lululemon(LULU) - 2026 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For Q2 2025, total net revenue rose 7% to $2.5 billion, with comparable sales increasing by 1% [27][28] - Gross profit was $1.48 billion, representing 58.5% of net revenue, a decrease from 59.6% in Q2 2024 [28][29] - Net income for the quarter was $371 million, or $3.10 per diluted share, compared to $3.15 in the same period last year [30] Business Line Data and Key Metrics Changes - Men's revenue increased by 6%, women's by 5%, and accessories and other grew by 15% [28] - The casual segment, which constitutes about 40% of the assortment, is experiencing fatigue, particularly in core franchises like Scuba and SoftStream [49][56] - Performance apparel continues to grow, with strong sales across key activities such as yoga, run, and train [12][20] Market Data and Key Metrics Changes - In China, total revenue increased by 25%, with comparable sales up by 16% [28][20] - The Americas saw revenue growth of 1%, with comparable sales down by 3% [27][28] - The rest of the world segment grew by 19%, with comparable sales increasing by 9% [28] 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 [17][19] - A new Chief AI and Technology Officer has been appointed to enhance product innovation and agility [19] - The company plans to navigate increased costs from tariffs through strategic pricing and supply chain initiatives [26][22] Management's Comments on Operating Environment and Future Outlook - Management expressed dissatisfaction with current U.S. results and acknowledged the need for a reset in product offerings [6][24] - The company expects revenue growth of 4%-6% for the year, with a decline of 1%-2% in the U.S. market [23][32] - Management remains optimistic about international growth, particularly in China, where they anticipate continued strong performance [20][24] Other Important Information - The company ended Q2 with $1.16 billion in cash and cash equivalents, and inventory increased by 21% to $1.7 billion [31] - Capital expenditures for the quarter were approximately $178 million, reflecting timing of store openings [31] Q&A Session Summary Question: Insights on product department changes and impact on sales - Management highlighted a focus on performance activities and new styles in lounge and social categories, with two new items launching in the back half of the year [48] Question: Impact of recent tariff increases on pricing strategy - The company is implementing modest price increases on a small portion of its assortment and is pleased with the initial results [52] Question: Context on casual segment performance and timeline for new innovations - Management indicated that the casual segment is about 40% of the mix, with new styles expected to offset current pressures [49][63] Question: Supply chain initiatives and lead time improvements - The company is working to improve lead times and agility in its supply chain processes, with a focus on vendor partnerships [68] Question: Marketing strategy and brand engagement - Management plans to maintain current marketing spend as a percentage of revenue while focusing on grassroots community engagement [71] Question: Annualized impact of tariffs and pricing as a mitigation tool - The CFO noted that pricing will be a significant part of the mitigation strategy, alongside expense actions [76]