Monday, December 5, 2011

Dec 1 Conference Call Summary/Excerpts

Summary of the Most Interesting Points
  • No more franchise stores 
  • More inventory so more normal post-holiday markdowns (there were hardly any last year)
  • There will be a warehouse sale in January or February
  • Some spring product will be launched early
  • Bike commuting & marathon training lines coming in spring
  • more popular in US than Canada, partiucarly in NYC, LA, and Chicago.
  • New website just for Australia coming in the first quarter of 2012 with Hong Kong and UK to follow
  • Looking for a new e-commerce person to help them grow internationally (next big push)
  • Expect more SE/more higher-priced technically sophisticated/detailed items

Opening Remarks:
[Day] 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. Our new stores continued their strong performance, and we also bought back our last remaining franchises in Colorado and Santa Barbara. [Interesting. I had heard those stores were pretty good about mailing things to you if you called them but I guess no longer.]

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.  [I wonder what the spring deliveries are that have been accelerated.]

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.

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.

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.

In December, we will begin our initial round of interviews for an SVP of Brand and Community and replacing Chris Ladd, our former Head of e-Commerce, who left for personal reasons.  [Ladd was the guy they got from Crocs. According to his LinkedIn profile he now works at The Finish Line.]

So as we finish 2011, we are positioned where we want to be. We continue to perform at the top of our sector and remain focused on our 4 strategic growth priorities: driving comp store sales, e-Commerce, new stores and preparing for international expansion.

[John Currie, CFO] sales, which increased by 71%

We ended the quarter with 165 total stores versus 134 a year ago. There are 118 stores in our comp base, 40 of those in Canada, 68 in the United States and 10 in Australia

Revenues from our direct-to-consumer channel totaled $23.9 million or 10.4% of total revenue versus $14 million or 7.9% of total revenue in the third quarter of last year

Q&A Section

This year, we anticipate we'll be in a more normal markdown post-holiday mode. 

Q: mentioned something in your prepared remarks about elevating the brand, the work to elevate the brand. We've been hearing a lot of the luxury brands that we cover are seeing price points move higher. The consumer's looking for higher quality, more premium, more interesting, unique product. Are you guys incorporating that theme into your strategy? Are you seeing a mix shift in terms of price points that your consumer is being attracted to?

A: [Day]We definitely are. We see that there's not a lot of price pushback, and as we've been innovating in the garments, adding more details -- and we haven't taken pricing on the basics, but we are pricing the premium above the basics. So like the special edition hoodie, for instance, that's in the stores right now, is just getting snapped up. So we definitely see we have opportunity, and that's that part of the reason why, strategically, I'd rather be spending my time chasing that market, which we really consider differentiates ourselves. So Sheree and her team have done a great job. I think when you see the spring product that hits, I think it's some of our best stuff we've ever done. So I'm really excited about the work that we've done there.

[Waterson] As we continue to innovate more and more for our technical products, both in our fabrics, our trends and in our make and functionality, the value equation is so much higher. And the guest is, as Christine said, really snatching it up. So yes, they like it.

Q: Could you talk a little bit about your e-Commerce penetration? It's a strong number. ...Could you talk a little bit about where your penetration was running at the end of the quarter, or how it's trending in November?

A: I think the #1 thing is that U.S. is accelerating, so our penetration in the U.S. and broadly across the U.S. Because I think in the initial build, as you'd expect, primarily the big cities and where we have the big stores, we're starting to see the brand penetrate more generally across the U.S. ... So I think you are going to see a little less coming in store comps maybe in the future, because we're penetrating more through the convenience of e-Commerce. So I think that's really the big story there. And then with ivivva, as we said, the big penetration spots are really built around those dance studios, where we've seen -- and markets where there's a lot of children in dance, or young girls. For instance, New York, Chicago, L.A. have been the initial hot spots for ivivva. And then internationally, we're seeing a lot of business coming in lululemon continues to be from, really, the Germany, U.K., France. And then shifting over into Asia, it's really Hong Kong and Japan.

Q: Will you be doing a warehouse sale in the fourth quarter, or none at all in 2011 and then bringing them back in 2012 with a better in-stock position?
A: We will be doing one in 2012, yes.... Actually, we are looking at January or February for one. So there may be one in Q4.

