lululemon (LULU) Q1 2025 Earnings Call Transcript
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lululemon (LULU) Q1 2025 Earnings Call Transcript

June 5, 2025
05:46 PM
13 min read
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investmentfinancialconsumer discretionaryretailmarket cyclesseasonal analysiseconomic

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Image source: The Motley Fool. DATEThursday, June 5, 2025 at 4:30 p. ETCALL PARTICIPANTSChief Executive Officer — Calvin McDonaldChief Financial Officer — Meghan FrankNeed a quote from one of our...

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June 5, 2025

05:46 PM

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investmentfinancialconsumer discretionaryretailmarket cyclesseasonal analysiseconomic

Image source: The Motley Fool

DATEThursday, June 5, 2025 at 4:30 p

ETCALL PARTICIPANTSChief Executive Officer — Calvin McDonaldChief Financial Officer — Meghan FrankNeed a quote from one of our analysts. [ tected]RISKSChief Financial Officer Frank stated, "We did lower our op margin for the full year from 100 basis points decline year over year to 160

That's all driven by the net impact of tariffs. " Frank said, "We expect gross margin in Q2 to decline apximately 200 basis points compared to Q2 2024," citing increased occupancy, depreciation, tariffs, higher markdowns, and foreign exchange

Frank said, "SG&A was above our guidance of 120 basis points of deleverage due predominantly to the negative impact from an FX revaluation loss. "Frank noted, "given consumer confidence and macroeconomic as we move into the second half of the year, we feel it's prudent to tick up our forecast slightly on the markdown line. "TAKEAWAYSRevenue: lululemon athletica inc. 52%) reported $2. 4 billion, up 7%, or 8% in constant currency

Comparable Sales: Increased 1%; Americas comparable sales declined 1%, China Mainland increased 8%, Rest of World increased 7%

Americas Revenue: Rose 3%, or 4% in constant currency; Canada up 4% (9% in constant currency), U

China Mainland Revenue: Grew 21%, or 22% in constant currency; management attributed a four-point impact to the Chinese New Year calendar shift

Rest of World Revenue: Increased 16%, or 17% in constant currency

Store Network: 770 global stores at quarter-end; three net new stores opened, square footage up 14% year over year

Digital Revenue: $961 million, representing 41% of total revenue

Category Growth: Men's revenue up 8%, women's up 7%, accessories and other up 8%

Gross Margin: Increased 60 basis points to 58. 3% (GAAP), driven by lower duct cost, imved damages, imved markdowns, and leverage on fixed costs; 130 basis points imvement in duct margin offset by 50 basis points deleverage on fixed costs and 20 basis points of FX pressure

SG&A Expenses: $943 million, or 39. 8% of revenue; deleveraged 120 basis points year over year (GAAP), above guidance due to FX revaluation loss

Operating Income: $439 million, 18. 5% of net revenue; operating margin declined from 19% in the prior year period

Diluted EPS: $2. 60 per diluted, up from $2. 54 in the prior year; full-year diluted EPS (GAAP) guidance is $14. 78, compared to $14. 64 in the prior year

Inventory: Dollar value up 23%, units up 16%; increases attributed to higher average unit cost due to tariffs and FX

Repurchases: 1,360,000 s repurchased for $430 million at an average price of $316; $1. 1 billion remaining in repurchase authorization

Balance Sheet: $1. 3 billion in cash, no debt

Full-Year Revenue Guidance: $11. 15 billion to $11. 3 billion, implying 5%-7% growth, or 7%-8% excluding the prior year’s fifty-third week

Store Growth Guidance: 40-45 net new company-operated stores expected for the year; majority of new stores international, mainly China

Gross Margin Guidance: Full-year gross margin (GAAP) expected to decrease 110 basis points due to tariffs and slightly higher markdowns; Q2 gross margin expected to decline 200 basis points from the prior year period

SG&A Guidance: Full-year SG&A deleverage of 50 basis points expected; Q2 deleverage of 170-190 basis points from the prior year period

Operating Margin Guidance: Operating margin (GAAP) expected to fall by 160 basis points year over year

Capital Expenditures: $152 million in the quarter; full-year guidance of $740 million-$760 million, targeting growth, distribution centers, store expansion, and nology

Tariff Mitigation: Management is planning "modest" price increases on select items, supply chain efficiency actions, and targeted sourcing shifts, with mitigation expected mainly in the second half of the year

