Earnings Labs

Lululemon Athletica Inc. (LULU)

Q1 2021 Earnings Call· Thu, Jun 3, 2021

$142.54

-3.00%

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Transcript

Operator

Operator

Thank you for standing by. This is the conference operator. Welcome to the lululemon athletica First Quarter 2021 Earnings Conference Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Howard Tubin, Vice President, Investor Relations for lululemon athletica. Please go ahead.

Howard Tubin

Analyst

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 Meghan 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 have -- 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. 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 and store productivity metrics given on today's call are in constant dollars. The press release and accompanying quarterly report on Form 10-Q are available under the Investors 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 1 hour [Operator Instructions]. And now I'd like to turn the call over to Calvin.

Calvin McDonald

Analyst

Thank you, Howard, and hi, everyone. I'm excited to speak with you about our first quarter results and the momentum we're seeing across the business. As the press release describes, we're off to a particularly strong start to 2021, with revenue growth of 88% over the same period last year. And when you look at our 2-year CAGR, our performance truly stands out and shows the sustained momentum in the business. Our first quarter results reflected our strength across all drivers of growth, fueled by the continued expansion in our e-commerce business, our performance across categories and geographies, and a rebound in the number of guests shopping in our brick-and-mortar stores. I want to take a moment to recognize the resiliency and agility of our teams across the globe. Their commitment and dedication enables this impressive performance, and it would not be possible without them. On today's call, I will speak to our first quarter results, our Power of Three growth pillars and the progress toward delivering against our impact initiatives. You'll also hear from Meghan Frank, our CFO, with further details about our Q1 financial performance and our guidance outlook. We'll then be happy to take your questions. Looking at the quarter, our results were driven by strength across channels, regions and product categories. Here are a few key operating metrics. Firstly, our total revenue of $1.2 billion reflects an increase of 25% on a 2-year CAGR basis. This growth rate represents an acceleration relative to our 3-year CAGR of 19%, leading up to the pandemic, and reinforces that we remain early in our life cycle and have a unique business model that allows us to thrive in an ever-changing environment. In addition, our revenue increased across each of our regions, up 23% in North America and up 41%…

Meghan Frank

Analyst

Thanks, Calvin. Our Q1 results were strong relative to last year's COVID-impacted quarter, but more importantly, relative to Q1 of 2019 as well. On a 2-year CAGR basis, we saw double-digit top line growth across all major regions, with the standout being Mainland China, with an approximately 90% 2-year revenue CAGR. We also saw broad-based strength across merchandise categories, with women's, men's and accessories all growing in excess of 20% on a 2-year basis. We are proud of these results despite the ongoing impact of COVID-19, and we have strong momentum moving into Q2 as reflected in our updated guidance I will share in a moment. Let me now share with you the details of our Q1 performance. I will also discuss specifics on our balance sheet, including our cash position, liquidity and inventories. Please note that the adjusted financial metrics I will share include the operating results of MIRROR, but exclude approximately $8 million of acquisition-related costs and their associated tax effects in Q1 2021, and $2 million of acquisition-related costs and their associated tax effects in Q1 2020. You can refer to our earnings release for more information and reconciliations to our GAAP metrics. For Q1, total net revenue increased 88% to $1.2 billion, above our expectations of $1.1 billion to $1.13 billion. This included an 82% increase in North America and a 125% increase in our international business. On a 2-year CAGR basis, total revenue increased 25%. In our digital channel, revenues increased 61% on a 2-year CAGR basis, above our expectations of approximately 50% growth. e-comm contributed $545 million of top line or 44% of total revenue. We continue to see strength in traffic and conversion. Traffic was driven by both new and existing guests, and conversion continues to benefit from positive guest response to the…

Calvin McDonald

Analyst

Thank you, Meghan. Before we take your questions, I just want to say on behalf of the entire management team that we are grateful to our teams who helped us deliver these results, you who are helping us raise our expectation about what's possible for lululemon this year and well into the future. And with that, we'll be happy to take your questions. Operator?

Operator

Operator

[Operator Instructions] The first question comes from Adrienne Yih with Barclays.

