Earnings Labs

Lululemon Athletica Inc. (LULU)

Q2 2024 Earnings Call· Thu, Aug 29, 2024

$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 Inc. Second Quarter 2024 Results Conference Call. As a reminder, all participants are in listen-only mode. The conference is being recorded. After the presentation, there will be an opportunity to ask questions. [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 second 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 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 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 second 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.

Calvin McDonald

Analyst

Thank you, Howard. I'm glad you could all join us on the call today to discuss our business in quarter two and a revised outlook for the second-half of the year. On today's call, I will speak to the strength in our international business. I also will spend time discussing our business in the U.S., including some missed opportunities in women's, our assessment of the root causes. The plans underway to address these in the near-term and the many reasons for our continued optimism regarding our growth potential in the U.S. Next, I will speak to our recent brand campaigns and activations. Megan will review our financials and we will close by taking your questions. So let's get started. In the second quarter, total revenue increased 7% or 8% in constant currency. By merchandise category, women's increased 6%, men's grew 11%, and accessories increased 7%. Earnings per share increased 18% driven by strong gross margin, which contributed to 110 basis point increase in operating margin. In addition, demonstrating our continued confidence in the business, we repurchased $584 million of stock in quarter two, which brings us to $1.2 billion year-to-date. Let's now discuss our regional performance, beginning with our international business. In quarter two, we continued to see strength in our international markets as the Lululemon brand resonates with guests around the world. Growing our business outside of North America remains one of our largest opportunities, and we remain on track to quadruple international revenue from 2021 levels by the end of 2026. Momentum remains strong, with total international revenue increasing 29% or 31% in constant currency. By region, our results were as follows. China mainland increased 34% or 37% in constant currency. Rest of the World grew 24% or 27% in constant currency. In China mainland, our business remained…

Meghan Frank

Analyst

Thanks, Calvin. While revenue in Q2 remained strong in all of our international regions in Canada, the U.S. business was softer for the reasons Calvin just detailed. Earnings per share exceeded our expectations, driven predominantly by strong gross margin. Markdowns were flat versus the prior year and better than expected. And when looking at expenses, we continue to manage the business prudently while protecting key investments for the long term. Let me now share the details of Q2 performance. For Q2, total net revenue rose 7% to $2.4 billion and constant dollar comparable sales increased 3%. Within our regions, results were as follows: Americas revenue increased 1% or 2% in constant currency, comparable sales declined 2%; China Mainland revenue increased 34% or 37% in constant currency, with comparable sales increasing 23%; and in our Rest of World segment, revenue grew by 24% or 27% in constant currency, with comparable sales increasing by 20%. In our store channel, total sales increased 11%, and we ended the quarter with 721 stores globally. Square footage increased 14% versus last year, driven by the addition of 49 net new lululemon stores since Q2 of 2023. During the quarter, we opened 10 net new stores and completed 6 optimizations. In our digital channel, revenues increased 2% and contributed $900 million of top line or 38% of total revenue. And by category, men's revenue increased 11% versus last year and women's increased 6%, while accessories grew 7%. Gross profit for the second quarter was $1.4 billion or 59.6% of net revenue compared to 58.8% of net revenue in Q2 2023. The gross profit rate in Q2 increased 80 basis points, significantly better than our guidance and was driven primarily by the following: a 130 basis point increase in product margin, driven primarily by favorable IMU from…

Calvin McDonald

Analyst

Thanks, Meghan. lululemon remains a strong and healthy brand, and we have shown our ability to responsibly manage the business while seizing the many growth opportunities in front of us. We have a strong track record and we will continue to work to deliver for our shareholders, for our employees and for our guests. Challenges are a natural part of accelerated growth, and I feel confident about emerging stronger from this period as we innovate for and inspire our guests. In closing, I want to thank our leaders and our people for their passion and dedication to our brand and our business, both during this past quarter and with all bets ahead. Thank you for joining us today. We will now take your questions. Operator?

Operator

Operator

Thank you. [Operator Instructions] The first question comes from Matthew Boss with JPMorgan. Please go ahead.

