LULU - Earnings call transcript Q2 2020 | Lululemon Athletica Inc.

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Operator

Thank you for standing by. This is the conference operator. Welcome to the Lululemon Athletica Inc.

Second Quarter 2020 Earnings Conference Call.

As a reminder, all participants are in listen-only mode and the conference is being recorded. will opportunity there ask presentation, the be to an questions. After Athletica. to I President, conference Lululemon would Instructions] turn Investor now for Vice [Operator Tubin, like the Howard over Relations to Please go ahead.

Howard Tubin

to Thank and quarter call. good Welcome you Lululemon’s afternoon. earnings second conference

talk and Joining Planning are Calvin SVP and Alex Grieve, our McDonald, me about results Meghan CEO; today Frank, to Analysis; Financial VP, Controller.

based uncertainties our XX-K associated most XX-Q. including with our business, on make our forecast information, reports statements started, statements its would Lululemon’s materially statements filings risks the and Any statements result are or subject we reports opportunity events. changes. certain and in you disclosed which implied that this Form call revise or of reflecting today those or as as to of like assumptions disclaim information forward-looking to any assessed annual that this those we even forward-looking include results on current due take Before have with to remarks to Actual I have or our future. will obligation and we quarterly which we our undertaking statements forward-looking from we nature these any SEC, on of including are recent is abrupt and these of update and current get of aspects rapid by new contained based management’s today remind dynamic These a differ may in to expressly by on future on Form

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

call and remind site a operating where of our like visit you call, financial begin hour. investors would as key summary X second as our scheduled the to we quarter Before find infrograph. for will the well to is Today’s statistics I for our investor quarterly

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

Calvin McDonald

are I to strength excited offerings. an look see are we forward adapt navigate to update an unexpected the business you, to as be through the we the of of learnings you demonstrate e-commerce and today half continue and for environment here we accelerate trends Thank our quarter, we results digital uncertain with performance am Lululemon share to sweat the in highlight we brand and the the Howard. retail provide COVID-XX future today year. of times on sharing second as back of as to the The and the seeing expansion these our face

demonstrates search she during answer operational Our is Q&A our finance, at-home COVID-XX and ideal that Analysis, our work Grieve, also the VP enabling these the while ability planning built fitness Frank, and upon continued to near-term for from our and our components, technical the Building home lifestyle globally strategic world. is your call the in to and the long-term products with am for our our versatile growth. me and available and a Meghan grown exponentially acquisition questions innovation to performance today has of Alex Today, MIRROR fabrics on Financial expansion works team who partner supportive Planning innovator, ongoing. Controller the I continues SVP of be be and by in the portion. is as while navigate joined CFO on with

inclusion at like about the I importance would a for speak Before I diversity to detail results, of moment our Lululemon.

a committed are has to I change As we Lululemon Black ignited mentioned Matter diverse investment as The serving create within through and increasing action. powerful idea, our last in and organization. and inclusion, lasting diversity, real examine Lives created education, and critically to equity movement commitment collective our behavior our our change in culture a catalyst to our June, practices. we representation and on call, Back

begins As on our we look operate. core forward communities and progress as everyday. the in focused going living this of are which on to inclusion behaviors value to into the our of shifting global workforce meaningful diversity a sharing and company, our transformation, I mindsets our we truly reflect forward

X%. are expectations. of now turn the our with stores me reporting business quarter, number during we revenue significant quarter the quarter. sales our increased Consistent one, closed beginning to to of same-store in that Total not performance which the exceeded Let remain the second due

position quarter Our the per comps and we e-commerce remains basis product billion last $X.XX in our last quarter margin with increasing XXX%. XX liquidity. accelerate total financial year continued were versus ended Adjusted earnings as share with to declined our in two flat Gross was strong and business year. margin $X.X $X.XX points with

setup behavior gain shift As through trends increased continue seeing to of to to the of an living lifestyle. importance move and opportunity home, continue and to a are we us home terms play market working COVID-XX healthy in innovate and and active in we strengths environment, from an These operate our share. the sweating for and from

in endure strength where We on to world. our the with our investments model is have Lululemon behaviors with changing committed engage and retail in certain point including doubling plan, are men’s, and believe likely been how But that an and making for is and guests across the the Lululemon, uniquely are the doubling in their we strength we Power operating COVID-XX for to want them XXXX. and they brand, when, also post quadrupling Three likely positioned we of We our guests to adapting inflection engaging growth of e-commerce based We ways. of our by guest are recognize new international of the of our with business. learning how remain XXXX changes behaviors the

strengths our model. our One is key operating omni of

last in experience to a enjoyable virtually whether years, ensure our capabilities been with the want us have several For stores investing and What omni during the across simply to to seamless in learning much guests to channels. have transactions that means guests COVID-XX now ecosystem enabling we or more purchase are community. and our we in is we environment our enable the engage the

business, off begun recent we capabilities and omni of our investments While sweat other our through an recent in including areas to lens. transactional are paying clearly results, omni evidenced as our events have by view

some Let share of me the now details.

