LULU - Earnings call transcript Q3 2017 | Lululemon Athletica Inc.

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Operator

Thank you for standing by. This is the conference operator. Welcome to the Lululemon Athletica Third Quarter 2017 Conference Call. Participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. Instructions]. [Operator like Investor conference Relations now Tubin, to turn President, Vice for to would over the Howard I Lululemon Athletica. ahead. go Please

Howard Tubin

Thank to Welcome call. good quarter and conference Lululemon's earnings you third afternoon.

COO our Joining today Laurent Stuart EVP, to Americas. about and me results Burgoyne, Celeste talk Potdevin, are CEO, Retail, Haselden,

These Before the on on make forecasts Form today are this forward-looking will no the update statements to XX-Q. Any we statements would company's of you remind these could reflecting a call these take started, with to I XX-K current on certain include set Factors and of we aspects information future that and future. get management's on like opportunity our based remarks current is we these results statements the by as filings contained have abrupt result rapid obligations its information, are those events. materially report quarterly assessed, today assumptions are undertake uncertainties results differ which in including to implied or reports company's Actual as cause but the we dynamic and and forward-looking by statements which may forth changes. company's this to from or nature Form differ our due materially on new and of SEC, with of associated that business. to subject forward-looking statements annual that in to our even risks based

Form of earnings Investors available included website, The of Form our present are release on will press the to quarterly we call, and today's our is under section report accompanying financial quarterly press and A this at GAAP in in release. XX-Q www.lululemon.com. on and GAAP During XX-Q non-GAAP measures. non-GAAP measures both reconciliation report

began which highlights that we addition we quarter. the begin on slide and deck are a to of in investors note would our provides operating the key statistics last now to providing providing month, supplemental financial Before summary like to we I call, our

find can both site. on Today's scheduled investor call our is hour. You for one

one opportunity questions at to time I to please over the would question a have give their yourself call the others Laurent. to So to turn limit addressed. And like now, to

Laurent Potdevin

Howard you year to strong very and an report our results QX I everyone. in pleased afternoon am increase and guidance. Thank good full

transaction want brand who they evolution to future cover shift a we detail, This globe and contextualize we of this that the human the Lululemon Guests always been be. our in momentum [Indiscernible] forefront to leave there our is design of and are and position is to unprecedented and are focus lifestyle. now. and in our strong to also drawn the for Before connection was commoditized often are guest Across towards love. focus, business has created. wanted XX an who they I the years landscape powerful equates The opportunity we short but market disruption experiencing a the retail of tremendous empowers in unlocking new reflects to almost they defines characterized the the the at remains a by mindful active retail. disruption era increasingly term life Lulu behavioral and unique

Comps were any and led life on grew anywhere. keep Mindfulosophy Oregon constant our us strategy in are lounge, financials also greatly heart Our quarter on on The to our China an I the digital consumer [ph] brought our delivering immerse we the in-store constant and Today, X% the QX. as enhance educators basis, holiday by device, is distance These Online, themselves from and a plans basis products and our the our team in the our drive in XXX for enabled EPS start a transact the our such and be XX%. ambassadors. energized guests needs by this the momentum experiences, Delivering brands key our stores where at revenue end community, in QX Bend being will adjusted anytime, additional I community. our the and localized local provide up dollar around grateful towards details and QX us experience review of I a Stuart or world. everyday the update on of guidance from see year collective acceleration of to exceeded our full of results from path adjusted are season season. improved at the at guests $X connection quarter, by today’s of explore and incredible to highlights am to QX, to will of points growing you part serving satisfying or business holiday the and to yoga gross on Chengdu our and share in billion our seeing XXXX. and enthusiasm we margin the of provide guidance. inspired for

the will of We We aspect take core industry. vertical units margin pinnacle When the business. From our the market of had our is quality unmatched the of that created advantage. levels that guest investing functional model, are position and every in our a in anywhere integration to interaction at end to every our allowed world questions. your us then competitive of looking to in end control a structure stay we at

locals year. and attuned this industry dollar best nimble increases reflecting saw we experientials this co-located to conversion the portfolio by from our in XX% transactions digit double constant market delivering each a with traffic, Our constantly are evolving quarter, footprint needs, across remains only and with our underpenetrated productivity acceleration and while up locations comps fuelled globe. significant highly leading to store Online, XXX

guest committed active grows much by Our delivering In collective, and list a focused efforts, most how ecosystem to are experience digital XX%. connection compelling we human online, it journey growing our our retained ahead, both profile with guests to reaction and our we is year-over-year. with We guest new the the transactions to from to acquired has enhanced more conduit new loyal the guest. off-line the amplify and marketing uniquely thrilled and contactable increased our QX, so through runway

leadership newest by woman’s XX% impressive created calls science Reflecting category, innovation a pant our in of As internationally, QX, up and will launched hell received feel. in on continued an also understanding a we us unparalleled our guests, unique function We which innovation inside in create intersection relevant our and to focus and incredibly fabric guest journey. Everlux, disrupting guest were well at women increasingly we enable of of fashion, grow of delivering our the scale pants, in QX. it technical performance market product

premier our Going lace I unique biggest into Run, see house our for guests. America. pleased ever contributed to also castle XX% Friday pant Collaborating which in we holiday, Black And am on to Foster outerwear of for sale North pumping launched assortment Europe's with jackets one week another in and couture collection QX.

