lululemon athletica inc.

Thank you for standing by. This is the conference operator. Welcome to the Lululemon Athletica Inc. First Quarter 2025 Financial 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 should 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 zero. I would now like to turn the conference over to Howard Toobin, Vice President, Investor Relations for Lululemon. 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 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. The 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 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 infographics. 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 like to turn the call over to Calvin.

Thank you, Howard. It's good to be here with you today to discuss our first quarter results. As you've seen from our press release, our revenue growth for the quarter came in at the high end of our guidance range. I'm pleased with this performance, which was relatively consistent with quarter four. I'd also note that our revenue in the United States grew 2%, which is an improvement in the trend we've seen over the last several quarters. Based on our quarter one revenue performance and what we're seeing thus far in quarter two, we are maintaining our revenue guidance for the full year. As we look ahead, we will continue to leverage our financial strength and our position in the marketplace to play offense, remain agile, and successfully manage the environment around us. I'll begin by sharing the details of our quarter one performance, including high-level financial metrics and key highlights regarding our regional performance, product innovation, and our brand campaigns and activations. Next, I'll provide insights into the planning and strategies we're deploying related to the increase in tariffs. Megan will speak to the specific financial implications, and I'll share some insights into the opportunities we have across the business. I'll then share my thoughts on quarter two and the remainder of the year, Megan will review our financials and our updated guidance, and we will conclude by taking your questions. So let's get started. In quarter one, total revenue increased 7% or 8% on a constant currency basis. Gross margin increased 60 basis points to 58.3%, and earnings per share were $2.60, ahead of our expectations. In addition, in quarter one, we continued repurchasing shares and bought back another $430 million of stock. Our ongoing repurchases demonstrate the strength of our balance sheet and our continued confidence in the long-term prospects for Lululemon. Looking at our regional performance, we continue to see strength across markets, driven by our high-performance, high-style merchandise and the compelling ways we engage with our guests through brand activations and community events. In North America, momentum continued in Canada where sales grew 9% in constant currency, and in the United States, revenue growth improved to 2%. We're making progress on our assortment, and we've seen good response to many of our new innovations. But my sense is that in the U.S., consumers remain cautious right now, and they are being very intentional about their buying decisions. Even with this, we gain market share across both men's and women's in the premium athletic wear markets in the United States. In China mainland, revenue increased 22% in constant currency. As you are aware, Chinese New Year shifted from quarter one of this year to Q4 of last year. While we estimate that this calendar shift had a negative impact of about four percentage points on Q1 revenue growth, we remain pleased with the underlying momentum in this very important growth market. And in the rest of world, revenue increased 17% in constant currency, as we continue to see a strong acceptance of our brand by guests across the APAC and EMEA regions. We are executing against our strategy to maximize our existing markets, expanding newer markets, while also seeding others for future growth. I am excited by the recent store openings in two of our franchise markets, Denmark and Turkey, which are off to a strong start, and we remain on track to enter Italy as a new company-operated market and Belgium and the Czech Republic under a franchise model later this year. When looking at the full year, our view on revenue is unchanged, and we continue to expect 7% to 8% growth. By region, we continue to anticipate revenue in North America to increase in the low to mid-single-digit range, China mainland to grow in the 25% to 30% range, and revenue in the rest of world segment to increase about 20%. Key to our success within all our markets is our product, which offers unique and innovative solves for guests across both athletic and lifestyle product categories. Throughout quarter one, guests responded well to the newness we introduced into our assortment. For women, our defined franchise continues to perform well across our markets globally, and we are pleased with the response to our recent launches, including Daydrift, Shake It Out, and Be Calm. For men, we're seeing strength in several of our key franchises, including Zeroed In, Smooth Spacer, and Show Zero. In May, to celebrate the 10-year anniversary of our Align franchise, we launched Align No Line, which offers the same fit and feel as the iconic legging but without a front seam. We're pleased with the guest response both online and in the 80 doors where it was offered. We plan to build on this momentum for the fall when we roll it to all stores. I'm excited with the innovations we've rolled out this year and will continue to bring to market going forward. We have significant opportunity to expand all five of our key activities, yoga, run, train, golf, and tennis, and become the top of mind destination for guests who enjoy these activities. Recent examples