Q4 2023 lululemon athletica inc Earnings Call
Speaker Change: [music].
Operator: Thank you for standing by. This is the conference operator. Welcome to the Lululemon Athletica Inc. 4th Quarter 2023 Conference Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded.
Thank you for standing by this is the conference operator, welcome to the Lululemon Athletica, Inc. Fourth quarter 2023 conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded.
Operator: After the presentation, there will be an opportunity to ask questions. Analysts who wish to join the question queue may press star, then one on their telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star, then zero.
After the presentation, there will be an opportunity to ask questions analysts who wish to join the question queue. My breast Star then one on the telephone keypad.
Should you need assistance during the conference call you May signal, an operator by pressing Star then zero.
Howard Brett Tubin: I would now like to turn the conference over to Howard Tubin, Vice President, Investor Relations, for Lululemon Athletica. Please go ahead. Thank you and good afternoon. Welcome to Lululemon's fourth quarter earnings conference call. Joining me today to talk about our results are Calvin McDonald, CEO, and Meghan Frank, CFO. Before 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 Lululemon's future. These statements are based on current information which we have assessed and which, by its nature, is dynamic and subject to rapid and even abrupt change.
I would now like to turn the conference over to Howard to bin Vice President Investor Relations for Lululemon Athletica. Please go ahead.
Howard: Thank you and good afternoon welcome to the Lemons fourth quarter earnings Conference call. Joining me today to talk about our results are Calvin Mcdonald, CEO and Meghan Frank CFO.
Howard: Before 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 bleeding lemons future. These.
Howard: These statements are based on current information, which we have assessed.
Howard: But by which its nature is dynamic and subject to rapid and even abrupt changes actual results may differ materially from those contained in or implied by these forward looking statements due to risks and uncertainties associated with our business, including those we have disclosed in our most recent filings with the SEC, including our annual report on Form 10-K, and our quarterly <unk>.
Howard Brett Tubin: Actual results may differ materially from those contained in or implied by these forward-looking statements due to risks and uncertainties associated with our business, including those we have disclosed in our most recent filings with the SEC, 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, and we expressly 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, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our annual report on Form 10-K and in today's earnings press release. In addition, the comparable sales metrics given on today's call are on a constant dollar basis.
Howard: Imports on Form 10-Q.
Howard: Any forward looking statements that we make on this call are based on assumptions as of today, and we expressly disclaim any obligation or undertaking to update or revise any of these statements as a result of new information or future events.
Howard: During this call we will present, both GAAP and non-GAAP financial measures a reconciliation of GAAP to non-GAAP measures is included in our annual report on Form 10-K and in today's earnings press release. In addition, the comparable sales metrics given on today's call are on a constant dollar basis.
Howard Brett Tubin: The press release and accompanying report on Form 10-K are available under the Investors section of our website at www.lululemon.com. 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 and operating statistics for the fourth quarter, as well as our quarterly infographic. Today's call is scheduled for one hour, so please limit yourself to one question at a time to give others the opportunity to have their questions addressed. And now, I'd like to turn the call over to Calvin.
Howard: Press release and accompanying report on Form 10-K are available under the investors section of our website at Www Dot Lulu and dotcom.
Howard: 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 and operating statistics for the fourth quarter as well as our quarterly infographic.
Today's call is scheduled for one hour. So please limit yourself to one question at a time to give others the opportunity to have their questions addressed and now I'd like to turn the call over to Kal.
Calvin R. McDonald: Thank you, Howard. I am pleased to be here today to discuss our Q4 and full year 2023 results, which represent another solid finish to another strong year for Lululemon. We will also discuss our business in Q1 and our outlook for 2024. As you've heard from others in our industry, there has been a shift in U.S. consumer behavior of late, and we're navigating what has been a slower start to the year in this market. We view this as an opportunity to keep playing offense as we lean into investments that will continue our growth trajectory. Outside the U.S., our business remains strong in all our international markets and Canada. Meghan will take you through our guidance shortly, and I will share with you some of the initiatives that we have planned specifically for the U.S., as well as our overall plans for product and marketing. What you'll hear from me is a message that remains consistent.
Kal: Thank you Howard I'm pleased to be here today to discuss our Q4 and full year of 'twenty twenty-three results, which represent another solid finish to another strong year for Lulu Lemon. We will also discuss our business in Q1, and our outlook for 'twenty 'twenty four.
