lululemon athletica inc.

Thank you for standing by. This is the conference operator. Welcome to the Lululemon Athletica second quarter 2021 earnings 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 stars and one on their telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Howard Toobin, Vice President, Investor Relations for Lululemon Athletica. Please go ahead.

Thank you and good afternoon. Welcome to Lululemon's second quarter earnings conference call. Joining me today to talk about our results are Calvin McDonald, CEO, Megan Frank, CFO, and Celeste Berloin, President, Americas, and Global Guest Innovation. 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. In addition, the comparable sales and store productivity metrics given on today's call are in constant dollars. The press release and accompanying quarterly reports 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 and operating statistics for the second 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'd like to turn the call over to Calvin.

Thank you, Howard, and I'd like to welcome everyone to our second quarter earnings call. Our momentum continued into this quarter and our results remain robust, with revenue growing more than 60% when compared to the same period last year. And on a two-year CAGR basis, we are pleased to see an acceleration relative to our first quarter. These results reflect the ongoing strength across all major areas of the business. Our stores continue to rebound, generating a two-year revenue CAGR of 9%, which is ahead of our expectations. We delivered positive growth in e-commerce, which is even more impressive given the strong performance one year ago, and we continue to deliver at a high level across all major categories and geographies. I also want to give some context around these numbers in the quarter-after-quarter performance we have been delivering. We are updating our guidance for the full year, and based upon this revised forecast, I am pleased to share that we will surpass our 2023 revenue target by the end of this year, two years ahead of schedule. And we achieve these results based upon our performance before, during, and as we emerge from COVID-19. A few more details related to these results. In 2020, we achieved our goal to double our e-commerce business. This year, we will likely achieve the goal we set to double our men's business, and we remain on track to quadruple our international business by 2023, if not sooner. I am proud of our leaders and teams for enabling us to meet and exceed these goals. As I've said before, Lululemon remains in the early innings of our growth story, and I continue to be inspired and excited with the momentum we're seeing across the business. Results of this caliber enable us to now develop our next five-year growth plan, and we'll come back to you next year with an updated view of what the future can hold for Lululemon. Looking at the second quarter, our results reflected broad-based strength across our channels, regions, and product categories. A few key metrics tell the story. First, we grew total revenue 28% on a two-year CAGR basis to $1.5 billion. This growth rate continues to outpace our three-year CAGR of 19% leading up to the pandemic and also represents an acceleration from the 25% two-year CAGR we reported in quarter one of this year. In addition, our revenue increased across each of our major regions up 26% in North America and up 43% in our international markets, both on a two-year CAGR basis. Second, we saw a further improvement in our brick and mortar channel with open stores generating productivity in line with 2019. I'm very pleased to achieve this milestone faster than we anticipated. Third, even with the recovery in our stores, our e-commerce business remains solid. Comps increased 4% on top of the 157% increase last year. And finally, I am pleased to share that our adjusted earnings per share for the quarter were $1.65 versus $0.96 in 2019, which is significantly ahead of our expectations. Let me now share more color on our second quarter results, starting with product innovation. From a performance standpoint, our momentum continued across categories with women's revenue increasing 26% and men's growing 31% on a two-year CAGR basis. From a product standpoint, I'd like to take a moment to highlight two key launches, the Air Support Bra and our latest yoga franchise, Instill. Bras remain an important expansion opportunity for us. Thanks to our unique innovations across both fabrics and construction, Empowered by our proprietary research, we're very excited about our product positioning, and we know that bras is a wonderful category to drive loyalty with our guests. Currently, the category represents mid-single digit penetration, and we see an opportunity to grow this category into the low to mid-teens in the coming years. This quarter, we launched the Air Support Bra, our most tested bra to date, which was developed following five years of advanced research and development. It's made from a proprietary ultra-lue fabric and expands our offering into the high-impact training category. As I've mentioned before, Lululemon's unique approach to product innovation is driven by our science-to-feel innovation platform. With this strategy