include our new fast and free running short for men. And for women, we launched additional styles which leverage the research and development our teams conducted last year for our further ultra marathon event. Switching now to our brand activations, our teams continue to develop unique and compelling brand campaigns and community events that engage our guests, increase brand awareness, and support our product launches. Let me highlight a recent example. To support the launch and to celebrate Align's anniversary, we created our Summer of Align campaign. This fully integrated campaign included traditional and social media, exclusive experiences and events, and featured several influencers and ambassadors. We hosted events around the world, including our Lululemon Roller Rink activation at the Bottle Rock Festival in Napa Valley and our largest ever yoga experience in China, attended by 5,000 people in Beijing. This campaign and the other events we activated in quarter one is a great example of how we remain focused on our grassroots approach to guest engagement while at the same time leveraging traditional media assets and our roster of ambassadors to support product launches and build our brand. In fact, our unaided brand awareness in the United States grew from the mid-30s in quarter four to 40% in quarter one. I would now like to talk for a moment about the current environment related to tariffs. Megan will speak to our assumptions and the implications of potentially higher rates during her guidance discussion, but I first want to spend a few minutes sharing our approach. The current tariff paradigm has brought uncertainty into the retail environment as consumers try to assess the impact they will have on daily life. As businesses evaluate these impacts as well, I believe we are better positioned than most to navigate the near term while also maintaining our focus on investing in our growth potential over the long term. We are operating from a position of strength. Our brand remains strong. Our guest engagement is high. and we offer a compelling value proposition, and we are a highly profitable business. Let me share a few details. We have an industry-leading operating margin. This allows us to continue investing across our strategic roadmap to enable long-term growth while managing any increased costs associated with tariffs. Our balance sheet is strong with $1.3 billion in cash and no debt, which provides us significant financial flexibility. We are making progress with our newness, have a robust pipeline of innovation, and our guests are responding well to many of the new solutions we are bringing into our assortment. And our premium positioning in the performance athletic apparel category yields different elasticity for our products relative to fashion-oriented brands. We believe our guests will continue to live an active and healthy lifestyle and turn to us for the technical apparel we are known for. Shifting now to how we have been navigating this situation. Over the past few months, our teams have been looking across the enterprise for how we can offset increased tariff rates. Our work streams include prudently managing expenses, identifying efficiencies within our supply chain, and evaluating our position in the marketplace related to pricing. During COVID, we developed a strong muscle across our teams to be agile, pull levers across the business within a rapidly changing external environment and simultaneously plan for multiple scenarios. We are applying the same approach now as we maintain a disciplined focus on expenses, look across our supply chain, leverage our dual sourcing capabilities, and engage in costing discussions with our vendors and reviewing pricing scenarios to ensure we sit where we want in the market, are pricing appropriately for the innovation in our assortment, and maximize any opportunity to gain market share. We have always been and will continue to be very intentional with our pricing decisions. These actions will be targeted and will reflect the work we've done on style elasticity. We remain nimble in our approach and feel we are well positioned during this period with many levers to pull. Before handing it over to Megan to discuss our financials, I wanted to share my perspective on quarter two and the remainder of the year. It's been approximately a year since we've made the changes in our product organization, and I'm pleased with our evolved structure, the way the teams are working together, and the efficiencies we're seeing across our processes. We still have work to do to create new products that have the potential to grow into core franchises and further optimize our merchandise mix. However, we are moving in the right direction. And looking at the remainder of 2025, our teams are focused on strengthening our product pipeline and bringing more innovation into our core assortment while also introducing new styles with the potential to become key franchises and core items in the future, expanding deeper and bringing new technical solves into our five key activities while further developing our lifestyle assortment, engaging more deeply with our guests through community activations, brand campaigns, and leveraging our membership program and expanding our highly productive square footage profile through new store openings and optimizations. As I hand it over to Megan, I want to also say that while we recognize that quarter two has some pressures related to our planned business investments and additional expenses related to tariffs, we feel good about the full year and our ability to maintain our revenue guidance for 2025. There is considerable opportunity ahead for Lululemon, and we're intent on successfully navigating the near term while we plan for and invest in the long term. With that, I'll now hand it over to Megan.