Thank you for standing by. This is the conference operator. Welcome to the Lululemon Athletica Inc. First Quarter 2025 Financial Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Analysts who wish to join the question queue, I would now like to turn the conference over to Howard Tubin, Vice President, Investor Relations for Lululemon. Please go ahead.

Thank you and good afternoon. Welcome to Lululemon's first quarter earnings conference call. Joining me today to talk about our results are Calvin McDonald, CEO, and 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 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-Ks 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. 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 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 one hour, so please limit yourself to one question at a time to give others the opportunity to have their questions addressed. And now, I would like to turn the call over to Calvin.

Thank you, Howard. It's good to be here with you today to discuss our first quarter results. As you've seen from our press release, our revenue growth for the quarter came in at the high end of our guidance range. I'm pleased with this performance, which was relatively consistent with quarter four. I'd also note that our revenue in the United States grew 2%, which is an improvement in the trend we've seen over the last several quarters. Based on our quarter one revenue performance and what we're seeing thus far in quarter two, we are maintaining our revenue guidance for the full year. As we look ahead, we will continue to leverage our financial strength and our position in the marketplace to play offense, remain agile, and successfully manage the environment around us. I'll begin by sharing the details of our quarter one performance, including high-level financial metrics and key highlights regarding our regional performance, product innovation, and our brand campaigns and activations. Next, I'll provide insights into the planning and strategies we're deploying related to the increase in tariffs. Meghan will speak to the specific financial implications, and I'll share some insights into the opportunities we have across the business. I'll then share my thoughts on quarter two and the remainder of the year. Meghan will review our financials and our updated guidance, and we will conclude by taking your questions. Let's get started. In quarter one, total revenue increased 7% or 8% on a constant currency basis. Gross margin increased 60 basis points to 58.3%, and earnings per share were $2.6, ahead of our expectations. In addition, in quarter one, we continued repurchasing shares and bought back another $430 million of stock. Our ongoing repurchases demonstrate the strength of our balance sheet and our continued confidence in…

Thanks, Calvin. I'm happy we delivered Q1 results that exceeded our expectations. Guests are responding well to our product newness and innovations, and as a result, we are maintaining our revenue guidance for the full year. Given the uncertainties in the macro environment, our approach to planning remains balanced on managing the dynamics of the current year while also maintaining our focus on the long term. We are managing expenses prudently while also continuing to invest to drive long-term growth and set ourselves up for future success. This includes new store openings and optimizations, new market entries, growing brand awareness, and ensuring we have adequate capacity across our supply chain. I'll share our detailed guidance with you in a moment. But let's first take a look at our Q1 results in detail. For Q1, total net revenue rose 7% or 8% in constant currency to $2.4 billion. Comparable sales increased 1%. Within our regions, results were as follows: Americas revenue increased 3% or 4% in constant currency with comparable sales down 1%. By country, revenue increased 4% or 9% in constant currency in Canada and increased 2% in the U.S. China Mainland revenue increased 21% or 22% in constant currency with comparable sales increasing 8%, and in the rest of the world, revenue grew by 16% or 17% in constant currency with comparable sales increasing by 7%. In our store channel, total sales increased 8%, and we ended the quarter with 770 stores globally. Square footage increased 14% versus last year, driven by the addition of 59 net new Lululemon stores since Q1 2024. During the quarter, we opened three net new stores and completed four optimizations. In our digital channel, revenue increased 9% and contributed $961 million of top-line or 41% of total revenue. By category, men's revenue increased…

Thank you, Meghan. I feel we are well positioned to navigate the current period. We intend to leverage our strong financial position and competitive advantages to play offense while making deliberate decisions and continuing to invest in our growth opportunities. In closing, I want to thank our talented leaders and teams who make these results possible and demonstrate their agility and passion each day. We'll now take your questions. Operator?

Thank you. We'll now begin the question and answer session. Our first question is from Dana Telsey with Telsey Group. Please go ahead.