firmly in place, we've introduced fabrics and products that engineer specific on-body sensations. Our popular Align franchise offers our most distraction-free and weightless sensation and we've expanded to include tops and bras in addition to our popular tights. Just last week, we continued to build out our yoga offering through the introduction of the Instill franchise. Made from our newest innovation in technical performance fabric called Smooth Cover, this fabric offers our hug sensation, which provides incredible support through every pose in your practice. It's a powerful and distinctive companion to our hugely successful Align product line, and we will further solidify our leadership position within the yoga category. Last October, we launched our impact agenda, which outlines our strategies to address critical social environmental issues over a multi-year period. I'm proud of our recent announcements to develop advanced raw materials that will help us live into our goals and create a healthier world. These include our participation in the Milo Consortium, that will allow us to make products using an infinitely renewable material made from the root structure of mushrooms. We expect to launch our first products using Milo next year. Our partnership with Lanzatech, a biotech company which allows us to create the world's first yarn and fabric using recycled carbon emissions. And just a few weeks ago, we announced our multi-year collaboration with Genomatica, a recognized leader in sustainable materials to create a lower impact plant-based nylon. I'm excited with these three new partnerships and it's just the beginning of Lululemon's commitment to be a leader in the industry related to product sustainability and innovation. I would now like to speak to our supply chain and the issues facing the entire industry. Another wave of COVID-19 and related factory closures in Vietnam Ongoing issues at the ports and reduced air freight capacity are contributing to some disruptions within the supply chain as well as increased costs. We are monitoring this closely and leaning into the agility of our supply chain, the strength of our planning and allocations team, and the powerful partnerships with our vendors to help mitigate the risks where we can. Our business was particularly strong in quarter two and our guidance calls for momentum to continue in the back half of the year. But I think it's fair to say that our business would have been even stronger without these challenges facing the industry. Megan will have more to share regarding inventory and costs in a few moments. Let me now shift to Mirror. We continue to be pleased with the performance of Mirror, and let me highlight several initiatives we have on track for this year. We now have Mirror Shop and Shops in 150 Lululemon stores. and our plans call for 200 shops in time for the holiday season. We will soon introduce Mirror to guests in Canada, where Lululemon has an impressive level of recognition. We recently opened our second production studio in New York, allowing us to double the number of live classes. And Mirror will launch a new e-commerce site in time for the holiday season this year. We are monitoring how macro factors currently impacting the costs of digital marketing are creating some pressure on customer acquisition costs at Mirror. We're enthusiastic about the opportunities that exist for the business. We'll continue monitoring the rising costs associated with CAC while we move ahead with launching exciting new innovations and leveraging the synergies Lululemon brings to the relationship. Combined, these give us a unique strength to keep growing Mirror. We will be competitive to attract new members, and we will continue to take a measured and responsible approach to the business. We are playing the long game and have much to unlock in the coming years. We're also excited about how Mira can be the vehicle through which we offer long-term benefits to our guests, such as membership programs and special experiences. Given this strategic opportunity, we will suspend our membership test that has been underway and apply the learnings to how we build out the mirror platform for guests. The learnings from our membership test are considerable. Some examples include digital sweat classes and community events were top drivers of overall program engagement. Guests want to engage deeper with us and each other, and they are willing to shift into the digital space to do so. And the program was embraced by men at a higher rate than we were expecting. These learnings were integral to our decision to complete the mirror acquisition and hold true today. We look forward to sharing more with you on the evolution of our loyalty programs at a later date. Switching now to international, our sales trends continue to be robust with all major regions generating strong double-digit sales growth on a two-year CAGR basis. We opened eight stores outside of North America in quarter two and remain on track to open 35 to 40 stores this year internationally. As you know, we also see continued growth opportunities within North America, and I am pleased to now hand it over to Celeste, who will share some additional details with you on our stores and e-commerce business. Celeste?