lululemon athletica inc.

You may signal an operator by pressing star, then 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 third quarter earnings conference call. Joining me today to talk about our results are Calvin McDonald, CEO, and Megan Frank, 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 by which 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 source sales metrics given on today's call are on a constant dollar basis. 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 and operating statistics for the third 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. I'd like to welcome everyone to the call today, and I'm happy to discuss our quarter three results. On today's call, I'll share some highlights regarding our performance over the Thanksgiving weekend and the start of the holiday season. Next, I'll speak to our quarter three results. Then you'll hear from Megan with a review of the financials and an update on guidance. And finally, we'll take your questions. So let's get started with Thanksgiving. We are very pleased with our results over the holiday weekend. In fact, this Black Friday was the single biggest day in company history with strength across our store and e-commerce channels. Along with several members of the leadership team, I visited stores in Houston, Dallas, and Los Angeles, and we were thrilled to join our local teams and experience their energy and excitement firsthand. Our stores were very busy, and our overall performance was driven by strength across both full price and markdown merchandise. This year, we extended an additional benefit to our Essentials members who received early access to our Black Friday styles via our Shop app. This strategy drove a significant spike in app downloads, with virtually no incremental marketing costs. We also visited several recently remodeled locations that show the benefits of our ongoing co-located optimization strategy, including enhanced merchandising of men's, increased traffic flow, and improved throughput due to additional guest services and fitting rooms. Finally, our overall success was enabled by the ongoing foundational investments we've been making to our DC network and IT infrastructure to enhance the guest experience both in stores and online. And while there is nearly two-thirds of the quarter still ahead of us, we are encouraged by our trends at the start of the holiday season. Now looking back at quarter three, as you saw from our press release, our results remain strong and balanced, as both our top and bottom line exceeded our expectations. Revenue increased 19% versus last year, comparable sales grew 9% in stores, and 19% in our e-commerce business, and adjusted EPS increased 27% versus the same period last year. And our board recently authorized a new $1 billion share repurchase program, which reflects our optimism in the growth trajectory of the business. Megan will share the detailed financials later in the call, and I think it's clear our performance continues to speak to the strong response to the Lululemon brand in our markets across the globe. and how we remain in the early innings of our growth story. Now let's look at quarter three in more detail as I share highlights in three areas, product innovation, brand building strategies, and regional performance. Let's begin with product. One of our competitive advantages is our ability to consistently bring newness and innovation into our assortment. Our product teams work with our athletes and ambassadors, leverage our science of field innovation platform, and solve for the unmet needs of our guests. Quarter three was no exception as we introduced several new styles into our assortment. Let me highlight just a few. In quarter three, our women's business increased 19% fueled by new product launches, strengthened bottoms, and ongoing performance in key franchises. As we shared on our last earnings call, we mentioned the launch of a new franchise for women. In quarter three, we introduced Wondermost, our new collection of bodywear made in our softest fabric ever. By leveraging our expertise in raw materials development, fabric innovation, and technical construction, our product teams engineered a brand new sensation and unique solve for our guests. I'm pleased to share that Wondermost's launch has been met with great initial response from our guests, and we're excited to keep bringing innovation into this new franchise. Other quarter three product highlights on the women's side include bottoms and second layers. Within bottoms, both tights and away from body styles perform well, including Align, Wonder Train, and the Dance Studio Jogger. In addition, we continue to see success in our key second layer franchises, including Define, Scuba, and Softstream. Looking at quarter four, you will see fresh seasonal takes on several of our guest favorite franchises, including Scuba, Align, and Wonder Train. Shifting now to men's, we saw growth of 15% in quarter three. Similar to during the COVID-19 period, we see that when there is some uncertainty in the macro environment, men can become a bit more conservative in their apparel purchases. However, growth in our international regions remains very strong, and in North America, our market share gains continue. And we know our guests respond well to product innovation and compelling marketing campaigns. In quarter three, we launched two new men's franchises, Steady State and Soft Jersey. These collections build out our lounge offering and continue to bring versatility across our men's assortment. Guest response has been very strong, and we are chasing into additional inventory for these two new hit franchises. Following the holidays, our stores and e-commerce sites will have a back-to-gym focus. For men, we'll feature items from our Pacebreaker and License to Train franchises, to support our guests as they live into their new year fitness and wellbeing resolutions. We're also gearing up to launch men's footwear in the first quarter of 2024, which will be an important moment for Lululemon. We'll