Adrienne Yih-Tennant

Analyst

And congratulations on the great start to the year and the momentum continuing. Calvin, my first question is for you. It's about, as you become a global brand and now you have MIRROR and you're investing in that for marketing, are there any change in how you philosophically think about the marketing, the advertising expense line, demand creation, so to speak? And when we're thinking about MIRROR, how should we think about the slight dilution coming in the form of increased ad spend? And when might we, in the future, think about sort of a breakeven notion? I guess, another way of asking sort of that probably more simply is when you are building the brand for MIRROR, do you think about investing for top line growth first and maybe not necessarily prioritizing profits given that there's so much opportunity there?

Calvin McDonald

Analyst

Thanks, Adrienne. I'll try to compartmentalize that question because there's a lot of exciting topics embedded in that. Overall, from a brand perspective, I would tell you, as I highlighted with our Run campaign in this quarter, it's one of many ways we're looking at increasing both awareness and consideration for lululemon moving forward. And that applies to all markets we're in, both U.S., Canada and internationally. And Nikki and the team are in a variety of different initiatives this year where we're testing and learning ways to do more at top of funnel. That's all included in the guidance that Meghan shared. But we are excited about the different initiatives we have planned because we see a huge opportunity around driving awareness and consideration, both for men's as well as women and in every market we're in, and we're going to lean in and do more of that. And the Run campaign is an example of us marketing ourselves more as a dual gender, showcasing both men and women, as well as leveraging our ambassadors, our community and the influencers and those key relationships. So there's a lot of work underway, and we absolutely see the ability to drive awareness consideration for lululemon. Similarly, in MIRROR, there's a lot of opportunity around awareness and consideration. That's where we see leveraging synergies within lululemon in the stores and leveraging the 10 million guests that the brand has to help drive that. And we know we're investing as an acquisition vehicle to get guests in and purchase MIRROR. And that's in the guidance as well, but we'll continue to do that. Fast forward, these brands are going to continue to be able to leverage one another, and we see synergies in the community. We see synergies in refer a friend. We see synergies across the ambassadors and the content that we're producing. So we're early in how we bring awareness across both brands to each other brand and excited about what we're seeing in the plans we have moving forward. And I'll let Meghan just pick up a little bit on your question around the investments.

Meghan Frank

Analyst

Hi, Adrienne. So in terms of the investments and the path to breakeven, so we were really pleased by what we saw with MIRROR performance in 2020, and it exceeded our expectations for sales at $170 million. And then we're reiterating our guidance for -- or our guidance color for MIRROR for 2021, revenue range of $2.50 to $2.75, and EPS dilution of 3% to 5%. And we have a number of exciting initiatives teed up for this year, including expanding instructors, expanding studios, moving into Canada. And then going into over 200 lululemon stores. It's still early in the year for us just given the seasonality of that business, the ramp in store openings as well as just that growth curve we're experiencing in the MIRROR business. We did have a strong Mother's Day, pleased with that performance. And in terms of breakeven, we aren't putting a fine point on it right now. But excited about the future there. Definitely see it as a profitable business for us over the longer-term and very much within our control.

Operator

Operator

The next question comes from Ike Boruchow with Wells Fargo.

Unknown Analyst

Analyst · Wells Fargo.

Yes. This is Kate on for Ike. Calvin, I guess, just at a higher level. You spoke to, in the quarter, the business accelerating with a 25% CAGR, I believe, on a 2-year basis versus what you were running pre pandemic. I'm just curious now that we're that much further along in the recovery, how you are evaluating perhaps a widening TAM opportunity on the other side of COVID? That would be helpful.

Calvin McDonald

Analyst · Wells Fargo.

Great. Thanks, Kate. I definitely -- and as I've stated before, we were performing well before the pandemic. I think we led the peer group during the pandemic, and we're excited about the performance, and confidence in our ability to continue to perform post pandemic. And that's driven by the sustainable acceleration in consumer trends of living a healthier life, versatile apparel, at-home sweat and the connection of community and community sweat, all play into our strengths. And we're early innings of growth. This quarter is a great example of that. Growth across channels, stores and dot com, stores -- growth across categories, across gender, men and women in our geographies. So very much early innings on that. And as that impacts and relates to TAM, MIRROR, by addition, creates a sizable TAM for us that we're excited about. We're investing in because we see a meaningful business there, a profitable business, a stand-alone P&L that equally will impact the lululemon brand through strengthening the community and helping to influence and drive apparel sales. So that clearly is one addition to our TAM that we're excited about and we've added to. And then I think with sweat, in general, we're seeing ongoing trends. Our positioning around Run, Yoga, and Train continue to resonate and be the key activities. We have versatility and see some excitement in hike as well as OTM. And OTM for her, we're just getting started. We know it's a good business for our men's business as we're building and adding. But we really have a limited OTM assortment for her, and we are leaning into that. We have dropped some with a real plan to continue to grow that out. So I would say OTM for women's, MIRROR and then you know we're bringing footwear next year are 3 sizable TAM opportunities that we're adding to the ongoing mix of what the trend in the guest is happening and adding to the overall growth in activewear.

