|
|
|
|
|
(714
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liability at November 1, 2009
|
|
$
|
1,295
|
|
|
$
|
|
|
|
$
|
1,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 5.
|
LEGAL
PROCEEDINGS
|
On April 2, 2009, three former hourly Company employees
filed a class action lawsuit in San Diego Superior Court
entitled Mia Stephens et al v. lululemon athletica
inc. The lawsuit alleges that the Company violated various
California Labor Code sections by requiring employees to wear
lululemon clothing during working hours without reimbursing such
employees for the cost of the clothing and by paying certain
bonus payments to its employees in the form of lululemon gift
cards redeemable only for lululemon merchandise. The complaint
also alleges that the Company owes waiting time penalties as the
result of failing to pay employees all wages due at the time of
termination. The Company and the plaintiffs have agreed upon the
general terms of a settlement which has not yet been finalized
and which must be submitted to the court for preliminary and
final approval.
On March 26, 2009, a former hourly Company employee filed a
class action lawsuit in Orange County Superior Court, California
entitled Brett Kohlenberg et al v. lululemon
athletica inc. The lawsuit alleges that the Company violated
various California Labor Code sections by failing to pay its
employees for certain rest and meal breaks and off the
clock work, and for penalties related to waiting times and
failure to provide itemized wage statements. The plaintiff is
seeking an unspecified amount of damages. The Company intends to
vigorously defend the matter.
We are a party to various other legal proceedings arising in the
ordinary course of our business, but we are not currently a
party to any legal proceeding that management believes would
have a material adverse effect on our consolidated financial
position or results of operations.
11
lululemon
athletica inc.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 6.
|
EARNINGS
PER SHARE
|
The details of the computation of basic and diluted earnings per
share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks
|
|
|
Thirteen Weeks
|
|
|
Thirty-Nine Weeks
|
|
|
Thirty-Nine Weeks
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
November 1, 2009
|
|
|
November 2, 2008
|
|
|
November 1, 2009
|
|
|
November 2, 2008
|
|
|
Net income from continuing operations
|
|
$
|
14,068
|
|
|
$
|
8,830
|
|
|
$
|
29,830
|
|
|
$
|
29,561
|
|
Net income (loss) from discontinued operations
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
(1,136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
14,068
|
|
|
$
|
8,834
|
|
|
$
|
29,830
|
|
|
$
|
28,425
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
0.20
|
|
|
$
|
0.13
|
|
|
$
|
0.42
|
|
|
$
|
0.44
|
|
Net loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.20
|
|
|
$
|
0.13
|
|
|
$
|
0.42
|
|
|
$
|
0.42
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
0.20
|
|
|
$
|
0.13
|
|
|
$
|
0.42
|
|
|
$
|
0.42
|
|
Net loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.20
|
|
|
$
|
0.13
|
|
|
$
|
0.42
|
|
|
$
|
0.40
|
|
Basic weighted-average number of shares outstanding
|
|
|
70,279
|
|
|
|
69,162
|
|
|
|
70,205
|
|
|
|
68,316
|
|
Effect of stock options assumed exercised
|
|
|
821
|
|
|
|
1,447
|
|
|
|
554
|
|
|
|
2,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average number of shares outstanding
|
|
|
71,100
|
|
|
|
70,609
|
|
|
|
70,759
|
|
|
|
71,008
|
|
Our calculation of weighted-average shares includes the common
stock of the Company as well as the exchangeable shares.
Exchangeable shares are the equivalent of common shares in all
respects. For the thirteen and thirty-nine weeks ended
November 1, 2009, 333 and 1,001 stock options were
anti-dilutive to earnings and therefore have been excluded from
the computation of diluted earnings per share. For the thirteen
and thirty-nine weeks ended November 2, 2008, 830 and 637
stock options were anti-dilutive to earnings and therefore have
been excluded from the computation of diluted earnings per share.
12
lululemon
athletica inc.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 7.
|
SUPPLEMENTARY
FINANCIAL INFORMATION
|
A summary of certain balance sheet accounts is as follows:
|
|
|
|
|
|
|
|
|
|
|
November 1,
|
|
|
February 1,
|
|
|
|
2009
|
|
|
2009
|
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
$
|
4,243
|
|
|
$
|
3,171
|
|
Other accounts receivable
|
|
|
2,272
|
|
|
|
863
|
|
Allowance for doubtful accounts
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,515
|
|
|
$
|
4,029
|
|
|
|
|
|
|
|
|
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Finished goods
|
|
$
|
51,836
|
|
|
$
|
52,828
|
|
Raw materials
|
|
|
1,841
|
|
|
|
558
|
|
Provision to reduce inventory to market value
|
|
|
(1,574
|
)
|
|
|
(1,335
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
52,103
|
|
|
$
|
52,051
|
|
|
|
|
|
|
|
|
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
Leasehold improvements
|
|
$
|
58,549
|
|
|
$
|
52,101
|
|
Furniture and fixtures
|
|
|
17,514
|
|
|
|
16,581
|
|
Computer hardware and software
|
|
|
23,992
|
|
|
|
19,411
|
|
Equipment and vehicles
|
|
|
380
|
|
|
|
279
|
|
Accumulated amortization and depreciation
|
|
|
(40,535
|
)
|
|
|
(26,710
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
59,900
|
|
|
$
|
61,662
|
|
|
|
|
|
|
|
|
|
|
Goodwill and intangible assets:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
738
|
|
|
$
|
738
|
|
Changes in foreign currency exchange rates
|
|
|
150
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
888
|
|
|
|
774
|
|
|
|
|
|
|
|
|
|
|
Reacquired franchise rights
|
|
|
10,162
|
|
|
|
10,162
|
|
Non-competition agreements
|
|
|
694
|
|
|
|
694
|
|
Accumulated amortization
|
|
|
(4,445
|
)
|
|
|
(3,162
|
)
|
Changes in foreign currency exchange rates
|
|
|
958
|
|
|
|
(308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
7,369
|
|
|
|
7,386
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,257
|
|
|
$
|
8,160
|
|
|
|
|
|
|
|
|
|
|
Other non-current assets:
|
|
|
|
|
|
|
|
|
Prepaid rent and security deposits
|
|
$
|
800
|
|
|
$
|
872
|
|
Deferred lease cost
|
|
|
1,562
|
|
|
|
1,718
|
|
Advances to and investments in franchise
|
|
|
4,053
|
|
|
|
2,863
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,415
|
|
|
$
|
5,453
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
|
Inventory purchases
|
|
$
|
10,190
|
|
|
$
|
15,772
|
|
Sales tax collected
|
|
|
2,619
|
|
|
|
1,681
|
|
Accrued rent
|
|
|
1,126
|
|
|
|
1,147
|
|
Impairment and lease exit costs
|
|
|
1,295
|
|
|
|
1,189
|
|
Other
|
|
|
4,190
|
|
|
|
2,314
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19,420
|
|
|
$
|
22,103
|
|
|
|
|
|
|
|
|
|
|
Other non-current liabilities:
|
|
|
|
|
|
|
|
|
Deferred lease liability
|
|
$
|
10,168
|
|
|
$
|
7,326
|
|
Tenant inducements
|
|
|
4,373
|
|
|
|
3,975
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,541
|
|
|
$
|
11,301
|
|
|
|
|
|
|
|
|
|
|
13
lululemon
athletica inc.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 8.
|
SEGMENT
REPORTING
|
The Companys reportable segments are comprised of
corporate-owned stores, franchises and other. Phone sales,
warehouse sales,
e-commerce
sales and showrooms sales have been combined into other.
