lululemon athletica inc.

Thank you for standing by. This is the conference operator. Welcome to the Lululemon Athletica Incorporated first quarter 2024 results 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 one on their telephone keypad. Should you need assistance during the conference call, 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 first 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 GAAP and both 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 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 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'd like to turn the call over to Calvin.

Thank you, Howard. I'm happy to be here to discuss our quarter one results. As you've seen from our press release, our revenue growth was modestly ahead of our expectations while EPS came in even stronger. On today's call, I'll share some highlights regarding our performance in quarter one, including my perspective on our U.S. business and what our teams have been working on, Next, I'll speak to the recent departure of our Chief Product Officer and the opportunities our new structure unlocks for us. Then I'll provide some details on our product innovations and brand activations. In addition, Megan will review our financials, and we will close out our time today by taking your questions. So let's get started. In the first quarter, total revenue increased 10% or 11% in constant currency. By region, we saw continued strong momentum in our international business, with revenue in China mainland up 52% and rest of the world up 30%, both in constant currency. In the Americas, revenue increased 4% in constant currency, with Canada up 12% and the U.S. up 2%. By merchandise category, women's increased 10%, men's increased 15%, and accessories remains positive and up 2%, which is impressive given the exceptionally strong performance last year. Earnings per share were $2.54 versus EPS of $2.28 in quarter one last year. In addition, we repurchased nearly $300 million of stock in quarter one, an additional $230 million in the second quarter thus far, and our board recently increased our authorization by $1 billion, bringing our capacity to repurchase shares up to approximately $1.7 billion. As you can see, Our business remains strong, and our brand continues to resonate with guests around the world. We are engaging with them through our unique and compelling activations and brand campaigns, and we continue to drive the business with new product innovations. Let me now share some additional Quarter 1 details by region. As I mentioned, our business remains strong in every international market in which we operate, as our brand is resonating with guests across regions and geographies. Our approach to growth follows the model we've implemented so successfully in North America and includes omni-channel distribution via highly productive stores and e-commerce sites, a product assortment which offers technical and versatile styles and is frequently updated with new innovations to enable our guests to sweat in any way they choose, and a unique and compelling approach to building brand awareness, which includes local activations as well as larger scale brand campaigns. our international business remains under-penetrated and continues to represent a significant growth opportunity. For the full year 2023, international was only 21% of our business, and over the long run, I see the potential for it to grow to 50% as we continue to expand our presence outside of North America. Shifting now to the U.S., as we mentioned on our last call, we've seen a slower start to the year due to several internal factors, including missed opportunity in women's and bags, which we are actively addressing, and to some ongoing choppiness in the consumer environment. Our men's business has maintained its momentum, driven by strong guest response to our innovations across performance, lounge, and our ABC franchise. Our market share gains were strong in men's in quarter one, and with unaided brand awareness of less than 20% in the U.S., our opportunity to continue to grow this business remains significant. When looking at women's, we did not maximize the business in the U.S., which was the result of several missed opportunities, including a color palette in our core assortment, particularly in leggings, that was too narrow. Where we had color, guests responded well. We just needed more as they are looking for additional choices. And we were also out of stock in some of our smaller sizes. And in addition, we saw a fantastic guest response to our newer styles of bags, such as the two-tone tote, but did not buy these styles with enough depth to fully capture the demand. Megan will share our guidance with you later in the call, but as you've seen, we are maintaining our revenue guidance for the year. In quarter two, we expect revenue growth of 9 to 10%, roughly in line with our quarter one growth rate. Our guidance for the full year continues to call for revenue growth of 10 to 11%, excluding the 53rd week, and includes a modest step up in the second half. In summary, We are moving in the right direction and understand the root cause of the issues. And with the lead times, we expect to be in a more optimal inventory position in the second half of 2024. In addition, our upcoming product launches and innovation flows, which I'll speak to shortly, are skewed toward the back half of the year, which is another reason for our optimism. Looking out further, our growth opportunities in the U.S. remain compelling. Our unaided brand awareness is only in the low 30s. Using our unique approach, which combines local engagement, community activations, and larger-scale brand campaigns, we continue to have a significant runway to introduce new guests to Lululemon and drive them to our stores and e-commerce sites. We are just beginning to leverage the power of our membership program, which now has approximately 20 million members in North America. By offering benefits like early access to product and invitations to exclusive events, we are increasing our member base and powerfully engaging with them, which will ultimately drive both spend and long-term value. Our stores remain highly productive, with new locations performing well, and we continue to be pleased with our store optimization program. As a reminder, in 2024, our plan calls for 5 to 10 new store openings and 15 to 20 optimizations. Looking beyond 2024, our real estate opportunities