Operator

Operator

The next question comes from Mark Altschwager with Baird.

Mark Altschwager

Analyst · Baird.

Congrats on the strong start here. Maybe just to start off to follow up on, Calvin, the comments you were just making on the OTM. I guess maybe just from a marketing standpoint, I mean there's been a lot of innovation with the On The Move assortment, and that would seem to be particularly relevant I guess today, as guests are returning to travel and in-person activities. Just can you speak a little bit more about how you plan to amplify that message, both with existing guests as well as for new guest acquisition?

Calvin McDonald

Analyst · Baird.

Yes. No, for sure, Mark. And I'll break it down from product and then into women's -- sorry, men's and then as to women. So with our men, we continue to innovate into our raw material as well as some of our key franchises. So building out on our ABC and commuter, we've added the Bowline, which we continue to see respond very well and see growth in that. As we do more top of market -- top-of-funnel activity through marketing and drive that awareness and consideration, we know OTM is one of our big hooks that gets him into the brand, and then we migrate them into the sweat and into other categories. So I think that flywheel is working, is gaining momentum. And as we continue to invest top of funnel, we'll only pick up steam. On the women's side of OTM, it really starts with product for us. And we have limited assortment. And when we drop it, she responds incredibly well to it. We're excited about our ongoing expansion of our bottoms more into the OTM casual off the body fit. We're excited about our sweater initiatives in the back half and we're excited about '22 and beyond as we really look to create versatile solutions for those slots in her wardrobe. And that, I think we absolutely have an opportunity to tap into our existing guest and sell those incremental opportunities to her. So with women, it's really about assortment, and we're early with plans to expand. And with him, we're going to keep adding and innovating, but we have a good base to start, and top-of-funnel activity will help fuel that even further.

Mark Altschwager

Analyst · Baird.

And then for Meghan, as we think about the path to recovery, is it your expectation that the store productivity can return to pre-pandemic levels or even grow from pre-pandemic levels? Or is some of this channel shift permanent? And a lot of different regional trends that are embedded in the productivity metric you shared, just maybe any insight you can share on some of the trends in regions that have perhaps had restrictions relaxed for the longest?

Meghan Frank

Analyst · Baird.

Sure. Thanks, Mark. So we were really pleased with the improvement we saw in store productivity in Q1, at 88% versus 71% in Q4. We did see improvement as capacity restrictions moderated throughout the quarter. And we do fully expect to achieve 2019 levels of store productivity. At this point in time, we're not going to put a time frame on it, just given ongoing uncertainties related to COVID. And we still have a level of store closures in play at this point in time, but we're really encouraged by trends we're seeing in our store base.

Operator

Operator

The next question comes from Matthew Boss with JPMorgan.

Matthew Boss

Analyst · JPMorgan.

And congrats again on the momentum. So maybe first is on the margin front. So on gross margin, first quarter, more than 300 basis points above 2019. I guess, maybe could you just help bridge drivers in the second quarter forecast that you're embedding relative to 2019? And just any back half assumptions for us to consider as we think about the gross margin line through the cadence of the year?

Meghan Frank

Analyst · JPMorgan.