As you've heard from others in our industry, there's been a shift in the U S consumer behavior up light and we're navigating what has been a slower start to the year in this market. We view this as an opportunity to keep playing offense as we lean into investments that will continue our growth trajectory outside the U S. Our business remains strong in all our international markets in Cana.
Kal: Uh huh.
Kal: Megan will take you through our guidance shortly and I will share with you some of the initiatives that we have plans specifically for the U S as well as our overall plans for product and marketing what you'll hear from me is a masters that remains consistent we have an impressive pipeline of innovation our opportunity to increase our brand awareness remains significant and we will continue to.
Calvin R. McDonald: We have an impressive pipeline of innovation. Our opportunity to increase our brand awareness remains significant, and we will continue to grow and optimize our store base within the Americas and around the world. And we remain ahead of our Power of 3x2 goal. So let's begin.
Kal: Grow and optimize our store base within the Americas and around the world.
Megan: And we remain ahead of our power of three times two goals so lets begin.
Calvin R. McDonald: As you read in our press release, our Q4 results, both top and bottom line, exceeded the updated guidance we provided in January. Our growth remained balanced across channels, regions, and product categories, and we continued to see strong increases in traffic at our stores and e-commerce sites. In the fourth quarter, total revenue increased 16%. By region, the Americas increased 9%, China mainland increased 78%, and the rest of the world increased 36%.
Megan: As you read in our press release, our Q4 results both top and bottom line exceeded the updated guidance. We provided in January our growth remained balanced across channels regions and product categories and we continue to see strong increase in traffic at our stores and e-commerce sites in the fourth quarter total revs.
Megan: <unk> increased 16% by region, the Americas increased 9%, China mainland increased 78% and the rest of the world increased 36% by merchandise category Women's increased 13% men's grew 15% and accessories increased 40% and earnings per share were.
Calvin R. McDonald: By merchandise category, women's increased 13%, men's grew 15%, and accessories increased 40%. And earnings per share were $5.29 versus adjusted DPS of $4.40 in Q4 last year. When looking at our product performance in Q4, the trends we have seen in the business over the last several quarters continued. We saw strength in key franchises, including for women, Scuba, Define, Softstream, and Wonderpuff. For men, Steady State, Soft Jersey, and ABC, as well as License to Train and Pacebreaker.
Megan: $5.29 versus adjusted EPS of $4.40 in Q4 last year.
Megan: When looking at our product performance in Q4, the trends we have seen in the business over the last several quarters continued we saw strength in key franchises, including for women scuba define soft stream and wonder path for men steady state South Jersey, and a b C as well as licensed to train and pace breaker.
Calvin R. McDonald: And in accessories, our overall bag assortment continues to perform well. And we continue to build our Essentials Membership Program in North America, which has now grown to more than 17 million members in the first year. This quarter, we offered them exclusive benefits, including early access to our Black Friday styles, member-only shop nights, and invitations to participate in experiences such as our Move4U activation with Peloton at the Mall of America. We remain excited about our membership program as it offers us new ways to engage with our guests and increase both spend and LTV. I'm pleased that we're seeing positive results so far on all of these objectives. Now, turning to our full year 2023 results. Revenue increased 19% versus last year to $9.6 billion, with the Americas up 12%, the Chinese mainland up 67%, and the rest of the world growing 43% versus last year.
And in accessories, our overall bag assortment continues to perform well and we.
Megan: We continued to build our essentials membership program in North America, which has now grown to more than 17 million members in the first year. This quarter, we offered them exclusive benefits, including early access to our Black Friday styles member only shop nights and invitations to participate and experiences such as our move for you.
Megan: <unk> activation with peloton at the mall of America.
Megan: We remain excited with our membership program as it offers us new ways to engage with our guests and increase both spend and L. T V. I'm pleased that we're seeing positive results. So far on all these objectives.
Megan: Now turning to our full year 2023 results revenue increased 19% versus last year to $9 6 billion with the Americas up 12%, China mainland up 67% and rest of world growing 43% versus last year.