Information for these segments from continuing operations is
detailed in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks
|
|
|
Thirteen Weeks
|
|
|
Thirty-Nine Weeks
|
|
|
Thirty-Nine Weeks
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
November 1, 2009
|
|
|
November 2, 2008
|
|
|
November 1, 2009
|
|
|
November 2, 2008
|
|
|
Net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate-owned stores
|
|
$
|
98,060
|
|
|
$
|
77,559
|
|
|
$
|
256,053
|
|
|
$
|
225,244
|
|
Franchises
|
|
|
4,118
|
|
|
|
4,798
|
|
|
|
9,798
|
|
|
|
13,567
|
|
Other
|
|
|
10,713
|
|
|
|
4,690
|
|
|
|
26,441
|
|
|
|
10,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
112,891
|
|
|
$
|
87,047
|
|
|
$
|
292,292
|
|
|
$
|
249,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations before general corporate expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate-owned stores
|
|
$
|
30,760
|
|
|
$
|
21,401
|
|
|
$
|
72,408
|
|
|
$
|
68,166
|
|
Franchises
|
|
|
1,272
|
|
|
|
2,206
|
|
|
|
3,323
|
|
|
|
6,415
|
|
Other
|
|
|
6,571
|
|
|
|
374
|
|
|
|
13,604
|
|
|
|
2,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,603
|
|
|
|
23,981
|
|
|
|
89,335
|
|
|
|
76,636
|
|
General corporate expense
|
|
|
17,677
|
|
|
|
10,926
|
|
|
|
44,224
|
|
|
|
36,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
20,926
|
|
|
|
13,055
|
|
|
|
45,111
|
|
|
|
40,520
|
|
Other income (expense), net
|
|
|
(3
|
)
|
|
|
145
|
|
|
|
98
|
|
|
|
612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
20,923
|
|
|
$
|
13,200
|
|
|
$
|
45,209
|
|
|
$
|
41,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate-owned stores
|
|
$
|
2,719
|
|
|
$
|
8,953
|
|
|
$
|
5,729
|
|
|
$
|
22,130
|
|
Corporate
|
|
|
962
|
|
|
|
1,806
|
|
|
|
3,295
|
|
|
|
7,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,681
|
|
|
$
|
10,759
|
|
|
$
|
9,024
|
|
|
$
|
30,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate-owned stores
|
|
$
|
3,491
|
|
|
$
|
3,357
|
|
|
$
|
10,074
|
|
|
$
|
7,977
|
|
Corporate
|
|
|
2,193
|
|
|
|
927
|
|
|
|
5,162
|
|
|
|
2,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,684
|
|
|
$
|
4,284
|
|
|
$
|
15,236
|
|
|
$
|
10,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 9.
|
DISCONTINUED
OPERATIONS
|
During the first quarter of fiscal 2008 the Company committed to
plans to
wind-up
operations in Japan and in the second quarter of fiscal 2008 the
plans were finalized and disposition of the assets commenced
with the closure of three of the four corporate-owned stores
that the Company was operating as a joint venture with Descente
Ltd. The fourth corporate-owned store was closed during the
third quarter of fiscal 2008. The shut down costs related to the
closure of the stores in Japan were fully accrued in the second
quarter of fiscal 2008. The Company and Descente Ltd. agreed to
end all operations as a joint venture in the third quarter of
fiscal 2008.
14
lululemon
athletica inc.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The results of discontinued operations are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Thirty-Nine Weeks
|
|
|
Thirty-Nine Weeks
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
November 1, 2009
|
|
|
November 2, 2008
|
|
|
Revenue
|
|
$
|
|
|
|
$
|
2,482
|
|
Expenses
|
|
|
|
|
|
|
(3,823
|
)
|
Minority interest
|
|
|
|
|
|
|
205
|
|
|
|
|
|
|
|
|
|
|
Net loss on discontinued operations
|
|
$
|
|
|
|
$
|
(1,136
|
)
|
|
|
|
|
|
|
|
|
|
The net loss from discontinued operations represents all
activity up to November 1, 2009.
15
|
|
ITEM 2.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Some of the statements contained in this
Form 10-Q
and any documents incorporated herein by reference constitute
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and the Private
Securities Litigation Reform Act of 1995. All statements, other
than statements of historical facts, included or incorporated in
this
Form 10-Q
are forward-looking statements, particularly statements which
relate to expectations, beliefs, projections, future plans and
strategies, anticipated events or trends and similar expressions
concerning matters that are not historical facts, such as
statements regarding our future financial condition or results
of operations, our prospects and strategies for future growth,
the development and introduction of new products, and the
implementation of our marketing and branding strategies. In many
cases, you can identify forward-looking statements by terms such
as may, will, should,
expects, plans, anticipates,
believes, estimates,
intends, predicts, potential
or the negative of these terms or other comparable terminology.
The forward-looking statements contained in this
Form 10-Q
and any documents incorporated herein by reference reflect our
current views about future events and are subject to risks,
uncertainties, assumptions and changes in circumstances that may
cause events or our actual activities or results to differ
significantly from those expressed in any forward-looking
statement. Although we believe that the expectations reflected
in the forward-looking statements are reasonable, we cannot
guarantee future events, results, actions, levels of activity,
performance or achievements. Readers are cautioned not to place
undue reliance on these forward-looking statements. A number of
important factors could cause actual results to differ
materially from those indicated by the forward-looking
statements, including, but not limited to, those factors
described in Risk Factors and
Managements Discussion and Analysis of Financial
Condition and Results of Operations of our Annual Report
on
Form 10-K
for fiscal 2008 filed on March 27, 2009. These factors
include without limitation:
|
|
|
|
|
our ability to sustain operational and performance levels in a
volatile worldwide economy;
|
|
|
|
our ability to manage operations at our current size or manage
growth effectively;
|
|
|
|
our ability to locate suitable locations to open new stores and
to attract customers to our stores;
|
|
|
|
our ability to successfully expand in new markets outside of
North America;
|
|
|
|
our ability to finance our growth and maintain sufficient levels
of cash flow;
|
|
|
|
increased competition causing us to reduce the prices of our
products or to increase significantly our marketing efforts in
order to avoid losing market share;
|
|
|
|
our ability to effectively market and maintain a positive brand
image and to protect the lululemon brand and related goodwill;
|
|
|
|
our ability to maintain our historical levels of comparable
store sales or average sales per square foot;
|
|
|
|
our ability to continually innovate and provide our consumers
with improved products;
|
|
|
|
the ability of our suppliers or manufacturers to produce or
deliver our products in a timely or cost-effective manner;
|
|
|
|
our lack of long-term supplier contracts;
|
|
|
|
our lack of patents or exclusive intellectual property rights in
our fabrics and manufacturing technology;
|
|
|
|
our ability to attract and maintain the services of our senior
management and key employees;
|
|
|
|
the availability and effective operation of management
information systems and other technology;
|
|
|
|
changes in consumer preferences or changes in demand for
technical athletic apparel and other products;
|
|
|
|
our ability to accurately forecast consumer demand for our
products;
|
|
|
|
our ability to accurately anticipate and respond to seasonal or
quarterly fluctuations in our operating results;
|
|
|
|
our ability to maintain effective internal controls; and
|
|
|
|
changes in general economic or market conditions, including as a
result of political or military unrest or terrorist attacks.
|
16
The forward-looking statements contained in this
Form 10-Q
reflect our views and assumptions only as of the date of this
Form 10-Q
and are expressly qualified in their entirety by the cautionary
statements included in this
Form 10-Q.