Sure, Matt. So in terms of Q1, and this is relative to 2019, we had 320 basis points of expansion versus our initial expectation of 50 to 100. That 320 basis points was driven by 220 basis points of occupancy and depreciation and product team, leverage really on that higher sales achievement. And then 80 basis points increase in product margin. We did see some good trends relative to 2019 in markdown rates. And we also did experience some pressure, as we've discussed, on higher air freight expense. And then we had 20 basis points of favorability in FX. When we look to Q2, again, relative to 2019, we are looking for 30 to 50 basis points of expansion relative to 2019 and really, we are expecting continued headwinds in air freight. And then we have some level of rent concessions that we're anniversary-ing from last year. And then our Q2 revenue growth rate is slightly lower than Q1, leading to that delta. In terms of the full year, we've given some color relative to 2020. So we're expecting, for the full year, 150 to 200 basis points expansion versus last year, and that is up from our prior expectation of 100 to 150 basis points.

Matthew Boss

Analyst · JPMorgan.

Great. And then maybe just a follow-up for Calvin. On the outsized growth that you're seeing in e-commerce relative to the sequential improvement that you're also seeing at brick-and-mortar, I guess, any changes in consumer preferences that you saw take place over the first quarter? Or maybe into May, as we think by category, maybe tied more to recovery, the return of sport and some physical activity relative to the lifestyle side as maybe people are thinking about or actually leaving their houses and returning to some normal activity?

Calvin McDonald

Analyst · JPMorgan.

Yes. Great. Thanks, Matt. As we shared, our active -- what we define as our active wear was still the predominant driver of our business last year. It's the core of our assortment, and it was the core of our drivers in Q1. It was good to see our men's business come back as strong as it did. We saw it continue to accelerate through 2020 and into 2021 in the quarter and then get back to its position of driving the overall growth ahead of -- slightly ahead of women's. And that was really all through the sweat activity. Shorts performed incredibly well. And we did see an uptick in OTM and very encouraged with that momentum continuing. And then with her, again, active wear was the driver, very balanced across all of our categories. Shorts and tops, did see a very nice acceleration in growth. The team has been doing a lot of work in our top business, building out our franchises, which is a big part of our franchise strategies that I've shared with everybody that we are early in taking the franchise of our bottoms and extending that feel state through Science of Feel, head to toe. Align tank being an example of one, but we have not done that consistently across the others, and we're starting to and when we do see, responds incredibly well. So our tops business really performed nicely as well as shorts, but it was very much balanced across all categories, men's and women's and geography.

Operator

Operator

The next question comes from Lorraine Hutchinson with Bank of America.

Lorraine Maikis

Analyst · Bank of America.

I wanted to follow-up on Mark's question. He was talking about store productivity returning to 2019 levels. And I wanted to ask about the store profitability. You made some further progress there in the first quarter. Is there any reason why the store margins wouldn't get back to 2019 and perhaps surpass them as you move back toward 100% productivity?

Meghan Frank

Analyst · Bank of America.

Hi Lorraine, it's Meghan. Yes, I think we are still dealing with a degree of COVID-related expense in our store channel as well as the pressure from productivity, so store COVID-related labor as well as PPE. And I don't expect there's any barriers to reaching 2019 store profitability levels once the productivity is normalized.

Operator

Operator

The next question comes from Dana Telsey with Telsey Advisory Group.

Dana Telsey

Analyst · Telsey Advisory Group.

Congratulations on the nice progress. Calvin, part of the Power of Three and what you've talked about is international, and it sounds as if the international opportunity could be even a little bit -- occur a little bit faster than expected, with the sizing that you talked about and also now with category expansion. How do you size up international? And any learnings from what you've seen in any of the regions you're currently in, even though small, that could be impactful for growth going forward? And lastly, as you talked about COVID costs -- you mentioned COVID costs, how do you see those adjusting or winding down moving forward?

Calvin McDonald

Analyst · Telsey Advisory Group.

Great. Thanks, Dana. I'll take international and then hand off to Meghan on the COVID expenses. Obviously, I think the numbers indicate the potential that we have internationally. And I think for the last few calls, I've shared the long-term opportunity of this brand, this business being 50-50 North America-international. And I don't see anything that's going to prevent us from achieving those results. We're seeing good growth in every market. In EMEA, we continue to see growth even with the pressure on stores because our dot com business continued to drive growth. And in every market, we're in Australia, New Zealand or rest of APAC, very solid momentum in China being one of our biggest potentials and continue to see momentum in there. We were up 200% in the quarter, strong growth in stores, strong growth in dot com and excited about that. So our commitment was to quadruple the business. We are definitely achieving those results and excited to share the next future of growth as we continue to see the maturity of these markets and invest in them. We're in the right markets. And we're early in terms of our share potential in these. So we're really leaning in and focused on maintaining and growing the momentum in these markets. And then with Andre, we'll be able to come back on a later call and share the future plans for continuing to drive growth. And then, Meghan?