Calvin R. McDonald: Adjusted operating margin increased 110 basis points, while adjusted earnings per share increased 27% versus 2022. As you know, 2023 was the second full year of our power of three times two growth plan. When looking at these two years collectively, I'm pleased that we have grown revenue at a 24% CAGR, fueled by a 44% CAGR in our international regions, expanded our adjusted operating margin by 120 basis points, grown adjusted EPS at a 28% CAGR, and continued to gain market share. These results speak to the strength of the Lululemon brand in all markets where we operate and illustrate the significant opportunities we have in front of us Let me now speak to quarter one of 2024 and what we're seeing in the business. We are pleased that our sales remain strong in most regions across the globe. Consistent with what we've seen from others in the market, the consumer environment in the United States has been somewhat challenging.
Megan: <unk> operating margin increased 110 basis points, while adjusted earnings per share increased 27% versus 2022.
Megan: As you know 2023 was the second full year of our power of three times to growth plant when looking at these two years collectively I'm pleased that we have grown revenue at a 24% CAGR fueled by a 44% CAGR in our international regions expanded our adjusted operating margin by 120 basis points.
Megan: Grown adjusted EPS at a 28% CAGR and continued to gain market share.
These results speak to the strength of the Lululemon brand in all markets, where we operate and illustrate the significant opportunities we have in front of us as we remain in the early innings of our growth story.
Speaker Change: Let me now speak to quarter, one of 'twenty 'twenty, four and what we're seeing in the business.
Speaker Change: We are pleased that our sales remained strong in most regions across the globe consistent with what we've seen from others in the market the consumer environment in the United States has been somewhat challenging however, despite the market dynamics, we remain optimistic about our opportunities to grow our business in the U S. In 2024 and to continue to.
Calvin R. McDonald: However, despite the market dynamics, we remain optimistic about our opportunities to grow our business in the U.S. in 2024 and to continue to gain market share. We have robust plans in place to further strengthen our position. We will continue to open and optimize our stores, with plans for 5 to 10 new store openings and 15 to 20 optimizations. With U.S. sales per square foot above our overall average of $1,600, our stores remain among the most productive in the industry. In addition, our stores facilitate a direct connection with our guests, help us attract new guests into the brand, and act as hubs in our local community.
Speaker Change: A gain market share we.
Speaker Change: We have robust plans in place to further strengthen our position.
Speaker Change: We will continue to open and optimize our stores with plans for five to 10, new store openings and 15 to 20 optimizations with U S sales per square foot above our overall average of $600 our stores remain among the most productive in the industry. In addition, our stores facilitate a direct connection.
Speaker Change: With our guest help us attract new guests into the brand and act as hubs and our local communities.
Calvin R. McDonald: We will continue to invest in the market to increase our brand awareness as we continue to activate both community-based events and larger brand campaigns. We see other areas within the business to further strengthen our positioning. We are successfully growing our business across all age demographics, including our younger guests. As we have attracted more younger guests into the brand, we have seen strong sell through of our smaller sizes and our offering of color.
Speaker Change: We will continue to invest into the market to increase our brand awareness as we continue to activate both community based events and larger brand campaigns we.
We see other areas within the business to further strengthen our positioning we are successfully growing our business across all age demographics, including our younger guests as we have attracted more younger guests into the brand we have seen strong sell through of our smaller sizes and our offering of color. We don't yet know how high is high but this demographic and.
Calvin R. McDonald: We don't yet know how high is high with this demographic, and our teams are chasing into these areas of the assortment so we can better maximize the business, and our product pipeline is compelling both within the U.S. and across the globe. In fact, 2024 will be another year of significant product innovation. We started the year strong with the launch of our expanded footwear collection in early February. Building on the initial success of our women's line, we hosted a media event in New York City to unveil new styles of both technical and casual footwear, including our first shoes designed for men. Our new styles available for both men and women include the Cityverse, designed for all-day comfort and bringing the best of technical performance to a casual sneaker, BeyondFeel, a new running shoe that offers superior cushioning, ventilation, and support, and BeyondFeel Trail, our newest road-to-trail running shoe.
Speaker Change: Our teams are chasing into these areas of the assortment. So we can better maximize the business.
Speaker Change: And our product pipeline is compelling both within the U S and across the globe in fact, 'twenty 'twenty four will be another year of significant product innovation. We started the year strong with the launch of our expanded footwear collection in early February building on the initial success of our Womens line. We hosted a media event in New York City to unveil news.
Speaker Change: Styles of both technical and casual footwear, including our first shoes designed for men are new styles available for both men and women include the city versus designed for all day comfort and bringing the best of technical performance to a casual sneaker beyond feel a new running shoe that offer superior cushioning ventilation and support them.
