lululemon athletica, Inc. Q1 FY2025 earnings call

Calvin began by noting that total revenue grew as expected, with gross margin improving and share repurchases continuing. Regionally, markets showed strength with North America, China Mainland, and the rest of the world all experiencing growth. Product innovation was highlighted, with new launches like Daydrift, Be Calm, and Align No Line performing well. Brand activations such as the Summer of Align campaign were discussed. The company also detailed its approach to dealing with tariffs, including managing expenses, optimizing the supply chain, and considering pricing strategies. Insights were provided regarding the outlook for the second quarter and the full year, focusing on product pipeline development, store openings, and guest engagement.

In the first quarter of 2025, total revenue increased 7% or 8% on a constant currency basis. Regionally, in North America, Canada's sales grew 9% in constant currency and the United States' revenue growth improved to 2%. China Mainland's revenue increased 22% in constant currency, and the rest of the world's revenue increased 17% in constant currency. Gross margin increased 60 basis points to 58.3%, and earnings per share were $2.6.

For the full year 2025, Lululemon continues to expect revenue in the range of $11.15 billion to $11.3 billion, representing 5%-7% growth relative to 2024 (7%-8% when excluding the fifty-third week in the fourth quarter of 2024). The company expects to open 40-45 net new company-operated stores and complete approximately 40 optimizations in 2025. Gross margin is expected to decrease approximately 110 basis points compared to 2024. SG&A is anticipated to deleverage by approximately 50 basis points. In the second quarter of 2025, revenue is expected to be in the range of $2.535 billion to $2.56 billion, representing 7%-8% growth. The second quarter's gross margin is projected to decline approximately 200 basis points relative to the second quarter of 2024, with the SG&A rate expected to deleverage 170-190 basis points and the operating margin expected to decrease approximately 380 basis points year-over-year.

There are uncertainties related to tariffs, the macroeconomic environment impacting consumer behavior, and potential competitive promotional pressures that could affect the business.

Q: As you think about the guidance for the balance of the year and the pressure on Q2, before you have some mitigation efforts in the back half of the year, can you expand on those mitigation efforts and what you're thinking about, whether it's price increases, diversifying sourcing, how should we think about it? And then when you think about just the U.S. business, any category strength that you saw with the newness that you offered and any early indications on the no line align which frankly I've heard good sell-throughs?

A: Meghan mentioned strategic price increases on a small portion of the assortment and pursuing sourcing efficiency actions. Calvin talked about balanced category trends, including lifestyle items like the Daydrift trouser and activity items like Glow Up and Align No Line that have received good responses.

Q: I was hoping you could dig in a little bit more to the comp drivers, the top-line drivers. I think last quarter you had talked about traffic falling off, but seeing some improvements in transaction size and solid performance in conversion. Wondering if still seeing the same thing then maybe any update on the progression of the quarter, what you saw in April into May?

A: Meghan said that in terms of comp drivers, there was a decline in store traffic, which moderated somewhat but was still lower in the first quarter compared to the fourth quarter. Conversion trends were relatively consistent, with an uptick in average dollars per transaction, and there was nothing materially different in April into May.

Q: A couple of questions. I'm going to merge them together, both tied around kind of tariffs and your strategy for tariffs. I guess the first question, if I'm hearing you, I mean, as you're looking at these tariffs, it sounds like you're going to take the biggest hits on margin. So the question I have is, why not at least initially or do more with price? And then secondly, as we look at the guidance now, sort of say the bigger disconnect between top and bottom line, is that all mostly tariffs or I think you did mention some other investment spending in there?

A: Meghan said the full-year revenue guide was maintained, and the operating margin guide was lowered due to the net impact of tariffs with some offsets in pricing and the supply chain, along with a slight increase in markdowns, with no meaningful changes in the expense posture.

Q: Maybe could you elaborate on the progression of comps that you saw over the course of the first quarter? And on the start to the second quarter that you cited, I guess if we think about it relative to first quarter performance in The Americas, and in China? Does the 7% to 8% revenue guidance for the quarter, does that embed a moderation in June and July trends relative to what you've seen in May, just given the uncertainty and the dynamic backdrop?

A: Meghan said there were no material changes in the progression of comps month to month in the first quarter, and for the second quarter, the trends in the U.S. and China were in line with the annual guidance.