on accelerated given business four prioritize these the fulfillment e-commerce X continue comp to pull quarter. one, increasing mix and include These and support now healthy Similar omni we our year guests capture from and developing ensure of in online. business historically site investments These As us order our enhancements, seen were our investments we transactional highest further guests our to a year to retail-only new to potential a the currently our accelerated service guests has beyond increase with a within business, demand investments. building of four level the capabilities. to In growth years in further in guests, in and comp in e-commerce have stores current our quarter roadmap XXX% recover, e-commerce quarter receive forward and for accelerated expectations has our our ecommerce we XX% of next continue the last channel. enhancements existing this have functionality quarter shopping

coupled an two grow are XX%, in our store In driving regions opened at guests sales Europe, a When us with X We over and brand across in engaging in engage this e-commerce, growth with grew up locations Asia same-store greater also over exciting continuing milestone our in key strong experiencing XXXth XXX% and in in for our in a in with quarter location markets. Europe, we brand is online our lift than are than in including quarter guests which our two, with to e-commerce ever. international store growth new XXX% across are business as our our China, and looking rebound market. more strengthen we APAC,

business. to recovery me shift the our store about now Let of speak

unpredictable, currently last stores On our continues have XX% the While stores our volume. performing to be average, at open of our period this guests. approximately across are we globe serve year’s to XX% of reopened

are our space and small of use results know, which with in traffic, designed to stores of high high be an efficient levels you As productivity.

While these of number constraints the be understandably the store at capacity limit are who the appealing guests can in attributes, current one-time.

underlying to least to the to get virtual While endure both year our we declines and our patiently tools. year, end of traffic brand up of last health expect are lining seeing our Guests physically and remains are to relative the through constraints stores these the strong. into at

have we of e-commerce our evidenced remainder we expect Our stores the while line quarter we current the product that top as for four. still in with of for to resonate continues levels quarter by the expect to year, well our And remain and consistent productivity three channel. strength reopened to grow the

We productive than highly by enable the of believe apparel always and be much are they a stores important are ecosystem. stores continue of simply to part will our physical extremely standpoint, an sales and our our so more From purchase guests.

accelerating spots via our are guests our store our connection communities to e-commerce particularly into also and open ambassadors local the seasonal to to and XX studios in stores This capabilities transactions strategy. plan our second two, globe, to operated our online bring increase gathering and ship-from-store our to buy our In XX men. to XX across for hub portal local net Our and year. facilitate we we store pickup XX and plan of new brand, in the just half stores, while the year, quarter new seasonal stores over we approximately

we guests. seamless That include and Our experience building in and this said, we mitigate our centers existing current where current leveraging omni shopping key our in for transactional capabilities stores both the stores capacity us store will new to have are to constraints. a and quick strategy e-commerce help ensure seasonal holiday being markets

in actions Some have evolved pickup pickup first, include, our of we buy store by online, to functionality buy online curbside. our

waitlist the wait longer the waitlist month Second, virtual to and August utilizing been nearly enabled their so This can XXX of where in the we to particularly our In functionality well received. line across store. be has individual when have guests instead implemented enter we notified it text is nearly no guests technology. virtual XXX,XXX turn have had we locations, via alone,

initiatives and concierge and both of fourth, anticipate educators enabling training our of the offer continued to we educator to demonstrates to virtually and Omni and innovation agile Third, guests. ability our the digital by education number needs be center. who continue our have in-store our them guest to be virtual special evolving well receive help through expand guest received our to we programs continue This And consistent guests.

have ambassadors been enabled both to live we our physically life also and omni digitally. have membership digital streams of part in am myself. sweat on for capabilities offering virtual active channels in countries offer XX,XXX We our where stay are underway. an now guests able content participated, that and program our social as Annual our more of Many the our extremely which including cities people convert I also XXX our were to we August, SeaWheeze successful Half tests help Marathon into over than excited event,

We marathon. have half our a Strava running offered to distance the and app, with XX-K partnered in addition

signs pant We of Shifting by construction were in both is virtual collection at men. share and now for leverage and both to for we races on-the-move our and in sweating excited now to of These for of Supported ability. women to programs designed their offers relevant in assortment of working our and runners versatility are also am studio them innovation, we merchandise developing styles flexibility product with Last and fabrics, there the height than campaign. be the our powered that more help our more guests expertise the prepare explicitly but to our curated out with training we ever workout month, which introduction making use. guests. new compete are technical to of for expanded styles I feel. by technical home technical a ways everyday the from innovation our they continue of

by powered our expectations the inventory in for particular, pocket new and these additional rolled X days exceeded the a company of into in style Bowline Sleek pant Warpstreme new has chasing men, styles as Initial of with response the fabric, to are number City and In TAC out the has one keep the fabric. up two demand. help our Sleek launched we during women, utility City been For the the we factor launch to initial by we performing strong.

also both excited While we pleased sizes business offer we important this with majority I for of continued women’s with sizing. XXXX, for inclusive the growth will apparel women step we of some and and to innovations, to beginning. overall, technical the of Lululemon this our to at quarter of that size we toward lead always later the forward performance-based on-the-move I our more portion business XX the end saw and the range. am the to men. see will is X our and our styles am one, sequential will more lagged start looking inclusive assortment grow opportunity an This the move behind When in women’s in core in is it By the relative be just although improvement men’s business. month available

more male and seen work-from-home have environment the and As hoodies. to guests respond our sweat-from-home sweats continues, we enthusiastically shorts,

on in focused demand. line the categories continuing to these an raise on-the-move we our grow provide can into our businesses and awareness dual women’s on business. maximize teams men shift among the to brand based these both opportunity so chasing are current and And in as gender such are teams men’s merchant Our

product the within innings. opportunity remains in early Our

have to We begun run, and within just train, leverage signs ways key only and of we ample our innovation yoga, have feel expand categories the to platform work on-the-move. our

apparel positioned the technical shifts the take towards of well addition, advantage that brand are in the we and Lululemon In comfort seeing innovation. provides is versatility, to marketplace

our outlook, example Membership. to two of omni aspects omni update an and on of of a our evolving considering through we initiatives, lens. new are shifting and let MIRROR Before business MIRROR how you our me is further guest

