Thank you for standing by. This is the conference operator. Welcome to the Lululemon Athletica Inc.’s Fourth Quarter and Full Year 2024 Financial Results Conference Call. As a reminder, all participants are in a listen-only mode, and the conference is being recorded. After the presentation, there'll 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.

Thank you, and good afternoon. Welcome to Lululemon's fourth quarter earnings call. Joining me 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 annual report on Form 10-K and in today's earnings press release. In addition, the comparable sales metrics given on today's call are on a constant dollar basis. Press release and accompanying annual report on Form 10-K 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 fourth quarter as well as our quarterly infographic. Today's call is scheduled for 1 hour, so please limit yourself to one question at a time to give others the opportunity to have their questions addressed. And now, I'd like to turn the call over to Calvin.

Thank you, Howard. I'd like to welcome everyone to our fourth quarter call. I'm pleased to be here to discuss our results, which contributed to another year of growth at lululemon, and also speak to our outlook for 2025. On today's call, I'll start with our performance in quarter four, which exceeded the revised guidance we provided in January, and I'll also share some key highlights on our annual performance. Next, I'll provide insights into our product innovation and the strength of our pipeline. I'll then detail our strategies to raise our brand awareness, which remains a significant opportunity for us globally. Meghan will then review our financials and provide our guidance for the first quarter and full year of 2025, then we'll take your questions. So let's get started. In quarter four, total revenue excluding the 53rd week, increased 8% or 9% on a constant currency basis. Operating margin increased 40 basis points to 28.9% and earnings per share increased 16%. In addition, in quarter four, we repurchased $332 million of stock, which brings our total repurchases in 2024 to $1.6 billion, which demonstrates our confidence in the long-term prospects for lululemon. Shifting now to our full year 2024 results. Total revenue was $10.6 billion and excluding week 53, increased by 8% or 9% in constant currency. Adjusted operating margin increased 50 basis points to 23.7% and adjusted earnings per share increased 15%. Since 2021, which is the base year of our current Power of Three x2 five year plan, we have grown revenue at a 19% CAGR, increased adjusted operating margin by 170 basis points, and grew adjusted EPS at a CAGR of 23%. This puts us ahead of our targets for all these key metrics as we enter the fourth year of our plan. I want to…

Thanks, Calvin. We delivered Q4 results that exceeded our January guidance update as we saw strength across the key components of the P&L, including sales, gross margin, and SG&A. These results contributed to another year of solid performance while acknowledging product opportunities we've discussed in our U.S. business. Key highlights in 2024 include revenue growth of 9%, excluding the 53rd week and in constant dollars, adjusted operating margin expansion of 50 basis points, and adjusted earnings per share growth of 15%. I'm proud we were able to deliver these strong results while continuing to invest in our strategic initiatives, including building brand awareness through our activations and brand campaigns, growing square footage 14%, and returning $1.6 billion to shareholders through share repurchases. Looking at 2025, we are pleased with both the level and composition of our inventory as we enter the spring season, and we are seeing good guest response to newness and innovation we brought into our assortment. However, we also acknowledge the uncertainty in the retail environment as the consumer is navigating a dynamic macro environment. While we expect both top and bottom line growth for the year, we continue to be thoughtful in our planning. I'll take you through our guidance in a moment, but let me now share the financial details of Q4. For Q4, total net revenue rose 13% or 14% in constant currency to $3.6 billion. Excluding the 53rd week, net revenue increased 8% or 9% in constant currency, and constant dollar comparable sales increased 4%. Within our regions, excluding the 53rd week, results were as follows: Americas revenue increased 2% or 3% in constant currency with comparable sales flat. By country, revenue increased 11% in constant currency in Canada and increased 1% in the U.S. China Mainland revenue increased 38% or 39% in…

Thank you for your time today. I am pleased with how we closed out 2024, delivering results that demonstrate our leadership, agility, and potential for growth. And I am proud of how we have started the year with new product innovations, collaborations, and a steady drumbeat of brand and community activations around the world. This energy will propel us forward as we navigate the current economic and political uncertainty, especially in the U.S. We will control what we can control, we will focus on continuing to deliver the high level of newness and product innovations our guest expects from lululemon. I continue to feel confident in our Power of Three x2 strategy and our people who will continue to excite and engage with our guests and drive us forward in 2025 and beyond. We'll now take your questions. Operator?

Thank you. We'll now begin the question-and-answer session. [Operator Instructions] Our first question is from Alex Straton with Morgan Stanley. Please go ahead.

