Q4 2019 Earnings Call

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Thank you for standing by the physical bring up right now.

Welcome to the live limit athletic <unk>, Inc. fourth quarter, <unk>, and <unk> 2019 conference call.

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All participants are in the listen on the mortgage and the Coke is being recorded.

After the presentation, there will be an opportunity to last question.

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I would now like to hand, the conference I got to Howard Tubin, Vice President Investor Relations completely land Athletic Inc.

Please go ahead.

Thank you and good afternoon, welcome to be Lemons fourth quarter earnings Conference call.

Joining me today to talk about our results for Calvin Mcdonald, CEO and PJ Guy do Seattle.

Well, we get started I'd like to take this opportunity to remind you that our remarks today will include forward looking statements, reflecting management's current forecast of certain aspects of the women's future.

These statements are based on current information, which we have assessed which by its nature is dynamic and subject to rapid and even abrupt changes.

Actual results may differ materially from those contained or implied by these forward looking statements due to risks and uncertainties associated with our business, including those we haven't disclosed in our most recent filings with the FCC, including our annual report on form 10-K, and our quarterly reports on form 10-Q.

Any forward looking statements that we make on this call are based on assumptions as of today.

Especially disclaim any obligation or undertaking to update or revise any of these statements as a result of new information or future events.

During this call will present, both GAAP and non-GAAP financial measures reconciliation of GAAP to non-GAAP measures is included in our annual report on form 10-K and in today's earnings press release.

Press release and accompanying annual report on form 10-K or available under the Investor section of our website at Www Dot lending dotcom.

Before we begin the call I'd like to remind our investors to visit our investor site, where you'll find a summary of our key financial operating statistics that of course, there as well as our quarterly infographic.

We're planning to in today's call under an hour. So please limit yourself to one question at a time to give others the opportunity to have their questions address now I'd like to turn the call over to kill.

Thank you Howard and it's good to speak with all of you for our fourth quarter earnings call.

We're very pleased with the strong performance a blue London, both in the fourth quarter and throughout 2019, as we delivered nearly 4 billion in revenue.

We continue to grow our core businesses, while we strategically expand around the world and acquire new guests.

Underlying health of our business is strong and we entered 2020, but strong momentum.

Did you know circumstances have changed dramatically in quarter, one given the spread of cobot 19.

We're proud to be actions, we've taken across our business to help protect our people in our guests as we navigate the situation.

I'll begin my comments by discussing Corbett 19, as it relates to our business and provide a brief overview of quarter for a 2019.

TJ guide out our Chief Financial Officer will then take you through our financial and provide more details on our more recent performance.

Well then take your question.

We plan to keep the call shorter than normal and wrap up in under an hour.

Our Hearts go out to all of that was impacted by Cobot 19.

Safety and well being up our people and our gas the affected regions remains our highest priority.

The current situation, it's clearly dynamic.

I'll be speaking and similar to many of our peers, we're seeing virus related impact on performance across all markets.

In North America in Europe, our stores have been closed since March 16th.

Stores in New Zealand are closed at this time, while Australia as operating on reduced hours.

In China, all of our stores, except our location and do on our open with most operating on regular schedule.

Our stores also remain open and other Asian markets, except for Malaysia, where our two locations are currently closed.

In addition, we're closely monitoring or supply chain and staying in constant contact with our vendors as they to navigate the situation.

Given the rapidly changing nature of current events, we have decided not to provide financial guidance at this time.

That said the underlying health of our business is strong which provides us with many leveraged to successfully manage through this period.

These include first our strong balance sheet.

We ended the year with 1.1 billion in cash no long term debt and a 400 million dollar untapped revolver.

Second our investments in key technologies, including our if I'd and strong partnerships with our vendors will enable us to maximize inventory across our network, while managing our overall levels.

Third the Powerbar fraud.

Our assortment as less seasonal in nature as many of our core styles are relevant year round and can be held for future years.

For the flexibility of our multichannel business.