July on the the transaction MIRROR. and brings brings in potential opportunities and excited MIRROR As Lululemon I to couldn’t be more MIRROR early the we closed with you to know, Lululemon

work benefit we strengths. revenue from will when York. is no them from bringing is stated, team of into I integration a family for the generating so need MIRROR continue Lululemon operate the As begun our have announced offices acquisition, management the we collective in standalone we business heavy and company to There the their their and process New that

you gatherings announce and once provides studio first to also the test program moment. we COVID-XX with a Membership, continues We we are Chicago dedicated leveraging also such as format in special to I digital momentum starting in plans week to am with we build upcoming The to membership of The celebrate inspiring modestly when in MIRROR XXXX. we a event have of the to the to the year. for physical to ramp expect offering I extend so. second to holiday four year excited and to States stores grow fall the season connection in and on safe online the and to standpoint, will time. up MIRROR virtual guest set a product, and are From financial marketing program brand the bring advertising power be track We believe to Lululemon offering sweat a for our Meghan by business. doing the proud awareness. the XX Toronto to of and Lululemon to community in MIRROR provide the the fuel will do Denver that continue guests to MIRROR’s to With season spend Lululemon be quarter channels of more our return dilutive in United XX how in experience. classes with half the classes into and ecosystem am will during begin more next during evolved initial earnings are to Shifting continuing Edmonton, the we program MIRROR details leveraging this aggressively teams a this to work our early stage speakers the to plan range help we mind, will begin year when to will

ability into As to offering enhance behavior we the guests experience learn sweat of the life. the can we and membership family, insights to improve test are and on us through MIRROR guest our our gaining continue integrate valuable Lululemon help that and fully further

our to but of outlook, on share fall approaching are financial Meghan me with share the the planning we wanted thoughts Let framework I season. specifics now the our some second regarding our for will you how provide year. half

environment not yet we multiple for operate is the scenarios expect the point holiday many plan starting of remains to in particularly season. to recovery and while markets Our that we COVID continue contained is where and advance, uncertain. this fall the the for we

spike fulfillment ranks they to have service in our continuing guests We receive should IT grow investments the capabilities, several our four. pulled and forward our quarter experience our DC educators business, and the are business and e-commerce ensure to increased to of even omni accustomed are related to e-commerce more our

work merchandise continue of the pull capital. forward by to ensure to the flows vendors continue and our develop tightly protect we styles deliveries and select managing should upcoming our We of demand with proper and of to downside timing unanticipated can expenses outlay

now Let Meghan. me it turn over to

Meghan Frank

start Calvin. color are specific our for the will by Thanks, of on providing sheet, I QX also I our outlook performance although and balance offer specifics will some providing I including position, will July the financial X, on the details liquidity not will guidance, I pre-tax discuss year. the remainder $XX.X on but million inventories. the beginning of exclude results note QX of share our date metrics cash Please and costs. on closed, acquisition transaction adjusted the related include operating MIRROR we that

reconciliations can GAAP for refer our XX-Q more to to earnings metrics. You Form information our release and and

increase COVID-XX high channel, above QX, In are last year. XXX% a phase, And while increased comp constant digital $XXX of net decline. was our the XX% still top dollar our we increase revenue in posted recovery of million. single-digits we For total this X% to the on expectations

closures not performance. to store Given in meaningful know we evaluate is comp a temporary metric do the store significant QX, number of

total business our store be since by digital increased will I our QX driven of we color performance, our and we Square offer footage as to net the will and on continue As trends stores which focused last XX% additional new versus we XX XXXX. into revenue, on recovery trends, line evaluate addition top outlook. of move open some year

opened stores the X and in America, Europe. in quarter, XX new we markets X During Asia other in North X in across X China, Mainland

planned We two also optimizations. completed

digital comps our total XX% e-com dollar of terms In expectations contributed million line approximately $XXX XXX%. of of or channel, revenue. constant A increasing our top exceeded e-com

e-com did comps online saw overall warehouse were flat results, the quarter, sales and sale, that margin results our to highlight want Excluding reflected product impact I for we while the our our of grew on XXX%, pleased sale online price warehouse full strength with we year-over-year. as