Perfect. Thanks so much and congrats on a great quarter. I just wanted to focus, Calvin, on the modest U.S. revenue growth you're expecting for the year. Can you just elaborate a little bit around how you define modest, and should that be consistent throughout the year or any difference in cadence by quarter? And then just how you really arrive at that as the right level from here? Thanks a lot.

Thanks, Alex. I'll take the first and then I'll pass it over to Meghan to go specifically into breaking down the growth number for you. But as I sort of shared in Q4, consistent with what we saw throughout the year, our guests responded well to the newness that we offered through our assortment, and our business continued to sequentially get stronger on the back of that newness. And as we transitioned into Q1, our newness is back to being on par where it's been in the past as we indicated we would be and the guest has responded very well to a number of new product launches that I'm excited about can continue to build into future franchises from Glow Up, Daydrift, Be Calm, Shake It Out, as well as what lies ahead in our pipeline, which is very strong. And I shared just a few of those with you with the 10th year anniversary for a line coming up building on the Palazzo pant that she has responded incredibly well to as well as offering a no front seam legging, which we know our guests have been asking and to offer that within the Align franchise as an opportunity to celebrate the 10th anniversary. We're excited about that as a means for our high-value guests as well as new guests to acquire and bring in. That being said, we are operating within a dynamic macro environment that's really contributed to a cautious consumer, where we've seen material impact to traffic across the industry. While we've experienced some of these traffic trends, the guest who is visiting has responded very well to our newness in innovation. When we look at UPT, average order size, both of these are positive. So the guests coming in are responding to the newness. They're buying more, and it's having an impact. So those are very good indicators. And as we continue to flow the positive newness that we see throughout the year. As well as the activations, I want to touch on North America, in particular, in the U.S., we've started the year with a fantastic rhythm and cadence of very unique community-based activations. So overall, there's a very good energy across the teams in the business, and the guests are responding very well to product and we're controlling and focused on what we can control. And I think we're well-positioned as these macro challenges soften moving forward. But I'll allow Meghan to just sort of put a little bit of color to the numbers as well.

Great. Hi, Alex. So in terms of the U.S., we are offering color on North America growing in the low-single-digit to mid-single-digit range for the full year, the U.S. on the lower end of that, and Canada higher. And we're not breaking down the quarters. But what I would share is in terms of Q1, it's not trending materially differently than Q4. As Calvin mentioned, we did come into the quarter and saw a decline in traffic -- macro traffic that's impacting us as well. And we're also seeing some really positive performance in terms of newness, which we believe positions us well as that traffic environment improves. I will also note that the decline was more pronounced last year in the U.S. in Q2. So we're up against our largest growth rate in '24 in Q1.

Thanks so much. Good luck.

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

Good afternoon, and thank you for taking my question. Calvin, I was hoping you could elaborate on your marketing strategy from here. Are you seeing the response that you're hoping to get as you build into some of these additional customer acquisition vehicles, such as Membership Madness Week? And then can you speak to what that's driving in terms of consumer acquisition and retention, specifically in the U.S.? Thank you.

Thanks, Brooke. Overall, how we've started this year in the energy and really focusing in on and activating larger activations, community-based events, I'm very encouraged with the results that we're seeing. A lot of those are geared to both acquire new guests as well as drive loyalty and help in our retention and love for the brand with our high-value guests. Across all of the ones that we've started and I shared a few of those, the fun activations, celebrating our ambassadors, be it where they compete around the world in Melbourne, in the waste management, Gulf, Indian Wells as a means to activate and then some of the other activations we've done ourselves into the integrated marketing on the back of Glow Up, in the Glow Up Studio in New York. We had thousands of guests register for Membership Madness. We have over 15,000 guests that have signed up for community-based sweat activations with our partners around North America, heavily in the U.S. We have waiting lists of over 1,000 for some of these activations in our communities. These are incredibly strong, rich engagement numbers. And we see through those equally a number of new guests. And that to me is one of the very unique aspects of our brand, when I talk about our moat and what makes us unique. The ability to activate a campaign integrated across our community, our ambassadors and bring to life is something we definitely see great value in, plan to do even more of this year than last year. And I think you're just getting a flavor for what that looks like. If you think of the first eight weeks of this year to start and the pace of those activations, and the -- as I said, the engagement has been very strong. And then obviously, socially as well, the -- both earned media as well as the halo we get from those. And that leads to getting into that I need a brand awareness. So you're going to see more of that. We think it's a unique approach, and we do it very strongly across our communities and allows for our stores, our ambassadors to be involved. It's unique and it's having an impact on both retention and acquisition. So I'm very pleased with how we've started this year. I think the energy and the cadence is very strong, stronger than we've done in I think, a number of years, and really feels that we're on the offense in this market, and guests are responding well, and the newness they're responding well to. And as Meghan said, we're focused on what we control and set up well for the rest of the year as the macro challenges soften, and if they do.