Our E commerce sites mobile apps and omni capabilities allows our guests to shop in multiple ways, which is complemented by our Giles store formats.

And yeah, the strength of the category in which we compete.

At our core we solved sweaty problems for athletes and we do not believe the current situation will change the trend toward people wanting to live in active in healthy lifestyle.

These are some of the reasons, we're confident in our abilities to navigate the near term while working to realize the opportunities over the longer term.

In addition, we have early learnings from China, We show us that our business will bounce back we're not yet back to pre closing volumes, but the business is getting stronger week by week.

There is considerable work underway across the business to respond to the current situation and I'd like to specifically update you on two of these work streams.

The first is to support stays in the second it's how we will enable the recovery phase.

I'll start with our support fades initiatives and how we are currently assisting our teams are ambassadors and our debt.

We will do our best to open our stores as soon as possible when the recovery begins and we'll approach this market by market based upon the latest information.

I'm consistently inspired by the resilience of our people as they navigate the unknown in connect even more regularly than ever before.

In terms of our gas our E commerce sites continue to operate around the world. So we can continue to fulfill their needs with our product.

Similar to what we've done for our own people, we have been offering online sweat sessions, where our guests with yoga meditation politely dance and train classes.

Our teams in North America in Europe have followed the lead of our people in China, where we gave thousands of new followers on we Chuck.

On Instagram during our first week of store closures and thanks to our increased content offerings. We saw nearly 170000 gets join us for our lied classes.

It's inspiring to see the strength of our guests come together this way and we'll continue to stay closely connected as we navigate what's ahead.

And finally, our ambassadors remain top of mind as well we're in constant contact and they are continuing to help us engage with our local communities through these virtual sweat Sasha.

As many of our ambassadors are small business owners, who have been forced to close their doors, we just launched a global ambassador really fun.

This button will assist our ambassadors who own studios in their local communities to sustain their businesses. During these currently extraordinary times.

Let me shift gears now I will speak for a moment about how we're thinking about the recovery phase.

We know the current situation will pass and we remain focused on being ready to serve our gas and support our communities when the time that's right.

Our balance sheet allows us to look ahead, you continue to plan for growth as we manage the business for day today.

In terms of inventory, we're managing our buys and looking at our assortment flow with a full year view. Our teams are now in the work to balance supply with the current reduction in demand. We're experiencing we're in constant communication with our vendors and we have flexibility regarding our receipts for the second half the year.

Our key E Commerce DC continued to function.

Practicing social distancing monitoring the health and wellbeing of our people closely and taking precautions to maintain our operations.

Over the last several years, we've made significant investments in our supply chain and distribution network.

And I'm confident that we'll be able to further leverage these investments to help us navigate through the current situation.

Shifting to expenditures, we're currently evaluating our expense structure capital expenditures and store opening and remodel program.

We are acting now to ensure we can reaccelerate our growth drivers when we're ready he's able to say more in a few minutes.

In terms of product our product pipeline remains full and our white space in design teams have not stop the work we continue to leverage our science to field development platform to bring new technical innovations to our guests.

While we have paused on our events such as 10-K, Brian through July 31st we're continuing to connect with our communities. We collected our best online content from our ambassadors on our new community carries on hub on our global website, creating one central place for our communities to connect and access online fitness and.

Health resources. This gives you a sense of the scope and breadth of our global response during both the support and recovery phases of our planning now.

Let me share some details about our fourth quarter and full year results.

We're pleased with the momentum we saw during the fourth quarter and throughout 2019.

Our results for the fourth quarter include.

Total revenue growth of 20%.

Constant dollar comp increase of 20% on top of a 17% increase last year and an earnings per share increase of 23% compared to adjusted earnings per share last year.

Our quarter for results demonstrate that our guests responded incredibly well to our product this holiday.

Up across all categories with constant women's up 12% men's comps up 39%, an accessory comps up 24%.