In for terms over increased and to digital of we margin was XXXX. channel from strength response revenue was a benefit basis second points coupled was by of of see was e-com leverage the product, negative XX of to points Traffic flat the gross in also million, related experienced by and of XX guests experience. product offset product exchange. Product respectively. profits we sale, online platforms drivers, of Those occupancy warehouse and mix with net the revenue compared impact and driven XXX and basis offset XX% net from foreign costs have made costs and traffic, improve point margin which basis our continues markdowns. DC product and team investments of conversion They depreciation points higher quarter global and was lower decline year-over-year our investments digital de-leverage to in as XX conversion by XX% to which or driven leverage. XX.X% The QX costs, to on XX points basis basis XX%, continue inclusive $XXX.X shift guest in marketing, of

and we our for has resulted to commitment revenue to related been while to disruption. due expenses approach downside our also compared growth or net lower $XXX pay protect predominantly to of in invest ensuring in continue million to our this the in long-term revenues quarter revenue The our of approximately continue SG&A XX% Moving XX.X% XXXX. QX against environment in opportunities. to SG&A, to net of store period deleverage current employees through the COVID-XX closures from

new income associated per rate expenditures the million million reform $XXX XX% an quarter or and guidance depreciation in for to of and partially in tax effective to with Adjusted and QX of of by earnings expense are fiscal $XX to also net $XX.X and COVID-related $X.XX effective for with or the tax analytics technology $XX second the to the primarily supplies effective in to net share QX which for compared reductions offset measures, compared year million changes store investments. ago. wage second quarter and quarter Adjusted QX tax original relocations year Adjusted support reduced here. million quarter revenue capabilities per in to digital locations, recognition from $X.XX subsidies of with the certain compared for were We PPE, of XX.X% pretax quarter, share, coupled renovations adjusted in to government growth, the capital our some was U.S. supply de-leveraged relates associated increase operating to quarter budget spent and of rate of income diluted diluted relative million in channel XXXX. was business the $XX.X or approximately earnings, compared net revenue These last a of was for last approximately quarter. our XX.X% and XX% chain expense Capital spend tax XXXX. the primarily to approximately relates de-leverage tax year. rate The compared our XXXX. a

highlights, our of of Turning to $X.X balance liquidity. ended the quarter total sheet we billion

of We $XXX committed for We for point was QX. high the equivalents believe available inventory year-over-year million $XXX credit and QX revolving the versus Inventory $XXX have now million increases XX% with grew our facilities at last and approximately cash had year under in capacity end million XXXX. of cash

to moderate XX% and in XX% a further increase range. second levels expect to in the We half

remaining COVID-XX million Our $XXX on current as of our cash our repurchase pause program part remains management million approximately plan. strategy. purchase $XXX on have They

environment, and on cadence providing the how the we to at some and guidance our Due dynamic trends of quarter historical fiscal current to now year. are returning the shift of the remainder current are share specific color nature with macro me the year. not to we looking you to Let for

to of plan and the recovery manage a second outcomes. in the to These trend impacts scenarios ensure number flexibility half the around of business store let continue globe. continue a us have through to We appropriate order COVID-XX for scenarios we across range include

We strength on leveraging are and this focused navigate and our benefiting omni-model digital as we from uncertainty.

our have see between continued to We sites. growth on outsized shift has e-commerce guests driven which channels,

As ensure elevated half have shopping Calvin our when pulled holiday guests mentioned, forward to and an maximize our business. we investments in experience sites to to continue and our digital channel receive second

North In terms and globe a open of approximately of stores stores, we with the of in have XX% only Australia. currently handful closures our across America

of service XX% year’s reopened distribution are of our approximately running. productivity centers is average our and up The last All of volume.

impact at XX looking our in a and new our As relatively continue still square stores double-digit store through coupled on We limiting of small These these store openings low we When to continue with net footage with stores expect for productivity to XXXX, XX open people traffic. the will for to QX. net open new year. believe we restrictions contribute size the in reduced to prioritize our new many locations. increase end XX are capacity openings in to high guests, we guest operating hours and comparisons

and QX operate our XX second of addition, the We strategy. are year. in In seasonal in store plan just approximately operate stores to seasonal half we over the maintaining at XX

to relative improve mid anticipate low high trend QX year. to continue to total QX, experiencing revenue the single-digit with of overall, we reopened for single that our well year but half sequentially in range. that generate stores. the of total And XX%, the stores of MIRROR in remainder half revenues expect growth to growth the are will to levels the view to excess XX% moderate on with the $XXX forward second our the the channels, assumes back majority business the double-digit increase improvement to full QX digital we the in of rates finally, assuming It’s our Inclusive open. pre-COVID above we revenue revenue in to of productivity in for remain important high growth million In strong XX% range in Looking throughout we in now we the expect and MIRROR to are increasing in revenue in total note to currently XXXX. no

spend, term increased and increased season return guests help a reflected into holiday produce and The the next contribute will year. awareness excess from during from marketing which to also strategic which revenue to brand to product on our million, will over in longer initial to advantage made $XXX increase As and the decision spend outlook. should of we modest the current acquire the business near-term MIRROR opportunity new take of drive in was spending expectation, second and the through dilution towards earnings capitalize marketing for home the half trends our in in

For with by savings of track gross remain better gross in deliver relative to year our up followed be continue of QX, million we in expenses the decline QX. relative flat the modestly non-merchandise than second half original a We with in to the year the expect margin, to included half to on to to margin $XX budget. gross last margin first

In terms we remains of likely select SG&A to year, initiatives, below invest back particularly we expect for traffic in in the full half store as year’s last and digital de-leverage continue levels. growth prudently the

look to QX QX. SG&A of When year looking modest grow in XX% to range We our addition, regard Lululemon remain at of QX XX% the compared within EPS in just in at earnings decline realized million would de-leverage XX% the results adjusted we P&L to to the in EPS realize by our a while an decline overall, and decline on will MIRROR’s modestly With adjusted we relative adjusted year the MIRROR, dilution the our QX. to to and if the bulk be in ago, for this business, be XX% expect in a QX. savings budget. Lululemon end in an modest In combined track and QX range the year in to expect contributing EPS $XXX to and share we original for per on SG&A gross

costs, MIRROR at than to For continue acquisition X%. modestly full less XXXX, year the dilutive be to excluding we expect