in the U.S. remain significant, And our plans include continuing both of our new store opening program and our optimization strategy. And we continue to gain market share with outsized strength and men's where we outpace the overall market in quarter one. Now, let me speak about product innovation and some of the current shifts we recently announced within our organizational structure. As you know, our chief product officer, Sun Che, recently decided to leave Lululemon to take a job elsewhere in the industry. Sun and I had been in regular conversations, so I understood her personal and career goals. We regularly update our succession plans, which allowed us to seamlessly step into our new plan leadership structure. I'm excited about how the new structure will bring new perspectives, curiosity, and leadership across our product teams. This approach will drive several meaningful benefits in the near and long term, including increasing our speed of innovation, stimulating creativity, and enhancing team accountability around product flows and assortment. We have a strong and dynamic product team led by Jonathan Chung, our Global Creative Director, who now reports to me, and Liz Binder, our Chief Merchandising Officer, who now reports to Nikki Neuberger as she steps into her expanded role as Chief Brand and Product Activation Officer. Jonathan, Liz, and the entire product team will continue to drive innovation, design technical product that looks great, and solve for the unmet needs of our guests. And under Nikki's proven leadership, the merchant and the brand teams will be more fully integrated, which will streamline decision-making and ensure we show up powerfully and consistently for our guests across all markets. All of this is intended to speed the ideation process with regard to product storytelling and further improve our speed to market. And these shifts will help maintain and enhance our pipeline of innovation. I want to now share several recent and upcoming product launches that continue to show our team's ability to create compelling product. In quarter one in women's, our guests continue to respond very well to our key second layer franchises, including Define, Scuba, and Softstream. In addition, we continue to see strength in bottoms led by bike shorts and our away from body styles. Looking forward, we're on track to bring significant innovation into our assortment beginning the end of quarter two and into the second half of the year. Within women's, we have some exciting new launches planned within our leggings assortment. These include a new innovation designed for hot, low-impact workouts and made from a new performance fabric, one of our quickest drying and lightest weight to date. And late in the year, we'll launch another new type, our most versatile essential line, providing a completely different feel state which will bring newness and innovation into our train assortment. The upcoming newness in leggings is a perfect example of how we continue to bring innovation into our core categories where we already have significant strength. Our teams continue to expand our product offerings with new technical solutions, and I'm excited for you to see these new styles. Let's now take a look at men's. In quarter one, we continue to see strong response to our lounge offering, including steady state and soft jersey. In addition, we recently launched a smooth spacer hoodie, which provides a cooling sensation and is a great recovery piece to wear home after a workout. We are pleased with the variety of and performance of our lounge offerings. We plan to fuel this strength by building our inventory levels and expanding the silhouettes offered in all three of these collections for fall. On the technical side of men's, we continue to see great response to our pace breaker and zeroed-in franchises. both of which we will expand later this year. Zeroed In is following in the footsteps of our other key technical styles for men and is quickly becoming a top performer in training. I also want to mention our new Show Zero technology, which we just launched in men's polo shirts. This fabric uses innovative construction to hide the appearance of sweat on the outside of the shirt. These polos are highly versatile and can be worn on the golf course, to the office, or many other occasions. And in footwear, our new Cityverse style has done extremely well, particularly in men's, where demand has exceeded our expectations. These are just the latest examples of the disruptive innovations we are known for and will continue to create. Shifting now to brand awareness, as you know, our unaided brand awareness remains low in every country where we operate, except our home market of Canada. We will continue to activate across our grassroots and global platforms to increase awareness and bring new guests into the Lululemon brand. Let me share just a few examples. In quarter one, we held several successful earned media activations, including launching our new Cityverse and Beyond Feel footwear styles in New York, hosting our further women's ultra marathon event near Palm Springs, California, and unveiling our kit for the Canadian Olympic and Paralympic athletes in Toronto. In quarter two, we will again host our successful Summer Sweat Games in China, while also bringing a version of this event to our Essentials members in North America with our Membership Summer Series. And in quarter three, we'll strategically test TV again with another men's campaign. Building on the success of last year's campaign, this year's spot will focus on men and feature some high-profile personalities. Before I hand it over to Megan to discuss our financials and guidance outlook, I'd like to share some additional thoughts about the rest of the year. Our pipeline of innovation and our launch cadence for the second half of 2024 is particularly strong. In the U.S., our teams have been making the appropriate adjustments in closing the inventory gaps in terms of color and sizing. Our brand awareness remains low but is growing, and our store productivity remains among the best in the industry. We continue to engage with our guests in unique and compelling ways, and inspire them with our differentiated product innovations. I'm optimistic with regards to our performance in the second half of the year and beyond, as we continue to execute well against our power of three times two goal of doubling our revenue in five years. Megan, over to you.