Strong comps across channels with 9% in stores and 41% in digital and within our regions North America was up 19% International was up 25% in China was up 70%.

For the full year 2019, we delivered total revenue growth of 21%.

Constant dollar comp increase of 18% on top of an 18% increase in 2018.

Operating margin of 22.3% and an earnings per share increase of 28%.

As you'll recall, our Twentytwenty revision is comprised of three pillars.

Product innovation omni guest experiences and expand markets. These are the right pillars for our business, we executed well against them in 2019, and we remain committed to our 2023 targets as laid out in our power three growth Glenn.

In summary, we're proud of how Lululemons continued to deliver against our strategies and gained momentum in the quarter and full year up 29 team.

While this period in our lives is filled with uncertainty I blew I've been where certain about our future. We have the balance sheet the connection to our community the strength of our category and the right growth initiatives to sustain us while we keep investing while into our future.

Although we do not know exactly when the current situation will pass what we do know is that our stores will reopen.

We know that initially the business will be lower than it was pre co bid 19, but we believe that each day in each week it will keep building.

We are planning for multiple scenarios, but in any one of these we know that our brand is strong and has unique pillars of strength that will keep driving our momentum forward.

I'll now ask TJ to provide further details about our quarter for performance and an update on current business.

Thanks Calvin.

I will first provide details on our Q4 performance and although we're not providing quantitative guidance I will offer some qualitative insight into the health of our business relative to the challenging environment in which we are operating.

We'll also discuss specifics on the strength of our balance sheet and our overall financial position.

For Q4 total net revenue rose, 20% to 1.4 billion driven by continued strong execution across all parts of the business and our store channel. We delivered a 9% constant dollar comp store sales increase on top of a 7% increase in Q4 of last year.

Footage increased 18% versus last year, driven by the addition of 51 net new Lululemons stores. Since Q4 2018 during the quarter. We opened 12 net new stores and completed five optimizations.

Our digital channel, we posted a 41% constant dollar comp increase on top of about 39% increase last year for that for the quarter E. Com contributed approximately 464 million a top line or 33% total revenue increased traffic in Q4 continued to drive comps both in store and online.

With increases in the high single digits and over 30% respectively.

Gross profit for the fourth quarter was 811 million or 58% of net revenue compared to 57.3% of net revenue in Q4 2018 gross profit rate in Q4 increased 70 basis points versus gross margin last year and was driven primarily by the file.

And 80 basis point increase in overall product margin, resulting from lower product costs and favorability in product mix.

In the aggregate occupancy depreciation product and supply chain costs had minimal impact in the quarter moving down the P. now as DNA expenses were approximately 394 million were 28.2% of net revenue compared to 28.9% of net revenue for the same period last year.

Foreign exchange translation and revaluation contributed 30 basis points, a de leverage in the quarter operating income for the quarter was approximately 416 million or 29.8% of net revenue compared to 28.4% of net revenue in Q4 2018.

Tax expense for the quarter was 121 million or 28.8% of pre tax earnings compared to an adjusted effective tax rate of 26.9% a year ago.

The increase in our effective tax rate compared to our adjusted effective tax rate last year. It relates primarily to a change in tax legislation in the fourth quarter of 2018, which reduced tax expense in that quarter.

Net income for the quarter with 298 million or $2 in 28 cents per diluted share compared to adjusted earnings per diluted share of $1.85 cents for the fourth quarter of 2018.

Capital expenditures were approximately 69 million for the quarter compared to approximately 69 million in the fourth quarter last year.

Q4 spend relates primarily to store capital for new locations, relocations, and renovations and IP and supply chain investment.

Turning to our balance sheet highlights we ended the quarter with 1.1 billion in cash and with 400 million of available capacity under our revolving credit facility.

Inventory grew 28% and was 518.5 million at the end of Q4.

We repurchased approximately 1600 shares this quarter at cost of just over 307000.

At the end of Q4, we had 327 million remaining on our current 500 million repurchase plan.

