lululemon(LULU) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenue increased by 9% to $2.4 billion, or 8% in constant currency, with adjusted operating margin rising by 70 basis points to 20.5% [13][40][45] - Adjusted earnings per share (EPS) increased by 13% compared to the previous year [14][45] - Inventory increased by 8%, which was lower than the guidance of mid-teens growth [47][72] Performance by Business Line - Men's revenue increased by 9%, while women's and accessories both saw an 8% increase [13][40] - In the Americas, revenue grew by 2%, with a flat performance in the U.S. and a 9% increase in Canada [15][40] - International revenue surged by 33%, or 30% in constant currency, with China Mainland growing by 39% [22][40][101] Market Data and Key Metrics Changes - E-commerce revenue in the U.S. increased by 4%, contributing$ 945 million, or 39% of total revenue [40][112] - The company ended the quarter with 749 stores globally, having opened 13 net new stores [41] - The membership program now boasts 24 million members, indicating strong guest retention [20][113] Company Strategy and Development Direction - The company aims to return the level of newness in product offerings to historical levels by Q1 2025, focusing on seasonal newness and improved assortments [21][35] - Plans for 2025 include opening new stores in Italy and expanding through franchise models in Denmark, Belgium, Turkey, and the Czech Republic [29][103] - The company remains committed to its Power of Three x2 revenue target of $12.5 billion by 2026, with a current three-year revenue growth CAGR of 19% [35][49] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the U.S. market's potential for growth, citing strong guest retention and opportunities for increased revenue per guest [66][67] - The company is closely monitoring macroeconomic conditions and planning prudently for the holiday season [38][48] - Management highlighted the importance of brand awareness, which remains low at 36% in the U.S., presenting a significant growth opportunity [21][159] Other Important Information - The company authorized a$ 1 billion increase in its share repurchase program, with $1.8 billion available for repurchases [14][47] - The purchase of the Mexico franchise was completed, adding 15 stores to the company-operated store count [39] Q&A Session Summary Question: U.S. sales stabilization and future growth - Management indicated that U.S. sales performance met expectations and expressed optimism for improvement in Q4 due to stronger newness [64][66] Question: Inventory growth reasons - Management explained that the mid-teens inventory growth is due to chasing seasonal newness and managing slower-moving core products [70][72] Question: Confidence in negative comp trends inflecting - Management cited strong guest engagement and loyalty, along with a focus on newness, as reasons for confidence in reversing negative comp trends [75][77] Question: Women's business performance - Management reported strong growth in the women's business, particularly in leggings, driven by newness in colors and patterns [82][84] Question: Gross margin drivers and sustainability - Management noted that lower inventory provisions positively impacted gross margin in Q3, but they do not expect significant movement in Q4 [90][92] Question: China market performance - Management expressed satisfaction with the growth in China, expecting continued strong performance in Q4 [100][101] Question: Competitive landscape and promotional intensity - Management acknowledged a promotional environment but emphasized their strategy of maintaining regular price sales rather than relying on markdowns [127][128] Question: Marketing investment and brand awareness - Management indicated that marketing spend is expected to increase slightly, focusing on long-term brand awareness and customer engagement [157][159]