Speaker Change: Beyond field trail, our newest road to trail running shoe. We are very pleased with the initial reaction to our new styles. We were seeing a particularly strong response to city versus from our male guests in North America and in China and the guest response is exceeding our expectations. Our teams are chasing into this initial strength and we build upon this momentum with.
Calvin R. McDonald: We are very pleased with the initial reaction to our new styles. We are seeing a particularly strong response to Cityverse from our male guests in North America and in China, and the guest response is exceeding our expectations. Our teams are chasing this initial strength, and we will build upon this momentum with additional footwear innovations planned throughout the year. Our strategy with footwear is the same as with apparel. We lead with technical innovations that solve for the unmet needs of our guests. We can then leverage our expertise in raw material innovation and technical construction to offer versatile styles designed for everyday use.
Speaker Change: Additional footwear innovations planned throughout the year our strategy with footwear is the same as apparel, we lead with technical innovations that solve for the unmet needs of our guests. We can then leverage our expertise in raw material innovation and technical construction to offer versatile styles designed for everyday use in addition, within our <unk>.
Speaker Change: 24 product pipeline, we will continue to be a leader in fabric innovation with new fabrics planned within both our yoga and trained categories also for women. We will continue to maximize our largest franchise aligned as we explore new silhouettes across both tops and bottoms and we will continue to expand our popular train.
Calvin R. McDonald: In addition, within our 2024 product pipeline, we will continue to be a leader in fabric innovation, with new fabrics planned within both our yoga and train categories. Also, for women, we will continue to maximize our largest franchise as we explore new silhouettes across both tops and bottoms, and we will continue to expand our popular train franchise, Licensed to Train. On the men's side, this year we are launching the most innovation I've seen in the last number of years across categories and activities. A few highlights include new fabric innovations within our golf category and continuing to build upon the success of soft jersey with additional styles. Also, we have recently leveraged our iconic Pace Breaker into a complete collection with the launch of a Pace Breaker jacket and pant to bring new solutions into the men's run category.
Speaker Change: Franchise license to train on the men's side. This year, we are launching the most innovation ive seen in the last number of years across categories and activities. A few highlights include new fabric innovations within our golf category and continuing to build upon the success of soft Jersey with additional styles also we have recently leverage.
Speaker Change: Our iconic paced breaker into a complete collection with the launch of a pace breaker jacket and pad to bring new solves into the men's run category.
Speaker Change: Our product and our ability to bring new technical solutions into our assortment on a consistent basis is one of our biggest competitive advantages I'm excited with the innovations we have on top for 'twenty 'twenty, four which will continue to enable our guests to sweat in any way they choose let.
Calvin R. McDonald: Our product and our ability to bring new technical solutions into our assortment on a consistent basis is one of our biggest competitive advantages. I'm excited with the innovations we have on tap for 2024, which will continue to enable our guests to sweat in any way they choose. Let me now shift to our brand and marketing strategies. As you know, our brand awareness remains low across most markets, which represents a significant opportunity for us to attract new guests. Starting with our further event, which began just before International Women's Day and concluded last week, further was a first of its kind women's ultra marathon in which 10 athletes from our ambassador collective set out to run the furthest distances of their careers.
Let me now shift to our brand and marketing strategies as you know our brand awareness remains low across most markets, which represents a significant opportunity for us to attract new guests starting with our further a pad, which began just before international women's day and concluded last week.
Speaker Change: Further was a first of its kind women's ultra marathon in which 10 athletes from our ambassador collective set out to run the furthest distances of their careers. The activation was a huge success as world Records were set by athletes wearing our apparel and footwear and it is a great example of what makes Lululemon unique for example.
Are we create authentic community Activations like no other brand, which result in increased brand awareness through significant earned and social media attention and also how we continue to innovate with athletes and for athletes and introduce new technical solutions into our assortment as part of further we designed 36 products through.
Calvin R. McDonald: The activation was a huge success as world records were set by athletes wearing our apparel and footwear, and it is a great example of what makes Lululemon unique. For example, how we create authentic community activations like no other brand, which result in increased brand awareness through significant earned and social media attention, and also how we continue to innovate with athletes and for athletes and introduce new technical solutions into our assortment. As part of Further, we designed 36 products through a female-first lens, many of which we will introduce into our mainline assortment over the coming season. Looking forward, next month, in advance of the Paralympics and Paralympic Games, we'll be revealing our kits for Team Canada.
