Lululemon Athletica Inc. (NASDAQ:LULU) Q2 2023 Earnings Call Transcript

Calvin McDonald: All right. Thanks, Adrienne. In terms of our speed of innovation, I would agree that the pipeline and the launches within each quarter continue to get very strong and excited about the balance across our accessories business, our women’s business, our men’s business. I think it is an execution of a very deliberate innovation strategy that we’ve been working through the Power of Three and into the Power of Three x2 strategy. You’ve heard me reference our play categories and being very deliberate in terms of what we design into and then leveraging our core, how we leverage versatility, but continue to innovate against some of those core hero franchises that he and she loves so that we don’t simply launch and then just allow it to run without enhancements, improvements and adding to sharing across gender.

For instance, in this quarter, we took our famous Scuba fabric and brought that into a Steady State for him, which was an opportunity we saw in our assortment that we were missing. So, I think, what you continue to see is just the team executing on the strategy. We have a horizon of innovation across Horizons 1, 2, 3, which can be anywhere from 1 to 3, 4 years as we keep looking to solve the unmet needs of our guests and where and how, but we have a lot that we’re able to bring forward and commercialize as well as having a lot that the team continues to work on for future quarters and future years and feel very excited about our ability to sell through core, innovate core and then bring true innovation to the guest through that notion of unmet needs versus unmet wants.

And I think that’s driving our business that we’re truly solving, which is a unique standout in this marketplace.

Meghan Frank: And then, Adrienne, in terms of China, we are really pleased with the performance there in the quarter, up 61% in Greater China. We have a 100 stores today in China. We’re opening 35 stores in an international region this year, the majority of those in the China market. As Calvin mentioned, we’ve had some exciting community activations still looking to build brand awareness and drive into that opportunity there. And then, over the longer term, we’ve set approximately 200 stores at the end of our five-year plan, and I think — there’s also beyond there as well in terms of still very early innings on our China growth.

Operator: The next question comes from Lorraine Hutchinson with Bank of America. Please go ahead.

Lorraine Hutchinson: Meghan, you’ve pulled a lot of investments forward into 2023 as gross margins continue to beat. Can you give us some examples of the most successful investments? And then, also talk to your ability to generate leverage on this line item as we move into 2024.

Meghan Frank: So, we’ve been really excited with the revenue momentum we’ve had and then also the progress that we’ve made on recouping air freight expense. So our guidance now on revenue is 17% to 18% growth ahead of our original target and then margin, guiding to 190 to 210 basis points with airfreight really being the driver there. So, what it’s done is it’s given us the ability to invest behind our Power of Three x2 road map. So, that would include market expansion, notably international, specifically China as a key focus there, improving guest experience and omni capabilities and then foundational investments to drive the business forward. And I think coupled with that, what we’re really excited with is, you heard us talk on Analyst Day about the tremendous opportunity we have in brand awareness.