Q: Some people are worried about productivity per store...  I was wondering if you could talk a little bit about what I'm seeing in the stores, which is, I think, a higher focus on new fashion, not only in color but in treatment and detail. And I'm wondering if that is a focus of the brand going forward.

A: [Waterson] the color that we're introducing for Q4 is phenomenal, and the guest is responding. So for Q3, we had some more subtle color palettes, and we know that she really responds to some of the brighter colors. And so those are being very well received right now. And in terms of detailing, this is one place where we really know that counts for lululemon. So we've looked at fit, function and finishing. And in terms of the fit, continuing to focus on body-flattering styling, as well as for running, as an example, fits that feel like nothing's on your body, which is exactly what a runner wants to feel like. The functionality of the fabric, again, being light as air and in terms of running -- or seamless and so on and so forth, and in terms of yoga, just being extremely functional. And then our finishing is, I'd say, one of the things that we're best in the world at. So whether or not it's the perfect functioning pocket or zipper or ventilation system or it's a gorgeous ruffle or treatment, it's something that the design team now is really putting their attention to, so…

[Day] But I think in terms of -- maybe hidden in your question, are we shifting to more fashion? No. It's always fit, function and technical product first, adding elements that come from the fashion world to that. And that's our magic formula. So we will always still be athletic, technical, functional wear.

 Q: Wanted to know maybe, Christine, a little bit more about the performance of the new dance category, how that's going. Is it very meaningful? And are you contemplating other interesting new classifications that are in the works, that you've talked about before?

AYes. So starting with the new dance category, that -- we did for the -- in the stores right now -- you'll just see finishing, actually, because it’s almost all gone, a dance capsule that we did, which was kind of just a kickoff to holiday and kind of just something interesting and new for the guests, as then we eased into our more traditional holiday set. So it went very quickly. It was very well received. There were some really great winning pieces in that. And we use those capsules to kind of test our product edge, see what we can incorporate into the core line, what needs to be repeated for maybe a quarter, what's seasonal, and then how we build that into the longer line plan going forward. 

A: You'll see us, and I discussed it in there, that we're doing a bike commuter line for spring.


Anonymous said...

More ridiculously priced items?? I guess I should just accept that I will no longer be their target consumer because I cannot afford to, and even when I can in the future-I won't pay $200 for a hoodie. Especially when they aren't even showing that the quality is worth it with so many of their items. Am I the only one who thinks a misspelled word on an already-overpriced-shirt should be practically GIVEN away, not marked down by $9? Seriously.

*Sigh* I have felt extreme loyalty to this brand for years, but I'm finally beginning to admit to myself that there is no Santa Claus and all of their feel-good blogs and manifestos are a lie. I'd rather give my money to a company that is at least honest about their greed.

Enviro Girl said...

I couldn't agree more. Maybe get a new manifesto because while there maybe a demographic that snaps stuff up, it is the loyal little guy that keeps them afloat...they just don't see it. They will when they chase us away with greed & ridiculous prices. The greed stinks.

Y.S said...

I couldn't agree more!! I only buy Lulu items that are in loot.

I really wanted to have Run: For It Pullover in Currant, but I don't want to spend over $100.00 + TAX for a pullover...,so I decided to wait for discount. But I don't see them anywhere in BC anymore!! I'm surprise there are many people who wish to buy those expensive clothing regardless of bad economy!

Anonymous said...

New upload...ton of pink! And some of the new items just mentioned today.

a.c. said...

I guess prices will keep climbing as long as these higher priced items keep "getting snapped up". I think I will just have to rely more on second hand buying - especially if they start pricing up their basics. If I'm not mistaken, she alludes to keeping basics at their current prices, but the $3 mark-up on CRBs a couple months ago indicates that nothing is safe from repricing.

Susan (TJI) said...

I was curious as to how they "forced" out the fanchises. Did they limit their product or affect their inventory. Or did they offer them so much money that they just gave it back? I would be really disturbed and disappointed if they put the squeeze on these business owners and gave them no choice. That would greatly affect how I feel about Lululemon as a company. If they hurt families financially because they decided that the people that got them started needed to go. I'm really hoping this wasn't the case. Higher prices/more markdowns - that's okay, I can live with that, it's my money. But big corporation squeezing out their own, I would not be a happy camper.

kath said...