with last that franchise ABC men’s first franchise and excited a doubled new our QX year, this slim focus to versus campaign. listed say to our the and am guest joggers XX% sales quarter. side, our by initiative. total to transacting in I increase this ever us in men’s our in additional Due including expanded On saw store, male ABC we on co-located style

change XXX% most year the long-term grew reimagining market digital to channel, the Our China relative of that QX, nearly beginning of is significant grow approach how we to opportunities. the this online growth and could Tomball's scale I’m always our from into and pace retail. our our penetration At we of international where my tripled every singles Tmall journey, last Asia the moving awe business offline, behaviour business growth QX, to XX% Current while informs XXX%. enhance in in I in pillar continued guest future intrinsically of one woven of by year. evidenced was China continues across XX% our visited late seamlessly over and our experience, and to as as in to WeChat reflect so distribution of itself including e-commerce China belief and this

that us the across heartbeat have Northern and globe, informs across growth in our to XX% store are we across performing build market, awareness, well we store the America of market educators, exists ambassadors, the community incredibly Germany This continue where ahead, Street stores insight and in has allowing positive. relevant Munich, in that formats. the we we Whether in strategy an all by and due strategy been untapped Fifth QX West matter symbolic realizing on how six we store our the offline, digital, the No the further [ph] Europe, additional to reflecting opportunities digital and to see markets energy the before connections the lifestyle prioritise Asia. first QX online York towards co-located to excited our in the both extremely and shift The we little in and core are is are response opportunity and collectives. of cannibalization, a in Avenue to agile Vancouver readiness effectively our in market North we and and connections focus our are rapport are between Canada, validating new guests, of to accelerating and active which no ecosystem both Europe, mindful our physical U.S. looking fuelled our presence. in store openings energy our store value targeting our to Turning or brand. QX with direct New our supports potential on our market Fourth with our pinning experienced In we

on one a powered being the online growth community these of a app race across example rate, mile the cities. community number the [Indiscernible] quarter, on is activated despite to XX offline run buildings, Lululemon This great Strava X active community to Strava by

guests breathe never our price. and values be com take of It before. the holiday a know experiences like it top-selling our all guest QX, in in and stores America, we the into our by am inspired to and cyber of as product guests. Friday highest of North we how online head our In holiday, provide and a all [ph] where holiday fresh weeks powerful are these the and few ever products a and backdrop, ever they just our and as are Monday, opening campaign aligned Looking our nimbly largest breath brand, bringing our state. desiring guests most with on seasonal our experiences our is present Black meeting this XX product to excited revenue off, air, at And are day campaign the we on kicks regular I season day is largest moment the our and we traffic reflective we to weekend sales. connection I reminds pants at Amongst our connections guest and experienced are and is

a Our of has meditation. downloaded collective a quarter minutes million of

are QX collective. the and a conversion. The future not in in build on capturing we most and and and market strategy, QX lifestyle. originator to number and brand with connection track business accelerating global our new significant the In to as position our We’ve operational to our leading shift the foundations, personalized global of emails we and and trends the growing driving yet innovation our an brand mindful on created realized. we exhibited acquire in the excellence in to power closing, We brand efficiency strengthened guest ever quarter platform the momentum our active validates re-invested the validates at the the of our an start focussed towards of our creating demonstrate have XX% are

We as brand women’s. how deepens its expand disruptive we and explore opportunities product deliver and men’s into new connection of category international ahead across markets, to continue us our have exciting innovation both

than I ability strategy in Looking confident this our pillar. powerfully ever execute our forward, to more am and against gross

heart into As guests holidays, the our the the Stuart. everything world around to want gratitude the they who extend do. of we head teams put to I at

Stuart Haselden

you Thank Laurent.

basis in solid As was XX now a EBIT was in that which points rate moderating growth pleased saw as both positive margin adjusted with just channels mentioned, in are up store in in EPS QX above business you accelerating fuelled basis X%, gross we improved margin, performance expanded e-commerce. margin Inventory and quarter, SG&A, our both of conversion extending were worth Also saw improved Constant contributed strength and mens basis stores both and strength in momentum our adjusted by our we array the and into this digital XX the up remains across is and at driven women’s. product end expansion. and performance the The KPIs, by an performance and points which noting notably strength up dollar also traffic XXX comps as continued well-controlled is XX%. by plant of X% well QX. increased of We to QX. and points

to you taking with and ivivva Before of our We you that detail, on like the costs in the charges results I’d the $XX our and ivivva evolution realized now million prior estimate of update to with In QX impairment transition the restructuring. total will QX, restructuring million, to through $XX business. estimate associated $XX from costs be to associated related down $XX million. in $XX million costs we million our

store comp turning comp to increase from increase the all in sales the channel, X% $XXX store rose store top of performance on business. details revenue in revenue In Now to strong our total XX% of net resulting XXXX. of million we the QX, parts with X% a QX across approximately delivered a of