Hi, good afternoon everyone. As you think about the guidance for the balance of the year and the pressure on Q2, before you have some mitigation efforts in the back half of the year, can you expand on those mitigation efforts and what you're thinking about, whether it's price increases, diversifying sourcing, how should we think about it? And then when you think about just the U.S. business, any category strength that you saw with the newness that you offered and any early indications on the no line align which frankly I've heard good sell-throughs? Thank you.

Thanks, Dana. I think given the dynamic of the year in terms of Q2 relative to the full year, it's important to anchor in the full year where we guided to a decline of 160 basis points versus our prior guide of 100, which is really related to the net impact of tariffs as well as the slight increase in markdowns. When we think about the tariff impact to mitigation actions, I'd highlight, one would be pricing. We are planning to take strategic price increases, looking item by item across our assortment as we typically do, and it will be price increases on a small portion of our assortment, and they will be modest in nature. And then on the sourcing side, we are also pursuing some efficiency actions there, some of which will impact the second half of this year, and then we are also focused on that into 2026 as well. And I'll pass it over to Calvin on the product side.

Yes. Thanks, Dana. In terms of category trends on newness, what's very encouraging is that it's balanced. It's balanced across our activity in lifestyle, new item introductions as well as new and updates to our current. So just walk through a few of these. On the lifestyle side of our business, as you've seen and introduced at the beginning of Q1 and sold out pretty much in all doors, was our Daydrift trouser, which used performance fabrics with unique updated style, and she responded incredibly well to that. And we will be back in stock fully with some expanded silhouettes for September. So we're very encouraged and believe we have a future core success on our hands. Be Calm, another new core, future core, and she responded very well to both, had great rating reviews. On the activity side of our business, we balanced between new as well as updates. On the new side, Glow Up was well received, good reviews, continues to gain momentum. And again, introduced with a limited set of colors, and we continue to build and expand into that. And again, feel we have a very unique legging creating a unique sensation and unmet need for Train and seeing good success. And then on updates to our existing core, Align No Line is a great example of that. And early results but very encouraging as you alluded to. And we only had it distributed to 80 doors. So again, we are chasing and we'll be in full store distribution by September. You'll see it get stronger and distributed more throughout the quarter. But this is one in which across all of these and when I referenced the response to newness is encouraging and these being some of the strong hits both from a newness and innovation standpoint, definitely we saw a sellout and are chasing excited about what that means for the back half. But balanced across activity lifestyle, new as well as updates. So we know the newness is resonating and working well. And the team is busy chasing into these what appear to be future hits for us. Thank you.

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

Hi, thanks for taking my question. I was hoping you could dig in a little bit more to the comp drivers, the top-line drivers. I think last quarter you had talked about traffic falling off, but seeing some improvements in transaction size and solid performance in conversion. Wondering if still seeing the same thing then maybe any update on the progression of the quarter, what you saw in April into May? Thank you.

Hi, Janine. So in terms of comp drivers, as we talked about on the last call, we did see a decline in store traffic, particularly in the U.S. as we moved from Q4 into Q1. We did see that moderate somewhat, but we did still for the first quarter see a lower traffic trend in stores relative to Q4. Conversion trends remained relatively consistent, a little bit of a decline year over year. And then also we did see an uptick in terms of average dollars per transaction in the first quarter. And then in terms of how it's progressing April into May, we don't share specifics on Q2, but I would say nothing materially different.

Great. Thanks so much.

Thank you. The next question is from Brian Nagel with Oppenheimer. Please go ahead.

Hi, good afternoon. A couple of questions. I'm going to merge them together, both tied around kind of tariffs and your strategy for tariffs. I guess the first question, if I'm hearing you, I mean, as you're looking at these tariffs, it sounds like you're going to take the biggest hits on margin. So the question I have is, why not at least initially or do more with price? And then secondly, as we look at the guidance now, sort of say the bigger disconnect between top and bottom line, is that all mostly tariffs or I think you did mention some other investment spending in there? Thanks.

