LULU

lululemon athletica inc. (LULU)

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Lululemon Athletica (LULU)

Q1 2011 Earnings Call

June 10, 2011 9:00 am ET

Executives

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

Delaney Schweitzer - Executive Vice President of Retail Operations - North America

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

Christopher Ladd -

Analysts

Dana Telsey - Telsey Advisory Group

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

Lizabeth Dunn - FBR Capital Markets & Co.

Taposh Bari - Jefferies & Company, Inc.

Claire Gallacher - Capstone Investments

Paul Lejuez - Nomura Securities Co. Ltd.

Michelle Tan - Goldman Sachs Group Inc.

Howard Tubin - RBC Capital Markets, LLC

John Zolidis - Buckingham Research Group, Inc.

Unknown Analyst -

Janet Kloppenburg - JJK Research

Lorraine Hutchinson - BofA Merrill Lynch

Presentation

Operator

Good day, ladies and gentlemen, and welcome to lululemon athletica Quarter One 2011 Results Conference Call. [Operator Instructions] As a reminder, this is being recorded. I would now like to introduce Mr. Joe Teklits with ICR.

Joseph Teklits

Great. Thank you. Good morning, everyone. Thanks for joining us to discuss lululemon's conference call for first quarter 2011 results. A copy of today's press release is available on the Investor Relations section of the company's website www.lululemon.com or furnished on Form 8-K with the SEC available on the commission's website at www.sec.gov. 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 the call ends.

Hosting the call today is Christine Day, the company's CEO; and John Currie, the company's CFO.

First, we would like to remind everyone 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 now I'd like to turn the call over to Christine Day.

Christine Day

Thank you, Joe. Good morning, everyone. And thank you for joining us to discuss our first quarter results. With me today are John Currie, our CFO; Sheree Waterson, our EVP General Merchandise Management Source -- and Sourcing Executive; Delaney Schweitzer, our EVP Retail Operations; and Chris Ladd, our head of global e-Commerce. Following my opening remarks, I will turn the call over to Chris and then John will go through the financial details for the quarter.

We are again very pleased with our start to fiscal year 2011. Given our inventory constraints, combined with our focus on transitioning our e-Commerce platform, we approached the plan for the first quarter conservatively. However, thanks to our strong partnerships with our manufacturers, we were able to source additional inventory for April and maximize the productivity of the inventory we had to work with, both in sales and gross profit dollars.

And although we had a few bumps in the road given the complexity of the e-Commerce project, for the most part we saw a relatively smooth transition to our platform, thanks in a big way to our new CIO Kathryn Henry and our e-Commerce team. It took a little longer than expected to merchandise our online catalog by about 2 weeks, but we are now to a point where our online store is matching our retail stores about as much as we want it to. Our online store inventory will be in a good position to support a strong back half of the year. So while we planned e-Commerce down as a percentage of revenue through the transition, we already see it climbing back towards a 10% run rate and expect to be close to 10% of total revenue for the full year.

Looking at the performance of our retail stores, they also performed as expected for the quarter. February was strong but inventory constraints held back sales in March and then April rebounded as we were able to chase inventory. Our same-store sales comparison of 16% drove our trailing-12-months average sales per square foot in comp stores to new highs, just over $1,800, up from $1,428 a year ago. We believe there is room for continued productivity increases as we build our inventory position, invest in our stores and our people, and execute our strategy.

Our second quarter product mix is still somewhat transitional, as chasing products for April had some impact on the optimal mix of products in stores today, but we are in a better position overall in Q2 than we were in Q1.

Looking ahead, our richest opportunity is maximizing the size curves and seasonal allocation of product to our stores. We also continue to innovate our yoga and run lines, which are the major drivers of our sales growth. We are in the fortunate position of being able to manage the rate of innovation and keep a strong pipeline ready for execution. New fabrics, construction and styling are how we continue to evolve our core lines. Our exploration into various new categories, such as our small cycling collection this summer, have received a strong response and is an example of a growth opportunity we can pursue in the future.

What we really strive for is healthy growth. We believe the best strategy to deliver shareholder value is a balanced growth strategy that focus on driving organic top line revenue through technical and innovative product, excellent execution of our community strategy to build brand loyalty, a culture of personal accountability and development, and delivering strong sales growth through to drive profitability.

We believe our strong execution of this balanced growth strategy creates a competitive advantage, maximizes shareholder value and creates a space for our people to excel. While we remain cautious about the macro-environment, we are confident that our business momentum will remain on trend for fiscal year 2011 and are confident in our ability to navigate the cost pressures to sustain our healthy business model. I also want to highlight that one of our top initiatives in the first quarter was bringing our entire e-Commerce platform in-house. Our major accomplishment and a project we are happy to have behind us. And what I want to do now is turn the call over to Chris Ladd to give you some additional details on the transition and what it will mean for our business going forward. Chris?

Christopher Ladd

Thanks, Christine, and good morning, everyone. Christine, I really want to thank you and the rest of the team for inviting me to join lululemon. This is a very exciting time in the company's growth and I want to acknowledge you for asking me to lead the e-Commerce business into this exciting next phase. As Christine mentioned on the Q4 call, I joined the company in February and spent the first 60 days traveling around the U.S., working in our stores and learning the business from the ground up. This was a great way to learn about our brand, meet some of our amazing store teams around the country, have inspiring conversations with our guests and of course gain perspective on the incredible opportunity for growth in our online business.

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