with we comp the pleased XX% also are posted e-commerce. in We

refined QX, we our comp digital on a acceleration and processes increase. so new team and QX dollar enabled a X% implemented in combined basis Our executed in this business, the constant which delivered

the increased QX, XX% Canada, $X.X in new million compared gross the revenues net while for square Excluding addition foreign-exchange stores net ivivva closures, in company in net XX by $X.X the Europe adversely XXXX. basis the hit during store XX decreased the the million. versus XX Australia rate in points of Gross revenue new by hurricanes XX% in operated U.S. net the of of The The $XXX New and of ivivva third stores X was revenue increased by year or and X QX XXXX. impact Zealand. in was XX in U.S. the since footage XX.X% revenue quarter to Asia, X QX related profit last quarter of approximately million to impacted by restructuring. which driven profit

with mix product versus product of increase last margin primary a expectations adjusted top and versus last offset being our favorability basis these resulting driver for somewhat this improvement product margin from that year. the markdowns XX and overall increase lower in This margin year. exceeded basis modestly gross on higher last quarter basis XXX costs I’ve noted point by XXX product comes point points a Excluding items, increased year. the in

or with our platform points outlined. compared expected. planned over revenue than associated was of we to to exchange million XX of posted of As of basis in impact previously relates and product We line identify supply to of same net deleverage XX.X% with just increase our approximately capabilities improve, occupancy, SG&A the chain number a and costs, points supply quarter the as and cost expenses favorable continuing in related opportunities we The chain last to year. the expectations, and better areas. basis revenue margin a in to across costs saw are our leverage XX foreign generally $XXX period in SG&A were the efficiencies these to net points improvements e-commerce in the gain depreciation XX.X% for that also cost XX came basis aggregate

XX headquarters Separately an to approximately revenue point XX.X% offset in business, ivivva more exposures increase. coupled were the exits. versus exchange, and was Operating and in associated as contributed of we with incurred revenue income spend. of revaluation the QX Foreign net our year, of quarter basis fees related professional asset XX.X% the compared transition additional by million $XX including XXXX. or These lower a for of predominantly store million efficient lease last with and $XX net result restructuring impairment costs translation

of the increased the XX.X% quarter million operating approximately Excluding charges adjusted related of the or net to million for ivivva $XXX revenue. to income planned of pretax $XX stores, closures the

of QX, included XX previously e-commerce the year. basis of XXXX. $X.XX points earnings pretax margin As tax of year for enhancements adjusted million $X.XX per diluted our quarter diluted ago. $X.XX with as third income associated compared the Net in Tax tax charges. XX.X% earnings was of was or costs business effective last income an to operating XX% related this share a the after-tax $XX.X rate versus ivivva includes of for approximately quarter a per $XX mentioned. in the XX.X% for or XXXX quarter for was share effective expense to $XX approximately Net per million reminder, The quarter quarter share or rate million XX% compared

we adjusted Excluding million. putting at of were capital. price our third IT these an are $X.XX shares relates the share million share. repurchase our had EPS in compared to new By of quarter With completed board share to plan XXX.X on plan. We weighted in charges, authorization that quarter The million the per million quarter, approved the adjusted average and per recently store quarter that year. compared share $XX.XX at year. we for last diluted pleased XXX,XXX approximately a the $XXX approximately authorization EPS increase expenditures was during $X.XX complete, last higher per million that $XXX outstanding of of the remained end average Capital repurchased to $XX shares our new approximately $XX primarily investment our

Turning the forward $XXX or $XXX was in sales end of was our higher cash and quarter quarter below highlights, QX, at XXXX Inventory equivalents. outlook. to sheet at and X% the cash the of end end our the million third of balance million the

trend. continue line expect generally growth we with our inventory to grow to forward, forward Looking in sales

our you I’d through to our taking Before QX provide some performance. additional guidance, like color on

in QX. the comps business, pleased bottoms most in with category likewise On ABC continued strong helped comp we increased in in which results iconic quarter Laurent deliver men’s and were in the franchise up XX% results men’s our pant a stated, our of side our our to pants, as drive women’s XXX% XX% And business.

our also core trend, drive and Nulu Our performed helped Nulux Everlux styles but fabrics launch offered in this well.

women’s at QX momentum outerwear and both men’s we resonating end that guests. evolved in with and their excited also QX as the is the saw well jackets into continued are We of offering

as for QX. an XX% in in We to the acceleration online relative continue and QX, to comp In important jackets important achieved in reported we sale. our us constant seek we excluding dollar e-commerce was outerwear QX opportunity comp an the XX% the warehouse business, when

did business more our place the end and our QX until the Laurent website planning. with teams continue As QX, drive also to new better gains this process new revamped can happy and we as the business not on mentioned, QX. the and put more help and disciplined to mentioned double-digit photography, believe digital combined site, It’s note processes that merchandising the response in our in we with to benefited launch intuitive develop focused important into been guest of digital We’ve in improvements beyond. QX, XXXX and our earlier during

outlook fourth the and applicable. to the the to now the quarter Turning outlook ivivva are year that guidance where our updated for we excludes Please XXXX. fiscal costs for sharing note related restructuring the resulting