Matthew Boss

Analyst

Great, thanks. And I appreciate all the color, Calvin. Maybe larger picture, what do you see as the revenue growth algorithm in North America once the dust settles, and I think you talked about color sizing, some near-term execution. And I think you cited all of this as more or less optimal on the women's side by the spring. So maybe what do you see as the right revenue growth algorithm in North America once the dust is settled? And then what guardrails have you put into place to drive greater consistency over time in the region?

Meghan Frank

Analyst

Matt. So in terms of how we view North America growth over time, we're still committed to our Power of Three x2 plan, which had North America low double-digit growth. What I would share where -- it's too soon to put a fine point on 2025. But what I would share is that we'll obviously be up against an easier comparison this year. And we still are excited about the long-term growth opportunity we have in that market, particularly in terms of U.S. in terms of brand awareness. So we have continue to protect investments that are aimed at building into that long-term opportunity.

Calvin McDonald

Analyst

Yes, Matt, in terms of the second part, the new product or organization definitely sets a new balance between, as I mentioned, design and merchandising, which is going to lead to more creative conversations and outcomes. And I've been in these meetings with the teams and already, we're seeing the benefit of the new working relationships. And definitely clarity around the ratio of newness tied to our product plans are a key part of that conversation and excited about the road map ahead to deliver on those. And the opportunities we see in product and delivering on our guest needs.

Matthew Boss

Analyst

Great. And then Meghan, maybe just a follow-up. If you could just speak to your comfort with inventory on hand today exiting the quarter. And maybe just touch on markdowns relative to plan in the second quarter or any change for the back half?

Meghan Frank

Analyst

So in terms of inventory, we came in with inventory down 14%. It was in line with expectations. And just a reminder, we're lapping some increases the last couple of years in terms of inventory, with turns still slightly slower than history. As we move into the second half of the year, we do expect inventory to be in the mid-teens at the end of Q3 and a similar growth rate, slightly higher as we end the year. I would say in terms of comfort with inventory, pleased with where we came in, in line with expectations. The opportunity would be in composition and that mixture that Calvin described in terms of newness, which the team is adjusting now. And then in terms of markdowns, we did come in favorable relative to our expectations in Q2. So we did expect to see markdowns similar -- slightly below what we saw in Q1. We were up 50 basis points year-over-year in Q1. We expected slightly lower in Q2. We did come in flat year-over-year. And that was really driven by strong sell-throughs on seasonal, which is where we really take markdowns just to clear seasonal goods. When we look at the second half of the year, Q3 markdowns, I'd expect relatively in line with last year and then Q4 slightly under last year, and we're still expecting flat markdowns for the full year.

Matthew Boss

Analyst

Great color. Best of luck.

Meghan Frank

Analyst

Thank you.

Operator

Operator

The next question comes from Alex Straton with Morgan Stanley. Please go ahead.

Alex Straton

Analyst · Morgan Stanley. Please go ahead.

Perfect. Thanks a lot for taking the question. Just on the revised full year guidance and where it's coming out of, it feels like that's mostly concentrated in the fourth quarter. Is that right? Or did your view on the third quarter change as well? And if you could just walk us through the puts and takes for looks like almost a $0.50 reduction, that would be very helpful. Thanks a lot.

Meghan Frank

Analyst · Morgan Stanley. Please go ahead.

Thanks, Alex. I would say the -- our view on the relationship between Q3 and Q4 have not changed. I would say we are guiding the second half in line essentially with the trend we're seeing in Q2. Q4 is adjusted for the shorter holiday selling period and days between Thanksgiving and Christmas, which we estimate at about a three point impact as well as the macroeconomic environment and the election in Q4. So the relationship with the two quarters has not changed, but we have lowered our outlook on the aggregate water line for the second half.

Alex Straton

Analyst · Morgan Stanley. Please go ahead.

Got it. Maybe just one for Calvin. How much do you attribute sort of the revenue shortcoming in the quarter versus your expectation to like your own mistakes versus the macro, there's been a lot of discussion of kind of a weakening consumer. So just curious your thoughts on that.

Calvin McDonald

Analyst · Morgan Stanley. Please go ahead.

I definitely see this as an opportunity based on decisions that we made that are within our control and being addressed. As I alluded to, it's across the globe that really is focused to our U.S. women's business and the gap in newness that we brought across color, print and silhouettes. The newness we had sold very well. Guest was coming in traffic was positive across all channels and the opportunity was in conversion. So I see that as an opportunity that they were there with intent to spend, and there was a noticeable reduction in those historical levels of newness. So those were the product decisions that we made earlier and the new teams in action. And as I alluded to the chase, but definitely, I think majority is within our control.