Brand Awareness: Unaided U

Brand awareness rose from the mid-30% range in the prior quarter to 40% in the current quarter

Duct Innovation: New ducts such as Align No Line, Daydrift, Glow Up, and Be Calm received positive responses, with key launches selling out and full distribution planned for the back half

SUMMARYManagement maintained full-year revenue guidance and highlighted international momentum, with China Mainland revenue up 22% in constant currency despite a calendar shift

Operating and gross margin guidance were revised downward, as management cited tariff impacts and plans for only modest, targeted price increases on a limited portion of the asment

Digital revenue contributed 41% of the mix, and duct innovation was a focus, with several new launches receiving rapid sell-through and positive guest back

Chief Executive Officer McDonald said, "we gained market across both men's and women's in the premium athletic wear market in the United States. "Management confirmed strategic investments remain on track across distribution, new, and nology, supported by $1. 3 billion in cash and no debt

Tariff mitigation actions—including pricing and sourcing—are expected to have greater impact in the second half of the year, with gross margin pressure front-loaded into Q2

Inventory growth in dollars outpaced units, with management attributing the differential to tariffs and FX, but asserting inventory quality and composition remain healthy

Brand activations and campaigns, such as Summer of Align, contributed to the sequential rise in unaided U

Awareness, reflecting investment in grassroots and omni-channel engagement

INDUSTRY GLOSSARYOptimization: Reconfiguration or relocation of existing store sites to imve ductivity, size, or guest experience

Co-located Strategy: Apach of expanding or opening larger-format stores within high-traffic locations to offer a fuller asment across

Daydrift/Align No Line/Glow Up/Be Calm: prietary duct franchises or new lines referenced by name, representing recent innovations in lululemon athletica inc

Fifty-third Week: An additional fiscal week in the prior reporting year, impacting year-over-year comparisons

Full Conference Call TranscriptCalvin McDonald, CEO, and Meghan Frank, CFO

Before we get started, I'd to take this opportunity to remind you that our remarks today will include forward-looking statements reflecting management's current forecast of certain aspects of Lululemon's future

These statements are based on current information, which we have assessed but which by its nature is dynamic and subject to rapid and even abrupt changes

Actual results may differ materially from those contained in or implied by these forward-looking statements due to risks and uncertainties associated with our, including those we have disclosed in our most recent filings with the SEC, including our annual report on Form 10-Ks and our quarterly reports on Form 10-Q

Any forward-looking statements that we make on this call are based on assumptions as of today

We expressly disclaim any obligation or undertaking to or revise any of these statements as a result of new information or future events

During this call, we will present both GAAP and non-GAAP financial measures

A reconciliation of GAAP to non-GAAP measures is included in our quarterly report on Form 10-Q and in today's earnings press release

In addition, the comparable sales metrics given on today's call are on a constant dollar basis

The press release and accompanying quarterly report on Form 10-Q are available under the Investors section of our website at www

Before we begin the call, I'd to remind our investors to visit our Investor site where you'll find a summary of our key financial and operating statistics for the first quarter as well as our quarterly infographic

Today's call is scheduled for one hour, so please limit yourself to one question at a time to give others the opportunity to have their questions addressed

And now, I would to turn the call over to Calvin

Calvin McDonald: Thank you, Howard

It's good to be here with you today to discuss our first quarter results

As you've seen from our press release, our revenue growth for the quarter came in at the high end of our guidance range

I'm pleased with this performance, which was relatively consistent with quarter four

I'd also note that our revenue in the United States grew 2%, which is an imvement in the trend we've seen over the last several quarters

Based on our quarter one revenue performance and what we're seeing thus far in quarter two, we are maintaining our revenue guidance for the full year

As we look ahead, we will continue to leverage our financial strength and our position in the marketplace to play offense, remain agile, and successfully manage the environment around us

I'll begin by sharing the details of our quarter one performance, including high-level financial metrics and key highlights regarding our regional performance, duct innovation, and our brand campaigns and activations

Next, I'll vide insights into the planning and strategies we're deploying related to the increase in tariffs

Meghan will speak to the specific financial implications, and I'll some insights into the opportunities we have across the

I'll then my thoughts on quarter two and the remainder of the year

Meghan will review our financials and our d guidance, and we will conclude by taking your questions