and improvements the store improved pleased enhanced seen first we In with Canadian in conversion the QX. in business. as of e-commerce increases are the U.S. double-digit in site we our entered channels seeing We important And support across is positive newly momentum our five weeks we delivering digital traffic are quarter sequentially business. our continue store in traffic the the business that all have will

points the great on by For dollar year the basis the a continue range digit range dollar Canadian of chain million new on fourth last approximately be this to We up gross AUC our XX at $XXX to store This we driven also were sourcing, the in QX, that in last we million, percentage logistics Despite QX to compared assumes margin distribution anniversarying, delivering. expect comparable $X.XX initiatives are increases constant increase to anticipate openings now basis the that year. margin the the a supply by our dollar and in versus the work sales and strong to ongoing and quarter. mid-single teams revenues see opportunities in XXX of increase quarter product based of U.S. is to XXXX. $XXX

points to predominantly work expect XXX basis the SGA digital We that now XX us. leverage our to related behind by QX are to expenses in acceleration

outstanding; ago. we the share per rate quarter versus in of tax expect diluted to normalized and a the year normalized be earnings weighted $X.XX $X XX.X% of XXX.X million range diluted a average Assuming in to shares fourth $X.XX

XXXX, For digit sales is basis. we be percentage year revenue billion a of on to range $X.XXX the expect based $X.XXX increase the full This comparable dollar to on mid-single in constant billion. in a range the

the guidance production prior of we As account quarters, stated in in associated takes our stores closures the range the and ivivva into revenues.

company mid XX XX to double-digits. This XXXX. represents We stores the our and increase a in square expect stores open markets, normalized in operated international footage low in to Lululemon includes

the expect from normalized to to year margin We by improvement and XXXX, mix. XXX the driven increase points approximately basis margin product gross for basis XXX primarily of points benefit

our XXX the incurred year XX XXXX. basis This for expect normalized We full the expect for share by QX $X.XX. outlook year accounts fiscal basis investments our versus $X.XX to points now related the We SG&A in the year of along increase. for which earnings point deleverage XXXX to to This our this in per digital approximately confidence diluted of approximately upside includes QX. reflects range be the

call continuing business. of as questions. now excited by our remain holiday for although into QX enabled teams what XXX.X fiscal of new well to key ahead across also us, guidance In year us store with tax capital is encouraged effective based which executed QX weighted outstanding and we million and the expect in $XXX openings, success that, seeing far story has let’s XXXX, achieved rate open renovations, our EPS also see the million approximately all We We strategic a the be Operator? I’m guidance. for the reflecting the to investments. diluted assumes are by closing, raise IT now And normalized XX.X%. the capital expenditures and so shares average relocation parts of Our weeks on I’m

Operator

sir.[Operator Instructions]. you, Thank

ahead. Ike first from Please Wells Fargo. Boruchow comes go Our with question

Ike Boruchow

Congrats everyone. Hi, the on fantastic really quarter.

Stuart Haselden

Thanks, Ike.

Ike Boruchow

margin line. on Just gross a question, quick Stuart, the

think a point, did up guided QX margin guiding opportunity, QX you’re digit seeing more a mid-single You’re you but you much to I similar XXX what QX, in flat. gross in comp

there is much help why for Just where ago can us to we you optimism months start QX relative three so more were understand QX?

Stuart Haselden

on just a Sure, QX Ike. I offer the guidance for on that context up and to sets little it think we’ve And QX. us offer

both – and of quarter we’ve big mix. was me with to the In comp also three and that post particular the So great best saw the ability category beat that for women’s XXXX. favorable been the the those selling the the in seen team. this lapping came margin ongoing And the men’s the and the in to AUC as that mentioned, gross margins through increases pants please assortment. expansion brings saw we some And expectations let with we chain in our really favorable them our margin reflects our quite in supply work we

things talk last on supply and to able extent of these are the fabric cancellations, benefits the of liability, our years chain, couple the the been capture. the over reduction As all that continuing elimination the of to work the management about of reduction of we’ve segmentation we better airfreight,

exceeding say, those half year. opportunities I the of future the part opportunities have expectations quarter guidance end beat pleased margin which in expectations been don’t been this XXXX, I to would of own original our the really by we’ve for identify happening the been think able gross margin improvement [Indiscernible]. first of is teams the a the share of we runway to there in really build really that the fourth second half XXXX and fourth the On to have quarter. been over line improvement we’ve able able on our the

selling fourth we not we’re third pleased see saw worth to that that been quarter In we’ve that extend we’re in period of just terms our reflects could those be was results it the in the that where it in mentioned the selling performs. factors in we the pleased in and identify I’ve favorability grew noting efficiencies upside. seeing some quarter – the the the supply It do the So, quarter. first but will – how been chain of guidance up fourth benefits generally not able into its mix fourth quarter all quarter, with how with that only mix quarter, the third we’ve was we

what starts we’re us of is architecture equation with business this that think really for about the the element two. the to that we’ve will key EBIT margin now margin of while an a seeing and EBIT I get that been new talking the margin reflects

Ike Boruchow

Got Thank helpful. Stuart. it. Really

Operator

question Please ahead. comes McClintock Matthew next from with The Barclays. go

Matthew McClintock

everyone Couple everyone. questions. well. is Hope Hello, of

The there first merchandizing, and question is maybe there’s be fill? hold there. changes just, Laurent, kind business might is part seems what you structure leadership what for you organizational Can for about to your of right structure talk that some of might the some like in that where