Alex Straton

Analyst · Morgan Stanley. Please go ahead.

Thanks a lot. Good luck.

Meghan Frank

Analyst · Morgan Stanley. Please go ahead.

Thank you.

Operator

Operator

The next question comes from Paul Lejuez with Citi. Please go ahead.

Paul Lejuez

Analyst · Citi. Please go ahead.

Hey guys. Thanks. Can you talk about how the quarter progressed as you move through by region? What the exit rates were? Any comments on quarter-to-date, and are there any pockets of higher inventory. Just curious how you handle the whole Breathe Through, where the product goes, any financial impact on the back half? Thanks.

Meghan Frank

Analyst · Citi. Please go ahead.

Thanks, Paul. So in terms of Q2, our May trend relatively in line with what we experienced in Q1 and then a softer business performance in June and July, with July being slightly above June. We haven't given any color by region within that. But I would say in terms of quarter-to-date, we don't break down quarter-to-date performance by month. But -- and given what we experienced in Q2, the macroeconomic uncertainty in the second half of the year, we feel our guide at 6% to 7% as appropriate at this time. And then in terms of inventory, again, comfortable with the overall level, and Breathe Through, really negligible impact, a small test and learn and not a material financial impact.

Paul Lejuez

Analyst · Citi. Please go ahead.

Thanks, good luck.

Operator

Operator

The next question comes from Michael Binetti with Evercore. Please go ahead.

Michael Binetti

Analyst · Evercore. Please go ahead.

Hey guys, thanks for taking our questions here. I guess maybe one for each, Meghan, can you just walk us through how the mechanics of the P&L work? I know you do a lot of scenario planning that you could keep the EBIT margins for the total company positive while we have this slower near-term run rate in the U.S. And then, Calvin, just some of the comments you made earlier, example -- I'm wondering if you could give us an example of how design and merchandising teams are previously not on that equal footing that you think they are on now and how that impacted the strategy in the consumer's eyes. Maybe just some of what prompted you to make some of the changes in the org chart that you did?

Meghan Frank

Analyst · Evercore. Please go ahead.

So in terms of P&L management, we're obviously closely monitoring business. We do run multiple scenarios. Our intention is to stay agile based on the way business is unfolding. As we're looking at this year and our revenue outlook, we are continuing to invest behind international performance, key to our long-term strategy in an area of our business that's currently performing well. And then as I mentioned, we also do see long-term opportunity. Our outlook has not changed on long-term opportunity in terms of brand awareness globally, but also within North America. So we've continued to protect investments in that long-term brand building. At the same time, we're looking for efficiency opportunities across the P&L and discretionary spend buckets, as well as slowing down where that makes sense in terms of our capabilities, road mapping go forward, all in line with our Power of Three times Two plan. So feel like we're well positioned as we navigate this year with the right balance of navigating the short term while protecting investments in our long-term.

Calvin McDonald

Analyst · Evercore. Please go ahead.

And Michael, in terms of your question, as you know, the previous structure, both design and merchandising rolled up to a single leader. And that product organization had served us well as a high-growth company. We have a 24% CAGR over the last five years, from '18 to '23 to $10 billion in revenue. But as we look forward, we saw it as an opportunity to reset and take a different approach. And what the new org does by having a stronger balance between design and merch, which will lead to more creative conversations and outcomes and in those conversations and the meetings I will have. So where am I seeing the difference in balance? You will see it executed in creation of some product, challenging of the ratio between newness and core in the assortment and just the relationship between those two teams in terms of what's being created and how we're mixing it into the assortment and then bringing to market. So also with this change, we're seeing a much tighter relationship in the brand/marketing organization with merchandising, which is really the whole sell side of the business being under one leader where before it was a hand off. Those conversations are happening much sooner and aligned in terms of where we see the opportunity, aligning it to what we're buying deep into and then creating plans for that demand creation earlier in the process. So I think there's really 3 benefits that are coming out of it on the brand to merchandising sell side as well as design and seeing it in terms of just the creation of product and that ratio mix across the assortment that the guest has been looking for and excited to bring.

