lululemon athletica inc.

Thank you for standing by. This is the conference operator. Welcome to the Lululemon Atletico, Inc. fourth quarter 2023 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, then 0. I would now like to turn the conference over to Howard Toobin, Vice President, Investor Relations for Lululemon Atlantica. Please go ahead.

Thank you and good afternoon. Welcome to Lululemon's fourth 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 annual report on Form 10-K and in today's earnings press release. The comparable sales metrics given on today's call are on a constant dollar basis. The press release and accompanying report on Form 10-K 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 fourth 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 Cal.

Thank you, Howard. I am pleased to be here today to discuss our Q4 and full year 2023 results, which represent another solid finish to another strong year for Lululemon. We will also discuss our business in Q1 and our outlook for 2024. As you've heard from others in our industry, there has been a shift in the U.S. consumer behavior of late, and we're navigating what has been a slower start to the year in this market. We view this as an opportunity to keep playing offense as we lean into investments that will continue our growth trajectory. Outside the U.S., our business remains strong in all our international markets in Canada. Megan will take you through our guidance shortly, and I will share with you some of the initiatives that we have planned specifically for the U.S., as well as our overall plans for product and marketing. What you'll hear from me is a message that remains consistent. We have an impressive pipeline of innovation. Our opportunity to increase our brand awareness remains significant, and we will continue to grow and optimize our store base within the Americas and around the world. And we remain ahead of our power of three times two goals. So let's begin. As you read in our press release, our Q4 results, both top and bottom line, exceeded the updated guidance we provided in January. Our growth remained balanced across channels, regions, and product categories, and we continued to see strong increase in traffic at our stores and e-commerce sites. In the fourth quarter, total revenue increased 16%. By region, the Americas increased 9%, China mainland increased 78%, and the rest of the world increased 36%. By merchandise category, women's increased 13%, men's grew 15%, and accessories increased 40%. and earnings per share were $5.29 versus adjusted EPS of $4.40 in Q4 last year. When looking at our product performance in Q4, the trends we have seen in the business over the last several quarters continued. We saw strength in key franchises, including for women, Scuba, Define, Softstream, and Wonderpuff. For men, Steady State, Soft Jersey, and ABC, as well as License to Train and Pacebreaker. And in accessories, our overall bag assortment continues to perform well. And we continue to build our essentials membership program in North America, which has now grown to more than 17 million members in the first year. This quarter, we offered them exclusive benefits, including early access to our Black Friday styles, member-only shop nights, and invitations to participate in experiences such as our Move4U activation with Peloton at the Mall of America. We remain excited with our membership program as it offers us new ways to engage with our guests and increase both spend and LTV. I'm pleased that we're seeing positive results so far on all of these objectives. Now turning to our full year 2023 results. Revenue increased 19% versus last year to $9.6 billion, with the Americas up 12%, China mainland up 67%, and rest of world growing 43% versus last year. Adjusted operating margin increased 110 basis points, while adjusted earnings per share increased 27% versus 2022. As you know, 2023 was the second full year of our power of three times two growth plan. When looking at these two years collectively, I'm pleased that we have grown revenue at a 24% CAGR, fueled by a 44% CAGR in our international regions, expanded our adjusted operating margin by 120 basis points, grown adjusted EPS at a 28% CAGR and continued to gain market share. These results speak to the strength of the Lululemon brand in all markets where we operate and illustrate the significant opportunities we have in front of us as we remain in the early innings of our growth story. Let me now speak to quarter one of 2024 and what we're seeing in the business. We are pleased that our sales remain strong in most regions across the globe, consistent with what we've seen from others in the market the consumer environment in the United States has been somewhat challenging. However, despite the market dynamics, we remain optimistic about our opportunities to grow our business in the U.S. in 2024 and to continue to gain market share. We have robust plans in place to further strengthen our position. We will continue to open and optimize our stores with plans for 5 to 10 new store openings and 15 to 20 optimizations. With U.S. sales per square foot above our overall average of $1,600, our stores remain among the most productive in the industry. In addition, our stores facilitate a direct connection with our guests, help us attract new guests into the brand, and act as hubs in our local communities. We will continue to invest into the market to increase our brand awareness as we continue to activate both community-based events and larger brand campaigns. We see other areas within the business to further strengthen our positioning. We are successfully growing our business across all age demographics, including our younger guests. As we have attracted more younger guests into the brand, we have seen strong sell-through of our smaller sizes and our offering of color. We don't yet know how high is high with this demographic, and our teams are chasing into these areas of the assortment so we can better maximize the business. and our product pipeline is compelling both within the U.S. and across the globe. In fact, 2024 will be another year of significant product innovation. We started the year strong with the launch of our expanded footwear