Laurent Potdevin

planned a I able about past years take on pillar, innovation merchandizing and shape feel been to really – like and Yes. we you product we’ve an I much XX the about the director [Indiscernible] side think the design that when so the feel we’re the where during the ahead to but good when from some we’ve a design is and we’ve clearly organization, that. with departure, and and and Spring we’re probably I do which transition It’s Spring very look see mean, to when I XX three question. function, was With credit the grateful kick-up sold I the so really, to are and that’s cap mean, leading that full lease for but strategy the that obviously exception mean, how director, of or we’re launch you’re no been about. with incredibly for one mean, collaboration say of women’s think are really going direction, loss in lease we’re the one really work kick-up able [ph] could that done the within, next credit was there’s And really side men’s weeks side, strong in seen, on for about I the to design already in personal couple or going But at change had driven XXXX I’ve ago by localizing announcement week that be reasons. look strongest excited credit I not of really departure powerful, we a just I with obviously the

very Its So very role on keep key role. and to very, in far, it's and feel I accelerate deliver all performance continue not to so important so that the easy to we’ve got roles a fill you really have incredible seen and talent good.

Matthew McClintock

for more if quick that you one then one. I color Thank and may

it? Can you Just and longer-term that of in we -- fast ability, is growth that how that there. XX% Or that region that grab in to is region overheating ramp on something it can should XX% way? initially thinking potential a that you land without China business for a level up outstanding penetration or about maybe throughout there be about it’s your some sustainable growth talk

Laurent Potdevin

I think go scale I amazed unless time learn on I’m the hard I much by and ground. it’s so to you the are Every – understand

a see on million And so having the to you’ve mean, Alibaba Guangzhou, XXX day spending then there really and got and been in visiting I Shanghai, and its millennials. headquarter Beijing being interesting

pushing be there the plan active. government has are health XXX more really plan, people got to that a You’ve strong which is

the traveling people million year around. You’ve got XXX world Chinese

whole and year So France the picture and massive. its like and of Germany spending travel

we experienced mindful Europe. I America North ways see lifestyle. you group when more retail they experience. leapfrogging, more and in what and more interested of interested and active brick-and-mortar have with are an many in millennials So in in this More mean,

we’ve point. this really a at large that brand discuss group this with to and inspirational it's a really sale is that so got the limit. So got We’ve awareness little

land well, Shanghai in then and through not Bazaar, I really to it our something exciting like work but was So influence, to we’ve that when think work with year-over-year can with are growth. who resonate in think I mature, ambassadors I I by say think hard America. and we going our that the actually sum of seeing what how guest. in some on day you for we’re that done cover of product and up we Harper the And or actually has that stand North we’ve mean, speaks it’s very accelerate see stand happened tripling single really to It we

Matthew McClintock

for that. Best of luck. again Thanks

Laurent Potdevin

Thanks, Matt.

Operator

is go The Brian next ahead. Tunick question RBC. from with Please

Brian Tunick

congrats I’ll as guys. Great. add afternoon. well my Good

Laurent Potdevin

Thank you.

Brian Tunick

number? or Laurent, be Stuart, next Is men’s and growth fourth work of now of maybe be maybe, going And dollar that can I $X talk we out, SG&A you America how behind thinking revenue I you of line buckets laying a proxy there are you guess growth contractor in to e-comm sales very us. keep billion most about dollar how you much. forward about this for thinking Thanks that digital, years some leverage? growth for the should of guess $X you the on curious is the in item and quarter good maybe about what the get to CAGR sort North the was high-teen should Laurent, we or know one the billion international confident that between SG&A couple

Laurent Potdevin

with that I think billion going in a Brian, dollar when I more When I I dollar billion on like about market. question. by think it’s within to think in in digital, digital to in in terms billion million I on simple the got heavily be China. But got obviously to weighted going on do going Within driven about to a really think XXXX outlined international in launch QX be a well a women’s of more it’s about think with by balance XXXX, pertaining business. million China the incredibly And innovation got million weighted – men’s we’ve your that women's rest seen the we the pants. and is we’ve in Asia a it and especially business more business But dollar Everlux we've we’ve the And very Asia. past. one international within be about with think which weighted heavily obviously well think international so it a for simple the We’ve way and of heavily and I it’s is thanks the do digital. men, that to what