Except as required by applicable securities law, we undertake no
obligation to update any forward-looking statement to reflect
events or circumstances after the date on which the statement is
made or to reflect the occurrence of unanticipated events.
Our fiscal year ends on the Sunday closest to
January 31st of the following year. This typically
results in a fifty-two week year, but occasionally gives rise to
an additional week, resulting in a fifty-three week year.
Overview
The world economy and capital markets are currently undergoing a
period of unprecedented volatility. During fiscal 2008, there
was a considerable slow down as problems in global financial
markets became more widespread and consumers cut back on retail
spending amid fears of a global recession. Our sales growth
slowed in the latter part of fiscal 2008, driven in part by this
reduced spending. This challenging economic climate and the
continued weakness of the Canadian dollar continued to
negatively affect our financial results during the beginning of
fiscal 2009. Recently, the global economy has shown some signs
of improvement, as reflected in our current quarter net revenues
growth, and the Canadian dollar has strengthened relative to the
United States dollar. This growth however, does not match the
rapid growth we realized in prior years. Management recognizes
the difficult economic situation that many of our consumers are
still facing and does not expect our rate of growth to
significantly change throughout the remainder of the fiscal year.
In response to the changes in the world economy and the impact
on our operating results, we have taken several steps to address
the deterioration in the retail environment and to address our
support structure. These steps, which we discussed in our Annual
Report on
Form 10-K
for fiscal 2008 filed with the SEC on March 27, 2009,
included the development and implementation of several important
initiatives as part of our strategy designed to increase
customer traffic in our corporate-owned store locations, reduce
infrastructure expenses and improve our operating results.
We continue to realize the positive effects of our cost
reductions and efficiency initiatives, and expect that such
initiatives, combined with modest net revenue growth, will
continue to impact our financial results through the remainder
of fiscal 2009. These targeted cost reductions and associated
efficiency efforts were designed to structure our business for
long-term profitable growth and to protect our brand integrity.
We believe our continued strong cash flow generation, solid
balance sheet and healthy liquidity provide us with the
financial flexibility to continue executing the initiatives we
implemented at the end of fiscal 2008 as well as make
investments at strategic times going forward which will benefit
our company.
Operating
Segment Overview
lululemon is a designer and retailer of technical athletic
apparel operating in North America and Australia. Our
yoga-inspired apparel is marketed under the lululemon athletica
brand name. We offer a comprehensive line of apparel and
accessories including fitness pants, shorts, tops and jackets
designed for athletic pursuits such as yoga, dance, running and
general fitness. As of November 1, 2009, our branded
apparel was principally sold through 119 corporate-owned and
franchised 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 third quarter of fiscal 2009, approximately 61% of our
net revenue was derived from sales of our products in Canada,
39% of our net revenue was derived from the sales of our
products in the United States and an immaterial amount of our
net revenue was derived from sales of our products outside of
North America.
Our net revenue has grown from $40.7 million in fiscal 2004
to $353.5 million in fiscal 2008. This represents a
compound annual growth rate of 72%. Our net revenue from
continuing operations also increased from $249.6 million in
the first three quarters of fiscal 2008 to $292.3 million
in the first three quarters of fiscal 2009, representing a 17%
increase. Our increase in net revenue from fiscal 2004 to fiscal
2008 resulted from the addition of retail locations in North
America, including 34 net openings in fiscal 2008 and
31 net openings in fiscal 2007, and comparable store sales
growth as high as 34%, which we realized in fiscal 2007. Our
ability to open new stores and
17
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 3% of our net revenues in the first three quarters
of fiscal 2009, 5% of our net revenues from continuing
operations in fiscal 2008 and 7% of our net revenues from
continuing operations in fiscal 2007. Opening new franchised
stores is not a significant part of our near-term growth
strategy, and we therefore expect that if the revenue derived
from our franchised stores continues to comprise less than 10%
of the net revenue we report in future fiscal years, we will
re-evaluate our segment reporting disclosures. Our other
operations accounted for less than 10% of our net revenues from
continuing operations in each of the first three quarters of
fiscal 2009, fiscal 2008 and fiscal 2007.
Results
of Continuing Operations
Thirteen
Weeks Results
The following table summarizes key components of our results of
operations for the thirteen weeks ended November 1, 2009
and November 2, 2008. The operating results are expressed
in dollar amounts as well as relevant percentages, presented as
a percentage of net revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended November 1, 2009 and
November 2, 2008
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
(Percentages)
|
|
|
Net revenue
|
|
$
|
112,891
|
|
|
$
|
87,047
|
|
|
|
100.0
|
|
|
|
100.0
|
|
Cost of goods sold
|
|
|
56,553
|
|
|
|
45,154
|
|
|
|
50.1
|
|
|
|
51.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
56,338
|
|
|
|
41,893
|
|
|
|
49.9
|
|
|
|
48.1
|
|
Selling, general and administrative expenses
|
|
|
35,412
|
|
|
|
28,838
|
|
|
|
31.4
|
|
|
|
33.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
20,926
|
|
|
|
13,055
|
|
|
|
18.5
|
|
|
|
15.0
|
|
Other income (expense), net
|
|
|
(3
|
)
|
|
|
145
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
20,923
|
|
|
|
13,200
|
|
|
|
18.5
|
|
|
|
15.2
|
|
Provision for income taxes
|
|
|
6,855
|
|
|
|
4,370
|
|
|
|
6.0
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
14,068
|
|
|
|
8,830
|
|
|
|
12.5
|
|
|
|
10.2
|
|
Net income from discontinued operations
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
14,068
|
|
|
$
|
8,834
|
|
|
|
12.5
|
|
|
|
10.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Revenue
Net revenue increased $25.8 million, or 30%, to
$112.9 million for the third quarter of fiscal 2009 from
$87.0 million for the third quarter of fiscal 2008. 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 third
quarter of fiscal 2008 remained constant, our net revenue would
have increased $24.8 million, or 28%, for the third quarter
of fiscal 2009.
18
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks
|
|
|
Thirteen Weeks
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
November 1, 2009
|
|
|
November 2, 2008
|
|
|
Net revenue by segment:
|
|
|
|
|
|
|
|
|
Corporate-owned stores
|
|
$
|
98,060
|
|
|
$
|
77,559
|
|
Franchises
|
|
|
4,118
|
|
|
|
4,798
|
|
Other
|
|
|
10,713
|
|
|
|
4,690
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
112,891
|
|
|
$
|
87,047
|
|
|
|
|
|
|
|
|
|
|
Corporate-Owned Stores. Net revenue from our
corporate-owned stores segment increased $20.5 million, or
26%, to $98.1 million for the third quarter of fiscal 2009
from $77.6 million for the third quarter of fiscal 2008.
The following contributed to the $20.5 million increase in
net revenue from our corporate-owned stores segment:
|
|
|
|
|
Net revenue from corporate-owned stores we opened during the
first three quarters of fiscal 2009, and other corporate-owed
stores we opened, or reacquired the franchise rights for,
subsequent to November 2, 2008 and therefore not included
in the comparable store sales growth, contributed
$12.0 million of the increase. Net new store openings
(closings) since the third quarter of fiscal 2008 included (one)
store in Canada and nine stores in the United States; and
|
|
|
|
Comparable store sales increase of 10% in the third quarter of
fiscal 2009 resulted in a $7.5 million increase to net
revenue, excluding the effect of foreign currency fluctuations.