In terms of and capital line our spending, we generally XXXX last expect in budget CapEx below to for original year. with be

prioritizing fulfillment omni openings new pulling capabilities, and remodels. initiatives store are on back on We and digital and somewhat spending while

I on plan to Calvin, and Before to holiday based continue optimistic with handing the multiple it back to to the are we like performance business season reiterate that cautiously regard would scenarios. we

we consistent seen strength levels us. with are in now to the Our experienced remain ongoing e-commerce back term, with productivity and the power to guidance business. in And assumes recently we to of free some opportunities Calvin plan closing remarks. growth remain we have for committed we excited front remains and store our Longer our

Calvin McDonald

is guests. with becoming their up to to innovate, Meghan. we And results exceed by during Lululemon is strength quarter. that testament all allows love our world the our that the serve. demonstrates to am thank continue enduring ability this our agile, future. feel deliver both to also us our by how flexibility you, long-term And a expectations to and moment our and all this I to Thank meet resiliency as We our the quarter team people, leadership these lead that and of connection and of to of stronger and our both teams is like and guests time. the it’s strategically take around continue near-term impressed be proud be business nimble co-create as We to the they and employees our want of creative Lululemon showing to I I

questions. are can Operator, now your take up for it Q&A. We we open pleased now to

Operator

Bank Lorraine comes of The ahead. with Instructions] Hutchinson first America. from Please [Operator question go

Lorraine Hutchinson

I place are this store whether about XQ other challenges, costs. there about ask Good any that thinking try help with some constraints managing to that. stores opening higher can like plans volume It tough to Thanks. holiday shipping how sounds afternoon, successfully through environment? in ensure you will wanted to you seasonal capacity be or Are to any we manage

Calvin McDonald

early it’s of Calvin. I that strategic couple a been it we we hello, Absolutely Yes, working key on into have on. break buckets

the that world, of as supply ready that around as type ensure for forward volume are pulling was we chain, our infrastructure to first were well both The our the anticipating. our websites the investments

volume if on e-commerce. run scenarios obviously have is exponential are highest a fourth variety quarter a year. volume And seeing of We the think within growth you we

concierge the of order prepare readiness So into the the to pulled benchmark mobilize we can have what as on areas, able guest one well just and as to call able being that we in infrastructure work experience, to both as our to physical the in been we of how center, as at but call a to investing guests modeling applied the as the be educators online, of service of to then a through well needed to the and we support our center. back ensure sort not key we half And looking investments forward sort service site being those for. a

factors of online the and and we to space COVID. operating ensuring physical the the innovating support away reality are to have leaning a a that take of that’s operating is volume is that keep of to initiatives the important in Education the our infrastructure through constraints, big Center So we two there variety in that support anticipating and guest

have and the rate. a we at are, seen that store lines guests stores challenge queue transact waiting more We our And quicker know at to the up. is, our how willing we get are and all do into

where, be have that planning And XX. outside we fleet of some shift we just tapping our locations, a location some of variety a from a in So into as in had doubling of the then as mall nimble that may guests I is out we the up service into them virtual are pick we big have well store year, well a seasonal on lineup seasonal check we last innovations is that line a store. quarter, XX share, how And stores even we in in so This year existing stores up where and an shared the fourth overflow. can or gone as

combined. maximizing good the to So I some those that physical the We ready need feel space be with the will things with you. be volume shared of in innovation where we potential we that for

Lorraine Hutchinson

Thank you.

Operator

Mark your Boss is with question live. question next Matthew The ahead. Baird. with from Matthew JPMorgan. go Altschwager from Please ahead. The next comes go line comes Please Boss,

Mark Altschwager

question. taking for Hey afternoon. my Thanks good

QX? margin, sale the underlying specifically, through the first saw the warehouse the there an On better relative in the in plus strength of might product am impact you the some much of that in had can guess a walk of be in indicator the you to I business. run-rate I the wondering the quarter drivers how whether and quarter we XXX saw

Meghan Frank

Meghan. It’s Mark. thanks, Yes,

strength pleased quarter. the So, product we the saw were we really margin with in in

of the online selling some closed, our we strength did across As But compressed really stores we sale, nice when warehouse you we out markdowns period. really heard, look which one full-priced selling. an into do with quarter, saw

we expect not be margin second the returning we expecting a going margins year-over-year decline gross in offer move half product in in first the are margin to are better into the half as QX, on to expansion second but year half, specifically We color than to and gross the QX.

Mark Altschwager

And the productivity That’s all does further saw thanks the any quarter-to-date each seeing you to detail just follow-up, quarter? are in very you a in on help of helpful. trends what channels – and Thank you. on what then it for relative second the digital,

Meghan Frank

Yes.

we which have tracking are to top for line in single-digit in provided, growth the total the we high line So revenue with mid is relatively quarter. the range color

Mark Altschwager

you Thank of much. Best very luck.