In quarter one, total revenue increased 7% or 8% on a constant currency basis

Gross margin increased 60 basis points to 58. 3%, and earnings per were $2. 60, ahead of our expectations

In addition, in quarter one, we continued repurchasing s and bought back another $430 million of stock

Our repurchases demonstrate the strength of our balance sheet and our continued confidence in the long-term spects for Lululemon

Looking at our regional performance, we continue to see strength across driven by our high-performance, high-style merchandise and the compelling ways we engage with our guests through brand activations and community events

In North America, momentum continued in Canada, where sales grew 9% in constant currency, and in the United States, revenue growth imved to 2%

We're making gress on our asment, and we've seen good response to many of our new innovations

But my sense is that in the U. , consumers remain cautious right now, and they are being very intentional their buying decisions

Even with this, we gained market across both men's and women's in the premium athletic wear market in the United States

In China Mainland, revenue increased 22% in constant currency

As you are aware, Chinese New Year shifted from quarter one of this year to Q4 of last year

While we estimate that this calendar shift had a negative impact of four percentage points on Q1 revenue growth, we remain pleased with the underlying momentum in this very important growth market

And in the rest of the world, revenue increased 17% in constant currency as we continue to see a strong acceptance of our brand by guests across the APAC and EMEA regions

We are executing against our strategy to maximize our existing, expand in newer, while also seeding others for future growth

I'm excited by the recent store openings in two of our franchise, Denmark and Turkey, which are off to a strong start, and we remain on track to enter Italy as a new company-operated market and Belgium and the Czech Republic under a franchise model later this year

When looking at the full year, our view on revenue is unchanged, and we continue to expect 7% to 8% growth

By region, we continue to anticipate revenue in North America to increase in the low to mid-single-digit range, China Mainland to grow in the 25% to 30% range, and revenue in the Rest of World segment to increase 20%

Key to our success within all our is our duct, which offers unique and innovative solutions for guests across both athletic and lifestyle duct

Throughout quarter one, guests responded well to the newness we introduced into our asment

For women, our defined franchise continues to perform well across our globally, and we are pleased with the response to our recent launches, including Daydrift, Shake It Out, and Be Calm

For men, we're seeing strength in several of our key franchises, including Zeroed In, Smooth Spacer, and Show Zero

In May, to celebrate the ten-year anniversary of our Align franchise, we launched Align No Line, which offers the same fit and feel as the iconic legging but without a front seam

We're pleased with the guest response both online and in the 80 doors where it was offered

We plan to build on this momentum for the fall when we roll it to all stores

I'm excited with the innovations we've rolled out this year and will continue to bring to market going forward

We have significant opportunity to expand all five of our key activities: yoga, run, train, golf, and tennis, and become the top-of-mind destination for guests who enjoy these activities

Recent examples include our new Fast and Free running short for men, and for women, we launched additional styles which leveraged the re and development our teams conducted last year for our further ultra-marathon event

Switching now to our brand activations

Our teams continue to develop unique and compelling brand campaigns and community events that engage our guests, increase brand awareness, and support our duct launches

Let me highlight a recent example

To support the launch and to celebrate Align's anniversary, we created our Summer of Align campaign

This fully integrated campaign included traditional and social media, exclusive experiences and events, and several influencers and ambassadors

We hosted events around the world, including our Lululemon roller rink activation at the Bottle Rock Festival in Napa Valley and our largest-ever yoga experience in China, att by 5,000 people in Beijing

This campaign and the other events we activated in quarter one is a great example of how we remain focused on our grassroots apach to guest engagement while at the same time leveraging traditional media assets and our roster of ambassadors to support duct launches and build our brand

In fact, our unaided brand awareness in the United States grew from the mid-30s in quarter four to 40% in quarter one

I would now to talk for a moment the current environment related to tariffs

Meghan will speak to our assumptions and the implications of potential higher rates during her guidance discussion

But I first want to spend a few minutes sharing our apach

The current tariff paradigm has brought uncertainty into the retail environment

As consumers try to assess the impact they will have on daily life, as es evaluate these impacts as well, I believe we are better positioned than most to navigate the near term while also maintaining our focus on in our growth potential over the long term

We are operating from a position of strength

Our brand remains strong, our guest engagement is high, we offer a compelling value position, and we are a highly fit.