Meghan Frank

Analyst · Telsey Advisory Group.

Great. Hi, Dana. So in terms of COVID costs, we are beginning to see those wind down. It will really be dependent on the environment. We remain committed to our Power of Three growth plan, operating profit growth in excess of sales growth and really focused on managing our business to that. We did see operating margins for Q1 at 16.4%, which compared to 16.5% in Q1 of 2019. This year's Q1 included MIRROR. So we saw, underlying that, some really nice expansion in lululemon -- in the lululemon side of the business and really on track to that Power of Three growth plan.

Operator

Operator

The next question comes from Paul Lejuez with Citi.

Paul Lejuez

Analyst · Citi.

Curious about input costs, what you're seeing and how we should think about AUC over the next several quarters and into next year? And also just how you're thinking about pricing in a potentially inflationary environment?

Meghan Frank

Analyst · Citi.

Hey Paul, it's Meghan. So in terms of input costs, we're not seeing any material impact on 2021. And anything we are experiencing is reflected in our guidance. We definitely have a close eye on the market and are managing and mitigating any pressures as we move into 2021 -- sorry, 2022, and we'll certainly come back and share more when we provide 2022 color.

Calvin McDonald

Analyst · Citi.

And then just adding on to that, Paul, as it relates to pricing, because we're not seeing any direct pressure this year, we're comfortable with our pricing strategy through to the end of '21 and the merchants are working with the supply team on any potential changes that we may need to implement moving into '22. But we're constantly evaluating our range, looking at the new innovation coming and pricing accordingly to drive the best value for our guests.

Paul Lejuez

Analyst · Citi.

Got it. And can you just talk about your ability to chase product. Just given some supply chain constraints that were mentioned, I'm just curious how quickly you can get back into product.

Meghan Frank

Analyst · Citi.

Yes, definitely. So inventory was certainly one area where we postured to drive for growth, both throughout 2020 as we navigated the pandemic and then into 2021. The team has been really proactive in strategically leveraging air freight to meet guest demand. And we do have the ability to chase categories and keeping a close eye on what's going on with the supply chain, but we feel really well positioned to navigate through this year and meet guest demand.

Operator

Operator

The next question comes from Kimberly Greenberger with Morgan Stanley.

Kimberly Greenberger

Analyst · Morgan Stanley.

I wanted to just ask the question Matt asked, but a slightly different way. As consumers are starting to emerge and go out, are you seeing a shift in the kinds of products they're buying, let's say, particularly in the April, May time frame? And then a question for Meghan on SG&A. Obviously, this year, you've given some guidance color, which is super helpful, and you're looking for some deleverage relative to 2019 for MIRROR and the other factors that you cited. I'm just wondering if we should think about you starting to leverage SG&A beginning in 2022, if that's a realistic expectation. And I'm just trying to sort through the COVID cost here this year to understand how much of the COVID costs will not recur in 2022? And I think you're putting some store payroll that will be recurring into your COVID costs. So if you could maybe separate that out for us, that would be helpful.

Calvin McDonald

Analyst · Morgan Stanley.

Kimberly, I'll go first and just pick up on the first question. We have not seen a meaningful shift in our active wear categories through the first quarter. As you know, a big piece of our business and sales are in core. It's in athletic active wear. And I think with that, it has an embedded strength to not be purely trend-driven or fashion-driven. He and she are responding well to color. The team's done a wonderful job in introducing color into these core franchises in silhouettes. But our active wear sweats, shorts and tops have really been the uptick in momentum. But overall, the growth is across almost every category equally and very balanced across geographies.

Meghan Frank

Analyst · Morgan Stanley.