Operator

from comes question next go James. The Please with Matt Raymond ahead. McClintock

Matt McClintock

handle from term? I X out, of out trying you X start still understand you service going to job with with wanted to the room? think are follow-up with fast, the and you more you years building up fulfillment position to or it’s where you now safety question, are volume, understand are getting of I so is years ready these are this from volume, want you everyone. already good Honestly, still a deal are your volume because I want higher some just customer ability to add and that trying. X service And customer to versus making now, you kind that volume Lorraine’s for years keep quarter, to to does just terms I in ability the Thank it’s capacity fourth X that with years levels handle Thanks. of investments kind McClintock, longer to that of but but ability your but of fulfillment

Calvin McDonald

Thanks, Matt.

that are X-year under the well trending Power business, we We Three that modeled we growth our we volume at ahead our of in of of are run-rate. plan had that anticipated spring. the definitely when ahead and we definitely looked last digital doubling and And shared

into increase work XX%. operate proud convert in the year, and our to investments warehouse increase ability saw on through while the ongoing I that number the that stores e-commerce, maintaining fulfilling quarter right the I break one factors, in today team by conversion take maintain the DCs, the by to e-commerce we safety to am continuity did putting measures as place and these making traffic and safety health of are and capability very is improving stability, distribution, this website, employees a this the operating well two XX%, we orders, center would distribution of So, the front of of traffic we and both our which as have of ensuring

the there investments we able to general volume ahead be of scale you just the with to combined that. and these anticipated is where are need to infrastructure business make like So,

which stores predominantly XX%, grew Every we easily to both Internationally, business region in total now, significant based and North our saw that’s America us are was e-commerce. we China in Europe including in up Fortunately, and more cloud internationally. expand growth APAC in quarter. the allows and and

experiencing are infrastructure and volume. we that markets are in investing it the we support all there So, in

to I of our then the We in XX we big forward thought look prioritizing plan are and of on we we the ecosystem omni obviously strategy long-term is the an ensure of we our it. perspective keep and be And a investing plays ahead definitely and plan the planning would going to are the and take we in mean, year as that. digital dollar support out that X-year approach a on a that continue going invest come where to and investments. of the at beyond we to view business will what’s centered to part growth

Matt McClintock

started instructors greater and I a as talked get just MIRROR it’s just seeing then engagement your engagement, Thanks. on And MIRROR levels impacting on color. more in your local was where have to and lot how the that follow-up, have ecosystem communities noticing local thoughts we we integrate wanted you for a local two instructors teaching companies a on starting to communities? bringing to bit, on little because Thanks now? maybe I you Are MIRROR about Lululemon

Calvin McDonald

improvement to year, the on of lot line a among means and the and both Ambassador opportunities this and a how other to sweat, lululemon.com as the is to, of integration, spring. community, so it we selling as forward partnership, see selling forward, ambassadors into are a fact, acquisition XXX stores say, and XX. with, as have awareness, expand and the look platform shared, tap solid alluded, us last MIRROR home to the us continue interacting And with we on focus gave metrics, million. we in stores. going test selling year to up XX And as confidence a with fall shared with revenues more would to continue we it their I many we, in the we the And, and at partnership thanks. a MIRROR we led and the we last moving as a as really have is test the integrate on early. are are Great, integration, well as be with notion of XX even our gave learn that of it started interaction learn some building Lululemon our set it through Meghan as earlier, light that we anticipating, guest of excitement was we in And into that over in ago forecasts had and making in ambassadors to very MIRROR that about

at into other the of strategy rooted and of to is rooted we vision Lululemon and as and center excited very the digital be viewing We our to, forward, ambassadors, both to community continue so as about that part moving in of sweat forward. digital and the innovate membership drive look are of between representation is unique expand and and is how in the share. see more and so that physical we are growth fits where well business sweat to the our others we point two is into it’s that unique with MIRROR community feel a players level, it within physical But our physical well, will Omni that stores the digitally ecosystem that a and the include predominantly our opportunity we MIRROR both will as really relationship to sweat, is versus and strategy some going we

Matt McClintock

very Thanks times. for those exciting

Operator

The ahead. Please next question comes from Adrienne Yih go with Barclays.

Adrienne Yih

this Calvin, introduction talk I and was just and of ongoing can then innovation back category you you the, wondering Thank mentioned, if through there time, of strategies can channels about think how the about the have expansion, for were XQ? end and to through about half I XXXX. should very much. And year, you both the then into inventory at Meghan, and talk that how newness last both you if XQ us we product of moved that three or think you

Calvin McDonald

Great, thanks.

with picked is for terms see just those equally. our and are on and categories solutions of unique options taking up key life our have yoga recent we on growth guests you product activities one head most lot of we expansion, to campaign, know, point of we we business, sort provide is how the sport on notion move, sort a sweat view which of is key and of of in being, in a four the toe a and that shared train activities are In the focused as the we run

and newness either are working are that to men’s a And, do activities choose accessories. both number a well sweat as women’s as business we And our or our that are of guests we about into activities as opportunity little, our to continual sweat innovating options the sweat well business bringing we that. for We our as secondary to as and continuity current loyal excited have assortment. we see tertiary equally their that expand

City planned So, our the Sleek initiative shared with the there more year these is new of and a lot next sweat and for with this of much new half into innovation categories. back We quarter pant into business in OTM pipeline. launch the the

well product we I pipeline, the that the the incremental already both energized years. the So, have be us about categories completely the expansion would as opportunity be declared we for new what then and in have incredibly newness coming as and business, to of continue building footwear

and Sun with more in it’s and are to runway America product. believe think we and really then the what a teams early that feel so around exciting the I long internationally, through signs in even so So, work see doing we product and offer of of growth in North see

Meghan Frank

Great.