Thanks, Brian. So in terms of top line versus bottom line, so for the full year, we maintained our revenue guide, so $11.15 billion to $11.3 billion. We did lower our op margin for the full year from a 100 basis points decline year over year to 160. That's all driven by the net impact of tariffs. So the tariff impact then with some offsets as I mentioned in pricing and supply chain. And then a slight increase also in markdowns. There are not any meaningful changes in terms of our expense posture. We're maintaining our focus on the long term. And as I mentioned, we do have some mitigation actions on tariffs that will also come into play as we get into 2026. In terms of price, as mentioned, we're really looking at this as operating from a position of strength, being strategic in our pricing, looking at our LS and where we have opportunity, and we'll continue to take a look at that as the year progresses. But feeling comfortable with our positioning at the state.

Okay. Thank you.

The next question is from Matthew Boss with JPMorgan. Please go ahead.

Great. Thanks. So Calvin, maybe could you elaborate on the progression of comps that you saw over the course of the first quarter? And on the start to the second quarter that you cited, I guess if we think about it relative to first quarter performance in The Americas, and in China? Does the 7% to 8% revenue guidance for the quarter, does that embed a moderation in June and July trends relative to what you've seen in May, just given the uncertainty and the dynamic backdrop?

Hey, Matt. So in terms of how the quarter progressed, no material changes in terms of trend month to month in Q1. As we look to Q2, we don't guide to specifics in Q2, but what I can share is, I would say similar trends in the U.S. relative to Q1. As you know, China was impacted by the timing of Chinese New Year in Q1, which was about a four-point delta. So I would say our expectation and current trends would be in line with our annual color we offered on China performance, which should be in the 25% to 30% range.

Great. And then maybe Meghan just a follow-up as it relates to second quarter guidance and the full year. I guess could you elaborate on the slight increase in markdowns now contemplated in the full year outlook? And maybe just how you see the progression in the second quarter versus back half?

Yes. In terms of markdowns, so we did actually see a decline in markdowns in the first quarter. So we haven't seen an uptick in markdowns in our results to date. We were down 10 basis points in Q1. But given consumer confidence and macroeconomic as we move into the second half of the year, we feel it's prudent to tick up our forecast slightly on the markdown line. We would be in the range of 10 to 20 basis points above last year, so not meaningfully higher than our last year waterline, which was relatively, I would say, in line with history.

But you're saying first quarter and so far into the second quarter? That you haven't seen the need to take the markdowns. It's just an assumption that you've baked in given the backdrop.

Yes. I would say on our actuals, in Q1, we saw a downward trend of 10 basis points, and our markdown positioning in Q2 would be embedded in our guidance.

Okay. That's great color. Thank you.

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

Good afternoon and thank you for taking our question. Calvin, given some of the success of some of the new launches that you've seen year to date, can you elaborate on your latest thoughts about returning the U.S. business to sustainable comp growth and whether or not that differs at all in your Canada versus U.S. as you contemplate North America reported comps?

Thanks, Brooke. When I look at what we control, in terms of our mix of newness, and how that's performing, especially the new intended core and the way the guest is responding to that, definitely positive and feel good about those reactions to it. And the team knows and is working on what they can continue to add and innovate to that. When I look at our performance versus the market, our performance, we gained market share in the premium activewear. We had strong performance gains against our peers in this segment of the market where we compete. And the macro consumer is different. We continue to see a more cautious, discerning consumer. We're definitely not happy where the growth is in the U.S., but relative to the market and our performance versus others, pleased that we're putting on share, pleased with the reaction to the newness and with the mix of newness that's coming. As we continue to get back into stock on the new core that she's reacting to and making those adjustments and the newness that we have planned. And I think a bit of the delta between the Canadian and the U.S. market consumer we see is we're not seeing the same discerning consumer in Canada as we are seeing in the U.S. In terms of traffic as well as some other metrics that we monitor, we continue to monitor that, but the newness in both markets are responding very well. And the team is very focused on what the guest is reacting to. And bringing that to the consumer into the market in the back half.