Q: Given some of the success of some of the new launches that you've seen year to date, can you elaborate on your latest thoughts about returning the U.S. business to sustainable comp growth and whether or not that differs at all in your Canada versus U.S. as you contemplate North America reported comps?

A: Calvin said there was positive reaction to newness, market share was gained in the premium activewear segment, and while there was a difference in consumer behavior between the U.S. and Canada, newness was responding well in both markets.

Q: Hey, thanks for taking my question. Two questions. I think first for Calvin. So appreciate on the product side, the commentary on what's working both in lifestyle and performance. But at the end of the day, the comps are up 1%. So clearly, there's got to be some things that are not working. Could you just maybe help us what exactly are the parts that are lagging that you're hoping to improve? And then Meghan, maybe just back to Matt's question, part of the guidance revision down is markdown, but it sounds like you're saying that you're not seeing any markdown yet, but you're planning it. So I guess maybe I'm just a little confused. Is it because of the inventory build that you're expecting markdown to accelerate? I guess I'm just confused why you're taking a more cautious approach on that. Like what's the leading indicator that you're thinking that if you're not seeing it yet?

A: Calvin talked about the balance of the product mix and how traffic numbers impacted the U.S. mix, and Meghan said traffic trends were the leading indicator for markdown planning.

Q: You maybe give a little bit more detail about inventory by geography? And if there are any specific regions that you're seeing potentially more margin pressure, markdown pressure, where is that coming from? Is that just the U.S. or is it more global? I mean is there anything in the competitive landscape front you see across your different global markets that make you think that things might heat up from a promotional perspective?

A: Meghan said markdown pressure was predominantly in the U.S., and Calvin said competitive promotional play was seen in the U.S. but not globally.

Q: Great. Thanks so much. Maybe for either of you, do newness levels stand in total? Like, are they back where you want them to be? And then if that's not inflecting Americas comp to positive, are you exploring maybe other potential drivers for what to do to get it there? And maybe related for Meghan on that one, is a positive comp for Americas possible this year? Or with your view on the macro, is that something that is more kicked out?

A: Calvin said newness levels were back to desired, and Meghan said the Americas' full-year revenue guide was unchanged with potential to capitalize if the consumer environment improved.

Q: My question is about China. Given the comp in China, you've opened a lot of stores. How much more store growth opportunity do you see in China before you start worrying about cannibalizing your existing store base given the level of comp right here? Like can you tell us how many stores you have now, what you expect by the end of the year? And then maybe kind of what you're thinking about as a store growth rate going forward?

A: Meghan said China was still in the early stages of development, with 154 stores currently, and expected to reach goals, with a co-located strategy underway.

Q: Thank you very much. My question is on the inventory. The inventory does have some tariff impact and FX. Of the delta from units to dollars at about 7%, how much of that is tariff and how much of that would be the FX? And then secondarily, I guess it's a follow-on. You expecting that tariff inventory to sort of hit the P&L sort of late June and July? And is that when we should expect the commensurate price impact?

A: Meghan said the dollar inventory impact was predominantly from tariffs and FX, and the price impact was expected to start rolling out in the second half.

Q: Thank you. Good afternoon. I wanted to focus on SG&A for a minute. It looks quite high in the second quarter. Is there anything changing in your view of the investment needed to drive growth? Or is this just timing versus planned investments in the second half?

A: Meghan said the second quarter's SG&A was impacted by factors like foundational investments and strategic investments, with the full-year SG&A guide relatively in line.

Q: Thank you. I want to go back to China. Meghan, you talked about your store growth there, but wondering if you can share some color around the comp growth. There's been a pretty sizable deceleration year over year. Can you share some color around what's that's being driven by? Is it a macro slowdown or something else? And I know there were some tough compares last Q1 as those compares ease in China as well as in the rest of the world. Do you expect to see an acceleration in the comp in the next couple of quarters?

A: Meghan said China trends were still strong with double-digit growth, and the full-year growth expectation for China was 25%-30%.

Q: All right. Thanks for squeezing me in, Howard. Just to stay on China and rest of the world, obviously, you just talked about it in relation to Aneesha's question, but there was a sizable deceleration in the two-year stack if that's the best way to look at it. But do you think you're becoming more susceptible to a macro environment in China now that you're pushing the end of the year, be pushing $1.7 billion in revenue? And what are you seeing in Rest of World? There was a deceleration there as well.

A: Calvin said there were no changes in the view of opportunities, and Rest of World markets were still performing strongly with a long runway of growth.