Including the effect of foreign currency fluctuations,
comparable stores sales increased 11%, or $8.5 million, in
the third quarter of fiscal 2009.
|
Franchises. Net revenue from our franchises
segment decreased $0.7 million, or 14%, to
$4.1 million for the third quarter of fiscal 2009 from
$4.8 million for the third quarter of fiscal 2008. The
decrease in net revenue from our franchises segment resulted
primarily from our reacquisition of two franchised stores in
Victoria, British Columbia and one franchised store in Bellevue,
Washington in the third quarter of fiscal 2008.
Other. Net revenue from our other segment
increased $6.0 million, or 128%, to $10.7 million for
the third quarter of fiscal 2009 from $4.7 million for the
third quarter of fiscal 2008. The $6.0 million increase was
primarily the result of an increase in sales from the launch of
our
e-commerce
channel in the first quarter of fiscal 2009 which contributed
$4.2 million in net revenues, as well as increased sales
from wholesale and outlet sales which contributed
$1.8 million in net revenues.
Gross
Profit
Gross profit increased $14.4 million, or 34%, to
$56.3 million for the third quarter of fiscal 2009 from
$41.9 million for the third quarter of fiscal 2008. The
increase in gross profit was driven principally by:
|
|
|
|
|
an increase of $20.5 million in net revenue from our
corporate-owned stores segment related to an increase in
corporate-owned stores; and
|
|
|
|
an increase of $6.0 million in net revenue from our other
segment related primarily to an increase in sales from the
launch of our
e-commerce
channel in the first quarter of fiscal 2009 as well as increased
sales from wholesale, outlet and warehouse sales.
|
These amounts were partially offset by:
|
|
|
|
|
an increase in product costs of $7.3 million associated
with our sale of goods through corporate-owned stores related
primarily to increased revenues and unfavorable foreign exchange
differences;
|
|
|
|
an increase in fixed costs, such as occupancy costs and
depreciation, of $2.3 million related to an increase in
corporate-owned stores which has a deleveraging effect on gross
profit;
|
|
|
|
an increase in product costs of $1.5 million associated
with the increase in the sale of our goods through our other
segment including the launch of our
e-commerce
channel in the first fiscal quarter of 2009 as well as increased
sales from outlet and warehouse locations;
|
19
|
|
|
|
|
a decrease of $0.8 million in gross profit from our
franchises segment related primarily to the reacquisition of
franchised stores late in the third quarter of fiscal
2008; and
|
|
|
|
an increase of $0.3 million in cost of sales support
departments related to increased costs for production, design,
merchandising and distribution.
|
Gross profit as a percentage of net revenue, or gross margin,
increased 1.8%, to 49.9% for the third quarter of fiscal 2009
from 48.1% for the third quarter of fiscal 2008. The increase in
gross margin resulted primarily from:
|
|
|
|
|
an increase in corporate-owned stores product margin of 1.1%
related primarily to sourcing initiatives, reduced markdowns and
other;
|
|
|
|
a decrease in fixed costs, such as occupancy costs and
depreciation, relative to the increase in net revenue, which had
a leveraging effect on gross margin and contributed an increase
of 1.0%; and
|
|
|
|
a decrease in expenses related to our production, design,
merchandising and distribution departments, relative to the
increase in net revenue, which had a leveraging effect on gross
margin and contributed an increase of 0.8%.
|
This increase in gross margin was offset by unfavorable foreign
exchange differences on inventory of 1.2%.
Our costs of goods sold in the third quarter of fiscal 2009 and
the third quarter of fiscal 2008 included $0.1 million and
$0.2 million, respectively, of stock-based compensation
expense.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses increased
$6.6 million, or 23%, to $35.4 million for the third
quarter of fiscal 2009 from $28.8 million for the third
quarter of fiscal 2008. As a percentage of net revenue, selling,
general and administrative expenses decreased 1.8%, to 31.4%
from 33.1%. The $6.6 million increase in selling, general
and administrative expenses was principally comprised of:
|
|
|
|
|
an increase in administrative costs associated with the launch
in the first fiscal quarter of 2009 of our new
e-commerce
channel of $1.2 million;
|
|
|
|
an increase of $1.2 million primarily related to
professional fees and legal costs associated with ongoing
litigation including legal settlement costs;
|
|
|
|
an increase of $1.0 million related to higher management
incentive based compensation;
|
|
|
|
an increase of $0.9 million primarily related to an
increase in store labor hours due to a larger store base than in
the third quarter of fiscal 2008;
|
|
|
|
an increase in depreciation costs of $0.9 million primarily
related to IT projects placed into use during the third quarter
of fiscal 2009;
|
|
|
|
an increase in other administrative costs of $0.9 million
primarily related to a one-time charge arising from a sales tax
audit and our store support centers efforts to support a
larger store base than in the third quarter of fiscal 2008; and
|
|
|
|
an increase in foreign exchange losses of $0.6 million
related to unfavorable fluctuations in the
Canadian-United
States dollar exchange rate.
|
These amounts were partially offset by a decrease in travel,
meals and entertainment and supplies during the third quarter
of fiscal 2009 of $0.5 million related to our efforts to
reduce discretionary spending.
Our selling, general and administrative expenses in the third
quarter of fiscal 2009 and the third quarter of fiscal 2008
included $1.3 million and $1.3 million, respectively,
of stock-based compensation expense.
Income
from Operations
Income from operations increased $7.9 million, or 60%, to
$20.9 million for the third quarter of fiscal 2009 from
$13.1 million for the third quarter of fiscal 2008. The
increase of $7.9 million in income from operations for
20
the third quarter of fiscal 2009 was primarily due to an
increase of $14.4 million in gross profit resulting from
increased comparable store sales and additional sales from
corporate-owned stores opened, and was partially offset by a
$6.6 million increase 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
occupancy cost. 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 $9.4 million,
or 44%, to $30.8 million for the third quarter of fiscal
2009 from $21.4 million for the third quarter of fiscal
2008. The increase in corporate-owned stores net revenue of
$20.5 million was offset by an increase of
$7.3 million cost of goods sold and an increase in store
operating expenses of $3.8 million;
|
|
|
|
our franchises segment decreased $0.9 million, or 42%, to
$1.3 million for the third quarter of fiscal 2009 from
$2.2 million for the third quarter of fiscal 2008,
primarily as a result of franchises net revenue included in the
comparative period shifting to corporate-owned stores income
from operations when we reacquired two franchised stores in
Victoria, British Columbia and one franchised store in Bellevue,
Washington in the third quarter of fiscal 2008; and
|
|
|
|
our other segment increased $6.2 million, or 1655%, to
$6.6 million for the third quarter of fiscal 2009 from
$0.4 million for the third quarter of fiscal 2008,
primarily due to the introduction of online sales through our
e-commerce
channel as well as increased outlet, warehouse and wholesale
activity.
|
Other income (expense), net decreased $0.1 million to $nil
for the third quarter of fiscal 2009 from $0.1 million for
the third quarter of fiscal 2008. The decrease was primarily due
to lower interest rates earned on cash balances.
Provision
for Income Taxes
Income tax expense for the third quarter of fiscal 2009 was
$6.9 million compared to $4.4 million for the
corresponding period in fiscal 2008. The Companys
financial statement effective tax rate for the third quarter of
fiscal 2009 was 32.8% compared to 33.1% for the third quarter of
fiscal 2008. The decrease is due to a one-time
true-up from
the recognition of deferred tax assets in the third quarter of
fiscal 2009 which was partially offset by state taxes and a
true-up in a foreign jurisdiction. The effective tax rate will
vary from the statutory rate because (i) stock-based
compensation expense recorded is a permanent difference in
certain jurisdictions, (ii) the realization of the benefits
of the tax assets from stock-based compensation, 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.