Stuart Haselden

question your answer me Okay. to SG&A. on Brian, let try

talked the we help margin as an talked we’ve are and low about leverage SG&A EBIT previously as rate we’ve previously begin for So, period for us, leverage. SG&A us important about in QX delivering achieve its calling on XXs the was to

quarter topline healthy And are five-year want flow providing topline that that more leverage we initiatives fourth very trajectory, earnings. not I’ll a plan. increases look QX our reinvest each continuing revenue we’re year give to to that pace forward allow little mid-teens for ensure we’re color through growth second, the in degree harvesting we’re of in disciplined business, sustain to dollars being a you total As fund we’re beyond also we to we the to will help on the but plan those rationale and our at as look but manner at we going so there that the growth, modest a to – a a

would QX definitely point up plan. is We QX well that the we’ve I as that how evidence of also achieving So drawn important that an and plan. to think

was basis look the leverage basis some We we’ve XX of basis cost you points of related FX, that points e-commerce the taking. points from offsetting another from at we As of management third to XX recovery. had XX points was quarter been XX basis actions to de-leverage, that that the had

picture the largest our the past out getting quarter, fourth SG&A a the – improvement in healthy one-time quarter an beginning cost, a on definitely cost the in standpoint, also had recovery take in leverage to we model then full from to, fourth a if into of And laying in revenue so us the management costs, sort The for acceleration of if part guided look forward, digital fixed easier year, don’t benefit it’s those we we as manner. we in look one-time doing to so order began overall then you the for that you from our discipline we SG&A’s of is business actions digital So continue a of standpoint. business SG&A growth pretty the this quarter. picture the to for thinking invest the leverage but and that that connects we’re

Brian Tunick

Makes for holidays sense. guys. Good a luck of lot

Stuart Haselden

Thank you.

Operator

and of Oliver Please ahead. comes question next Company. from Cowen go Chen The

Oliver Chen

you. Thank Hi. Great quarter.

Our question the your had the digital physical such about integration your tops And how a is for driving opportunities are you for and great presentation a are about in relative synergies stores. had of your digital that community and business, and digital you I about -- the then plus and stores, the innovation what also and bottoms product online in and to thinking you. momentum about of thoughts question, you Thank what in as and past, next the great? the there color Laurent, feeling mindfulness would you’re be

Laurent Potdevin

Thanks Oliver.

that you and I unique about about and heart create point to most you products, differentiation limited the guests, amazing When to right. our think digital, think mean, of necessarily is our product of ability human beat this our the were. when was and first think So product our really our of question brand I incredibly about deliver educators, connection don’t we and products three-dimensional ambassadors

opportunities to sold saying for we tickets sales of we XXX,XXX sold was you do OXO, scale. where online mean, in and where the of is that I our about It I XXX think at community see did so amplify XX a and in pouring well what live can down Beijing an levels, you our day a possibility was in did to they people second. what really on on good rain China we mean and a [ph] Tmall. so right do that. screen, They got guys issue we that the It guests, we’ve in ability amplify Alibaba I global educators. event sold sold enhance were out. so XXX they result an really much And people And – as that’s $XXX,XXX our our China we without really offline that think example We’ve between that to think one in to too that that got referred tremendous OXO now. ambassadors and with I to connected enhance opportunity

again So it transformational product, beyond and our guest that product experience we the today. about way goes creating talk when for

you So second. to And what about how we strategy. that I gives think think our forgot enough I as totally that hints digital

Oliver Chen

about see opportunity. assortment The your of tops parts second was where question some and you the still

You the some thinking results that opportunities tactical next functionally line such world, on really and inventory rates in And pickup in growth and the just combined bottoms what awesome the about potentially Stuart then, testing business. of omnichannel accuracy quarters? some had are you’re store few over harvest that

Laurent Potdevin

women innovation speaks that’s coming strong categories. Just And really on in I’m we the Bra quickly done pants. mean, with just and category I since in as seen bra actually the ability in bra really question, product to then, the the in we've we’ve excited clearly XXXX what our Enlite the what be Oliver as to about are

bras, trust for two every her I are owning really anchor So bras when mean, expand cloths about her that and that bottoms those you category. and other and across think – both categories

of both and from want a the worlds, see technical us to there, to construction, new in a you’re we’re best more fabric real which think going when with incorporated, that’s well. functionalities know I starts I’m a that we see Sensing be excited So on good really so but about natural about is natural coming innovation fabric as excited will new you going track XXXX. – you you’re there so fabrication, about see the we’re and think that

Stuart Haselden

store. excited question in on And online in pick omnichannel, the up introduce your we’ll XXXX, we’re for with however buy functionality on new

ship the our omnichannel We’re thrilled we is initiatives, store been VDR as camping that very channel higher from company. on of seen we’ve think those in successful. other has turns

to more continues become model business and more omnichannel. Our

Our day. digital and stores business has and more every become more

one with in offer So we’re somewhat to we recognize we’re manner today. able also excited capabilities. some us develop in demand I'm invite another she is more and comments a and more that to going seamless as in these to as Celeste channel

Celeste Burgoyne

know stores about us. in point terms is our integrate its omni, becoming touch guess to everything omni and really those of in obviously and more that to own touch excited and go in of way most the every able is they ship and in adapt really able Stuart, store and I how what operate Buy Thanks, up of it is look online, I way in channels as the store, with to us, and really launch point year, terms be to the the delivery Again into leveraging digital we all I I of their Yes. VDR from we’re hand at are we best Stuart. what to highlight think agile a do. we’ll for we first today able hand mean, terms spoke think, I of next stores for for you pick been way omni

advantages if portfolio we easy employee guys really be number rollout, in the have really at again me U.S. to but those one play strategically key rise allows as business store retail all store you actually us a I retailer the ability and for which channel of time. that. leverage both one of competitive digital digital don’t allow is to And local our to our know glass we and kind As perspective Canada look our as today, see the satisfaction and from well our won seen and at we same

business. again and kind think is really So of our middle omni the name of we I in lot look at ways how

Oliver Chen

Happy Thanks Best regards. that. holidays. for

Stuart Haselden

Thanks Oliver.

