lululemon athletica inc.

Thank you for standing by. This is the conference operator. Welcome to the Lululemon Athletica, Inc. Third Quarter 2018 Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. Analysts who wish to join the question queue may press star 1 on their telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star zero. I would now like to turn the conference over to Howard Toobin, Vice President, Investor Relations for Lululemon Athletica, Inc. Please go ahead.

Thank you and good afternoon. Welcome to Lululemon's third quarter earnings conference call. Joining me today to talk about our results are Calvin McDonald, CEO, Stuart Hazelden, COO, PJ Guido, CFO, Sun Chae, our president, Chief Product Officer, is also with us and will be available during the Q&A portion of the call. Before we get started, I'd like to take this opportunity to remind you that our remarks today will include forward-looking statements reflecting management's current forecast of certain aspects of Lululemon's future. These statements are based on current information, which we have assessed, but which by its nature is dynamic and subject to rapid and even abrupt changes. Actual results may differ materially from those contained in or implied by these forward-looking statements. due to risks and uncertainties associated with our business, including those we have disclosed in our most recent filings with the SEC, including our annual report on Form 10-K and our quarterly reports on Form 10-Q. Any forward-looking statements that we make on this call are based on assumptions as of today, and we expressly disclaim any obligation or undertaking to update or revise any of these statements as a result of new information or future events. During this call, we will present both GAAP and non-GAAP financial measures A reconciliation of GAAP to non-GAAP measures is included in our quarterly report on Form 10-Q and in today's earnings press release. The press release and accompanying quarterly report on Form 10-Q are available under the investor section of our website at www.lululemon.com. Before we begin the call, I'd like to remind our investors to visit our investor site, where you'll find a summary of our key financial operating statistics for the third quarter, as well as our quarterly infographics. Today's call is scheduled for one hour, so please limit yourself to one question at a time to give others the opportunity to have their questions addressed. And now I'd like to turn the call over to Calvin.