Great. Thanks so much. I'll pass it on.

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

Hey, thanks for taking my question. Two questions. I think first for Calvin. So appreciate on the product side, the commentary on what's working both in lifestyle and performance. But at the end of the day, the comps are up 1%. So clearly, there's got to be some things that are not working. Could you just maybe help us what exactly are the parts that are lagging that you're hoping to improve? And then Meghan, maybe just back to Matt's question, part of the guidance revision down is markdown, but it sounds like you're saying that you're not seeing any markdown yet, but you're planning it. So I guess maybe I'm just a little confused. Is it because of the inventory build that you're expecting markdown to accelerate? I guess I'm just confused why you're taking a more cautious approach on that. Like what's the leading indicator that's making you think that if you're not seeing it yet?

Thanks, Ike. In terms of the balance of the mix, I would say the overall traffic numbers are having an impact on the general mix of the assortment in the U.S. From a new guest perspective, we grew our new guests from, and I think, Meghan mentioned this from an AOV, UPT, both positive from a market share across all categories. We saw growth in our premium segment. I think where there continues to be opportunity is with our core and seasonal colors. We're seeing the guests shift to the truly new styles as I mentioned, the Glow Up, the Align No Line, the Daydrift, the Be Calm, and have opportunities. But overall, it really is the macro discerning consumer that we're seeing through traffic in the store, the behavior, how they're shopping and reacting I think is definitely showing good indication. And as I alluded to the growth in market share is indicating we are gaining and winning to the marketplace and how the consumer is spending.

And I would add, Ike, similar on the markdown front. So the traffic trends, I would say, would be the leading indicator on why we've taken that positioning in terms of consumer confidence and macro uncertainty in the second half as well.

Okay. Thank you.

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

You maybe give a little bit more detail about inventory by geography? And if there are any specific regions that you're seeing potentially more margin pressure, markdown pressure, where is that coming from? Is that just the U.S. or is it more global? I mean is there anything in the competitive landscape front you see across your different global markets that make you think that things might heat up from a promotional perspective? Thanks.

Thanks, Paul. So in terms of inventory, I'd say again, we haven't seen markdown pressure to date, down 10 basis points year over year in Q1. But when we think about traffic trends and headwinds, they would be predominantly in the U.S. So I'd say that's where I'd probably place a little bit more of the as we move into the second half of the year in terms of what we've layered in terms of markdowns.

And, from a competitive perspective, there's nothing we're seeing globally on a price promotional play other than in the U.S. Where I would say we continue to monitor that closely because we do see ongoing promotional activity across the market, across the competitors as we've seen certain consumer, the more cautious we know that to lever others pull and we continue to monitor it and quite frankly, anticipating a bit of a spike in the back half, if the macro headwinds continue. But we are a full-price business and we'll lead with innovation and our core assortment continue to play that. But we are seeing and do anticipate probably a dynamic competitive market in the U.S.

Got it. Right. I just followed, have you adjusted purchases at all? You're just considering where your inventories are and the tariff situation maybe taking price up a little bit. Have you also taken your purchases and purchase assumptions down for the back half?

I would say we're always adjusting purchases and reflecting the current environment. We do benefit from about 40% of our purchases in core product. So that's an area we flex as we move forward. So I would say we always are doing that. We've done that to some degree. We'll continue to keep a close eye on inventory levels and sales trends.

Thank you. Good luck.

The next question is from Alex Stratton with Morgan Stanley. Please go ahead.

Great. Thanks so much. Maybe for either of you, do newness levels stand in total? Like, are they back where you want them to be? And then if that's not inflecting Americas comp to positive, are you exploring maybe other potential drivers for what to do to get it there? And maybe related for Meghan on that one, is a positive comp for Americas possible this year? Or with your view on the macro, is that something that is more kicked out?