Great. And then for Meghan, can you elaborate on the plans that you have embedded in your guidance for tariffs this year? If tariffs were to widen to a broader set of geographies, what are your mitigation strategies right now? And what is the quantification of the current tariff impact under the -- under what you're seeing today?

Yeah. Absolutely. So in terms of tariffs, we've got approximately 20 basis points of a headwind embedded in our guidance, which is reflective of current actions on China and Mexico imports. Closely monitoring the environment. We'll continue to look across our cost structure as well as to pricing, should the environment change. So definitely keeping a close eye on that.

Thanks so much.

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

Hi. Calvin, as you think about the effectiveness of the marketing and what you're seeing globally? I saw the new store in Tokyo, obviously London also. How are you planning for international go forward? And how do you think of the activations there? And then, Meghan, on the margins, the cadence of margins as we go through 2025, are there any puts and takes of what we should be mindful of? And just lastly, for the first-quarter sales growth guidance, are you currently within those rates now? Thank you.

Thanks, Dana. I'll take the first part. The activations that you -- that I've referred to in the U.S. is absolutely our go to strategy -- a go-to-market strategy around the globe. And we customize it based on the maturity of the market. Obviously, in the U.S., we have an opportunity to amplify deeper -- with bigger activations in communities in newer markets. We leverage and tap into the store base more and then build the momentum of the size and activate. But the general formula of leveraging local market communities, stores, educators, ambassadors, and there are a number, as you know, around the globe from sweat games in Mainland China to what we did with World Mental Health Day in many markets that were shared, how we're activating around these global competitive events that our ambassadors compete in. We just did a few Formula 1 races in both Shanghai and Australia with Lewis Hamilton being one of our latest ambassadors. Plan to do that across a lot of our activities. So that is absolutely one of our unique go-to-market strategies that I think we do better than most. And stores play a big part of that and how we activate those. And we're early in our optimization strategies and plans. If you look back over the last year, but even just last few quarters, we've optimized a store in Melbourne, 11,000 square feet, and it's performing incredibly well. You mentioned the store in Tokyo. We have exciting plans planned for Tokyo. See, Japan is a big growth market for us. We have an exciting plan and opportunity in South Korea and Regent Street that just opened, that's performing very well with an incredible activation, both on the back of Saul Nash and Fashion Week as well as the activations the store teams did. So that is a big part of how we go and activate and you're going to see more of that as well as these optimizations that continue to perform well and both acquire a local guest as well as welcome a global tourist guest into the brand that we acquire as well as they travel wanting to come in and see the brand and the products. So excited about the momentum in both internationally as well as in North America.

Great. And I'll take the margin piece. So in terms of op margin, we are guiding to a 100 basis points decline for the year. At the highest level, I just call out FX and tariff headwinds are a little bit over 50% of that decline in op margin. Then we've got some investments in the business to add back some of the expense areas we pulled out in '24. So I would view those three buckets as incremental headwinds unique to this year. And then we also are continued to invest into our Power of Three x2 roadmap with our confidence on the long-term. And in terms of quarters, we've got a little bit more pressure as we called out in terms of Q1. It's also related to Q1 being our highest revenue growth rate in '24. So we've got 120 basis points decline in op margin there. Pretty similar story in terms of SG&A, so 120 basis points deleverage in Q1 and then 40 basis points to 50 basis points for the year. So I think that's the color I'd offer there. And then you also had a question, Dana, on quarter-to-date trends. We're not breaking out specifics on quarter-to-date trend but I would share we're about 50% through the quarter and looking at current trend of business and mindful of the environment, we did guide to 6% to 7% growth for the quarter with one point also of an FX headwind embedded in that.

Thank you.

[Operator Instructions] The next question is from Lorraine Hutchinson with Bank of America. Please go ahead.

Thank you. Good afternoon. Have you included any improvement from the choppy first quarter traffic performance in North America in the full year guidance? And are there ways to be more aggressive on some of these marketing activations to drive stronger traffic as we move through the year?

Hi, Lorraine. I would say our balance of year outlook reflects similar trends to Q1 at this point in time. I'll let Calvin chime in on marketing.