have much more to share as our pipeline of innovation continues to generate newness and versatility for our male guests. When looking at men's brand awareness, it remains low, approximately 13% in the US, 12% in Australia, and single digits everywhere else outside of North America. Building awareness and consideration remains top of mind for us, and we see ample opportunity to increase the media and brand building commitment to the men's business. An example of this strategy is our recent targeted TV campaign. In quarter three, we tested TV in the U.S. with a campaign focused on bringing new male guests into the brand and featuring our iconic ABC bottoms. We are encouraged by the early results, and the buzz created by this targeted investment, and we plan to continue the campaign next year. In 2024, our marketing calendar has other men's moments planned, such as the footwear launch, and we will continue to leverage ways that paid media can raise our awareness among men who have yet to wear Lululemon. I would also like to mention our accessories business, which continues to perform well. In quarter three, our bag assortment grew in the strong double digits. And the Everywhere Belt Bake posted solid growth on top of last year's standout performance. I remain excited with our pipeline of innovation for the remainder of quarter four and into next year. Our foundational principle remains, when you feel your best, you perform your best. Our teams continue to live into that principle for our technical gear, and we are also leveraging it as we expand our lounge and on-the-move offerings. I'd now like to spend a few minutes and share some of the ways we connect with our local communities in quarter three. As we've discussed in the past, we continue to lean into our grassroots approach to building community and engaging with guests on a local and one-on-one basis. In addition, we recognize the opportunity to raise unaided awareness and attract new guests through larger scale activations and brand campaigns, both within North America and across our international markets. Let me share a few examples. To bring attention to World Mental Health Day, we released our third annual Global Well-Being Report in September. This global survey, conducted in 14 markets, looks at how people around the world are approaching their physical, mental, and social well-being. And while a majority of people say they are making well-being a priority, few feel it is where it should be. To support our guests, we created well-being-focused experiences in key markets, and a highlight was a one-of-a-kind activation in China that encompassed 32 cities and 76 stores. The pinnacle expression took place in Shanghai as we took over the West Bund for an entire week, with events and experiences over a 3-kilometer stretch of this popular destination on the waterfront. The results of this activation were phenomenal and included more than 1,600 pieces of press coverage with 3 billion impressions. significant engagement on social media, and approximately 12,000 guests participating in person. This event was a very unique and compelling way to drive unaided brand awareness in the market. Also in October, to support and help launch our new partnership with Peloton, we hosted a three-day experience at our Lincoln Park store in Chicago. More than 2,000 guests joined us, And it was exciting to see our local Lululemon community come together with the Peloton community to celebrate our new relationship. The success of this event represents the potential of the partnership to leverage the strength of both our highly engaged communities. As you can see, we are taking multiple paths to building brand awareness and consideration across our global markets. Quarter three was a terrific example of this strategy, and you can expect more of this type of marketing execution from us going forward. Shifting now to our regional performance, we continue to see solid results across markets, with revenue in North America growing 12% and international increasing 49%. We remain pleased with our business in North America, which is in line with our power of three times two targets, despite the dynamic operating environment. The quarter began strong as guests responded well to our back-to-school product innovations, and our strategies to connect with younger guests through dedicated digital marketing and targeted activations. And our market share gains continued. In quarter three, 2023, the adult active apparel industry decreased its U.S. revenue compared to the same period last year. Over the same time period, Lululemon gained 1.5 points of market share in the U.S., with gains in both men's and women's, according to Cercana's consumer tracking service. North America remains a significant and compelling opportunity for Lululemon. With unaided awareness of only 25%, we have several ways to bring new guests into the brand, including ongoing innovation within our product assortment, new store openings and optimizations, and our unique approach toward connection encompassing both local activation and larger scale marketing campaigns. Switching now to international, We remain excited and optimistic regarding the potential for the Lululemon brand. In quarter three, all regions grew in strong double digits, including a 53% increase in Greater China. While we're keeping a close eye on the macro environment in China, our business remains strong. We believe several factors benefit us in this important market, including our relatively small size, with room to grow beyond our 114 stores in mainland China at the end of the quarter, the localized nature of our brand as we leverage our relationships with local fitness studios, instructors, and influencers, and our local and community-based events. We're excited with the brand acceptance we're seeing globally as we continue to execute against our plan to quadruple our international business from 2021 levels by the end of 2026. And with that, I'll turn it over to Megan for a review of our financials and our updated guidance.