lululemon athletica inc.

Thank you for standing by. This is the conference operator. Welcome to the Lululemon Athletica Inc. Third 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 may press star then 1 on the telephone keypad. Should you need assistance during the conference call, you may reach 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 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. 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 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 would like to turn the call over to Calvin.

Thank you, Howard. It's good to be here with all of you today. In just a few minutes, Megan and I will provide an overview of our results for the third quarter, our performance over the Thanksgiving weekend, as well as an updated guidance for the fourth quarter and full year. But let me begin with sharing more about the news that after more than seven amazing years, I will step down from my role as CEO of Lululemon on January 31st. In my conversations with the board, we carefully considered what's ahead for the company and for my own journey. Together, we agreed that the timing is right for a change as we near the end of our five-year plan cycle. I'm incredibly proud of what we have accomplished together over the past seven years. Lululemon is a very different and much stronger company today than when I first joined the organization in August of 2018. I enjoy helping organizations set big, ambitious goals and growth targets and working towards achieving them. Since 2018, Lululemon tripled its annual revenue, and we expect to generate $11 billion this fiscal year. We have broadened our global reach from 18 to over 30 geographies and grown the company's China mainland business into our second largest market. We expanded the horizon for what's possible for Lululemon, quadrupling our international business, growing our men's business as well as our online channel and extending into new categories and activities. And I am proud we are the number one women's active apparel brand in the United States. We have done this while increasing our profitability. Based on our guidance for 2025, we will achieve a compound annual growth rate in EPS of approximately 20% from 2018 to 2025. And the company has strong cash flow and a balance sheet with $1 billion in cash and no debt. The Lululemon is in a very good position going forward. But beyond the numbers, there is so much opportunity ahead for the company, which is poised to innovate new products and experiences and welcome more markets and guests. The teams have been addressing opportunities head on and making meaningful progress from product creation and activation to enterprise efficiency. And we've got a leadership team in place that is ready to author the next horizon of what's possible. Together, we built a foundation of innovation, creativity, and connection at Lululemon that has transformed the athletic apparel industry and will continue to drive it forward. As you've seen in our press release, Marty Morfitt will serve as executive chair. Megan and Andre Mastrini will serve as co-CEOs, supporting all aspects of the business. until the next CEO steps into their role. I will continue to serve as an advisor to the company through March of next year to support a smooth transition and assist the leadership team on executing against our business strategies. And I look forward to sharing more about my next chapter. I appreciate the support of our board of directors, our management team, and everyone at Lululemon for their support over the past seven years. As we step into this transition period, I am confident in the company's senior leaders. and I know that Megan and Andre will do an extraordinary job. This leadership team will play an important role in creating the future for Lululemon. I believe the outstanding product pipeline we have built and the action plan now in place will yield positive results going forward. I cannot wait to see it come to fruition and deliver value to shareholders in the months and years ahead. I've described being CEO of Lululemon as my dream job. It truly has lived up to every expectation and given me the opportunity of a lifetime. With that, Megan and I will now share more about our business results. I'll speak to our Q3 results and then discuss our performance over the Thanksgiving weekend, which was encouraging. Next, I will turn it over to Megan to build upon the foundation we laid out on our Q2 earnings call regarding the action plan to drive inflection in our U.S. business. And Megan will then share our detailed Q3 financials and our Q4 outlook before we take your questions. So let's begin with quarter three. When looking at our U.S. business, our guest metrics remain consistent. We continue to see growth in both total and retained guests, and we are acquiring new guests and retaining existing guests across all age demographics. Where we continue to have opportunity is increasing the frequency of visits and spend with our high-value guests. In the Americas, in Q3, we saw total revenue decline 2%, with the U.S. down 3% and Canada negative 1%, in line with our expectations. From a product standpoint, we continue to lead with technical innovations and saw growth in our performance activities led by run and train. Guests also responded well to our outerwear assortment with performance up strong double digit. Shifting to international, where our momentum remains strong, revenue increased 33%, fueled by 46% growth in China mainland and 47% on a constant currency basis. Our rest of world segment also saw nice momentum with revenue growing 19% in constant currency. Looking forward, we now expect revenue in China mainland to be at or better than the high end of our range of 20 to 25% revenue growth for the year, excluding the 53rd week. For Q4, we expect revenue growth to be below the Q3 trend due to calendar shifts, which benefited Q3 and will have a negative impact on Q4. In our rest of world segment, I would highlight the recent Gangnam store opening in Seoul, South Korea, and the strong guest response we've seen in the initial weeks. This store reflects our new design ethos that celebrates our Pacific Northwest heritage while modernizing the in-store experience. And in EMEA, our franchise partner recently opened the third Lululemon store in Istanbul, and we have plans to enter several additional markets in 2026. Let me now share some highlights from Thanksgiving. We're pleased with our performance over the Thanksgiving shopping period. I traveled with Carla Anderson, our new GM of North America, and other members of our leadership team to several stores over the weekend and saw our educators in action, bringing our brand to life and providing guests with a seamless shopping experience. Our final stop was our new Soho location. This store offers improved visual merchandising and adjacencies and offers a truly elevated shopping experience. Given the competitive environment, we know guests are looking for value. With the increased traffic over the holiday period, we had the opportunity to clear through some seasonal and end-of-life product, which helps position us well from an inventory standpoint as we exit quarter four and enter spring. We also dropped new full price product, including special edition training gear, which met with good guest response. And relative to last year, we offered our Black Friday product to our members a week earlier this year. Not only did this help drive traffic to our e-commerce sites, but also fueled a significant number of app downloads and new signups for our membership program. Despite the earlier start, Black Friday was still our biggest volume day ever on our e-commerce sites. I also want to acknowledge we've seen trends slow a bit since Thanksgiving, which we've taken into account in our Q4 guidance. However, despite this, we expect revenue trends in the U.S. in Q4 to be modestly improved relative to Q3. Before I turn it over to Megan, I want to take a moment to speak to the three pillars of the action plan underway to drive an inflection in the business. We are focused on product creation. I've been working with Jonathan Chung, our creative director, and our design and innovation teams on our product pipeline. As I've shared, we know that our current merchandising mix, particularly in North America, does not fully reflect the go-forward vision we have for our brand. The team has been in the work, and I believe that we have a strong pipeline of innovation and approach to new style creation. You'll see the impact of this work beginning in spring 2026 and continue to strengthen throughout the year. Product activation, where we are improving the in-store and online experience, engaging our high-value guests in new ways, and better aligning our brand and marketing activities with product inflections and drops. And enterprise efficiency, ensuring we are operating as efficiently as possible as we work to inflect the U.S. business, particularly in light of the new tariff environment. We believe these priorities position us well for the near term and will continue to set Lululemon up for long-term sustainable growth. Megan, over to you.