Lululemon Athletica Inc Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Alex Straton - Morgan Stanley & Co LLC - Analyst : Perfect. Congrats on a great quarter. Thanks for taking the question. I just wanted to focus on US sales. It looks like they stabilized on a quarter-over-quarter basis. So I'm just curious, do you view this as a bottom for that geography? And should it improve from here? And maybe thoughts on the longer-term growth rate of that business? Thanks a lot.

Question: Alex Straton - Morgan Stanley & Co LLC - Analyst : Thanks a lot and good luck. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 05, 2024 / 9:30PM, LULU.OQ - Q3 2024 Lululemon Athletica Inc Earnings Call

Question: Lorraine Hutchinson - BofA Global Research - Analyst : Thank you. Good afternoon. Meghan, can you talk about the reasons for the mid-teens inventory growth in the fourth quarter? How much of this is holding on the slower moving core versus chasing seasonal color and pattern? And how are you planning inventory for the first half of '25

Question: Ike Boruchow - Wells Fargo Securities LLC - Analyst : Good afternoon and let me add my congrats. Calvin, maybe just to piggyback on Alex's question, just comps are still negative, which is obviously not ideal, but your tone and your confidence on the trajectory of what's going on in the region sounds better. It sounds like the confidence is building. So maybe can you just maybe unpack some of the KPIs or whatever it is you look at that can help us understand exactly why we should be confident that the negative comp trend will, in fact, inflect come next spring?

Question: Ike Boruchow - Wells Fargo Securities LLC - Analyst : Got it. Thank you.

Question: Janine Stichter - BTIG - Analyst : Hi. Thanks for taking my question and congrats on the progress. I wanted to ask a bit more on the women's business. It picked up nicely from Q2. Maybe a little bit more about what's going on there? And then I think you called out leggings, which is the first time we've heard that as a positive callout in a while. So just would love some more color around what's going on with the lagging business and what we can expect for Q4 into next year? Thank you.

Question: Janine Stichter - BTIG - Analyst : Thanks so much and good luck for the holiday.

Question: Michael Binetti - Evercore ISI - Analyst : Hey, guys. Thanks for taking our question and congrats on the next quarter. Just a quick one on the model. The -- it looks like one of the key drivers of the gross margin in third quarter was lower inventory provisions. Could you just remind us how influential that could be in the fourth quarter? And then maybe just stepping back a little bit on the gross margin, unpacking a little bit more. Maybe what's under the surface on the product margin. I think you said one of the big pieces there, Megan, was upside to the guidance was good control of fixed cost on the product side. Is that -- I'm curious how sustainable that is with the high fixed cost base in North America and the negative comps in that market. Is that -- is that something that's as controllable in the fourth quarter? Or was there something unique to the third quarter that let that be a bigger lever for you while the comps remain negative in your biggest market?

Question: Michael Binetti - Evercore ISI - Analyst : Thank you very much.

Question: John Kernan - TD Cowen - Analyst : Hey, good afternoon. Thanks for taking my question and congrats on a solid quarter. We're all over in China or most of us were over there with you back in October. Can you talk to what you're seeing on the ground in China both from a top-line and margin perspective? I think in the first half of the year, the China segment contribution margin was in line with America. I was just wondering how you're planning out for the back half of the year. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 05, 2024 / 9:30PM, LULU.OQ - Q3 2024 Lululemon Athletica Inc Earnings Call

Question: John Kernan - TD Cowen - Analyst : Got it. And maybe just a quick follow-up on the Rest of The World. It sounds like you're more confident in store openings in some new markets. Maybe talk to some of the investments you're making there and the confidence you have in those markets.

Question: John Kernan - TD Cowen - Analyst : Awesome. Thank you.

Question: Matthew Boss - JPMorgan - Analyst : Great. Thanks. So Calvin, could you elaborate maybe on the cadence of traffic in North America as the third quarter progressed and into holiday? And maybe just speak to new customer acquisition and also the start to holiday internationally.

Question: Matthew Boss - JPMorgan - Analyst : Great. And then, Meghan, just what's your confidence in your modest annual operating margin expansion target multiyear? Or is there a way to think about areas of expense flexibility relative to different revenue scenarios?

Question: Matthew Boss - JPMorgan - Analyst : Great. Best of luck.

Question: Paul Lejuez - Citi Research - Analyst : Hey. Thanks, guys. I think you mentioned e-com in the US was still positive -- stores were lower. Can you talk about that e-commerce store dynamic in your other key regions? And then second, can you also talk about the competitive landscape, what you saw in terms of promotions out there during the third quarter and what you expect for 4Q? Thanks.

Question: Paul Lejuez - Citi Research - Analyst : Meghan, just on the e-commerce stores, can you just explain what you're outperforming in your major regions?

Question: Paul Lejuez - Citi Research - Analyst : All right. Thanks. Good luck.

Question: Sharon Zackfia - William Blair & Co - Analyst : Hi. Good afternoon. I guess I'm curious, given the election paradigm in the US, how you're thinking about any potential tariff impact as it relates to next year? And if you think you're a better or worse positioned than your peers on the dynamic.

Question: Brian Nagel - Oppenheimer & Co Inc - Analyst : Hi. Good afternoon. I, too, like to add my congratulations on a nice quarter.

Question: Brian Nagel - Oppenheimer & Co Inc - Analyst : The question I have, I know it's going to be a little bit repetitive, so I apologize. We're talking a lot about newness, particularly as you look towards early '25. So is there a way to quantify -- I mean as you think about with the product, particularly domestically, what the product is going to look like in early '25. I mean how different is going to be than what you've had historically? So just maybe quantify better this newness dynamic. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 05, 2024 / 9:30PM, LULU.OQ - Q3 2024 Lululemon Athletica Inc Earnings Call And then along those same lines, where you have introduced new products already, could you quantify how much better the sales have been there versus sort say, a baseline?

Question: Brian Nagel - Oppenheimer & Co Inc - Analyst : No. That's very helpful, Calvin. And then just what you're seeing now? Because I think you have mentioned that clearly, like you just said, the bigger shift of newness is going to happen early next year, but you've had some new product now. How is that product performing?

Question: Brian Nagel - Oppenheimer & Co Inc - Analyst : I appreciate all the color. Thank you.

Question: Brooke Roach - Goldman Sachs & Co Inc - Analyst : Good afternoon and thank you for taking my question. Calvin, can you speak to your learnings on the increased investment in marketing spend this year? How should we be thinking about advertising and marketing going forward as a percent of sales as you look to expand that brand awareness? And then perhaps as a related follow-up, wondering if you can talk to the results of the targeted strategies that you're implementing to reengage lapsed customers in the US. Thank you.