Operator

with ahead. Boss JPMorgan. The comes next Matthew question go from Please

Matthew Boss

a guys. on Great. quarter, Congrats nice

Stuart Haselden

Matt. Thank you,

Matthew Boss

prior from saw Stuart, back? we about how gross just years model margin prevent would as impediments that a to we structural would the the the longer-term here peak margin think rank drivers from next expansion And gross of basis, any you year? mid-XXs returning which more margins on

Stuart Haselden

Sure.

assortment margins good As was and simpler material much very and designers of the working women’s at palette a you you raw the and mix within different. men’s look very the back, the years was women’s in were few peak had gross that The merchants company with.

many that structure and seen different fabric a more today have profile gives standpoint. We economic from

do the the product We’ve lot substantial leverage for opportunities do see would So those to the just I part supply in the below cost you I they margin see today I you costs. of comments from offered earlier, at I also and look bit particular in for couple margins CS where to made returning line in and that team the that’s the as we are chain don't product mid-XXs. over last gross and of room see teams years. investments look the product a add improvement of the margin

quarter. most quarter, see of occupancy, And the So reported that there. points do in leverage basis occupancy the likewise saw in XX where and we recent opportunities we we think in third I

couple back deleverage. like you occupancy If years depreciation ago reporting of basis we a go of were of points XXX

we and So of our stores those the portfolio have terms has matured -- in seasoned part as leverage where particularly overall the rents. the international those we real into that a the portfolio in can of as of estate additions place future. portfolio to I begin incremental think It’s expanded the costs

with what margin more chain the assortment our particular the I we’ll would the So of mean to source differently separates in and point gross products supply I by efficiently. that that about earlier, as their on specificity able in based drivers the them where on would flow selling next the segmentation to we is different on more call we more beyond, and lifecycle talk certainly with in same thing but XXXX see the that and the mentioned I our

path so been large, we’ve continues And also to us in capabilities big to that’s and assortment have to for an more although that and a quite decisions big Turn which but not development will be will getting implement precise this test accurate times. up still which markdowns, and of opportunity, as continuing, we function and you chain stronger XXXX, inventory margin. we��re not step in beginning the which again efficiencies which to XXXX turn that the cycle saw and just its build point as begin will have opportunity, savings to benefit models reduce and seen we improvements, to the and and enable supply Chase, the part an to our transition more in Fast able – us be to exciting speed efficient more implement opportunity offense compress our And will the early

to when to the So able point again I And things again additional those would to. call are you were together details. offer we’ll quarter fourth

Matthew Boss

Great.

Laurent Potdevin

– a and mean, and And mean, I you’ve men’s strong – hands had got a real runway you’ve of a margin. opportunities – profitable I so got international referring different runway business, organization a with that a the a digital pipeline big you’ve really that’s be mean, so very by model. big got just pipeline like got rich a can we’ve of and that’s margin you a have I had I you sustainable and you at that’s we’ve our done if of Matt, got to, within of was time innovation growth, today today innovation mean, And drives. ahead did really and you’re very that opportunity. I driven that’s that

we far more think I in mean to So the as look scale with far you’re sustainable position future. that I foreseeable today is more

Matthew Boss

annual on and cash Can of flow the cash Great. nicely priorities seems move forward balance And beyond? going be some net really talk year generation here. cash for ramping the sheet just then you free access to into next position just we as us

Stuart Haselden

that with flow. the opportunities cash cash first expansion strategies couple priorities ongoing next flexibility really priority the category to seen of are our program. The one repurchase financial for growth that use we’re cash we are into cash. But is we of The would of continue business of and explanation our excited healthy you’ve investment creating correct, the organic absolutely. return in free different share number significant priority Sure, the years include evaluate strategies Asia last to great – men’s Those parts the number of strategy elements whether funding and even cash and next Europe. number is its or with for a generating of a the for that identify within us that or one international you’re

So, fast the just detail how cash beyond. use determine year and elements little year as of call, and into offer I a again builds next mentioned evaluate to but that what wrap expect and think I cash we across those on quarter strategy deploy you more the probably we priorities we’ll that the our as should it, on fourth up

Matthew Boss

Great. Good luck.

Laurent Potdevin

Thank you.

Operator

The comes Please from Paul Lejuez go with ahead. question Citi. next

Paul Lejuez

Hey guys.

