lululemon athletica inc. (LULU)

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Lululemon Athletica (LULU)

Q2 2011 Earnings Call

September 09, 2011 9:00 am ET


John Currie - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Treasurer

Joseph Teklits - Senior Managing Director

Sheree Waterson - Executive Vice President of General Merchandise Management, Supply Chain and Logistics

Christine Day - Chief Executive Officer, President and Director

Chris Ladd - Senior Vice President of Global Ecommerce


Stacy Pak - Barclays Capital

Sharon Zackfia - William Blair & Company L.L.C.

Dana Telsey - Telsey Advisory Group

Taposh Bari - Jefferies & Company, Inc.

Paul Lejuez - Nomura Securities Co. Ltd.

Michelle Tan - Goldman Sachs Group Inc.

Christian Buss - Thomas Weisel

Paul Alexander - BofA Merrill Lynch

Pamela Quintiliano - Oppenheimer & Co. Inc.

John Morris - BMO Capital Markets U.S.

Omar Saad - ISI Group Inc.

Howard Tubin - RBC Capital Markets, LLC

John Zolidis - Buckingham Research Group, Inc.

Erika Maschmeyer - Robert W. Baird & Co. Incorporated

Laura Champine - Cowen and Company, LLC

Edward Yruma - KeyBanc Capital Markets Inc.

Janet Kloppenburg - JJK Research



Good day, ladies and gentlemen, and thank you for standing by. Welcome to the lululemon athletica Second Quarter 2011 Results Conference Call. [Operator Instructions] As a reminder, this conference may be recorded. I would now introduce our host for today, Mr. Joe Teklits with ICR. Sir, please go ahead.

Joseph Teklits

Okay, good morning. Thanks for joining us today for lululemon's second quarter 2011 results conference call. A copy of today's press release is available on the Investor Relations section of the company's website at or furnished on Form 8-K with the SEC and available on the commission's website at Also available in the Investor Relations section of the company's website will be a recording of today's call, which will be available for 30 days as a replay shortly after we end.

Hosting the call today is Christine Day, the company's CEO; and John Currie, the company's CFO. We'd like to remind everyone, of course, that statements contained in this conference call which are not historical facts may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results might differ materially from those projected in such statements due to a number of risks and uncertainties, all of which are described in the company's filings with the SEC.

And with that, I will turn the call over to Christine Day.

Christine Day

Thank you, Joe. Good morning, everyone, and thank you for joining us to discuss our second quarter results. With me today is John Currie, our CFO. Following my opening remarks, I will turn the call over to John to review the financial details for the quarter and outlook for the third quarter and full year.

Our business remained very healthy through the second quarter, and in the first half of 2011, we have achieved milestones for our company in sales productivity and operating margin while growing pretax income by more than 60%. And more importantly, our success continues to be based on running a healthy brand-focused business that consistently delivers product quality and innovation, along with a great guest experience, attributes that we are passionate about that have enabled us to build a brand recognition and win the loyalty of our existing customers. So not only are we growing nicely, including revenue growth of almost 40% in the second quarter, we also continue to invest in a strong foundation for building long-term success, and we believe that we are well positioned to continue our growth initiatives despite any potential recessionary retail environment and product inflation headwinds.

Adding to a major initiative earlier this year, which was transitioning our e-Commerce platform in-house, we also continue to advance on a number of fronts. First, we took the next step with ivivva with the launch of our new ivivva e-Commerce site in Canada with the U.S. to follow late fall. ivivva is all about dance, movement and fun, and we are excited to bring this to life for Canadian girls nationwide with our new online store that captures the vibrant colors and technical features of the product assortment, as well as other cool features on the new site. Also for ivivva, we are developing a new line in partnership with Disney Consumer Products for spring 2012 providing girls with dance-inspired athletic wear that fits their active lifestyle and ties back to the Disney Channel dance comedy series, Shake It Up!

Next we are rolling out Australian stores at a more rapid pace this year than originally planned, now 7 stores versus an original plan of 2. We are very confident in our ability to continue to grow the Australian business, given the strong guest response to brand and business results and the great team that we have in place there.

We also continue to make new hires and investments and to spend on building our infrastructure for e-Commerce, international and other expansion plans in order to prepare for the future. Beginning next year, you will see us add additional country sites to our e-Commerce, along with other grassroot strategies to seize the market while remaining focused on the large opportunity we continue to have in the U.S.

Another major initiative for us has been improving our inventory flow. We have achieved one of our objectives, which is to be inventoried in our core and key items. Our inventory position on new and seasonal items is still a little lighter than we would like it to be for Q3, and we will continue to build levels in those categories throughout the quarter. Our focus going forward will be on-time deliveries and the flow of new styles for the optimal mix of colors, seasonal items and innovation. This matches our new product initiatives, which are focused on technical product, new fabrication, as well as new features within our basics such as a new seaming technology. Better flow of this merchandise is an opportunity for us in the remainder of 2011 and 2012, especially in Canada where our customer gravitates towards anything new that we introduce.

Looking at the second half of the year, we believe we can grow pretax income by close to 30% on top of strong growth a year ago despite product cost pressures. We have worked hard to develop a winning formula. We're going to stick with it and continue to make it even more potent as we develop new areas for growth. As we said on our last call, we are confident that we are strategically positioned to manage through the current economic environment. We see many opportunities ahead, and we are in a position to pursue them in a sensible way. We've strived to balance the expansion of our brand with the integrity of our brand and with the end result being long-term shareholder value creation.

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