collection in early February. Building on the initial success of our women's line, we hosted a media event in New York City to unveil new styles of both technical and casual footwear, including our first shoes designed for men. Our new styles available for both men and women include the Cityverse, designed for all-day comfort and bringing the best of technical performance to a casual sneaker, Beyond Feel, a new running shoe that offers superior cushioning, ventilation, and support, and Beyond Feel Trail, our newest road-to-trail running shoe. We are very pleased with the initial reaction to our new styles. We are seeing a particularly strong response to Cityverse from our male guests in North America and in China, and the guest response is exceeding our expectations. Our teams are chasing into this initial strength, and we build upon this momentum with additional footwear innovations planned throughout the year. Our strategy with footwear is the same as apparel. We lead with technical innovations that solve for the unmet needs of our guests. We can then leverage our expertise in raw material innovation and technical construction to offer versatile styles designed for everyday use. In addition, within our 2024 product pipeline, we will continue to be a leader in fabric innovation with new fabrics planned within both our yoga and train categories. Also for women, we will continue to maximize our largest franchise, Align, as we explore new silhouettes across both tops and bottoms, and we will continue to expand our popular train franchise, License to Train. On the men's side, this year we are launching the most innovation I've seen in the last number of years across categories and activities. A few highlights include new fabric innovations within our golf category, and continuing to build upon the success of soft jersey with additional styles. Also, we have recently leveraged our iconic Pacebreaker into a complete collection with the launch of a Pacebreaker jacket and pant to bring new solves into the men's run category. Our product and our ability to bring new technical solutions into our assortment on a consistent basis is one of our biggest competitive advantages. I'm excited with the innovations we have on tap for 2024, which will continue to enable our guests to sweat in any way they choose. Let me now shift to our brand and marketing strategies. As you know, our brand awareness remains low across most markets, which represents a significant opportunity for us to attract new guests. Starting with our further event, which began just before International Women's Day and concluded last week, Further was a first of its kind women's ultra marathon in which 10 athletes from our ambassador collective set out to run the furthest distances of their careers. The activation was a huge success as world records were set by athletes wearing our apparel and footwear. And it is a great example of what makes Lululemon unique. For example, how we create authentic community activations like no other brand, which result in increased brand awareness through significant earned and social media attention. And also how we continue to innovate with athletes and for athletes and introduce new technical solutions into our assortment. As part of further, we designed 36 products through a female first lens, many of which we will introduce into our mainline assortment over the coming seasons. Looking forward next month in advance of the Paris Olympics and Paralympic games, we'll be revealing our kits for Team Canada. As you know, in 2021, we announced a multi-year partnership with the Canadian Olympic Committee and the Canadian Paralympic Committee. After our inaugural 2022 Winter Games, we're now set to launch our first Team Canada Summer Collection, outfitting the athletes and coaches with our product. I've seen what we've created, and it's amazing, for both our Olympians and Paralympians. In addition to supporting Canadian athletes, This partnership is another example of Lululemon's deep relationships with elite athletes. It showcases our brand on the global stage and is a compelling strategy to grow awareness and bring new guests into the brand. I'd like to spend a moment on the success and growth within our international business. We experienced strength across all of our international markets in Q4, and we expect business to remain robust in 2024. International, which includes our China mainland and rest of world segments, continues to be under-penetrated and it represents only 21% of our business. We operate a total of 273 stores in all of our international markets combined, which clearly speaks to the opportunity we have ahead of us. In 2024, we'll open approximately 30 stores outside of North America, and we will continue with our strategies to increase our brand awareness. And while not part of the Power of 3x2 growth plan, over the long term, we expect international to represent approximately half of our overall revenue. As you can see, we have many reasons to be optimistic about the future. We entered 2024 from a position of strength. We exceeded our Power of 3x2 revenue target in 2023, and based upon our guidance, we will remain ahead of schedule in 2024. We are excited that our strategies to build brand awareness are working, Over the past year, through our strategic investments and brand campaigns and community activations, we have successfully grown our unaided awareness in key markets. The U.S. went from 25% to 31%, and China went from 9% to 14%. We will continue these strategies in 2024. And we will continue to strategically invest across all markets, including the U.S., which will set us up well for this year and beyond. Given we are in the early innings of our growth With low unaided awareness and significant market share potential, all of us on the Lululemon leadership team are tremendously excited for what lies ahead for our brand. We are investing for growth with a pipeline of innovation that is full. We are playing offense while many others in our sector are not. And these advantages will further enhance our standing in the marketplace in the U.S. and around the globe. With that, I'll turn it over to Megan for a review of our financials and our 2024 guidance.