Michael Binetti

Analyst · Evercore. Please go ahead.

Okay. Thanks a lot for all the information. I appreciate guys.

Meghan Frank

Analyst · Evercore. Please go ahead.

Thank you.

Operator

Operator

The next question comes from Janine Stichter with BTIG. Please go ahead.

Janine Stichter

Analyst · BTIG. Please go ahead.

Hi, thank you for taking my questions. A couple of questions on the product innovation for the back half. I guess first on Breathe Through, it seems to us that the consumer really likes the fabric. They just weren't in love with the fit. What's the time line for getting that back with some new fits and silhouettes? And then any parameters you can help provide around some of these new launches coming in the back half. It seems like the launch in training, it seems like that will be pretty big. Just how to think about that in terms of the size and potential impact?

Calvin McDonald

Analyst · BTIG. Please go ahead.

Thanks, Janine. In terms of Breathe Through and the fabric, you're right. We're really excited about the guest response, not just in North America, but actually internationally, in particular, in our APAC market, where this fabric was really designed, as I shared, for hot yoga, but we see it as versatility in high humid environment for a variety of activities. So it is a very unique, exciting new fabric for us and the teams in work to bring it back in either a style that the guest already knows with the new fabric versus the sharper design lines that it was introduced in. So we got the read we wanted in that the fabric, which is the real innovation behind it, landed and resonated very well. And they're working on being able to bring that back to market. You won't see it in '24 and not calling it for '25, but know that that's a prior to the team, but they're equally looking on all the other innovation and creating as well. So you alluded to a lot is happening within our training category. We have the Wunder Under, which is a known silhouette style that we're bringing with some new fabrics that we're excited about. We do have a new performance trained legging coming at the end of the year, which equally is innovative, and we'll get a read on it. But as I shared, we introduced these. We adjust. It is a new innovation in fabric. We're very excited about it, and we'll get the guests' read, but we'll introduce that. And then we have some seasonal updates, which is a big part of the newness, which has been missing in the first half, is newness on our core styles that the guests resonate so much with. And we're seeing a lot of seasonal updates to our number one franchise being in line. So there's a lot of newness coming in as well as innovation on top of some known silhouettes and franchises that we're excited about.

Janine Stichter

Analyst · BTIG. Please go ahead.

Thanks for the color. And best of luck.

Operator

Operator

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

Lorraine Hutchinson

Analyst · Bank of America. Please go ahead.

Thanks, good afternoon. I know you said that it won't be until spring 2025 to get back to the historic levels of newness. But can you ramp that at all in the second half by accelerating orders? And does the guidance include any benefit from accelerating newness in the women's assortment in the coming quarters?

Calvin McDonald

Analyst · Bank of America. Please go ahead.

In terms of the action plan that we put in place and the teams have been working on that as I alluded to, I think coming out of Q1, we saw some opportunity. The learning in Q2 was the missed opportunity in silhouettes, which was new news for us as we continue to analyze the business. And the teams through that action plan of chase has been pulling forward and going into deeper on inventory that had been purchased that we're seeing the guests respond well to as well as fast tracking some designs. The chasing into will sequentially get stronger, and we will see that improve through Q3 into Q4. As I alluded to, I think spring '25, we know we'll be at our historical levels of newness as a mix of assortment and it will sequentially get better through the back half of this year, and I'll let Meghan speak in terms of the tie to guidance.

Meghan Frank

Analyst · Bank of America. Please go ahead.

So in terms of guidance, we did guide the second half in line with Q2 when adjusting for that shorter holiday selling period. So I would say we don't have any meaningful impact from newness in the second half of the year.

Lorraine Hutchinson

Analyst · Bank of America. Please go ahead.

Thank you.

Operator

Operator

The next question comes from Dana Telsey with Telsey Group. Please go ahead.

Dana Telsey

Analyst · Telsey Group. Please go ahead.

Hi, as you think about your inventory positioning for the back half of the year, how do you break apart the third quarter and the fourth quarter? And with the Breathe Through, which was a small launch that you talked about, Calvin, is there any markdowns or any resets on the inventory numbers or gross margin impact of taking that down and eliminating it? Thank you.