Let me shift now to current events as cabin stated our sales trend change dramatically during the second week of March when the impact of covered 19 accelerated due to the dynamic nature of this event, we're not able to provide accurate 2020 guidance at this time.

All of our stores in Europe, and North America had been closed since March 16, and our current plans call for these stores to remain closed until April that.

Our Dcs are up and running with the exception of our facility in some near Washington, which has been closed in line with temporary local restrictions.

TC does not fulfill a significant number of ecommerce orders and the closure has not had a material impact on our business.

The vast majority of our stores in China and most of Asia are currently operating and showing improved performance each week since reopening.

For the second week of March our North American store comps remains strong and in line with Q4 trend driven by consistent traffic and great execution by our store teams.

In addition, our digital business has remained strong throughout driven by traffic and improving conversion that is a direct result of the investments we have made in our digital platform.

The strength of our business early in Q1, both in store and online reinforces that our brand remains strong.

That said, we did see a dramatic slowdown in our business in conjunction with our store closure and we expect us to have a negative impact on Q1 comps margins and EPS.

One of our key advantages in the current environment is our liquidity position, which is extremely strong. We currently hold over $1 billion of cash on the balance sheet and have no long term debt. We also have a 400 million dollar revolving credit facility, which has three years left in maturity.

In addition, this facility has an option to upsize by 200 million.

We are also currently actively managing our expense structure capital investment and store openings and renovations we have modeled several several different scenarios to gauge the coven related impact on our business and believe we have the flexibility and nimble miss to adapt and manage to each scenario accordingly to.

To mitigate the impact we are seeing we are reducing non essential operating expenses and reprioritizing, our capital spend towards business critical projects.

Among several other expense reduction opportunities, we've curtailed business travel slowed the pace of new hires rationalized, our marketing spend and are working with our landlords to defer a select group of our upcoming new store openings and remodel projects.

In terms of inventory management, our merchant and supply chain chains are evaluating all upcoming deliveries through the lens of current and anticipated demand.

We have flexibility with regard to our fall and winter 2020, receipts, and where appropriate and push out or reduce our by orders.

We believe we are in a strong position given our high cash balance strong cash flow no long term debt and access to additional sources of liquidity.

In addition, we will further enhance our financial position by managing working capital S. DNA expense and capital expenditures.

The strength of our balance sheet and flexibility of our operating model puts us in a position to address an unprecedented situation within the global economy. In addition, it will allow us the optionality to still prudently invest for the future and live into our potential as a global brand and now back to Calvin for some closing remarks.

Thank you PJ.

I want to express my confidence in the leadership team, a blue lemon and our brands strong position, which will enable us to effectively navigate these unexpected times.

Let's go out to everyone, who personally impacted by cobot 19.

Im continually impressed by how the teams have lived in London, our leading through this time and who they are being for one another for our guests and for our community.

Closing I wanted to take our team members for the results. They delivered for Lululemons in 2019, and further perseverance and commitment to our brand that I continue to see from them each and every day.

Operator, we can now open it up for questions.

Thank you.

We will now begin the question and answer session.

And those who wish to join the question key May Press Star then one on that telephone keypad.

We'll hear a time acknowledging you request.

If you are using his speakerphone, please pick up the handset pricing the case.

The withdraw your question. Please press Star then too.

We will pull in spring Lyman to allow close to join the key.

Your first question today comes from Matthew Mcclintock with Raymond James. Please go ahead.

Hi, yes, everyone I hope everyone Stanley is safe and healthy.

Calvin I guess the first question for me would be.

You made the statement plan for growth while.

Demand as a day to day, but it's an interesting statement because.

It seems like a lot of companies right now or are not plenty for growth and NERC. There just trying to survive so.

Can you kind of give us some insight into your ability to plan for growth continue to grow when we get on the back into that.

And maybe where your conference comes your confidence comes from that you're going to return to that in a in a reasonable amount of time is that it's just that you're trying to experience what you're seeing in China is what makes you feel that way.