I am totally delighted that there'll be a showroom / website in UK. I think clothes are more expensive here anyway, we probably pay £100 for your $100 and even more elsewhere in Europe. Plus $30 postage gulp which you get free.

I can see you're upset that it is getting dearer, but compared to what's on offer here LL offers excellent quality and choice for the price. It is almost impossible to get any running clothes at all that aren't black and neon and just a man thing scaled down.

Anonymous said...

All of this sounds great, but why can't you get your web site to work properly. Every week when you do an upload there is a new problem. i.e. today - items listed, but you can't put them in your bag to check it out - please get some better techs to help you with your site

yogibabe said...

OT-Hey Anon who wanted the Currant Define! It's finally uploaded, so get yours quick! :)

LuluAddict said...

I think some of the higher priced items they were talking about are something like the Run For Your Life Tank where there is a bra with silverescent material and it costs $64 instead of the more typical $52. Another high tech item would have been that Weightless Singlet which was $68, I believe.

Anonymous said...

@ Susan: Interesting, I didn't even know they had franchise stores...I would also be interested to know what happened to those small business owners.

Anonymous said...

To be honest I don't even like the fact that LLL is in the US. You already have so many stores and so much more product to choose from at lower costs I might add then us Canadians. Now LLL all over the world I honestly don't like it. This is something that should be just Canadian.

Anonymous said...

I agree anon 852...and I'm from the US! The more they expand the more I've been seeing lulu everywhere. I'm sorry but I do not want to be just like every other woman/girl wearing the same outfit. I can see lulu fizzling out over time with too much growth

Anonymous said...

LLL should only be Canadian? haha. How provincial is that? Imagine if Canadians couldn't buy Coke or Nike sneakers or *gasp* iphones/ipads/macs or most of their food products because US companies kept it all "national."

Anonymous said...

I'm pretty new to lulu - what is a warehouse sale?? Should I be marking my calendar for this?? =D

kath said...

That is so funny re keeping it in Canada. And anon 9.07 I shouldn't think you'll be bumping into me in the same outfit, what with i'm 3000 miles away and I can't afford the postage anyway.

LuluAddict said...

I have slowly been seeing more lululemon but not a ton of it. I think most people don't want to spend a lot of money on their workout clothes. I would prefer it not get too popular. I took a couple of classes at studios lululemon had relationships with and it was a real challenge to pick something to wear that no one else would be wearing. One time I was all excited to debut my new Flush No Limit tank since I didn't think my local store had received them yet and an educator showed up wearing the same exact thing. I hated having the same thing on as another person.

@ anon 12:34 pm - The warehouse sale is usually somewhere in Ontario. Hamilton, where ever that is.

Anonymous said...

I'm just curious, where did you get this information? Is it on Lulu's website?

Amanda said...

"Imagine if Canadians couldn't buy Coke or Nike sneakers or *gasp* iphones/ipads/macs or most of their food products because US companies kept it all "national." "

There are so many items that you can't get in Canada that people go across the boarder to get! This years example is a pair of purple capris from nike that I wanted pretty badly that I could not get anywhere here.
We constantly get gouged for shipping and many basic products that we do get are can be in the range of 40% more.
The foundation that look best on my skin... the inspired by carmindy line... is $19.99 and only sold by one retailer. I've seen it online by multiple retailers in the States in the $12 regular price range. Not to mention that you guys tend to get some insane coupon options that almost never ever happen here. Don't even get me started on razor blades and cell phone plans.

Lots of products that we do get, that are the same, and comparable prices (Ex: Apple products) don't get released here until significantly after it is released in the U.S.

Yes we have a lot of food products that you have in the States, but not nearly as many. Good luck trying to find one of those Yoplait dessert flavored yogurt cups here.

Try viewing some sites, other than the lulu site, from the Canadian side. Watch the product availability drop, and the prices and shipping go up.

If this sounds familiar it's because I went on the same rant when people complained about gratitude wraps. There aren't many times where we get the upper-hand in retail and this is one of the very, very few times that we do.

With that said, I've often wondered if part of the popularity of lulu up here is because U.S. retailers like Nike, Adidas, Reebok etc, made fewer options available to the Canadian market. You can only own so many pairs of unflattering black sweats with a swoosh across your butt before you notice the many more options across the boarder and feel jilted.

Anonymous said...

Hamilton, Ontario is in CANADA!!!!