Net
Income from Continuing Operations
Net income from continuing operations increased
$5.2 million, to $14.1 million for the third quarter
of fiscal 2009 from $8.8 million for the third quarter of
fiscal 2008. The increase in net income of $5.2 million for
the third quarter of fiscal 2009 was primarily due to an
increase of $14.4 million in gross profit resulting from
increased comparable store sales and additional sales from
corporate-owned stores opened, partially offset by an increase
of $6.6 million in selling, general and administrative
expenses, an increase of $2.5 million in income tax expense
and a decrease in other income (expense), net of
$0.1 million. During both the third quarter of fiscal 2009
and fiscal 2008 there were immaterial revenues, expenses or
losses from discontinued operations, resulting in a $nil impact
on basic and diluted earnings per share.
21
Thirty-Nine
Weeks Results
The following table summarizes key components of our results of
operations for the thirty-nine weeks ended November 1, 2009
and November 2, 2008. The operating results are expressed
in dollar amounts as well as relevant percentages, presented as
a percentage of net revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirty-Nine Weeks Ended November 1, 2009 and
November 2, 2008
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
(Percentages)
|
|
|
Net revenue
|
|
$
|
292,292
|
|
|
$
|
249,565
|
|
|
|
100.0
|
|
|
|
100.0
|
|
Cost of goods sold
|
|
|
155,766
|
|
|
|
122,159
|
|
|
|
53.3
|
|
|
|
48.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
136,526
|
|
|
|
127,406
|
|
|
|
46.7
|
|
|
|
51.1
|
|
Selling, general and administrative expenses
|
|
|
91,415
|
|
|
|
86,886
|
|
|
|
31.3
|
|
|
|
34.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
45,111
|
|
|
|
40,520
|
|
|
|
15.4
|
|
|
|
16.2
|
|
Other income, net
|
|
|
98
|
|
|
|
612
|
|
|
|
0.1
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
45,209
|
|
|
|
41,132
|
|
|
|
15.5
|
|
|
|
16.5
|
|
Provision for income taxes
|
|
|
15,379
|
|
|
|
11,571
|
|
|
|
5.3
|
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
29,830
|
|
|
|
29,561
|
|
|
|
10.2
|
|
|
|
11.8
|
|
Net (loss) from discontinued operations
|
|
|
|
|
|
|
(1,136
|
)
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
29,830
|
|
|
$
|
28,425
|
|
|
|
10.2
|
|
|
|
11.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Revenue
Net revenue increased $42.7 million, or 17%, to
$292.3 million for the first three quarters of fiscal 2009
from $249.6 million for the first three quarters of fiscal
2008. This increase was the result of sales from new stores
opened and sales through other sales channels. Assuming the
average exchange rate between the Canadian and United States
dollars for the first three quarters of fiscal 2008 remained
constant, our net revenue would have increased
$60.0 million, or 24%, for the first three quarters of
fiscal 2009.
|
|
|
|
|
|
|
|
|
|
|
Thirty-Nine Weeks
|
|
|
Thirty-Nine Weeks
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
November 1, 2009
|
|
|
November 2, 2008
|
|
|
Net revenue by segment:
|
|
|
|
|
|
|
|
|
Corporate-owned stores
|
|
$
|
256,053
|
|
|
$
|
225,244
|
|
Franchises
|
|
|
9,798
|
|
|
|
13,567
|
|
Other
|
|
|
26,441
|
|
|
|
10,754
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
292,292
|
|
|
$
|
249,565
|
|
|
|
|
|
|
|
|
|
|
Corporate-Owned Stores. Net revenue from our
corporate-owned stores segment increased $30.8 million, or
14%, to $256.1 million for the first three quarters of
fiscal 2009 from $225.2 million for the first three
quarters of fiscal 2008. The following contributed to the
$30.8 million increase in net revenue from our
corporate-owned stores segment:
|
|
|
|
|
Net revenue from corporate-owned stores we opened during the
first three quarters of fiscal 2009, and other corporate-owed
stores we opened subsequent to November 2, 2008 and
therefore not included in the comparable store sales growth,
contributed $42.7 million of the increase. Net new store
openings (closings) since the third quarter of fiscal 2008
included (one) store in Canada and nine stores in the United
States;
|
|
|
|
Comparable store sales remained constant in the first three
quarters of fiscal 2009 resulting in a $0.6 million
increase to net revenue, excluding the effect of foreign
currency fluctuations. Including the effect of foreign currency
fluctuations, comparable stores sales decreased 6%, or
$13.8 million, in the third quarter of fiscal 2009; and
|
22
|
|
|
|
|
Net revenue related to gift card breakage contributed
$1.9 million of the increase. Based on historical gift card
breakage, we recognize into revenue a portion of gift card sales
for which we estimate redemption is remote over the estimated
period of redemption. In the first quarter of 2009 we recorded a
one-time credit of $1.3 million related to a change in our
estimated rate of redemption.
|
Franchises. Net revenue from our franchises
segment decreased $3.8 million, or 28%, to
$9.8 million for the first three quarters of fiscal 2009
from $13.6 million for the first three quarters of fiscal
2008. The decrease in net revenue from our franchises segment
resulted primarily from our reacquisition of two franchised
stores in Victoria, British Columbia and one franchised store in
Bellevue, Washington in the third quarter of fiscal 2008.
Other. Net revenue from our other segment
increased $15.7 million, or 146%, to $26.4 million for
the first three quarters of fiscal 2009 from $10.8 million
for the first three quarters of fiscal 2008. The
$15.7 million increase was primarily the result of an
increase in sales from the launch of our
e-commerce
channel in the first quarter of fiscal 2009 which contributed
$7.5 million in net revenues, as well as increased sales
from wholesale, outlet and warehouse sales which contributed
$8.2 million in net revenues.
Gross
Profit
Gross profit increased $9.1 million, or 7%, to
$136.5 million for the first three quarters of fiscal 2009
from $127.4 million for the first three quarters of fiscal
2008. The increase in gross profit was driven principally by:
|
|
|
|
|
an increase of $30.8 million in net revenue from our
corporate-owned stores segment related to an increase in
corporate-owned stores;
|
|
|
|
an increase of $15.7 million in net revenue from our other
segment related primarily to an increase in sales from the
launch of our
e-commerce
channel in the first quarter of fiscal 2009 as well as increased
sales from wholesale, outlet and warehouse sales; and
|
|
|
|
a decrease of $1.0 million in cost of sales support
departments related to increased costs for production, design,
merchandising and distribution.
|
These amounts were partially offset by:
|
|
|
|
|
an increase in product costs of $17.1 million associated
with our sale of goods through corporate-owned stores related
primarily to increased revenues and unfavorable foreign exchange
differences;
|
|
|
|
an increase in fixed costs, such as occupancy costs and
depreciation, of $9.1 million related to an increase in
corporate-owned stores which has a deleveraging effect on gross
profit;
|
|
|
|
an increase in product costs of $7.6 million associated
with the increase in the sale of our goods through our other
segment, including the launch of our
e-commerce
channel in the first fiscal quarter of 2009 as well as increased
sales from outlet and warehouse locations;
|
|
|
|
a decrease of $3.1 million in gross profit from our
franchises segment related primarily to the reacquisition of
franchised stores late in the third quarter of fiscal
2008; and
|
|
|
|
an increase in shrinkage and write-down of inventory held by
corporate-owned stores of $1.6 million related to the
growth of our business.
|
Gross profit as a percentage of net revenue, or gross margin,
decreased 4.4%, to 46.7% for the first three quarters of fiscal
2009 from 51.1% for the first three quarters of fiscal 2008. The
decrease in gross margin resulted primarily from:
|
|
|
|
|
unfavorable foreign exchange differences of 2.2%;
|
|
|
|
a decrease in corporate-owned stores product margin, which
contributed a decrease in gross margin of 1.8% as a result of
increased direct product costs, shrinkage and
write-downs; and
|
|
|
|
an increase in fixed costs, such as occupancy costs and
depreciation, relative to the increase in net revenue, which had
a deleveraging effect on gross margin and contributed a decrease
of 1.4%.
|
23
This was offset by a decrease in expenses related to our
production, design, merchandising and distribution departments,
relative to the increase in net revenue, which had a leveraging
effect on gross margin and contributed an increase of 1.1%.