My first question. Thanks.

Okay. Thanks Matthew.

I mean, I'll talk with the first part a and then I think.

Share a little bit of the learnings from China.

I believe.

The balance that we are striking is recognizing that.

Lululemons isn't a very healthy position.

We had fantastic momentum coming in.

To to the current situation and Theres nothing that I believe will fundamentally change our ability to regain that momentum once we reopened.

Once the the guests.

Get some degree of normal this back into their life, how they will come back into our category in shop.

We know and we've stated the balance sheet as healthy that allows us to.

You know trade and think into the future.

And we equally know that with the power of three and the vision that we're building towards is if nothing else even reinforced with the current.

Fraternities or situation that we're facing around our community around our Omnichannel strategy, how we're thinking about.

Leveraging the brand and with our guests so.

We are taking short term actions as PJ alluded to that are appropriate because there is a degree of uncertainty and we have looked at our strategic initiatives.

And we have delayed some of those but there are some we're investing in technology investing in our omni digital capability and investing into that vision of an omni social community that we continue to make so we have reshuffled, we've rebalanced, but we believe I'm even more.

So that division and the opportunity.

For the development is strong and now is the time to not.

Stop building for the future, while recognizing we need to sort of pause on some in order to maintain others.

And part when we do look at China.

I do think it will help inform.

How North America in Europe will come back trading, but I do think the the scenarios are slightly different and not.

China had a.

Quick two week closing period, when the stores, where then reopened.

We've traded five weeks since reopening we're on our six week, but the country was still under a level one security.

Alert, so I think its pace of rebuilding box business.

Is getting better every day every week, but is building back.

In North American Europe, we're planning on a longer close period, which I think once we reopened.

I would accelerate the pace in which we see gas coming back into the stores and obviously from now to then there are other factors in the economy that equally.

Changed our evolving so we're continuing to monitor run scenarios against both but I do believe.

In our ability strike that balance and continue to invest in the future in division.

We are doing.

I appreciate that color Calvin it's important and then my second question is just given your background and piece as to where you both worked and not retail wholesale business model before can you can you maybe talk to us about how you're vertically integrated business model of lemon.

Potentially allows you to manage the inventory to appropriate demand quicker or faster on and more appropriate manner than than what you've seen in your in your historical experience. Thanks.

Great. Thanks, Thanks, again on that and we are absolutely in our.

Support phase of initiatives, managing our inventory I do believe being vertically integrated gives us a ton of benefits and there are other benefits that we currently have better outside of just being vertically integrated the benefit of being vertically integrated is that we own the relationship with our vendors.

And we own the relationship right through to our guest.

And how we sell and how we choose to.

Present, the product and the quantities in which we've been buying a allows us to to manage very differently in my opinion equally and as we've commented before one of the benefits around our inventory in product. We have bought through the first half of the year, we are able to influence our Q3.

The by slightly and we are in the work on our.

Fall and winter buys now but.

Our product is less seasonal.

There is a high percentage our business that is core which means we're able to hold and continue to sell for a much longer period of time or less dependent on the need to.

To to flush out inventory.

Second our technology with the use of RF I'd.

We can access products at any point across our network not just dcs, but at our stores as well from ship from store. So it allows us through just regular demand that we're seeing today.

Online our plan in the next week as to turn on ship from store from our stores. So although they will not be open to the to the to the public.

We will be opening up some locations from a ship from store perspective, and have a small number of staff operating that that's going to allow us to continue to manage that inventory that's already in the network.

Very effectively.

And so those I think combined with the relationships, we have with our vendors in the fact that we own the end to end are a number of very unique leavers that put us in a much better position to to manage our inventory levels.

Thank you very much for the color as to what.

Thank you.

The next question comes from Mark Altschwager, we've been encouraged please go ahead.

Good afternoon, and thanks for taking my question I.

I wanted to ask about the product strategy and how you're thinking about that is moved should crisis are you planning any changes to the flow of newness are the product launches that you're looking to delay until store operations have have ramp back up.