Thanks, Alex. In terms of the composition of our merchandise mix, we are back at our newness percentages, historical newness percentages of the sum. I think the way the guest is reacting and responding within that newness, she is reacting very positively to the new core or intended core silhouette styles that she has not seen before, alluded to sort of Glow Up, the Align No Line, the Daydrift, Be Calm to name just a few, and there is a number of those. Those as a percentage of our newness mix we are increasing in the back half so that we're reacting to what the guest is responding to. And as a result, we are shifting some of the seasonal colors, patterns, and graphics in the remaining core to maintain that sort of ratio that we're seeing. But as I look to the back half, the percentage of newness remains strong above historical as we lean into a little bit of these areas where the guest has really responded well. And we weren't at full store distribution. We sold out of many of these styles and silhouettes and have very strong rating reviews on them. So I'm pleased with the newness mix and the work the team has done. And what we have seen is the consumer respond very well to the completely new styles that she hasn't seen before, and that's sort of the mix that you will see us continue to do heading into the back half of this year.

And Alex, I'd add, we're not guiding specifically to comps for the year. But our view on the full year revenue for The Americas hasn't changed. So low single digit to mid-single digit and feel we're well positioned to capitalize if the consumer environment improves as well. That's what we're offering today.

Thanks a lot. Good luck.

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

Great. Thank you so much. My question is about China. Given the comp in China, you've opened a lot of stores. How much more store growth opportunity do you see in China before you start worrying about cannibalizing your existing store base given the level of comp right here? Like can you tell us how many stores you have now, what you expect by the end of the year? And then maybe kind of what you're thinking about as a store growth rate going forward? Thank you.

Yes. So in terms of China, I would say still feel we're early in our journey there. So we've got 154 stores today. We had a goal of approximately 200 in our current Power of Three x Two plan and saw growth beyond that. I'm really pleased with the performance on new stores. And I'd also mention we are early in terms of our co-located strategy, so where we have stores with high traffic, high sales per square foot and see an opportunity to expand the size of stores to have a more holistic assortment across men's, women's, accessories, capitalize on that traffic. We're underway in that strategy in North America to a larger degree, and it's largely still in front of us in terms of China.

Got it. And can you talk about what the traffic trends were in China? Maybe you talked about what the trends were in the U.S.?

We don't break out specifically on traffic trends, but I would say still seeing strong double-digit growth in terms of the China market and nothing notable there.

Got it. Thank you so much.

The next question is from Adrian Yin with Barclays. Please go ahead.

Thank you very much. My question is on the inventory. The inventory does have some tariff impact and FX. Of the delta from units to dollars at about 7%, how much of that is tariff and how much of that would be the FX? And then secondarily, I guess it's a follow-on. You expecting that tariff inventory to sort of hit the P&L sort of late June and July? And is that when we should expect the commensurate price impact? Thank you.

Hey, Adrian. So in terms of the impact on dollar inventory, so it is predominantly driven by higher AUCs related to tariffs and then FX, I would say, we haven't broken out the details, but not too far off from each other in terms of relativity. And then in terms of the impact on tariffs, we do have, as I mentioned, a more pronounced impact in Q2 in terms of the P&L. So 60 basis points in Q2 because the mitigation actions come in the second half. The second half of the year or sorry, for the full year, the FX, sorry, the tariff headwind is 40 basis points. With the mitigation actions coming into play towards the second half of the year. I would say in terms of pricing, those actions will start rolling out towards the second half of this quarter and into Q3.

Okay, great. And then my other question is on the lower product costs, what is driving that? Was it freight or cost engineering? And do you assume that that will neutralize as we go into the back half of the year? Thanks.

Yes. So in terms of product cost, it would be predominantly driven by mix of business relative to expectations. So I would say right now what's reflected in our guide reflects our forecast in terms of mix of business in the second half of the year, and I wouldn't call out product costs as a variance driver for the full year at this point in time.