Meghan Frank

Analyst · Telsey Group. Please go ahead.

Thanks, Dana. So in terms of inventory in Q3, we're expecting a mid-teens increase in Q4 at or slightly above that level and feel well positioned as we move into the second half of the year. As Calvin mentioned, we will be ramping newness as we move throughout that second half period and be back at historical levels by spring 2025. In terms of Breathe Through, is a very small test and learn. So an immaterial negligible impact on both Q2 and then our guidance for the balance of the year. So nothing notable there.

Operator

Operator

The next question comes from Brooke Roach with Goldman Sachs. Please go ahead.

Brooke Roach

Analyst · Goldman Sachs. Please go ahead.

Good afternoon. And thank you for taking our question. Calvin, I was hoping you could speak to the trends that you saw in your U.S. women's business by demographic or consumer type. Has the change in conversion that you've seen year-to-date over indexed to any one age group or household income? And as you look to increase the level of newness over the next few quarters, do you see any specific opportunities to adapt your marketing and membership organization to better serve customers by demographic?

Calvin McDonald

Analyst · Goldman Sachs. Please go ahead.

Thanks, Brooke. In terms of the guest profile, nothing meaningful in that we continue to grow our new guest base and continue to do it across the age demographics that we have been growing. What we did see in the conversion missed opportunity, a lot was with our existing guests across those age demographics where the guest who knows our brand, who's come in and was looking for that newness to add to their already owned collection of lululemon and the gap in newness on color of those core items, on pattern and trim, newness to those core items or to some of the new silhouettes that we just add and introduced around to style around those core, those gaps is where we saw that missed opportunity. So she's still spending, visiting we just missed the opportunity in that full conversion from what we've seen and directly linked to decisions we made and missed in that newness and opportunity, but still growing on the gas base, still growing across the age demographic and as I alluded to an opportunity. Going forward, from a marketing perspective, because we still see very good engagement, low unaided awareness. We're definitely marketing and continue to go after that. And as the product mix gets stronger in our women's as a percentage of newness, we know that conversion is what we'll be looking at and engaging that guest in terms of their spend. But I alluded to the current men's campaign or lounge campaign, really, it's for both him and her. We're very pleased with the early results. It starts to really increase in terms of exposure in through September. But early indication, particular in men's where we have those new franchises of soft jersey, smooth cover, steady state. He's responding very well to it. So we're going to continue to drive top-of-funnel drive an unaided brand awareness. And we know that the strength of bringing in the newness will be the biggest lever for us, and we'll continue to increase that throughout the back half of this year and into next.

Brooke Roach

Analyst · Goldman Sachs. Please go ahead.

Okay. Thanks so much. I will pass it on.

Operator

Operator

The next question comes from Mark Altschwager with Baird. Please go ahead.

Mark Altschwager

Analyst · Baird. Please go ahead.

Good afternoon. Thank you for taking my question. I was hoping if you could provide a bit more perspective on China. Clearly, some -- still very strong growth rates there. But I think about a 10-point comp slowdown against an easier comparison. How should we think about sustainable comp growth rates there? I think others have talked about some more macro consumer pressure because you're feeling that as well. Any color on what's going on in stores and digital, maybe just more broadly, how you're planning comp growth by region for the remainder of the year? Thank you.

Meghan Frank

Analyst · Baird. Please go ahead.

Thanks, Mark. So we did still see very strong growth in China in Q2, so up 37% on a constant currency basis. The variance between Q1 and Q2 growth rates, the biggest factor would have been the shift in Chinese New Year. So we had that in Q1 2024. In 2022, it was in Q4, so it's not comparable. So really healthy growth there across both channels. And we haven't broken out our forward-looking guide by region, but I would say still outsized growth in international and China being the key driver there.

Calvin McDonald

Analyst · Baird. Please go ahead.

And I'll just add, we remain excited about the potential for lululemon in Mainland China. While we're keeping an eye on the macro environment in the region, our business remains strong. And we believe several factors will continue to benefit us. One, it is still a small size relative to the market with a store base of 132 on the Mainland at the end of the quarter. We take a very localized approach to the brand, building relationships through local fitness instructors, influencers, some very unique events that are building awareness in the community on the back of our unique positioning, grounded in wellness and the positioning of the product. So we're monitoring it, have not seen any material impact to the business. And I do believe it's because we're very early in our growth there and see a lot of continuous success across the Tier 1, Tier 2 and Tier 3 cities where we've been opening, testing and seeing very good response.