Our cost of goods sold in the first three quarters of fiscal
2009 and the first three quarters of fiscal 2008 included
$0.6 million and $0.7 million, respectively, of
stock-based compensation expense.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses increased
$4.5 million, or 5%, to $91.4 million for the first
three quarters of fiscal 2009 from $86.9 million for the
first three quarters of fiscal 2008. As a percentage of net
revenue, selling, general and administrative expenses decreased
3.5%, to 31.3% from 34.8%. The $4.5 million increase in
selling, general and administrative expenses was principally
comprised of:
|
|
|
|
|
an increase of $2.9 million primarily associated with
employment-related legal matters, professional fees and legal
costs associated with ongoing litigation including legal
settlement costs;
|
|
|
|
an increase in administrative costs associated with the launch
in the first fiscal quarter of 2009 of our new
e-commerce
channel of $2.0 million;
|
|
|
|
an increase in depreciation costs of $1.3 million related
to IT projects placed into use as well as the retirement of
fixed assets no longer in use;
|
|
|
|
an increase of $1.2 million related to higher management
incentive based compensation;
|
|
|
|
an increase in provision for impairment and lease exit costs of
$0.6 million; and
|
|
|
|
an increase in occupancy costs of $0.5 million related to
our other segment as we opened additional locations after the
third quarter of fiscal 2008.
|
These amounts were partially offset by:
|
|
|
|
|
a decrease in employee compensation, including options expense,
of $2.5 million related to a reduction in employee head
count in our corporate-owned store locations and store support
center, as part of our efforts to reduce operating expenses, as
well as a one-time charge in the first quarter of fiscal 2008
related to the acceleration of performance-based awards,
partially offset by increased store labor hours due to opening
additional corporate-owned stores; and
|
|
|
|
a decrease in discretionary spending of $1.5 million
related to travel, meals and entertainment and supplies.
|
Our selling, general and administrative expenses in the first
three quarters of fiscal 2009 and the first three quarters of
fiscal 2008 included $3.7 million and $4.5 million,
respectively, of stock-based compensation expense.
Income
from Operations
Income from operations increased $4.6 million, or 11%, to
$45.1 million for the first three quarters of fiscal 2009
from $40.5 million for the first three quarters of fiscal
2008. The increase of $4.6 million in income from
operations for the first three quarters of fiscal 2009 was
primarily due to an increase of $9.1 million in gross
profit resulting from increased comparable store sales and
additional sales from corporate-owned stores opened, partially
offset by a $4.5 million increase 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
occupancy costs. For purposes of our managements analysis
of our financial results, we have allocated some general product
expenses to our corporate-owned stores segment. For example, all
expenses related to our production, design and distribution
departments have been allocated to this segment.
24
Income from operations (before general corporate expenses) from:
|
|
|
|
|
our corporate-owned stores segment increased $4.2 million,
or 6%, to $72.4 million for the first three quarters of
fiscal 2009 from $68.2 million for the first three quarters
of fiscal 2008, primarily due to an increase in corporate-owned
stores net revenue of $30.8 million offset by an increase
of $18.8 million in cost of sales and $7.8 million in
store operating expenses such as occupancy and depreciation;
|
|
|
|
our franchises segment decreased $3.1 million, or 48%, to
$3.3 million for the first three quarters of fiscal 2009
from $6.4 million for the first three quarters of fiscal
2008 primarily as a result of franchises net revenue included in
the comparative period shifting to corporate-owned stores income
from operations when we reacquired two franchised stores in
Victoria, British Columbia and one franchised store in Bellevue,
Washington in the third quarter of fiscal 2008; and
|
|
|
|
our other segment increased $11.5 million, or 562%, to
$13.6 million for the first three quarters of fiscal 2009
from $2.1 million for the first three quarters of fiscal
2008, primarily due to the introduction of online sales through
our
e-commerce
channel as well as increased outlet, warehouse and wholesale
activity.
|
Other income (expense), net decreased $0.5 million to
$0.1 million for the first three quarters of fiscal 2009
from $0.6 million for the first three quarters of fiscal
2008. The decrease was primarily due to lower interest rates
offered on cash balances.
Provision
for Income Taxes
Income tax expense for the first three quarters of fiscal 2009
was $15.4 million compared to $11.6 million for the
corresponding period in fiscal 2008. The Companys
financial statement effective tax rate for the first three
quarters of fiscal 2009 was 34.0% compared to 28.1% for the
first three quarters of fiscal 2008. The increase is a result of
a true-up in
fiscal 2008 related to amendments to our transfer pricing
structure. The effective tax rate will vary from the statutory
rate because (i) stock-based compensation expense recorded
is a permanent difference in certain jurisdictions,
(ii) the realization of the benefits of the tax assets from
stock-based compensation, 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.
During the second quarter of fiscal 2008, after considering a
number of factors, including a history of cumulative earnings,
utilization of previously generated NOL carryforwards and
estimated taxable income in future years, we determined we would
more likely than not realize substantial future tax benefits
from our deferred income tax assets generated in the United
States prior to February 1, 2009. As a result of this
analysis the Company recorded deferred tax assets of
(i) $1.4 million related primarily to historical tax
differences between financial and tax bases of assets and
liabilities, (ii) $0.9 million cumulative tax benefit
recorded from stock-based compensation expense prior to the
second quarter of fiscal 2008, and (iii) $2.7 million
excess tax benefit from the exercise of stock options during and
prior to the second quarter of fiscal 2008.
During the second quarter of fiscal 2009, an adjustment was made
to deferred tax assets and additional paid-in capital in the
amount of $12.0 million relating to windfall taxes recorded
in the year ended February 1, 2009 in excess of US taxes
payable. A similar entry for $0.2 million was recorded in
the same period related to windfall taxes recorded in the first
quarter of fiscal 2009. The Company has concluded that the
adjustment was not material to the financial statements.
Net
Income from Continuing Operations
Net income from continuing operations increased
$0.3 million, to $29.8 million for the first three
quarters of fiscal 2009 from $29.6 million for the first
three quarters of fiscal 2008. The increase in net income of
$0.3 million for the first three quarters of fiscal 2009
was primarily due to an increase of $9.1 million in gross
profit resulting from increased comparable store sales and
additional sales from corporate-owned stores opened, partially
offset by an increase of $4.5 million in selling, general
and administrative expenses, an increase of $3.8 million in
income tax expense and a decrease in other income (expense), net
of $0.5 million.