Yeah. And I think the -- we're always testing and learning and looking for ways to continue to invest within the parameters of our guidance to add to marketing. And I think I'm very pleased with the current response from our guests. Excited about the campaigns coming. As I mentioned, the Align 10th year anniversary will be a large activation around the globe, supported with a lot of product -- new product and ways that I think will engage both with new guests as well as our high-value guests and reasons to update their Align wardrobe. So we always look for ways to keep leaning in and investing. And as I mentioned, the cadence and rhythm to start this year has been definitely on the offense, and I'm pleased with the results and those results around the globe and we're going to continue to be on offense and support the product and the pipeline of newness that's coming and with our guests.

Thank you.

The next question is from Matthew Boss with J.P. Morgan. Please go ahead.

Great. Thanks. So, Calvin, could you elaborate on sales metrics in the U.S. as you've introduced recent newness? Just your confidence in this year's product pipeline, with first quarter-to-date sales trends unchanged relative to the fourth quarter, despite the softening macro that I know you cited. And then, Meghan, just your comfort with content and composition of inventory today, and what have you been -- what have you embedded for markdowns in the gross margin guide?

Hey, Matt. So in terms of sales in the U.S., so we did come into the quarter and saw a negative traffic trend industry-wide, which is impacting us. Similar conversion, I'd say, to what we experienced in Q4, and then we've seen an improvement in AOV and specifically UPTs, really a reaction to the newness in our assortment. And again, feel that positions us well for when traffic rebounds. So Q1 trends for the U.S. not materially different than Q4. And then in terms of inventory, I'm pleased with the level and composition of the inventory. We offered some color on high-teens growth, and it's really related to just the cadence of our inventory as we move through this year, being in a good in-stock position in core, bringing in newness, and we also are expecting flat markdowns for both Q1 and the full-year at this point in time.

Great color. Best of luck.

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

Hi. Thanks for taking my question. Question for Meghan. I was hoping you could just elaborate a bit on your SG&A philosophy. With the guidance you gave for deleverage of 40 basis points to 50 basis points this year, if we see better sales, would we expect it to still be in that range or would you put more into SG&A or on the flip side, if we have sales come in weaker, maybe just elaborate on some of the areas where you might have some flex? Thank you.

Yes. Thank you. So as I mentioned, we do have a headwind in FX for the year and in terms of how that impacts SG&A, it's about half of the 40 basis points FX headwind, so 20 basis points impacting SG&A. And then also, as I mentioned, we are still investing behind our Power of Three x2 roadmap. So, continuing to support our international strategy, our store expansion strategy across the globe, marketing and brand, as Calvin mentioned, and going after that unaided brand awareness piece. And then another one I'd mentioned was just tech in terms of foundational investments in data analytics. I think it will depend on the environment and the business dynamics in terms of where SG&A moves with either increasing or decreasing sales. We always have contingencies across the business, both on the upside and downside and will depend on the momentum we're seeing in the business and the current environment in terms of how we approach that.

Great. Thanks so much.

Thank you.

The next question is from Aneesha Sherman with Bernstein. Please go ahead.

Thank you so much. So Meghan, talking about the Americas versus international growth, you talked about a kind of low-to mid-single-digit outlook for the Americas. That would put international growth quite a bit lower than what you did in 2024. Can you give some color around where you may be seeing a slowdown internationally? Are there particular markets, and what gives you -- what your assumption is coming from? And then a quick follow-up on your levels of investments. You talked about foundational investments, strategic investments, marketing. Can you talk about how flexible the cost base is to the downside in the event of a tougher macro scenario? What would margin progression look like? Thank you.

Yeah. So in terms of revenue by geography, as I said, we're offering color on Americas low-single digit to mid-single digit for the year and China 25% to 30%, Rest of World approximately 20%. So we're being thoughtful in our planning, looking at current trends of the business and the forward outlook in terms of the environment. So a little bit below what's embedded in our five-year CAGR, but we remain ahead of schedule and really pleased and committed to that long-term target there. And then in terms of flex across the P&L, as I just mentioned, we do have a number of contingency levers dependent on business outlook. At this point in time, I would say we remain really focused on the long-term and driving into our long-term opportunity while navigating some near-term headwinds, particularly with FX and tariffs.

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

Hey, guys. Thanks for taking our question here. So, Meghan, you started the year guiding gross margin flat and finished up 65 basis points. In the U.S., slowed from where you thought it was going to be in the year. Can you just help -- I know you offered some comments on 4Q, but when you look at the year in total, what went different than you thought earlier in the year? And I'm curious where, as you look at 2025, do those occupant conservatism still exist, or where do you see conservatism in the guidance for the year, both in gross margin again as well as in sales and SG&A?