Thank you, Howard, and welcome everyone to our quarter three earnings call. I'm excited to kick off this quarter's call, especially since it represents my first quarter as CEO of Lululemon. And I have to tell you that with every day in this position, I'm more enthusiastic than ever about the brand, our people, and the opportunities ahead. Over the past three months, it's been fantastic to see Lululemon from all angles, from the educators in our stores, to new guests in China, to the creative team imagining our next product categories, and to the many teams at our store support centers across our markets. The strong momentum in our business continued during the quarter, and we see many opportunities to build upon this success in the near and long term. On today's call, I'll first share with you some insights and highlights before handing it off to Stuart for a more in-depth discussion on our quarter three results. PJ will finish up our prepared remarks with a detailed quarter three financial review and our guidance outlook. Then we'll be happy to take your questions. Looking at our quarter three results, all of us on the senior leadership team first want to thank our teams around the world for their hard work, enthusiasm, and commitment to delighting our guests every day. All of these efforts have contributed to our robust performance this quarter. What's so exciting to me about our business is the broad-based strength we're continuing to see across our channels, categories, and geographies, fueled by our innovative products and our unique community-based brand-building initiatives. Before speaking to some of our key product initiatives, I'd like to share with you my distinct pleasure in recognizing a proven leader at Lululemon, Sun Chae, with her well-deserved promotion to our Chief Product Officer, which I announced earlier this quarter, has been heading up the entire product organization since February. Her leadership and creativity are evident in the examples you're going to hear about this afternoon. It's important to all of us that Lululemon remain a product-led organization, and Sun's experience and strengths will allow us to live into this vision. We have the brand permission to move into so many new categories, determining which ones and at what pace is the exciting work we're currently in. Sun and her team are working on these future innovations to help ensure our pipeline remains robust, and I'm excited to be part of this work and thrilled with what we will continue to be bringing to market. As an example of this dynamic innovation, this fall, you saw the early results of our strategic decision to focus on outerwear in a bigger way, and guests' response to the assortment has been fantastic. Bras are another important opportunity. The launch of Like Nothing, our first bra designed to be worn all day, has performed very well in the quarter. And our collaboration with Francesca Hayward and the Royal Opera House in London is another example of how we successfully leverage our relationships with cultural influencers relevant to our collective. Sun is with us on the call today and will be available for any questions you may have around our product. Switching gears, I'd like to highlight two important strategies that we move forward in North America this quarter. both which leverage our strengths in brick and mortar. They are buy online, pick up in store, and our seasonal store rollout. The Bopas pilot is now live in 35 stores across four markets. It's proceeding well and helps us leverage our capabilities across channels. Our seasonal store strategy is now in full swing for the holiday season, with 43 open at the end of quarter three and six more planned for quarter four. Not only do these stores increase convenience for our existing guests during this hectic time of year, but they also attract a significant number of new guests to our brand. Based on last year's performance, we'd expect to see approximately 40% of guests in these stores new to Lululemon. While growth outside of North America holds great potential for us, the opportunity within the U.S. and Canada remains our largest and most important in the near term. Our agile store formats, including co-located, local standard, seasonal, and experiential, combined with our exciting Omni experience initiatives will allow us to keep expanding our square footage while creating a very flexible and unique store network. This potential was clear during my market visits this quarter, spending time with our store teams in New York, Chicago, San Francisco, Seattle, LA, and, of course, Vancouver. In all of these visits, we shared ideas that we will be bringing to life in the future, including new and innovative ways to connect with our local communities, experiential retail, and ways to better leverage our online and offline ecosystems. Their creativity within our store teams was both contagious and inspiring. I've also been spending a great deal of time with the talented people on our brand and community teams and sharing with them some of the insights I've gained over the years. In quarter three, we continue to engage with our guests as only Lululemon can through our Seaweez Half Marathon and Sunset Festival in Vancouver and our Ghost Race virtual runs across 12 cities in the US and Canada. During Seaweez, over 10,000 runners descended on Vancouver to take part in the race and attend the festival, which included yoga and, of course, an entertaining dance party. With this year's Ghost Race, we partnered with Strava again and remain the number one run community on their app. We had 35,000 guests register for the race, of which nearly half were men and 20% were new to Lululemon. Outside of North America, our activations were equally robust and included our third annual Unrolled China event across eight cities and our first ever Sweat Life Festival in Berlin. I'm also proud of how we brought our 20th birthday to life. During this event, which was truly a global activation, we updated our iconic manifesto, launched a capsule product collection, and held celebrations in key markets around the globe. The passion our guests and educators have for our brand is clear, but we believe that over time, we can make our brand expression even stronger and more consistent across channels and touchpoints. Our brand has so many exciting messages to communicate, determining how, where, when, and to whom we tell is the exciting work we are in now. Becoming better storytellers is a key focus for us, driving our brand awareness and acquiring even more guests into our brand. Building on our ability to acquire new guests, I'd like to share with you some details of an exciting test we began during the quarter, our first ever loyalty program. Lululemon has always had a strong connection with our guests, thanks to the great work of our educators, community teams, and ambassadors. However, it's clear that we can take these relationships to the next level with a loyalty program. I'm excited to be working with the teams to create an offering that is unique, disruptive, and perfect for Lululemon. Our current test is taking place in Edmonton. For an annual fee, members receive several benefits, including either a pant or pair of shorts designed exclusively for the program, access to sweat classes, attendance at curated events, personal development, and free expedited shipping on e-commerce orders. Initial reads are strong as our Edmonton guests love the program. We'll have more to share with you subsequently as we continue to pilot and roll out to more markets next year. And finally, one of our largest opportunities is expansion outside of North America. As you know, this is one of our strategic growth pillars, and we continue to execute on our plans to build out key markets within Asia and Europe. It was exciting to visit China and see the enthusiasm for Lululemon firsthand. This is such a dynamic market with fast and emerging trends. What's happening in China is truly special. There are over 400 million millennials who are digitally engaged, beginning to invest in health and fitness and looking for brands that bring both great product solutions and experiences. On my trip, I visited all of our stores in Hong Kong, Shanghai, and Beijing, and spend time with our local educators, store managers, and store support center teams. I'm thrilled to be working with them to refine and elevate our long-term growth plan. The opportunities are considerable, beginning with our digital and retail experiences, our brand and community expressions, and of course, our product. We will aim to strike the right balance between leveraging our global strength while acting locally, where it matters most to keep winning. I'm so excited with what we're seeing thus far in China and in Asia overall, and I'm personally committed to making our success in this region a priority. In Europe, where I am visiting next week, we held our first Sweat Life Festival in Berlin, where we connected our guests with local studios and teachers to celebrate the expanding fitness landscape. And in Paris, building on the strength of our showrooms, we opened a shop-and-shop in Le Bon Marché, the iconic Parisian department store. Our business in Europe continues to perform well. We're happy with our progress and remain very positive about our future opportunities in the region. I look forward to working with the local leadership team to continue our plans to win in Europe, which will include balancing our approach to focus on cities versus countries and continuing to drive our brand awareness. Before handing it over to Stuart, I'd like to conclude my prepared remarks by saying it is a distinct honor to work with such an extremely talented group of leaders, employees, and educators. It is their passion and dedication and enthusiasm that fuels our strong performance and brings our brand to life each and every day. Stuart?