Speaker Change: Female first lens, many of which we will introduce into our mainline assortment over the coming seasons.
Speaker Change: Looking forward next month in advance of the Paris Olympics, and Paralympic games will be revealing our kits for team Canada as you know in 2020, one we announced a multiyear partnership with the Canadian Olympic Committee and the Canadian Paralympic Committee after our inaugural 2022 winter games, we're now set to launch our first.
Speaker Change: Team, Canada Summer collection outfitting, the athletes and coaches with our product I've seen what we've created and it's amazing for both our Olympians and Paralympians.
Calvin R. McDonald: As you know, in 2021, we announced a multi-year partnership with the Canadian Olympic Committee and the Canadian Paralympic Committee. After our inaugural 2022 Winter Games, we're now set to launch our first Team Canada Summer Collection, outfitting the athletes and coaches with our product. I've seen what we've created, and it's amazing. For both our Olympians and Paralympians.
In addition to supporting Canadian athletes. This partnership is another example of little lemons deep relationships with elite athletes. It showcases our brand on the global stage and is a compelling strategy to grow awareness and bring new guests into the brand.
Speaker Change: I'd like to spend a moment on the success and growth within our international business, we experienced strength across all of our international markets in Q4, and we expect business to remain robust in 2024 International which includes our China mainland and rest of world segments continues to be Underpenetrated and represents.
Calvin R. McDonald: In addition to supporting Canadian athletes, this partnership is another example of Lululemon's deep relationships with elite athletes. It showcases our brand on the global stage and is a compelling strategy to grow awareness and bring new guests into the brand. I'd like to spend a moment on the success and growth within our international business. We experienced strength across all of our international markets in Q4, and we expect business to remain robust in 2024. International, which includes our China mainland and rest of the world segments, continues to be underpenetrated, and it represents only 21% of our business. We operate a total of 273 stores in all of our international markets combined, which clearly speaks to the opportunity we have ahead of us. In 2024, we'll open approximately 30 stores outside of North America, and we will continue with our strategies to increase our brand awareness. While not part of the Power 3x2 growth plan, over the long term, we expect international to represent approximately half of our overall revenue. As you can see, we have many reasons to be optimistic about the future. We entered 2024 from a position of strength.
Speaker Change: That's only 21% of our business we operate a total of 273 stores in all of our international markets combined which clearly speaks to the opportunity. We have ahead of us in 'twenty 'twenty four will open approximately 30 stores outside of North America, and we will continue with our strategies to increase our brand awareness.
Speaker Change: And while not part of the power of three times to growth plan over the long term, we expect international to represent approximately half of our overall revenue.
Speaker Change: As you can see we have many reasons to be optimistic about the future. We entered 'twenty 'twenty four from a position of strength, we exceeded our power of three times to revenue target in 2023 and based upon our guidance. We will remain ahead of schedule in 'twenty 'twenty four.
Speaker Change: We are excited that our strategy is to build brand awareness are working over the past year through our strategic investments in brand campaigns and community Activations, we have successfully grown our unaided awareness in key markets. The U S went from 25% to 31% and China went from 9% to 14% we will.
Speaker Change: Many of these strategies in 2024, and we will continue to strategically invest across all markets, including the U S, which will set us up well for this year and beyond give.
Calvin R. McDonald: We exceeded our power of three times two revenue target in 2023, and based upon our guidance, we will remain ahead of schedule in 2024. We are excited that our strategies to build brand awareness are working. Over the past year, through our strategic investments in brand campaigns and community activations, we have successfully grown our unaided awareness in key markets. The U.S. went from 25% to 31%, and China went from 9% to 14%.
Speaker Change: Given we are in the early innings of our growth with low unaided awareness and significant market share potential all of us on the Lulu Lemon leadership team are tremendously excited for what lies ahead for our brand we are investing for growth with a pipeline of innovation that is full we're playing offense, while many others in our sector are not.
Speaker Change: And these advantages will further enhance our standing in the marketplace in the U S and around the globe with that I'll turn it over to Megan for a review of our financials and our 2020 for guidance.