Thanks Mark.

We're seeing some shifts in demand currently as you can imagine.

Much of that is more in the accessories categories with.

Yoga mats and some of our yoga blocks and items at.

Our fulfilling that need as more and more of our guess sweat at home.

But we're not planning to change any of our launch cadence rather we're looking at timing to ensure that our plans are still relevant with the environment that we're in to make sure that how we present the product to the guest is inappropriate way.

That it's not toned down to the situations that are happening around us.

But in general I think the benefit we have is that and what's in our favor is that our launches are rooted in solving guests unmet needs and it really isn't bound to time or seasonality or fashion.

So there are real no changes to 2020 launch plans or as we look into 21 at this point in time, we adjust launched our ever Lux in February which.

Is our first product launch for this year under Sciences field positioning and the guest resonated incredibly strong to it it was.

Far exceeded our expectations.

And continues to sell well online and as I look forward to the rest of the year. We don't have any immediate plans at this place we have our online network to sell we still have other markets. We're we're operating in and we know as I said, we will be opened soon and we believe the innovation and what we have.

I have will only.

Enhancing entice the guests to come back into the stores.

Thank you and if I could just follow up on digital.

Quickly is it your hypothesis that the digital business will capture some incremental demand given the store closures.

I know you said things have slowed recently here and I was hoping you could clarify are you, saying that the growth has slowed from the rates of growth you were seeing in the fourth quarter or have you seen digital demand actually turned negative in recent weeks. Thanks.

Thanks, Mark and definitely want to clarify that.

We saw coming in to the store closures.

Very strong momentum in both our retail and digital channels as BJ alluded to we had an incredible fourth quarter.

Total comps of 20%.

Which was.

The strongest in all of 2019.

Which was a very strong year for us so it's great to and with that type of momentum we saw that momentum continue into the start of this year across both physical.

Stores and digital.

Since closing our digital business has.

Picked up.

But it's obviously not recovering.

All the volume loss from our store networks being close, but we have seen our store or our online business accelerate in terms of growth, but obviously it cannot pick up the entire demand. So it is it is responding well and we've adjusted our digital marketing initiatives, we leaned in a bit there again back to the notion of bound.

In some costs expenditures, but doing it.

Strategic we leaned in a bit we're seeing good response to that.

Good response to new products still some other categories are picking up but it's not completely covering the loss of store volume, but is responding in a positive manner.

Very helpful. Thanks, again and best of luck.

Uh huh.

[music].

Thank you.

Your next question comes from Ike Boruchow with Wells Fargo Securities.

Please go ahead.

Hi, Thank you good afternoon, everyone. So I guess, maybe for Calvin on China, you give some helpful details on the progression in the build.

Which is really helpful for us to understand what's going on over there could you give maybe a little bit more color I think you've said that ever seems kind of reopening five or six weeks ago, you've seen gradual build bigger volumes are pre colgate levels.

Can you talk about it maybe from a comp perspective, what like hot like I assume comps are still negative year over year.

Where exactly that trending now and Gary a based on what you see is there a.

Target in mind or indeed, my when you think comps can start to grow again and China is.

Just trying to understand that a little bit better.

Great. Thanks Ike.

As I as I sort of teed up.

What's what's interesting about China, and I think an important of.

Element to remember.

Is that we closed for two weeks, we've been open for five or in our six week. The country was still on a level one emergency alert.

They are just moving to a level to this weekend in Shanghai Beijing.

One of our other regions that region move to a level too earlier in the week.

And we did see an immediate uptick in the performance of the stores yesterday, our total business.

In China from a a collective of stores and online had a very strong day.

So it really is day to day and we're learning as we go I believe that the five week period was impacted by.

The level, one emergency alert and as that changes, we will see more and more business come back at a quicker rate than what we have over the five weeks and we're seeing that although it is early.

And we have been in negative comp, but improving.

And I.

