LULU

lululemon athletica inc. (LULU)

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Lululemon Athletica (LULU)

Q3 2012 Earnings Call

December 01, 2011 9:00 am ET

Executives

Joseph Teklits - Senior Managing Director

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

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

Christine M. Day - Chief Executive Officer, President and Director

Analysts

Paul Lejuez - Nomura Securities Co. Ltd., Research Division

Dana Lauren Telsey - Telsey Advisory Group LLC

Stacy W. Pak - Barclays Capital, Research Division

John D. Morris - BMO Capital Markets U.S.

Erika K. Maschmeyer - Robert W. Baird & Co. Incorporated, Research Division

Jennifer Black

Claire Armstrong Gallacher - Auriga USA LLC, Research Division

Michelle Tan - Goldman Sachs Group Inc., Research Division

Janet Kloppenburg

Adrienne Tennant - Janney Montgomery Scott LLC, Research Division

Howard Tubin - RBC Capital Markets, LLC, Research Division

Omar Saad - ISI Group Inc., Research Division

Edward J. Yruma - KeyBanc Capital Markets Inc., Research Division

Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division

John Zolidis - Buckingham Research Group, Inc.

Andrew Burns - D.A. Davidson & Co., Research Division

Taposh Bari - Jefferies & Company, Inc., Research Division

Christian Buss - Crédit Suisse AG, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the lululemon athletica Quarter 3 2011 Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn your conference over to your host for today, Mr. Joe Teklits. Sir, you may begin.

Joseph Teklits

Okay, thanks. And good morning, everybody, and thanks for joining us for the third quarter conference call. A copy of today's press release is available in the Investor Relations section of lululemon's website at www.lululemon.com or furnished on Form 8-K with the SEC and 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 is available for 30 days as a replay shortly after we end today. Hosting our call today is Christine Day, the company's CEO; and John Currie, the company's CFO.

We would like to remind everyone, of course, that statements contained on this 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. [Operator Instructions]

With that, I'll turn it over to Christine Day.

Christine M. Day

Thank you, Joe. Good morning, everyone, and thank you for joining us to discuss our third quarter results. Today, we are doing our call from New York City. And with me is John Currie, our CFO; and Sheree Waterson, our Chief Product officer. Following my opening remarks, I will turn the call over to John Currie to review the financial details for the quarter and our outlook for the fourth quarter.

In the third quarter, we achieved 31% revenue growth with 50% year-over-year EPS growth, and we set a new record in comparable sales per square foot of $1,880. These strong revenue results were at the top end of our guidance. And as anticipated, we also had unmet sales demand throughout the quarter. Our new stores continued their strong performance, and we also bought back our last remaining franchises in Colorado and Santa Barbara.

Our goal for Q4 was to break the inventory cycle we ran all year, and we have achieved it. As you will remember, in Q4 of 2010, we were well positioned in inventory to meet demand, which drove the 28% comp. This was a great result for 2010, but it left us under-inventoried and began the cycle of chase. In Q4 2011, we have the right mix of new styles and color and a healthy and clean inventory. New product highlights for Q4 include new running luon, polar fleece, featherweight down layering pieces, a dance capsule and bright colors.

To set Q4 and Q1 up for success, our Q3 in-transit inventory includes 2 modules. We brought forward a portion of the spring deliveries built around a back-to-studio marathon training, cycling commuter themes, along with our black-and-white capsules. This will create inventory flexibility as it is appropriate for either quarter. We expect the inventory turns and markdowns to appropriately normalize due to our in-stock position. Given our confidence in our inventory levels, we have increased our revenue guidance for Q4.

One of the highlights of the quarter was the launch of our ivivva Canada and then subsequent November launch of ivivva in the U.S. Even without an ivivva U.S. store presence, our U.S. sales are exceeding Canadian e-Commerce sales, with strong demand coming from Chicago, L.A. and New York. As we do with our lululemon site, ivivva e-Commerce gives us insight into guest demand and potential future store locations.

We also completed the seamless migration of our e-Commerce servers from a shared to dedicated environment to meet growing demand. In addition, we were excited to see our guests’ reaction to our new lululemon site redesign, which launched in early November with new features, such as video education, and a new front page every day with new feature campaigns. We encourage you to check it out if you have not already.

Activities to support international growth in the quarter included third-party logistic agreements to support international e-Commerce for Europe and Asia and the expansion of our Australian DC to accommodate local e-Commerce shipping. In Q1 2012, we will launch our first localized website in Australia, with the U.K., Hong Kong and potentially one other market to follow later in the year, supported by our planned opening of 2 new showrooms in both Hong Kong and London in early 2012.

Read the rest of this transcript for free on seekingalpha.com