lululemon(LULU) - 2026 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For Q2, total net revenue rose 7% to $2.5 billion, with comparable sales increasing 1% [25][26] - Gross profit was $1.48 billion, representing 58.5% of net revenue, down from 59.6% in Q2 2024 [26][27] - Net income for the quarter was $371 million, or $3.10 per diluted share, compared to $3.15 in the same period last year [28] Business Line Data and Key Metrics Changes - Men's revenue increased 6%, women's revenue increased 5%, and accessories and other grew 15% [26] - Performance apparel continues to grow, while lounge and social product offerings have become stale, impacting sales negatively [11][12] Market Data and Key Metrics Changes - In the U.S., revenue was flat, with comparable sales down 3% [25][26] - China mainland revenue increased 25%, with comparable sales up 16% [26][21] - The rest of the world segment saw a revenue growth of 19%, with comparable sales increasing by 9% [26] Company Strategy and Development Direction - The company is focusing on increasing the number and frequency of new styles in its product assortment, aiming to raise new styles from 23% to 35% by spring 2026 [15][16] - A new Chief AI and Technology Officer has been appointed to enhance product innovation and agility [17] - The company plans to navigate increased costs from tariffs and the removal of the de minimis exemption through strategic pricing and supply chain initiatives [24][20] Management's Comments on Operating Environment and Future Outlook - Management expressed concerns over the U.S. business performance and the impact of tariffs on guidance [5][20] - The company expects revenue growth of 4% to 6% for the year, with a decline in U.S. revenue projected at 1% to 2% [20][31] - Management remains optimistic about international growth, particularly in China, where growth is expected to be 20% to 25% [20][31] Other Important Information - The company ended the quarter with $1.16 billion in cash and cash equivalents, and inventory increased 21% to $1.7 billion [30] - Capital expenditures for the quarter were approximately $178 million, reflecting timing of store openings [29] Q&A Session Summary Question: Insights on product department changes and impact on the back half of the year - The company is focusing on three key areas: maintaining momentum in performance activities, introducing new styles in lounge and social, and refreshing iconic items [47] Question: Impact of recent tariff increases on pricing strategy - The company is implementing modest price increases on a small portion of its assortment and will continue to evaluate pricing as a lever [50] Question: Context on lifestyle assortment and performance versus casual - The company believes a 60/40 split between performance and casual is a good benchmark, with ongoing innovation in both segments [54] Question: Timeline for new innovation to offset pressure from casual platforms - The company expects the new styles introduced in spring 2026 to help offset pressures from casual offerings [59] Question: Speed of supply chain improvements and lead times - The company is working to improve lead times and agility in its supply chain processes, aiming to reduce lead times significantly [66] Question: Inventory management and de minimis exemption impact - The company fulfills approximately two-thirds of U.S. e-commerce orders through Canada, which previously benefited from the de minimis exemption [81]