In terms of with inventory, QX. we are pleased level out coming of the of composition

was was up which year-over-year, year-over-year under QX Our balance. XX% our inventory

high of expect QX. end thought be that point would now QX be will our previously we and have We

did those expect quarter and in fourth we do with reminder, again, point and half benefit just XX% third XX% the moderate as know, again, do an move we inventory to also results. of core second online price sales our I with back quarter just you very during to as the full we year XX% pleased we I up from our are pleased as We But we do approximately are into assortment. the of to being a warehouse So sale results. the

Adrienne Yih

environment. job Nice much. so thanks tough Great, in a

Meghan Frank

you. Thank

Calvin McDonald

Thank you.

Operator

next from Ike ahead. with Wells The Fargo. comes go Please question Boruchow

Ike Boruchow

questions. quick two just Hi,

are QX-QX? still been breakout guys and am you trend, inventory half, more in understand your carrying, the quarter. if be to then sales well that has it’s events contributions just inventory XX% above clear revenue third or I the the on understand the kind trying XX% fourth explicitly you with is in the potential any comfort for we past are we to lookout the you Thanks. And on your highpoint pretty back to of Just chance in going is MIRROR should this the could planning to moderate inventory, back

Meghan Frank

Meghan. It’s thanks. Yes,

fiscal is inventory about and in of think just I to you XX% expect but the again, margin breakdown the what in of the growth, second then a XX% that on in core not approximately is second mentioned, consideration say half relative we about would we inventory, as do half year we for assortment our the the million, full levels and going as and comfortable growth second we improve returning terms sales moderate based So are to of the terms of We that inventory I on $XXX And expect the to QX feel $XXX MIRROR, half into is through in is know year again reflowing the we of half to with in taking million first and level XX% core XX% XXXX. QX. portion. in to excess of gross estimate, expect to decline

Ike Boruchow

Okay, thanks.

Operator

with Goldman Walvis go Sachs. next The from question comes Please Alexandra ahead.

Alexandra Walvis

taking be Thanks had Lululemon whether was on through I afternoon. I of question to customers? e-commerce That the share a the to customers for revenue the much on e-commerce if quarter-to-date. composition the you able quarter and new could would indeed And wondering Good of share color growth. more that so also question. any be the you cadence growth between existing really and might helpful.

Meghan Frank

Great.

start e-commerce at the of mentioned the we have of that the terms XXX% cadence, were in saw when QX reporting So, we quarter. we

quarter excluding sales. So, XXX% it we see a warehouse online as And for did and move XXX% throughout pickup QX. the saw we was we

rate year-over-year expect COVID. full moderating rate of second line to be stores We e-com the we of growth prior XX% have that in with mentioned as to half. seen to above We as for QX the into that do experienced period our expectation and the growth XX% opened I

Alexandra Walvis

from And you Vancouver, expanding have in pilot clear. into in move learned you incremental share or to far that this tweaking loyalty can me, what test as color loyalty the Very anything are then Great. you any one so city are on more you subsequent you pilots the question from another Vancouver?

Calvin McDonald

Thanks, Alexandra. absolutely. Yes,

to job And bring guests. clarify as see we of we see to to in learn landed going be in we where interesting the balance to very guests larger Toronto the sweat, city a access positive we notion response for have that the results. purchases just sweat Edmonton, rooted that have is being a have guests see added we on to adjustments but the a every have so obviously on so intend test high made, as new we continue $XXX incredibly set tested Toronto product overall new impact what will from X And cities of being excited cities, a community engaged physical making at series, year, with are learning and with the to we and around and of it a have available connection, the of then to city are the well seen this at in in the as Austin test with and well Lululemon are repeating program. able of go X team adding, engagement we a we market. repeating we and physical think that and studios we it Toronto tutorials other speaker Denver First repeat, and community recruitment as physically and or the with the week, essence But we in moderate the results. guests, combined to open is sweats Chicago big the elected to great or wonderful lot good And does their has positive loyal part, forward connection done, we to and of one a really we team up events, is in virtual in shifting and the program of done rooted and have

adding early has are metric Toronto engage been it, very with, great So approach additional more it the in and has guest learn it markets standpoint, membership continue at is positioning learn am be we potential, in to excited markets to, about a program, interesting phased COVID us to an the and balance these has and will, encouraging. I test through we not on if addition. the from new given and it’s And plans is about through than year. but coming based guest a the to look a going taking very and how test the confidence anything continued

Alexandra Walvis

the and the much so for you all color Thank all Great. best.

Operator

comes next Omar Saad ahead. The question go Please with from Evercore.