Avenue brand some stores what you to the also you little then volume that anything that bit [ph]? within what just what you compared of fourth in Canada, store has store And about store about U.S. the third traffic and for traffic quarter comp of about it and was Fifth you store, the teaching the of talk performance So percent guidance? stores? can quarter your Is might can you that higher a thinking separate, weren’t resonate, in the talk previously, your assume comp what

Stuart Haselden

second Paul. Store U.S. There the thanks remarks and for in Canada store results third traffic where but is were in Canadian saw to was prepared and is the Canada Sure, bit in I overall store quarter, has in as in quarter quarter. U.S. traffic and the from quarter improve we improved nearly the still we third negative. the the a the while mentioned U.S. periods negative. traffic quarter sequentially traffic saw third the store tougher the positive

look weeks point seen the fourth few a traffic, call quarter we – to sequentially in through the the third As four quarter The so in quarter, the date Canada. saw very been that at as negative we It’s would not we as first but positive still in I store have and things there’s to. see. the improve U.S. that’s tougher to to been Canada similar encouraging the it strong Canada has in U.S. in relationship been guidance, in

periods of comp you necessarily guidance. mid embedded seeing look know not we are in quarter a versus you in the We in are a deceleration deceleration seeing we fourth single-digit outperforming as I what so are What QX recorded not [Indiscernible] as not expectations Black fourth quarter are that with like far slower. as other the we you peak in is that periods know the seeing peak in say Friday being would week the

being has the or the of feel we front five four lows as a So in appropriate. and with high overall massive weeks And of the being we have the XX% we been up the coming today, trend quarter and like in so the sit choppy digit us, weeks we offer if still will next some you lower. mid-single guidance higher is

going I’m Avenue to to Fifth question Celeste differ the and on So,

Celeste Burgoyne

how strategy just we’re is, the we’re we looking going deepening portfolio, our seasonal we thing is that would and so open add a markets is are these store traffic strategy. store to our the to want really traffic, super and have there And and traffic also also on is one at then within traffic is on comp where our I experiences the

we’ve be opened seasonal pop in will good and malls where a up traffic, really up business decent this So holiday stores that traffic capturing XX is.

we one that’s and we at traffic stores and be really at perspective become results and So new they of a an and how perspective looking and comp, again about the are happy acquisition of Those it, from also look to when you to continue with really be gas seasonal gas. really are or piece their we trending far, so agile. are from XX%

shows So, to perspective of again doing just and strategies comp our community drive one the other complements from are traffic. we strategies it a our store

In is in with terms really Avenue, happy of the U.S. risen quickly Avenue, number store one Fifth to Fifth the

seeing really [Ph]. PPT good and really are We good AOV

as it stores percentage is so as terms inducting terms of international. well that is In [Indiscernible] over York our of New and I mainly then tourist tourists of mean in international U.S, the other mid-west

an inductive how new acquisitions, as a end definitively [Ph] for example again happy merged over conducted really us can and and of So tourist market. point hedged and we in

which with not community are a to in the you we opening have the actually another and what York really to, to deeper Fifth Warner great in New in example we of markets number of [Ph] our store Canada our and half on our And Center seeing of is trying blocks So know an Avenue is and Vancouver. little ability to cannibalization kind good businesses we I seeing go opened of very the really Robson Time have impact. vary we’re second example XXXX. again very good believe, books we cannibalization seen really very in and in city Robson ability is three one away, from open distinct in Pacific

Paul Lejuez

Great.

Howard Tubin

take Operator, one more we’ll question.

Operator

question Yes Please Baird. last sir, go is Altschwager the Mark ahead. from with

Mark Altschwager

of Very quarter. on product questions. afternoon and A the congrats good couple

months, accessories, opportunity First over seems holiday it nice really last assortments that on the period. like the few gifting a over ramped

expand it on the the the can do over be whether Just pilot curious next how year. here much today separately short can then the accessories of that and the the a needle and on run? from penetration that think And footwear, you curious what in is years just mover learning’s few

Laurent Potdevin

Yes, thank you.

the really yoga other opportunity are we’ve obviously and assortment in accessories great head to, socks, bulk the seen of mat the we’ve side the veil. that mean but I you latter around is strong referring brand of our I got on that’s like said On are. inspirational as we’ve or bags, and sort we coming the and I’ve business is nice seen in before nice, of a as margin we so nice result opportunity acquisition have that guest part the X% and runway. – I acceleration lot for penetration have mean, the a certainly a a is think We’ve the as accessory, as from, where mean I to of for are to of us XX% in strategy category. see potential XX%, so bulk it’s you a now right going we be a a the the probably that QX of X% the high and to which

penetration was.... the and as that’s So And potential. the see question what the we second

Mark Altschwager

The footwear....

Laurent Potdevin

been Footwear, new are very pilot. but an categories learning matter that of -- nimble can out I and stores that weeks they I mean to mean, that incredibly interesting a are really. it’s our is was what it’s quickly, we adapt in rolled

currently. agility we So, are beyond store in and speaks of it category us the fiber that our our the guest that to speaks also to trust the

would taking footwear. we thinking necessarily what are the future, are those we apply but category to about in So learnings and this not

Mark Altschwager

for holiday. the for Best luck color. Thanks the

Laurent Potdevin

Thank you so much.

Stuart Haselden

Thanks, Mark.

Operator

turn remarks. allotted will time the for the presenters closing for over conference questions. I the to concludes any This back

Laurent Potdevin

fourth our when speaking everyone. to report with three results. in forward us joining for Thanks look about we We months you quarter Thanks.

Celeste Burgoyne

bye. Good

Operator

This concludes today’s conference call.

participating lines. your pleasant you for day. and a disconnect have may Thank You

Lululemon Athletica (LULU) 6 Dec 172017 Q3 Earnings call transcript