LULU

lululemon athletica inc. (LULU)

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lululemon athletica inc. (LULU)

Q2 2010 Earnings Call Transcript

September 10, 2010 9:00 am ET

Executives

Melissa Mackay – IR, ICR Inc.

Christine Day – CEO

John Currie – CFO

Sheree Waterson – EVP, General Merchandise Management & Sourcing

Deanne Schweitzer – Head of Strategy and e-Commerce

Delaney Schweitzer – EVP, Retail Operations, North America

Analysts

Michelle Tan – Goldman Sachs

Sharon Zackfia – William Blair

Janet Kloppenburg – JJK Research

Lorraine Hutchinson – Bank of America

Jessica Schmidt – KeyBanc

Erika Maschmeyer – Robert W. Baird

Claire Gallacher – Capstone Investments

Taposh Bari – Jefferies & Company

Laura Champine – Cowen

Richard Jaffe – Stifel Nicolaus

Howard Tubin – RBC Capital Markets

Claire Vondreau [ph] – Jennifer Black & Associates

Presentation

Operator

Good day, ladies and gentlemen and welcome to the lululemon athletica Q2 2010 Results. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator instructions) As a reminder today’s conference call is being recorded. I’d now like to turn the conference over to your host Ms. Melissa McKay from ICR. Please go ahead.

Melissa McKay

Good morning. Thank you for joining lululemon athletica’s conference call to discuss second quarter 2010 results. A copy of today’s press release is available on the Investor Relations section of the company’s Web site at www.lululemon.com or furnished on Form 8-K with the SEC available on the commission’s Web site at www.sec.gov.

Today’s call is being recorded and will be available to replay for 30 days shortly after the call in the Investor Relations section of the company’s Web site.

Hosting today’s call is Christine Day, the company’s President and Chief Executive Officer and John Currie, the company’s Chief Financial Officer.

Before we get started, I would like to remind you of the company’s Safe Harbor language. 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 future results might differ materially from these projected and such statements due a number of risks and uncertainties all of which are described in the company’s filings with the SEC

Now, I’d like to turn the call over to Christine Day, lululemon athletica’s Chief Executive Officer.

Christine Day

Thank you, Melissa. Good morning, everyone and thank you for joining us to discuss our second quarter results. With me again this morning are John Currie, our CFO; Sheree Waterson, our EVP General Merchandise Management and Sourcing; Delaney Schweitzer, our EVP of Stores; and Deanne Schweitzer, our Head of Strategy and e-Commerce.

Following my opening remarks I’ll turn the call over to John who will discuss the quarter’s financial details as well as our outlook for the remainder of the year.

In our second quarter our strong first quarter growth momentum continued with a 31% stores sales increase and net income that more than doubled last year’s second quarter results. Second quarter earnings were also more than 85% higher than our previous second quarter earnings peak in 2008 catching up to our pre-recession trajectory.

The strong sales results were driven by consistent execution of our key strategies, grassroots community to drive traffic, our core lines of running, yoga and our focus on our in-store guest experience.

The comp improvement in the quarter was again driven by traffic and transactions, which we believe is simply a continued increase in brand recognition and proof that our community effort and overall strategy and market positioning are resonating with our guests.

We also improved our inventory position in core and key items, in particular, in sizes two, four and six allowing us to be in stock to drive sales.

Our sales per square foot are now over 1,530, which is above our IPO levels of 1,447. While all age classes are delivering positive comps. The strong increase is led by the accelerating growth of our newest age classes.

In addition to existing stores, we continue to focus intently on our growth initiatives such as e-commerce, new stores and showrooms, as well as complementary initiatives, like the purchase of our Australian licensee.

Looking at these growth avenues and starting with Australia, we made the acquisition of the Australian licensee, which now includes 10 stores and four showrooms. We have been extremely pleased with the smooth transition. We are committed to 12 new stores in North America this year along with two openings in Australia.

We are also very pleased with the performance of our new showrooms so far this year. We have opened 28 showrooms through two quarters and plan on opening 46 in total in North America and two in total in Australia by year end.

Finally, e-commerce remained between 6% and 7% of total revenue for the second quarter. Although this means our e-commerce business as a percentage of total revenue more than doubled the second quarter of last year, we were again constrained by inventory on our site.

I’m happy to say that with fall inventory arriving, sales are now building consistent with increased inventory flows and we consider this business a significant growth opportunity going forward.

We are still on track to open 20 to 25 new stores in 2011 and will have the ability to leverage the knowledge we are gaining from all of our new 2010 showrooms. We also believe that we are just scratching the surface in e-commerce and will continue to add resources in order to push this channel to more than 10% of our sales in the near-term.

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