Kimberly, I'll take the second part of that question. So in terms of SG&A, we're expecting for the full year 30 to 50 basis points of deleverage, which is better than our prior expectation of 50 to 100 basis points. And that deleverage is really driven by consolidation of MIRROR for the full year as well as investment behind that business. And then a rebalancing of investments we did in 2020 into 2021, with the acceleration of our e-commerce business, which the expenses are attributed to SG&A and some pullback on the store side of which occupancy sits up in gross margin. We're really focused on managing the business from a bottom-line perspective and managing operating profit in excess of sales growth. We are not going to break out the COVID cost specifically, but really remain committed to managing to that operating profit in excess of sales growth over the longer term.

Operator

Operator

The next question comes from Omar Saad with Evercore.

Omar Saad

Analyst · Evercore.

I wanted to ask a follow-up on the real estate, the decision to accelerate some of those new store openings. What's giving you the confidence there? Is it real estate opportunities? Is it market opportunities? Are you going to use the newer kind of bigger store format that has more room for men? Is the primary format you're using? And then I have a follow-up on MIRROR.

Calvin McDonald

Analyst · Evercore.

Great. Okay, Omar, let me address the first. I think it's a combination of all the above. We've stated and remain very confident in our store business, in its performance, in its contribution and the role it plays of connecting the brand, guest acquisition and driving productivity numbers. And we've seen nothing through the pandemic and emerging coming out that would get us off of that position. We equally are very early in every market in our store fleet rollout. So we do have opportunity for growth in every market, including Canada and the U.S. as well as internationally. So we apply a conservative number on an annual basis, and we are being opportunistic as a result with the opportunities in around the globe where we're getting key locations with the right size in key cities and markets as a result of opportunities that are coming our way. And we're capturing them because we believe in them. And in that, it is our newer models that allow for more of a men and expression, but it's not significantly above sort of our sweet spot of stores, and it does vary by market, in the 3,000 to 4,000 range or the 5,000 to 6,000 range in North America, but it depends on the city and the location, but very -- still confident in our store business.

Omar Saad

Analyst · Evercore.

Got it. And then on MIRROR, I just want to do a quick follow-up on MIRROR. Who is buying MIRROR? Is it -- are you seeing a consistent use case? Is it people who already have a home gym and they're mack daddy-ing it out with adding MIRROR to it? Or is it people who are trying to squeeze in with their existing space and it's such an efficient kind of interactive home workout solution? I'd love some color there.

Calvin McDonald

Analyst · Evercore.

Yes. No, for sure. And I'd say it's -- again, it's all the above. We're seeing individuals that have a number of at-home fitness solutions, and they add MIRROR as a versatile workout solution to round that out. And it definitely caters well to individuals that don't have a distinct gym, who may not have a stud to attach a device to and want something that can function both in a space that is versatile and sweat. And we're equally seeing a nice overlap with lululemon guests, but interestingly, a large number of non-lululemon guests owning MIRROR. So that's where we get excited as we as we build out the synergies of having a lululemon guest buy into a MIRROR and have the MIRROR guest buy into lululemon as their sweat solutions. But there is really a versatility in who's buying it, how they're using it. And the fundamental opportunity is unlocking these synergies, which we're just getting started as we're able to tap into the stores now that we're emerging out of the pandemic and drive the awareness for the product.

Operator

Operator

The next question comes from John Kernan with Cowen.

John Kernan

Analyst · Cowen.

So hey, sorry about that. Congrats on the big guidance increase in the top and bottom line. I guess, Meghan, if you look at where the business is operating from a P&L perspective, if I were to take out the high end of MIRROR revenue guidance and maybe the midpoint of the dilution, you'd be somewhere around a 23% operating margin, which -- for the core business, which is above -- comfortably above where it was in 2019. Can you just talk to the long-term upside to the margin potential for the core business, particularly as the store level margins, which you talked about earlier, recover to previous levels?

Meghan Frank

Analyst · Cowen.

Yes. Thanks, John. So as you mentioned, we are headed towards a very healthy operating margin for lululemon-only for the full year, which is in line really with our Analyst Day expectations of operating profit and growth in excess of sales growth. We're really focused on managing that for the long term. And as we look towards the future, investing behind growth opportunities in order to maximize our top and bottom line. So we're maintaining that commitment, and we are firmly on track to those Analyst Day targets, which were really grounded in growth rates. So we'll continue on that trajectory, and we'll update our beyond 2023 plans at the appropriate time.

Operator

Operator

That is all the time that we have for questions today. Thank you for joining the call, and have a nice day.