lululemon athletica inc.

Thank you for standing by. This is the conference operator. Welcome to the Lululemon Athletica, Inc. First Quarter 2019 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, then 1 on their telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and 0. I would now like to turn the conference over to Howard Toobin, Vice President, Investor Relations for Lululemon Athletica, Inc. Please go ahead, sir.

Thank you, and good afternoon. Welcome to Lululemon's first quarter earnings conference call. Joining me today to talk about our results are Calvin McDonald, CEO, Stuart Hazelden, COO and EVP International, and PJ Guido, CFO. 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 first quarter as well as our quarterly infographic. 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 would turn the call over to Calvin.

Thank you, Howard, and welcome, everyone, to our first quarter earnings call. As we begin, I would first like to say how much I enjoyed hosting our recent Analyst Day meeting in New York. We are incredibly excited about the growth opportunities we have in front of us, and we look forward to delivering on our five-year growth plan. Lululemon had another successful quarter, driven by many strengths in our business across product, channel, and geography. Our innovative merchandise assortments and our engagement with guests around the world enables the financial results we're proud to report to you today. On today's call, I'll start by sharing some of our key highlights from quarter one, including how we're living into our product innovation and Omni guest experience growth pillars. Going forward, I will periodically ask a member of our senior leadership to join the call and provide an update on key strategic areas of the business. Today, Stuart Hazelton will join us to provide an update on our opportunities in China and other key international markets. As you know, earlier this year, Stuart's responsibilities were expanded to include serving as our EVP of international in addition to his role as Chief Operating Officer. Following the global update, PJ Guido will provide a detailed financial review as well as our guidance outlook. I'll then wrap up a few closing comments and will be happy to take your questions. Let's have a look at our first quarter results. We are very pleased to see continued strong momentum in the business. The Power of Three growth plan, which we detailed at Analyst Day, is serving as a driving force to move us forward to achieve our five-year growth plans. Across the company, teams are executing at extremely high levels. In Q1, our total revenue grew by 20%. Constant dollar comps increased 16% on top of a 19% increase last year, and earnings per share increased 35%. Our guests responded well to both our men's and women's assortments. They engaged with us across channels as our store and digital businesses were both strong, and our brand continues to resonate well in our core North American market as well as in Europe and APAC. Supporting our growth, we are leveraging the strategic infrastructure investments we're making across the business. Our focus over the last several years to create efficiencies and to further segment our supply chain is paying off and tangibly contributing to our success. As an example, our newest distribution center in Toronto opened on schedule in May and enables us to deliver product more effectively and efficiently in eastern Canada. As you know, the growth plans we discussed during Analyst Day are long-term in nature, and the financial targets we provided are annual. I'm pleased 2019 is off to such a strong start, and we're beginning to live into our five-year vision. I'd now like to speak specifically about the power of three growth pillars, product innovation, omni-guest experience, and market expansion. As you recall, our five-year vision details our path to double our men's business, double our digital business, and quadruple our international business during this time. Let me now provide some highlights from quarter one for these drivers. When looking at our product innovation pillar, over the next five years, we expect annual growth in our core women's business to be in the low double digits while men's is planned to grow at 20% per year. In quarter one, we continued to see robust performance in our women's business with particular strength and bottoms. This category remains one of our strongest with comps up over 19% driven by both leggings and jogger styles. Within the men's business, comps grew 26% with ongoing strength in both tops and bottoms. The business was led by our ABC franchise and three core short styles. The short... pace breaker, and surge. Guests are responding well to our new boxers designed to address all three elements of the science of feel, touch, temperature, and movement. Looking forward, I'm excited with the innovation we intend to bring into our assortments for both men and women. Just to preview some of the upcoming highlights for men, we plan to launch a new and improved metal vent tech collection. And for women, we plan to further expand our technical bra offering with two high support styles in the coming months. The final component of our product innovation plan is to test into new categories. The main driver continues to be our core categories across both men's and women's. However, we've identified several areas of white space where we can test the waters and bring innovation to our guests. One example of this is self-care, which we will roll out to 50 stores and online next week. Shifting now to Omni guest experience, we had strong results across our channels, with our store comps increasing 8% on top of 6% increase last year. Our digital business grew 35%, which represents a more than doubling of the business over the last two years. Increased traffic in quarter one is driving our comps, both in-store and online, with increases of 8% and 41%, respectively. We're excited about our vision to be the experiential brand that ignites a community of people living the sweat life. Next month, you'll see our first truly experiential store when we open Lincoln Park in Chicago. This 20,000-square-foot store captures who we are as a brand as it will embody the sweat life through multiple studios, a meditation space, a healthy juice and food offering, and areas for community gatherings. This distinct environment will provide us additional opportunities to explore and learn as we connect with our guests in a range of new and exciting ways. We also continue to test our methods in a range of new and exciting ways. We also continue to test our membership program, and in May, we expanded to our third pilot city in Austin, Texas. We are very encouraged by the results, and each city in our test has brought new learnings and innovations as we look to scale the program. Looking now at our digital business, we further expanded our online only size and color offerings for both men and women. We expanded our buy online, pick up in store capability from 35 stores to 150 in quarter one with 80% of the orders ready for guest pick up in one hour. We remain on track for a full rollout by the end of quarter three. We also significantly improved our mobile point of sale capabilities so educators can complete our guest purchases from anywhere in the store. Our strength and unique position is to activate great product across our omni-guest experiences, leveraging our stores, community, and events. Run is a key strategy for us and a great representation of how we will activate across our entire business to deliver an exceptional guest experience. In addition to our strong and light bra franchise, we rolled out the fast and free run-oriented collection for men. We highlighted the strength of our technical apparel with our global run campaign and featuring our first global run ambassador, Charlie Dark. Our run-focused activations during the quarter included a presence at the Boston, Los Angeles, and London Marathons. And just last week, we celebrated Global Running Day by rallying our community to participate with their local run clubs or to join our 5K Challenge on Strava. In the coming weeks, you'll see us sponsor our 10K runs in Toronto and Edmonton, as we've done in the last several years, and we plan to add more events going forward. Run is an important category for us with significant potential, and we see opportunities to expand our share of Wallet with current and future guests. Shifting gears now to our markets, let me share some highlights regarding performance in our core region of North America, and then turn it over to Stuart to discuss growth in our international markets. First, our opportunities in North America, our largest region, remain significant. Our innovative merchandise assortment, agile store formats, inspiring brand activations, and unique event offerings provide ample ways to engage with existing and new guests. In quarter one, revenue in North America grew 18% as the momentum in this region remained strong. We opened six stores in the U.S. and Canada and remain on track to open 15 to 20 in 2019. Our guest stats remain robust with continued growth in new guest acquisition and increased spending across existing guests. Traffic to our stores in North America was strong and grew in the high single-digit range. Last month, Stuart and I had the opportunity to visit our team in China and to see the incredible growth opportunities firsthand. I'll let him share our insights and some of the results this quarter internationally. Stuart?