I think it's too early to assess when will we tip over negative comp into positive comp in our stores. Our online business has been trending very well positive comps, but similar to North America, just cannot offset the entire volume loss in our physical stores, but with what I'm seeing.

During the last few days and as these emergency alerts and drop.

I have reason to believe that we will see a quicker pace than we've seen in the last five weeks to that important sort of inflection point of getting back to positive.

Thanks Super helpful. Good luck.

Thank you.

Your next question comes from HDD need.

With Barclays. Please go ahead.

Good afternoon, congratulations on the holiday and the momentum coming into the year.

TJ. My question for you is on topics that was that 280 million for fiscal 19, and a spread with about 170 for stores and about 100 million for corporate so as we're looking into 2020 I was wondering.

How should we think about store investment and continuing to grow that piece of it seems like it's the growth aspect of it and what we're thinking about capex reduction.

Is it 100 million off of this number we're hearing people cut their capex up 50% to 68%. So just wondering if you can give us some color there. Thank you very much.

Yes, sure Adrian So first off Capex was closer to 300 for 2019 enterprise.

We're not giving we're not giving guidance for 2020, because we are managing it actively to answer your question.

You know.

I would say roughly a third of our Capex is maintenance capex with the balance being growth and as you said it comes in the four of US stores and it also comes in.

Form of.

Vesting in growth platforms, our supply chain or IP.

So we are going to we are actively reviewing the capex budget and where we can throttled back on things, where we don't see having.

A huge impact on the business, we'll do that but we'll still absolutely do due to the things that we need for for long term growth.

So yeah. We will you will we will pull back on Capex are hard to give you a specific number right now.

Sure enough and Calvin are really quick one for you.

Did you say all the stores open or 80% of them are open and the ones that are open if you quintile them is the top quintile.

Within 10% of Comping or within a.

Pretty tight spread across the different buckets and then.

Or certain markets doing materially better than others. Thank you.

Thanks, just to confirm our you're referencing 80% open is that specific to China.

Specific to China, yes, Okay, all our stores there now open in China, except for one and Lou and which actually we just.

Received notification that it will be opening next week so.

We'll have all doors open next week in China, which I think is positive.

And continues sort of the positive trend that's happening in that marketplace with the cobot 19.

And.

There are differences in terms of how stores are performing.

And it it is both by market as well as when we've seen some of these level emergency alerts change.

They are broadly distributed so the difference between the top quartile to the bottom left cortile isn't a massive scatter, but we are seeing some stores that are closer to the the positive comp than others.

But they are all trending and moving sort of week by week into a similar.

Trend, which is every market every store is getting better.

Some started closer to the positive comp.

And if continue the momentum to that and then as these markets take or cities take a position to change their emergency status, that's where we really see the the inflection point on overall.

Formants improvement.

Great. Thank you very much best of luck. Thank you.

Thank you.

Your next question comes from Erinn Murphy with Pakistan Law. Please go ahead.

Great. Thank you and good afternoon, Calvin you talked about comedy effort that they'll lose community has done to just bringing some of the virtual workouts and meditation online as you connect with your consumer I guess can you talk a little bit more about what you've seen specifically with new customer acquisition during that period, maybe looking at China first and then here in North America Europe.

And then second question really for PJ regarding just the flexibility to manage expenses during that period of time down kind of have adequately circling back to form a recessionary period in your model. Thank you so much.

In a in China, where we first innovated and continued sort of our relationship and partnership we had with an app there called keep.

Which is a wonderful platform to activate to sort of online sweat and then introducing the innovation around we chat.

I shared some numbers with you and we are seeing a number of new guests whenever we do.

These type of Activations in that market be it some of our T mobile initiatives around brand day or on these type of platforms and partnerships. They are proving to be wonderful new guest acquisition. So we're doing more of them as a result of not having physical sweater events as an option and we're seeing.

An increase in the acquisition of new guests in North America, It's early but I wouldnt anticipate that we would equally see.