Yeah. Thanks, Michael. So I would say in terms of what played out differently, top-line, I think we saw a little bit of an outperformance as we moved to close out the year, which would provide a little bit of leverage in terms of gross margin. We also mixed a little bit differently by category and saw an IMU benefit from that, as well as some reduced freight rates impacting our gross margin in '24. So believe we're well-positioned in our guidance in terms of '25. The mix of business could come out different there as well as the top-line outlook could impact our leverage point. But I would say at this point in time, our current view on mix of business and revenue outlook is embedded in our guidance color.

Thank you.

The next question is from John Kernan with TD Cowen. Please go ahead.

Good afternoon. Thanks for taking my questions. Meghan, it looks like marketing went up to about 5% of sales this year. It's still below some of your bigger peers. I think it's up about 50 basis points year-over-year. How do you think about marketing within fiscal '25 and also long-term? Is this something, given all the activations that Calvin talked to earlier, that you could flex up to drive faster sales in the Americas?

Yeah. So marketing was an area where we navigated last year and some of the challenges we had with newness and looked across our P&L investments, we maintained our investment in marketing, and we did see our penetration of sales tick up a little bit to that 5% range. That's what we're expecting as we move into '25. It is definitely an area we were closely monitoring. We've got a lot of excitement in terms of product newness and marketing activations as we move throughout this year. So dependent on business trend, it's an area we would look to flex if that's appropriate.

Got it. Thank you.

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

Hey. Thanks, guys. On the traffic slowdown, I think you specifically mentioned the U.S., but can you talk about what you saw in the other regions, including Canada, including China, international, or Rest of World? And anything within the U.S. that you could call out regionally. Obviously, there's been some unfavorable weather in the first quarter. Curious if you're seeing any impact from that. Thanks.

Yeah. So in terms of traffic, I would say the notable trend we saw was that shift in the U.S., nothing materially different in terms of either Canada or the international markets. I would call out just the difference in Lunar New Year timing, the shift in the timing this year does have a little bit of a headwind on Q1 in terms of our China trends in overall international. And then in terms of U.S. regional, we aren't seeing any meaningful differences regionally, and in terms of weather, I would say, really focus on what we can control.

Thanks. Good luck.

Thank you.

The next question is from Ike Boruchow with Wells Fargo. Please go ahead.

Hey, thanks for taking the question. Just to keep going with the U.S. and is what you're seeing more broad-based? Is it more on the women's side, more on the men's side? Just kind of curious what you see there. And then given, Calvin, your talk of the innovation and newness flowing through, as the year progresses, it sounds like you're baking in like essentially no improvement in North America trend from here. Shouldn't we be expecting North America -- sorry, I mean the U.S. specifically, to improve as the year progresses, given the merchandise flow that you're speaking to?

Thanks, Ike. In terms of difference between the men's and women's business, we haven't seen any material notable change from the fourth quarter which we talked about with women's up 6%, men's up 12%. The big opportunity in missed newness last year was really in our women's business, and we've gone back to at par on that, and she has responded, as I mentioned, across some of those metrics I shared, UPT, average order size. So I think that is definitely a positive for us, and being back in a traditional mix of newness and innovation across the assortment for her. We are seeing good results to that. And I'll let Meghan reference the second part.

Yeah. So we are guiding 6% to 7% in Q1 and then 7% to 8% for the full year. The Americas came in at 3% growth for '24, and we offered color low-single digit to mid-single digit. So I would say that range captures potential uptick there, but being thoughtful in terms of how we're planning the business given some of the uncertainty this year.

Fair enough.

The next question is from Jay Sole with UBS. Please go ahead.

Great. Thank you so much. Would it be possible to clarify on the square footage growth? How much square footage growth you're planning for the U.S. this year? And also, how much square footage growth you're planning for China? Thank you.

We're not breaking out the specifics on square footage growth, but what I can offer is we've got 40 to 45 net new openings for the year, square footage growth of 10%, which is in line with our Power of Three x2 target of low-double-digits. North America is about 10 to 15 openings. Within that the balance is international. The majority of those would sit in China, and we'll continue to keep you updated as we move throughout the year.

Got it. And then on some of the store adds -- the store adds happening in the U.S., are you upsizing stores in the U.S. this year?

Yeah. We continue to pursue our optimization strategy. So we had a total of globally 39 optimizations in 2024, and we're currently planning 40 for 2025 globally.

Got it. Thank you so much.

Thank you.

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