25
Discontinued
Operations
During the first three quarters of fiscal 2009, there were no
revenues, expenses or losses from discontinued operations. The
loss from discontinued operations was $1.1 million for the
first three quarters of fiscal 2008, resulting in a reduction of
basic and diluted earnings per share of $0.02. The shut down
costs related to the closure of our stores in Japan were fully
accrued in the second quarter of fiscal 2008.
Seasonality
Historically, we have recognized a significant portion of our
income from operations in the fourth fiscal quarter of each year
as a result of increased sales during the holiday selling
season. Despite the fact that we have experienced a significant
amount of our net revenue and gross profit in the fourth quarter
of each fiscal year, we believe that the true extent of the
seasonality or cyclical nature of our business may have been
overshadowed by our rapid growth to date.
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 November 1, 2009, our working capital (excluding cash
and cash equivalents) was $24.8 million and our cash and
cash equivalents were $101.8 million.
The following presents the major components of net cash flows
provided by and used in operating, investing and financing
activities for the periods indicated:
Operating
Activities
Operating Activities consist primarily of net income
adjusted for certain non-cash items, including depreciation and
amortization, deferred income taxes, stock-based compensation
expense and the effect of the changes in non-cash working
capital items, principally accounts receivable, inventories,
accounts payable and accrued expenses.
Cash provided by operating activities increased
$22.3 million, to $51.5 million for the thirty-nine
weeks ended November 1, 2009 compared to cash used by
operating activities of $29.2 million for the thirty-nine
weeks ended November 2, 2008. The $22.3 million
increase was primarily a result of a decrease in inventories and
an increase in items not affecting cash and was offset by a
decrease in miscellaneous accruals. The net decrease in the
change in inventories is a result of selling our on-hand spring
inventories we had built up at the end of fiscal 2008 for a
larger store base. The net increase in items not affecting cash
is primarily a result of increased depreciation and amortization
for a larger store base and decreased deferred income tax
assets. The net change in miscellaneous accruals are a result of
changes in the timing of receipts and payments of invoices from
and to third parties.
Investing
Activities
Investing Activities relate to capital expenditures,
advances to and investments in franchise and acquisition of
franchises.
Cash used in investing activities decreased $25.4 million
to $10.2 million for the thirty-nine weeks ended
November 1, 2009 from $35.6 million for the
thirty-nine weeks ended November 2, 2008. The
$25.4 million decrease was a result of reduced
corporate-owned store openings in the thirty-nine weeks ended
November 1, 2009 compared to the same period in fiscal 2008
and the reacquisition of franchise rights for three stores in
the thirty-nine weeks ended November 2, 2008.
26
Financing
Activities
Financing Activities consist primarily of cash received
on the exercise of stock options. Cash provided by financing
activities decreased to $0.3 million for the thirty-nine
weeks ended November 1, 2009 from $11.1 million of
cash used in financing activities for the thirty-nine weeks
ended November 2, 2008.
We believe that our cash from operations and borrowings
available to us under our revolving credit facility will be
adequate to meet our liquidity needs and capital expenditure
requirements for at least the next 24 months. Our cash from
operations may be negatively impacted by a decrease in demand
for our products as well as the other factors described in
Risk Factors of our Annual Report on
Form 10-K
for fiscal 2008 filed on March 27, 2009. In addition, we
may make discretionary capital improvements with respect to our
stores, distribution facility, store support center, 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 credit facility with the Royal Bank
of Canada that provided for a CDN$20,000,000 uncommitted demand
revolving credit facility to fund our working capital
requirements. This agreement cancelled our previous
CDN$8,000,000 credit facility. Borrowings under this uncommitted
credit facility are made on a
when-and-as-needed
basis at our discretion.
Borrowings under the credit facility can be made either as
i) Revolving Loans Revolving loan
borrowings will bear interest at a rate equal to the Banks
CA$ or US$ annual base rate (defined as zero% plus the
lenders annual prime rate) per annum, ii) Offshore
Loans Offshore rate loan borrowings will bear
interest at a rate equal to a base rate based upon LIBOR for the
applicable interest period, plus 1.125% per annum,
iii) Bankers Acceptances Bankers
acceptance borrowings will bear interest at the bankers
acceptance rate plus 1.125% per annum, or iv) Letters of
Credit and Letters of Guarantee Borrowings drawn
down under letters of credit or guarantee issued by the banks
will bear a 1.125% per annum fee.
At November 1, 2009, aside from letters of credit and
guarantees, there were no borrowings outstanding under this
credit facility.
Off-Balance
Sheet Arrangements
We enter into documentary letters of credit to facilitate the
international purchase of merchandise. We also enter into
standby letters of credit to secure certain of our obligations,
including insurance programs and duties related to import
purchases. As of November 1, 2009, letters of credit and
letters of guarantee totaling $2.2 million have been issued.
Other than these standby letters of credit and guarantee, we do
not have any off-balance sheet arrangements, investments in
special purpose entities or undisclosed borrowings or debt. In
addition, we have not entered into any derivative contracts or
synthetic leases.
Critical
Accounting Policies
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions.
Predicting future events is inherently an imprecise activity
and, as such, requires the use of judgment. Actual results may
vary from estimates in amounts that may be material to the
financial statements. An accounting policy is deemed to be
critical if it requires an accounting estimate to be made based
on assumptions about matters that are highly uncertain at the
time the estimate is made, and if different estimates that
reasonably could have been used, or changes in the accounting
estimates that are reasonably likely to occur periodically,
could materially impact our consolidated financial statements.
Our critical accounting policies and estimates are discussed in
our Annual Report on
Form 10-K
for our 2008 fiscal year end filed with the SEC on
March 27, 2009 and in Note 2 included in Item 1
of Part 1 of this Quarterly Report on
Form 10-Q.
We believe that there have been no other significant changes
during the thirty-nine weeks ended November 1, 2009 to our
critical accounting policies.
27
Operating
Locations
Our operating locations by country, state and province as of
November 1, 2009 are summarized in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate-Owned
|
|
|
Franchise
|
|
|
Total
|
|
|
|
Stores
|
|
|
Stores
|
|
|
Stores
|
|
|
Canada
|
|
|
|
|
|
|
|
|
|
|
|
|
Alberta
|
|
|
8
|
|
|
|
|
|
|
|
8
|
|
British Columbia
|
|
|
10
|
|
|
|
|
|
|
|
10
|
|
Manitoba
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Nova Scotia
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Ontario
|
|
|
17
|
|
|
|
|
|
|
|
17
|
|
Québec
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
Saskatchewan
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Canada
|
|
|
41
|
|
|
|
1
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
|
|
|
|
|
|
|
|
|
|
Arizona
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
California
|
|
|
19
|
|
|
|
1
|
|
|
|
20
|
|
Colorado
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
Connecticut
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
District of Columbia
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
Florida
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
Hawaii
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Illinois
|
|
|
6
|
|
|
|
|
|
|
|
6
|
|
Maryland
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
Massachusetts
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
Michigan
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Nevada
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
New Jersey
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
New York
|
|
|
7
|
|
|
|
|
|
|
|
7
|
|
Oregon
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Pennsylvania
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Texas
|
|
|
7
|
|
|
|
|
|
|
|
7
|
|
Virginia
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
Washington
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total United States
|
|
|
65
|
|
|
|
4
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia
|
|
|
|
|
|
|
8
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total International
|
|
|
|
|
|
|
8
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overall total, as of November 1, 2009
|
|
|
106
|
|
|
|
13
|
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overall total, as of February 1, 2009
|
|
|
103
|
|
|
|
10
|
|
|
|
113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
ITEM 3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Market risk represents the risk of loss that may impact our
financial position due to adverse changes in financial market
prices and rates. Our market risk exposure is primarily a result
of fluctuations in interest rates and foreign currency exchange
rates. We do not hold or issue financial instruments for trading
purposes.
