lululemon(LULU)2024-08-30 00:36Financial Data and Key Metrics - Total revenue increased 7% or 8% in constant currency, with earnings per share rising 18% driven by strong gross margin, contributing to a 110 basis point increase in operating margin [10] - Gross profit for Q2 was 540 million or 22.8% of net revenue, compared to 21.7% in Q2 2023 [32] - Net income for Q2 was 3.15 per diluted share, up from 584 million of stock in Q2, bringing the year-to-date total to 900 million or 38% of total revenue [29] Company Strategy and Industry Competition - The company aims to quadruple international revenue from 2021 levels by the end of 2026 [10] - A new product organization structure was implemented to improve the balance between design and merchandising, with a focus on increasing newness in the women's assortment [16][17] - The company is leveraging its membership program, which now has over 20 million essential members, to drive loyalty and long-term value [19] - The company is focused on increasing brand awareness and consideration through global campaigns and activations, such as the Summer Sweat Game Series in China and partnerships with the Canadian Olympic and Paralympic teams [23][24] Management Commentary on Operating Environment and Future Outlook - The company expects revenue growth of 6% to 7% for Q3 and the full year, excluding the 53rd week, with uncertainties around the shorter holiday shopping season and the U.S. election in Q4 [26][35] - The company plans to improve the penetration of newness in the women's assortment in the second half of 2024, with a return to historical levels of newness by Spring 2025 [17][26] - The company remains committed to its Power of Three Times Two target of doubling revenue from 12.5 billion in 2026 [27] Other Important Information - The company paused sales of the Breathe Through product due to guest feedback, with plans to reintroduce the fabric in the future [22] - The company expects inventory to increase in the mid-teens in Q3 and slightly higher in Q4, with markdowns expected to be flat for the full year [36][47] Q&A Session Summary Question: Revenue growth algorithm in North America and guardrails for consistency [42] - The company remains committed to low double-digit growth in North America, with a focus on improving brand awareness and product newness [43] - The new product organization structure is expected to lead to more creative conversations and better decision-making, with a focus on the ratio of newness in product plans [44] Question: Inventory and markdowns [45] - Inventory declined 14% in Q2, in line with expectations, with mid-teens growth expected in Q3 and Q4 [46] - Markdowns were flat year-over-year in Q2, with Q3 markdowns expected to be in line with last year and Q4 slightly below [47] Question: Revised full-year guidance and revenue shortfall [49][51] - The revised guidance reflects a softer Q4 due to a shorter holiday shopping season and macroeconomic uncertainty, with no change in the relationship between Q3 and Q4 [50] - The revenue shortfall in Q2 was attributed to product decisions within the company's control, particularly the lack of newness in the women's assortment [52] Question: Regional performance and inventory [55] - Q2 performance was softer in June and July, with no significant regional breakdown provided [56] - The Breathe Through pause had a negligible financial impact, with no material markdowns or inventory resets [56][74] Question: P&L mechanics and product organization changes [58] - The company is managing the P&L by investing in international growth and brand awareness while seeking efficiency opportunities [59] - The new product organization structure aims to improve the balance between design and merchandising, leading to more creative outcomes and better product mix [61][62] Question: Product innovation and back-to-school campaign [65][76] - The Breathe Through fabric will be reintroduced in the future, with no specific timeline for 2024 or 2025 [66] - The company is focusing on increasing newness in the women's assortment, with seasonal updates and new performance fabrics [67][68] - The back-to-school campaign is targeting younger guests, particularly men, with a focus on loungewear and the Cityverse sneaker [25] Question: China growth and comp trends [81] - China revenue grew 37% in constant currency in Q2, with strong performance across both store and digital channels [82] - The company remains optimistic about growth in China, with a localized approach to brand building and product positioning [84] Question: Core product performance and accessories outlook [86] - The slowdown in women's was due to a lack of newness in core styles, with improvements expected in Q3 and Q4 [87] - Accessories grew 7% in Q2, with new styles and innovations driving continued momentum [88] Question: Gross margin and SG&A concerns [91] - The company expects gross margin to be relatively in line with 2023, with flat SG&A and strong operating margin [92] - The company remains committed to modest operating margin expansion over the long term [92] Question: Core customer changes in women's [93] - The company continues to acquire new guests across all age demographics, with improvements in sizing mix expected in Q3 [94]