Here are some excerpts from the Lululemon 2nd Quarter Conference Call. Nothing very exciting except they are going to "re-launch" their website after Christmas to enhance the "digital guest experience". I'm hoping they aim for something more like you find on Athleta's or Lucy's website. They also talk a lot about markdowns which is music to my ears. Sorry for the weird look with the highlighting. It's hard to do on a non-white background.
Day: 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
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.
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.
CFO Dude: So for the second quarter of fiscal 2010, total net revenue rose 55.8% to $152.2 million from $97.7 million in the second quarter of 2009.
The increase in revenue was driven by comparable store sales growth of 31% on a constant dollar basis, with our 2008 age class of U.S. stores in particular performing well above the company average. The addition of 12 net new corporate-owned stores in North America, since Q2 of 2009, which includes the Saskatoon franchise we acquired late in the second quarter.
Q: Christine, I think you were planning on re-launching the e-commerce Web site, and I don’t know if there was a decision made on the timing of that before or after Christmas. So, if you can maybe give us an update on that on what the improved functionality will be?
A: We did make the decision to go post Christmas. We didn’t want to do anything that did not allow us to capture all of the holiday sales. So, you will see it launch after the beginning of the year. Deanne, do you want to talk a little bit about some of the new…?
Actually, when we’d launch right after holiday there won’t be any major changes to functionality. The work is being done right now on the new and improved kind of guest experience, and you will see that in the next 12 to 18 months. Small, little quick wins will be added in January, but in general, you won’t see a substantial difference in our Web site post-holidays.
...you will see a little bit of increased spend in IT, the Web site, the online, what we are calling the digital guest experience, so really creating additional investments in that space to capture what’s really been a successful platform for us with the guests. We’re really focused on building our technical R&D capabilities, so we’ll be making some investments in that area, both in headcounts and increasing some of the dollars that we spend on innovation, and then continuing to build out our supply chain production team so we maintain the quality that we’re known for, because I think that (inaudible) any break in that.
Q: John, I think you’re talking about cost pressure affecting gross margin. Will we start to see higher retails in the store or how should we be thinking about that? I’m wondering about the performance or productivity of the Australian market. Christine, you may not want to be specific, but is that market performing at the levels of productivity that we understand the U.S. and Canada to be?
Also with respect to the e-commerce business, do you have a certain goal of where you see that business growing to as a percentage of sales? If you could just comment about the profitability there, because we’re hearing from most of our companies that the margin in that channel is higher than elsewhere, and retail businesses? Thanks.
A: Regarding cost pressures, because we’re mitigating as much of this, vis-à-vis smart planning and our great vendor relationships we don’t see this affecting our retails in the stores. We will however as we invent and invest in our new technologies, we will look at those retails as appropriate and if there is something that warrants it, we will apply the right value proposition [ph] for it, but there won’t be any price (inaudible) on any of our core items or key items.
Q: Have you seen good acceptance of some of your higher price points outerwear and other fashion items?
A: Outstanding in outerwear.
Q: I think I have one more on the e-commerce business, really do you see that being a bigger percentages, I mean 10% to 15% of the business?
A: Without addressing a timeline to that, absolutely. We buy for it separately and since it’s been a new channel and we do primarily grassroots, we don’t buy names, we don’t buy links or lists, and we really maintain it in the same brand strategy we do everything else. So what is that right sales strategy? We have inventory constrained and it’s very clear. Every time we up it, no matter how much we up it, we take it running at a very light number of weeks per sale.
So our big focus in this fall quarter has been to increase it to see how high it is. I’d just like to remind anybody new to the story that our inventory is different than a fashion retailers because its athletic technical wear, and we don’t have the same issues in holding inventory for a little long as long as it’s in that primarily core merchandise.
We also follow the strategy of pulling forward our line from spring and putting those in. So even taking inventory up a little bit to play into sales is a very safe bet for us. John went through in his numbers; we’re not even catching up to a sales trend with the inventories (inaudible).
Q: In the 10-Q you mentioned an increase in discounts adversely affecting the gross margin this quarter. I was just hoping to get some thoughts on the promotional environment and what we should be expecting for fall and holiday?
A: As we came into Q2, we did get into a better inventory position. As a result, we’re back to the more normal pace of markdowns that is typical to clear inventory. So the pace of markdowns in Q2 was more typical with what we’ve seen in the past and expect to see in the future.
Q: And then in terms of the productivity of your U.S. stores where are you at in relation to your goal of being in line with the company average?
A: I would say looking at our comp position 31% in the U.S. stores in particular the ones opens two to three years ago are well above that average. What’s happening is during the recession the U.S. stores that opened in such a tough environment were lagging behind, they now seem to be catching up and back on or ahead of the trajectory that we expected and that we years ago saw as we expanded throughout Canada.
Q: Your new bags look great, could you talk about what you’re seeing on the accessory side and your efforts there?
A: Our bag assortment is like our outerwear assortment, it’s evaporating, and this is due to actually the great materials that we’re using, the great hardware, premium hardware that we are using and then the style and functionality that are going into each bag.
We’ve also upped our inventories in socks and underwear and other staple categories as well as our running accessories and other yields of accessories. So, we are on track with all of those. I think the primary reason for that is not only its function and styling but the fact that it all goes back to the deliveries that we are seeing in the functional apparel piece of the business. So, everything is quite synchronized right now and it’s paying off.
Q: And then just one quick follow-up on just the inventory number. So, I understand that a lot of that is been driven by an increased investment in core merchandise. Is there any way you can kind of break out how much of an impact that core reinvestment has on that year-over-year growth number or even the dollar number, if possible?
A: It’s very significant. I think there’s two factors that you want to look at there, one is that, and which is a very safe inventory position for us to be in, and really it’s about even guest loyalty, frustrating people on the core items isn’t something we want to do, frustrating them on that special jacket in terms of scarcity, I’m willing to do. And then the second is really shipping inventory into our e-commerce channel, which has been significantly constrained.
Q: And then maybe just one follow-up on outerwear. This has been a great category for you guys for the last couple of fall seasons. Has it been extended for the fall relative to last year at all?
A: No, it hasn’t been extended. So essentially, we have four styles out there right now, which are all performing beautifully.
Q: I have a couple questions on women’s pants. I noticed that you recently added the higher waist Tadasana pant and I was wondering if this was something the customers have been asking for and if you plan on expanding this? And then also I know you do hemming, but I wondered if you’ve started offering a short leg, because sometimes hemming seems as the leg shape?
A: I think you’re referring to the Tadasana pants, which is performing nicely. I think the real answer to your question, Claire, is that, we provide a fit logic that accounts for not only what’s happening with the silhouettes and pants or any other article of clothing, but also that provides a range so that different body types and so on can wear our product. So far we have zeroed in on that logic, and we’re happy with it. The Tadasana is probably one of the highest rises that we’ve had in some time and we’ve gotten some nice performance on it