Foreign Currency Exchange Risk. We currently
generate a majority of our net revenue in Canada. The reporting
currency for our consolidated financial statements is the United
States dollar. Historically, our operations were based largely
in Canada. As of November 1, 2009, we operated 42 stores in
Canada. As a result, we have been impacted by changes in
exchange rates and may be impacted materially for the
foreseeable future. For example, because we recognize net
revenue from sales in Canada in Canadian dollars, if the United
States dollar strengthens it would have a negative impact on our
Canadian operating results upon translation of those results
into United States dollars for the purposes of consolidation.
Any hypothetical loss in net revenue could be partially or
completely offset by lower cost of sales and lower selling,
general and administrative expenses that are generated in
Canadian dollars. A 10% appreciation in the relative value of
the United States dollar compared to the Canadian dollar would
have resulted in lost income from operations of approximately
$3.6 million for the first three quarters of fiscal 2009.
To the extent the ratio between our net revenue generated in
Canadian dollars increases as compared to our expenses generated
in Canadian dollars, we expect that our results of operations
will be further impacted by changes in exchange rates. We do not
currently hedge foreign currency fluctuations. However, in the
future, in an effort to mitigate losses associated with these
risks, we may at times enter into derivative financial
instruments, although we have not historically done so. These
may take the form of forward sales contracts and option
contracts. We do not, and do not intend to, engage in the
practice of trading derivative securities for profit.
Interest Rate Risk. In April 2007, we entered
into an uncommitted senior secured demand revolving credit
facility with Royal Bank of Canada which replaced our prior
credit facility. Because our revolving credit facility bears
interest at a variable rate, we will be exposed to market risks
relating to changes in interest rates, if we have a meaningful
outstanding balance. At November 1, 2009, we had no
outstanding borrowings under our revolving facility. We do not
believe we currently are significantly exposed to changes in
interest rate risk. We currently do not engage in any interest
rate hedging activity and currently have no intention to do so
in the foreseeable future. However, in the future, if we have a
meaningful outstanding balance, in an effort to mitigate losses
associated with these risks, we may at times enter into
derivative financial instruments, although we have not
historically done so. These may take the form of forward sales
contracts, option contracts, and interest rate swaps. We do not,
and do not intend to, engage in the practice of trading
derivative securities for profit.
|
|
ITEM 4.
|
CONTROLS
AND PROCEDURES
|
We maintain disclosure controls and procedures that are designed
to ensure that information required to be disclosed by us in the
reports we file or submit under the Securities Exchange Act of
1934, or the Exchange Act, is recorded, processed, summarized
and reported within the time periods specified in the SECs
rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive
Officer (principal executive officer) and Chief Financial
Officer (principal financial officer), to allow timely decisions
to be made regarding required disclosure. We have established a
Disclosure Committee, consisting of certain members of
management, to assist in this evaluation. The Disclosure
Committee meets on a regular quarterly basis, and as needed.
Our management, including our Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of our disclosure
controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
promulgated under the Exchange Act), at November 1, 2009.
Based on that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that, at November 1, 2009, our
disclosure controls and procedures were effective.
There was no change in internal control over financial reporting
during the thirty-nine weeks ended November 1, 2009 that
has materially affected or is reasonably likely to materially
affect our internal control over financial reporting.
29
PART II
OTHER
INFORMATION
|
|
ITEM 1.
|
LEGAL
PROCEEDINGS
|
The Company is, from time to time, involved in routine legal
matters incidental to its business. Management believes that the
ultimate resolution of any such current proceedings will not
have a material adverse effect on the Companys continued
financial position, results of operations or cash flows. Refer
to Note 5 included in Item 1 of Part 1 of this
Quarterly Report on
Form 10-Q
for information regarding specific legal proceedings.
In addition to other information set forth in this report, you
should carefully consider the Risk Factors discussed
in our Annual Report on
Form 10-K
for our 2008 fiscal year filed on March 27, 2009. There
have been no material changes to the Risk Factors
previously disclosed in our Annual Report on
Form 10-K.
|
|
ITEM 2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
(c) The following table provides information regarding the
Companys purchases of its common stock during the thirteen
week period ended November 1, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Number
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
of Shares that
|
|
|
|
|
|
|
|
|
|
Shares Purchased
|
|
|
May Yet Be
|
|
|
|
Total Number
|
|
|
Average
|
|
|
as Part of Publicly
|
|
|
Purchased Under
|
|
|
|
of Shares
|
|
|
Price Paid
|
|
|
Announced Plans
|
|
|
the Plans
|
|
Period(1)
|
|
Purchased
|
|
|
per Share
|
|
|
or Programs(2)
|
|
|
or Programs(2)
|
|
|
August 3, 2009 August 30, 2009
|
|
|
3,783
|
|
|
$
|
21.05
|
|
|
|
3,783
|
|
|
|
2,891,467
|
|
August 31, 2009 October 4, 2009
|
|
|
5,143
|
|
|
|
23.55
|
|
|
|
5,143
|
|
|
|
2,886,324
|
|
October 5, 2009 November 1, 2009
|
|
|
3,251
|
|
|
|
26.32
|
|
|
|
3,251
|
|
|
|
2,883,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
12,177
|
|
|
|
|
|
|
|
12,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Monthly information is presented by reference to our fiscal
months during our third quarter of fiscal 2009. |
|
(2) |
|
Our Employee Share Purchase Plan (ESPP) was approved by our
Board of Directors and stockholders in September 2007. All
shares purchased under the ESPP are purchased on the Toronto
Stock Exchange or the Nasdaq Global Select Market (or such other
stock exchange as we may designate from time to time). Unless
our Board of Directors terminates the ESPP earlier, the ESPP
will continue until all shares authorized for purchase under the
ESPP have been purchased. The maximum number of shares available
for issuance under the ESPP is 3,000,000. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Filed
|
|
Incorporated by Reference
|
Exhibit No.
|
|
Exhibit Title
|
|
Herewith
|
|
Form
|
|
Exhibit No.
|
|
File No.
|
|
Filing Date
|
|
|
31
|
.1
|
|
Certification of Chief Executive Officer Pursuant to Exchange
Act
Rule 13a-14(a)
|
|
X
|
|
|
|
|
|
|
|
|
|
31
|
.2
|
|
Certification of Chief Financial Officer Pursuant to Exchange
Act
Rule 13a-14(a)
|
|
X
|
|
|
|
|
|
|
|
|
|
32
|
.1
|
|
Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
X
|
|
|
|
|
|
|
|
|
30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
lululemon athletica inc.
John E. Currie
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Dated: December 9, 2009
31
Exhibit Index
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Filed
|
|
Incorporated by Reference
|
Exhibit No.
|
|
Exhibit Title
|
|
Herewith
|
|
Form
|
|
Exhibit No.
|
|
File No.
|
|
Filing Date
|
|
|
31
|
.1
|
|
Certification of Chief Executive Officer Pursuant to Exchange
Act
Rule 13a-14(a)
|
|
X
|
|
|
|
|
|
|
|
|
|
31
|
.2
|
|
Certification of Chief Financial Officer Pursuant to Exchange
Act
Rule 13a-14(a)
|
|
X
|
|
|
|
|
|
|
|
|
|
32
|
.1
|
|
Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
X
|
|
|
|
|
|
|
|
|
32