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.

Product Alert Info: Cozy Coat, Stay on Course Jacket & Crop

Here is the product alert info on the new Cozy Coat:
  • Keep warm and cozy in this sherpa lined coat designed to take you to & from your practice or workout.
  • Our blend of breathable cotton french terry has built-in stretch & won't bag out
  • Body-hugging fit, mid-length
  • Snug neckline protects against the elements
  • Front zip pockets for secure storage of $ & keys
  • Preshrunk
  • sizes 4-10, black 
  • $178
Product Info for the Stay on Course Jacket:

  • Stop the wind in it's tracks in this hybrid performance running jacket
  • 4-way stretch Chillstop fabric with wind-blocking membrane keeps you warm
  • Panelled with signature breathable 4-way stretch luon® fabric & brushed back for added warmth
  • Venting for maximum airflow
  • Protect ya neck with a zipper garage
  • Music storage & cord guide keep you plugged in
  • Cuffins with thumbholes keep hands warm
  • 2-12, white, black
  • $138
Product Info for the Stay on the Course Crop:

  • High-rise crop for maxium core support while you're on the road
  • Made of 4-way stretch power luxtreme™ fabric for no-bounce muscle support & quick drying, wicking capabilities
  • Smooth, wide waistband with drawstring & elastic for maximum support
  • Secret zipper in hem alows for venting & custom fit
  • Secure back zip pocket & 2 front gel pockets for storage
  • Chafe-resistant flat seams
  • Deep Coal Micro/Macro Stripe, Black/Heathered Black 2-12

NEW! Black Micro Macro Stride Jacket

Fun new Stride jacket in the Black Macro Micro Print.

NEW! White Coal Tinted Canvas Super Print Scuba

OMG, be still my heart! A new White Coal Tinted Canvas Super print Scuba has just shown up in my product alert emails. Can I justify a fourth Scuba in Southern California? I think I can. I wore Scubas all weekend to my son's soccer tournament on Saturday and Sunday. They were the perfect jacket to sit outside in low-60 degree windy weather. Scubas are perfect Soccer/Baseball/Football mom gear - the perfect jacket for sitting on the sidelines.

Photos of the Latest

Photo showing the reverse (mini check) side of the new Paris Pink Run: Turn Around LS.

The new Back on Track Skirt also comes in black.

A close shot of the white Run: Your Heart Out tank.

New! Glacier Lace Define and More

New White Define with Glacier Lace pattern accents - very eye-catching!

Speed shorts in a black glacier lace pattern. I think I would like a CRB or Power in this dark version.

Nice close up of the Paris Pink Pure Balance jacket.

New! Paris Pink Manifesto Shirt and More

New Manifesto Shirt in Paris Pink. (Thanks to Lisa for the photo)

 New Men's Run: Response shorts in what looks like a Heathered Coal color. I'm pretty sure Run Responses have been in only solid colors up until now. I think I might have to get these for my husband for Christmas. He has a bunch of Run: Responses but they are mostly black and he complains he doesn't like to wear a black shirt with black shorts. These would go perfectly with his black shirts, not to mention the Currant and Antidote shirts he owns.

The Stay on Course Jacket looks great on a mannequin. (Thanks to Lisa for the photo)

Photos - Stay On Course Jacket, Pure Balance Jacket, and More

More photos of the new Run: Stay on Course Jacket.

 This is the first photo I have really liked of the new Paris Pink Pure Balance Jacket.

Paris Back on Track Skirt show with various tops - Paris Pure Balance Jacket, White Run: Your Heart Out Pullover, and White Glacier Lace CRB.

Cozy Coat

New Arctic Run Gloves

Need Your Nominations for Best & Worst Lulu of 2011

I am starting to think about listing the Best and Worst Lulu for this year, as I have done for the past couple of years. What was your number one new piece - it has to be a new design or one that was retired for a couple of years? What was your favorite new color or print? What was the worst thing you saw this year?

Photo - Stay on Course Jacket

First photo of the new Stay on Course Jacket in Black. I like the clean lines and understated sporty look. Can't wait to see more and give it a try on.

NEW! Tinted Canvas Print Pacesetter Skirt

Oooh! Super pretty new Pacesetter skirt in the White Coal Tinted Canvas Super Print. This print looks nice with Coal or White. Love!

Photos of the Latest - Pure Balance Jacket and More

More photos of the Paris Pink Pure Balance Jacket. It also comes in solid black and solid white.

Paris Turbo Run shorts.

Paris Pink Back on Track Skirt

Photos - Stay On Course Crops

Reader Ashley was nice enough to send us some photos of the new Stay On Course Crops. I like the striped waistband on this version.

Cozy Coat is $178

I finally got a price. The Cozy Coat is $178 and only comes in black. (Thanks again to Ms. S.)

NEW! Stay on Course Jacket

Spotted in stores - a new jacket called the Stay On Course. (Thanks to Ms. S. for the photo) It was spotted in only black and white. I like the looks of it from the hanger. That usually means it looks decent on people, too.

Special Edition Quilted Scuba and Ruffled Cool Racerback

The Special Edition items that were upload Thanksgiving week are starting to arrive in the stores. This SE $158 Quilted Scuba is only available in Canada, I believe.

Photos of the ruffled special edition Cool Racerback tank in Heathered Coal. I've read feedback that this isn't as soft as other recent heathered colors.

NEW! More Cozy Coat Photos

More photos of the new Cozy Coat. So far I am not lusting after it. I still don't have price info.