Some new guests a acquired this way, but it is really absolutely satisfying and providing a service to our loyal guests that actively participate in our events that aren't available to them at this point in time or our ambassador studio community that are closed at this point in time, So I think we.

We'll see some but not quite to the degree of a of the China market, but it's a combination of and I think it's just reinforcing the power of.

One of our goals as it relates to our vision, which is building this omni social community, where we launch and host both physical events and physical activations to come together be it through membership or stores or our local events as well as our digital and this.

It is just pushed our innovation into the digital space and it's inspiring to see the guest respond to it and think how the physical and digital will come together as we as we lean into that is one of the opportunities for our vision.

And then airing on your question about managing expenses. So we do have significant flexibility built into asked DNA and the way we think about it is in a few buckets theres the variable component, which will come down naturally.

As as sales have come down.

But there was also things we can do to choose to drill into that a little bit further there was the discretionary spend.

Marketing is a good example.

We can redeploy marketing dollars for example.

Doing store events now what we can redeploy into digital marketing to drive.

To drive E com performance so.

We can do things there and then there's the overhead piece, which we are.

Actively managing and I talked about it a little in the prepared remarks, but there there are several levers we can pull.

To control expense.

Whether it's slowing head count growth curtailing travel.

There's.

Theres, a number of buckets across the organization where.

Can we can find savings depending on what scenario, where we're in so so you know feel pretty good about the flex we have in the piano.

Thank you all.

Thank you next question comes from Kate Fitzsimons with RBC capital markets. Please go ahead.

Yes, hi, Thank you for taking my question I guess first I just want to ask you know on the occupancy front, we've heard seen headlines just about shopping rent, we negotiation going on with landlord I believe you guys had alluded to maybe deferring some of the rent on the newer projects, but you know just maybe give us an update on.

Some of the active conversations you are happy with landlords.

And then secondly, just on the inventory now certainly understand there's a decent portion that it's no can be re purpose for later season, no less fashion associated with it but I guess, when we're thinking about aspects of the assortment that.

Can't be reuse and future season, just how are you thinking about getting rid of the access or should we think about warehouse sale just write downs just.

Public kind of contextualize that there that would be helpful. Thank you.

Yes, thanks cadence PJ so on on the occupancy piece, it's obviously, a very fluid real time situations. So.

It's hard to comment on any rent relief, we might see.

What I will say is we have great relationships with our landlords we are an active conversations.

With with them. So we were hoping for some flexibility and anticipate some so.

Theres more to come on that but nothing nothing solidified.

And on the in on the different options relative to our inventory position.

One obviously that we're activating.

Because you want to get ahead of it is our forward buy and that's the work when right now as well as work with our vendors on.

Orders that had been place and if we want to adjust those accordingly based on the inventory we have on hand, knowing that a large percentage of it is core but some of those future orders would have been replacing core and we can reduce and pull those down.

And on that core inventory when it's your basic colors.

There is no need for us to take a short term immediate action and we want there will be a portion of inventory.

That we will want to to look to our traditional.

Leavers in order to help us cleared through.

I think the important thing is we we don't need to know are there any plans on making any short term decisions that's going to hurt our brand our positioning our price positioning.

In the in the long term, we have had clearance strategies and right now we don't see any need to change from them. We're going to continue to use in store as Mark Downs online as Mark Downs, we have outlets.

And up to 2019 Weve had online warehouse sales.

And last year, we didn't need to run not so we did not but we have typically run warehouse sales and that is one initiatives that.

You know is.

At our disposal and we May we may use it.

But we have always traditionally used at and combined with the other leavers I see no need to to activate anything further.

And everyone should know that we are managing all those decisions through the lens that we won't take anything that puts our price positioning the power of our pricing our brand at risk nor do we see the need to.

Great. Thanks, very much and really congratulations on the momentum in 2019, it was pretty spectacular.

Thank you.

Thank you that's all the time, we have folks you announced today. Thank you for participating you may now disconnect your lines.

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