Okay, great. Thanks so much. Best of luck.

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

Thank you. Good afternoon. I wanted to focus on SG&A for a minute. It looks quite high in the second quarter. Is there anything changing in your view of the investment needed to drive growth? Or is this just timing versus planned investments in the second half?

Thanks, Lorraine. Yeah. So in terms of Q2, so there are a few factors that are impacting Q2. So I think important to zoom out to the full year. So for the full year, we did guide revenue in line with last time, so $11.15 billion to $11.3 billion. And the operating margin relative to last time is about up 60 basis points driven by just tariffs and markdown changes. So when you look at Q2 specifically, first I'd note that we did expand our operating margin last year by 110 basis points. It was higher than our full year expansion, which was 50. So therefore, we had assumed some pressure in our operating margin as we planned the year. Then if you look specifically at the year-over-year SG&A, that would be driven by increased foundational investments and depreciation, strategic investments. And then those add backs that we discussed last quarter in terms of expenses, for example, store labor. That we added back from a normalized perspective. Relative to the full year, 170 to 190 basis points deleverage in Q2. And 50 basis points for the full year.

Thank you.

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

Thank you. I want to go back to China. Meghan, you talked about your store growth there, but wondering if you can share some color around the comp growth. There's been a pretty sizable deceleration year over year. Can you share some color around what's that's being driven by? Is it a macro slowdown or something else? And I know there were some tough compares last Q1 as those compares ease in China as well as in the rest of the world. Do you expect to see an acceleration in the comp in the next couple of quarters?

Yes. So in terms of China, we did see a slowdown both in trend and comp. We did have a four-point impact from the timing of Chinese New Year. We did also have an outsized performance, I would say, in terms of non-comp new store openings as well as the smaller portion that we do have co-located strategy there. We had an outperformance in terms of revenue growth last year. Even if looking at Q4 to Q1, we were at 39% growth in Q4, so well above expectations. So I would say still pleased with China trends, still strong double-digit growth, and do still have the same expectation for the full year of 25% to 30% growth rate for China.

And if I can just follow-up, is China still your best full-price market globally?

It's still our lowest markdown, yes, so highest full price.

Thank you.

The next question is from John Kernan. Oh, pardon me. All right. We'll just take one more question. Thank you. The final question is from John Kernan with TD Cowen. Please go ahead.

All right. Thanks for squeezing me in, Howard. Just to stay on China and rest of the world, obviously, you just talked about it in relation to Aneesha's question, but there was a sizable deceleration in the two-year stack if that's the best way to look at it. But do you think you're becoming more susceptible to a macro environment in China now that you're pushing the end of the year, be pushing $1.7 billion in revenue? And what are you seeing in Rest of World? There was a deceleration there as well. Thank you.

Thanks, John. In terms of our view of our opportunities, nothing has changed. When I look at our performance in the quarter, and our guide for the year, across Mainland China, our Rest of World and we look at our EMEA, and APAC markets, they continue to perform incredibly strong, double-digit momentum. We're early relative to market share, early relative to unaided brand awareness, continue to see very healthy new guest acquisition and matriculation with our existing guests. And the way the guest is responding to both our newness as well as our long lineup of core items. So nothing has changed from our vantage point. I think as Meghan indicated, in some of the markets we had outsized growth last year, but very, very healthy strong numbers and relative to peer sets and with our market share gains, very excited and see a long runway of growth and opportunity. As I've alluded before, ended last year at 25% of our business being international and have opportunity we think for a fifty-fifty ratio into the future. So definitely Lululemon is a global brand underdeveloped in these markets and seeing great momentum, a very strong growth and anticipate that to continue.

Megan, did you give the markdown impact embedded in the gross margin guidance on a basis point level?

It did. For the full year, to 20 basis points up to last year.

Got it. Thank you.

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