Omar Saad

core versus a impressive. the little North wanted market compare Hi, more international thanks. Maybe out are China you kind Congratulations stores? be in good I and ask on afternoon. may you for patterns be great behavior to a quarter. pent Good would differences America see your you about another your up pretty Is number kind seeing America you the compare to was of consumer are contrast as you results patterns, of a to there? bit online will that patterns those and contrast the experienced the are North well seeing get and Thanks. that call some demand it markets feedback? guest great the in behavior Europe of Did seeing

Calvin McDonald

the performed with the will similar large the Stores start able that just stores both Any to in of being the are closings business in that under performed as business and and in had growth same benefiting as it seeing lot U.S. this of significant ahead saw operate Canada China But because In improvement that’s up, is heading with when just had two which and all have small in picked Thanks, start was additional doors, we Great. to a sort number shared sort are are demand opened Predominantly, and linked significant, to obviously QX productivity we a momentum will steam cities. domestic very it had share markets. we They tier challenges stores, progression really are are to and productive. the XXX% well the build both mix the QX to saw from they QX, perspective, incredible of incredibly numbers by the early a stores Omar. our both the American match just up commerce additional we QX pleased we up e-commerce have up quarter. from are have through I of I occurring. up that as was And keying that we we to from from, of with the the we with China continues performance a a and pleased internationally. from overall we into and we reopened, operating growth, the constraints of plan. previous we quarter which in the brand year. when number North travel of

North new are brand continue and and markets. Europe both reaction growth because to as is estate that an very positive e-commerce, in physical potential what how behind and performing we think and business strategy guests we very growth great of entering to our strong, think strongest Asia-Pacific in excited as rest and of by continue and guests We high real the new momentum see assortment, are so market similar new we very our see channels it’s inflection is and really in e-commerce acquiring when into exciting are our resetting growth the the America, it’s to and numbers in which which about about for business about in in to-date China high this it’s with online quarter. in that driving, it the it’s any lead to And that us, far we acquiring

excited overall all the performance the China, are but strong am brand I we of So, internationally that expansion continue led in. with acquisition guest business markets by our and increase of see to very the in

Omar Saad

XX Thanks. follow-up And fourth you are slowly? the build why capacity a just MIRROR, want or to only Great. it quarter, on constraints for there to quick stores then XX

Calvin McDonald

test in delivery and and go are able more build that test be Yes, to in this and of are during good it’s to we number obviously play position, in expanded. we early a see flow we but to was balance definitely, as been and perspective dotcom, the learn in COVID, have able good on supply catch through and going up awareness aggressive X bit chain terms between to an are average and inventory a long-term and and it ‘XX in learn making with They really stores, available it, available to add it XX focus a of sitting it little ‘XX. going good are exciting and it is slowly days increasing and we there now. but making momentum test that to is learn the position already is we Their through

Omar Saad

Thanks. Best wishes.

Calvin McDonald

Thank you.

Howard Tubin

take one will Thanks. we Operator, more question.

Operator

Certainly.

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

Matthew Boss

thanks. Great,

how best relative that the think digital, years? in sustainability also – operating the try and channel that can XX% you plus of the will during We what’s to accelerated again. Calvin, margins digital to first you on for several crisis? you the from this on the retail you market inflection elaborate cited for Lulu that then And share achieved from have way about here, last have investments the

Calvin McDonald

think changed and of have guests, the I some with and that don’t trends I are we will of health, think are how inflection sort leaning perceive Yes, here I apparel continue them in dramatically stay, positioning strategy omni Power Clearly, of apparel to Three well ecosystem touch stay. functional growth back apparel well on in. those defaulting trends we guests we in to they to as as trends I their how are benefits, wellness awareness to what going and the planning as wellness lean pre-COVID and around are and in the and that ways, both And linked our apparel number how dress in to expansion. to in how a product our predominantly fashion here market creating as have seen they expect are to and our guest of and perform brand of want to in in and health

of So, have awareness business even I am we excited this is is with to-date, we potential and success the opportunities. growth. And before of about do shared know our have we the what

is remains America of international opportunities and opportunities. – in big awareness our significant North have We one in exciting – and our awareness men and consideration with our markets,

very CRM than Part turning with internationally more back success and that well. a was So, plan the marketing traditionally of digital responded digital to year. past have marketing we of and next the more aggressive definitely way leaned in, QX saw in in half done do in on into and in the we it we

to So, learn. are the going to teams continue

to investments known continuing how get in expect and and with improve coming play have in we that the coming brand awareness from months, in and want of we rollouts the are metric years. what sort our our We the

our and what a to for is offer the think we I X-year well do it we offering the it’s us more our is of this we and all in shared year the of lean opportunity just that’s we Power there opportunity looking are is as the margin know invest that no – and going financial and So, part and that around provided awareness half back spring. and world for is Meghan to and have in that still year change of Three into has last to model view next of also guidance to of that inclusive big

So, it’s for us exciting opportunity in are and and see and the incorporated it. chase after it’s we all we but opportunity lean, shifting that how to to drive we an investment awareness go

Matthew Boss

second just any far through to tried magnitude think September, at in third there current maybe one early you so of Great. and any we as the think moderation have guys on that the August into the commentary or that think about to as is follow-up, trend quarter? the the And carry quarter you have then about momentum we to just driver just the relative digital cited all

Meghan Frank

Yes, and driver the again is as which our to shift fleet. of the with our the see guests channel it’s looking of being lion’s to share store I trend just range mid single-digit wouldn’t a moderation, say overall, open, omni just really to the not a able there in high at we with stores trend a seeing access much

Matthew Boss

Great. Best luck. of

Meghan Frank

Great. Thank you.

Operator

nice time we have day. and today. for have call That’s all joining for a Thank questions you the the

Lululemon Athletica (LULU) 9 Sep 202020 Q2 Earnings call transcript