Mark Altschwager

Analyst · Baird. Please go ahead.

Thank you.

Operator

Operator

The next question comes from Rick Patel with Raymond James. Please go ahead.

Rick Patel

Analyst · Raymond James. Please go ahead.

Thank you. Good afternoon. A question on the performance of core products. You called out a lack of inventory for certain styles and sizes entering the year, did the same headwinds intensify in the second quarter or did you see new headwinds related to other products? Just some clarity there would be great. And then secondly, you're seeing -- still seeing good growth for accessories. How should we think about the outlook there?

Calvin McDonald

Analyst · Raymond James. Please go ahead.

Thanks, Rick. In terms of the shift from Q1 to Q2 and learning, color, print and pattern continues to be an opportunity for us. And we think of those through a couple of ways in which we execute it. One is core styles and adding it through updates through color, print, silhouettes, fabric extensions. That has been a great driver for us to keep our guests engaged and keep adding to the lululemon products for them as well as seasonal new silhouettes and styles. And I would say the shift from Q1 to Q2 is -- the gap in that as a percentage historically was greater in Q2 than in Q1 and was really the notable difference between the two quarters. Sorry, Rick. And on accessories, I think we've chatted about this before, Everywhere Belt Bag was a very strong driver for us in the last few years. And we've cycled over some of the peaks of that volume, but it continues to be a big driver. And as you mentioned, overall accessories in the quarter grew 7%, and the team continues to introduce new styles, both within the Everywhere Belt Bag franchise but new styles from our backpack collection to some travel bags to totes to the cactus leather introduction this week that the guests responded very well too. So we continue to be very excited about our accessories business. It's small percentage of our overall mix at 10, but definitely a significant opportunity. We're about 1% of market share, and we see opportunity to continue to grow that meaningfully moving forward. And the team is doing it through creating very innovative products and the guests continue to respond very well to it in North America as well as globally. So excited about the product creation and what's coming.

Rick Patel

Analyst · Raymond James. Please go ahead.

Great. Thank you.

Howard Tubin

Analyst · Raymond James. Please go ahead.

Operator, we'll take one more question.

Operator

Operator

The last question comes from John Kernan with TD Cowen. Please go ahead.

John Kernan

Analyst

Good afternoon. Thanks for taking the questions. Meghan, I think a big fear of price into the valuation of the company right now is the gross margin rate has peaked and your SG&A rate may need to move higher. How would you address those fears given the competitive environment in the category right now?

Meghan Frank

Analyst

Yes, so I think we continue to see strength in both gross margin and SG&A. This year with our revenue growth guide at 8% to 9% and then 6% to 7%, excluding the 53rd week, we're still delivering gross margin relatively in line with 2023 and as well as approximately flat SG&A. Our operating margin still very strong, 100 basis points above our 2020 results after two years. So we're really focused on driving into that bottom line and optimizing the bottom line. We're still committed to our Power of Three times Two plan for modest operating margin expansion over the five-year period. I think too soon to put a fine point on the outer years, but certainly have runway in front of us in terms of, most importantly, revenue, but also looking at growth and efficiencies across our P&L, and we'll continue to keep you updated.

John Kernan

Analyst

Understood. And then Calvin, maybe a follow-up for you. Has your core customer and women's changed over the years? It seems like it's a more diverse cohort. Are they more challenging to plan and allocate for in terms of sizing and color and what are you learning surrounding some of the new customers you've acquired?

Calvin McDonald

Analyst

Yes, we continue to acquire across all of our -- if you want to slice it through age demographic, I think I've mentioned in the past across different age demographics, we continue to acquire new guests across all of them. Alluded to the shift in our sizing profile earlier. I think the team is doing a good job in adjusting to that. We saw improvements through Q2 and really are entering Q3 with a better mix of sizing across our profile. We're going to continue to adjust. But I wouldn't say there's any macro shift that we're behind on now, and we continue to recruit and acquire guests across that, which means really across the age and the size profile.

John Kernan

Analyst

Understood. Thank you.

Operator

Operator

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