Calvin R. McDonald: We will continue these strategies in 2024. And we will continue to strategically invest across all markets, including the U.S., which will set us up well for this year and beyond. Given we are in the early innings of our growth with low unaided awareness and significant market share potential, all of us on the Lululemon leadership team are tremendously excited about what lies ahead for our brand. We are investing in growth with a pipeline of innovation that is full. We are playing offense, while many others in our sector are not.
Megan: Thanks, Kelvin we closed out 2023 on a strong note with our Q4 results exceeding the updated guidance we provided in mid January.
Megan: As Kelvin mentioned, we've seen a slower start to Q1 in the U S. While we continue to see strength in all other regions, while we navigate the consumer environment in the U S. We see several opportunities to maximize our performance. Our teams are focused on executing against our strategies and delivering for our guests throughout 2024.
Megan: As we have always done we continue to plan for multiple scenarios, we are positioning ourselves to both maximize our performance in the short and long term and manage our business to protect against downside.
Meghan Frank: And these advantages will further enhance our standing in the marketplace in the U.S. and around the globe. With that, I'll turn it over to Meghan for a review of our financials and our 2024 guidance. Thanks, Calvin.
We're sharing the details of our Q4 performance and our guidance outlook, Let me provide an update on our segment reporting.
Megan: The evolution of our business the meaningful opportunity we have in our international regions and our Omnichannel operating model, we've changed our reporting segments from channel to geography.
Meghan Frank: We closed out 2023 on a strong note, with our Q4 results exceeding the updated guidance we provided in mid-January. As Calvin mentioned, we've seen a slower start to Q1 in the U.S., while we continue to see strength in all other regions. While we navigate the consumer environment in the U.S., we see several opportunities to maximize our performance. Our teams are focused on executing against our strategies and delivering for our guests throughout 2024. As we have always done, we continue to plan for multiple scenarios.
And our 2023 10-K, you'll see our new segments, which are Americas, China mainland and rest of world.
Megan: In the earnings release and on today's call, we will still provide comparable sales metrics by channel. So you'll have the data to close out your models for 2023.
However, going forward, we'll be reporting revenue metrics and profit on a regional basis.
Megan: Let me now share the details of our Q4 performance for.
Megan: For Q4, our total net revenue rose, 16% to $3 2 billion and comparable sales increased 12%.
Meghan Frank: We are positioning ourselves to both maximize our performance in the short and long term and manage our business to protect against downside. Before sharing the details of our Q4 performance and our guidance outlook, let me provide an update on our segment reporting. With the evolution of our business, the meaningful opportunity we have in our international regions, and our omni-channel operating model, we've changed our reporting segments from channel to geography. In our 2023 10K, you will see our new segments, which are America's, China Mainland, and Rest of the World.
Megan: Within our regions results were as follows America.
Megan: Americas revenue increased 9% with comparable sales increasing 7%.
Megan: China mainland revenue increased 78% with comparable sales increasing 60%.
Megan: And in our rest of World segment revenue grew by 36% with comparable sales increasing by 31%.
Megan: In our store channel total sales increased 15% with comparable store sales increasing 6%.
Megan: We ended the quarter with a total of 711 stores across the globe.
Megan: Whereas footage increased 15% versus last year.
Megan: Driven by the addition of 56 net new Lululemon stores since Q4 of 2022.
Megan: During the quarter, we opened 25 net new stores and completed 15 optimizations.
Meghan Frank: In the earnings release and on today's call, we will still provide comparable sales metrics by channel, so you'll have the data to close out your models for 2023. However, going forward, we'll be reporting revenue metrics and profit on a regional basis. Now, let me now share the details of our Q4 performance. For Q4, total net revenue rose 16% to $3.2 billion, and comparable sales increased 12%. Within our regions, results were as follows
Megan: In our digital channel revenues increased 17%.
Megan: We did $1 7 billion of top line or 52% of total revenue.
Megan: By category Women's revenue increased by 13% versus last year men's increased by 15% and accessories grew 40%.
Megan: We also experienced ongoing strength in traffic across channels.
Megan: Stores and e-commerce, both increasing by approximately 20%.
Megan: This speaks to the strength of our on the operating model as we engage with our guests in ways most convenient to them.
Megan: Gross profit for the fourth quarter was $1 9 billion or 59, 4% of net revenue compared to the adjusted rate of 57, 4% of net revenue in Q4 2022.
Meghan Frank: America's revenue increased 9%, with comparable sales increasing 7%. China mainland revenue increased 78%, with comparable sales increasing 60%, and in our rest of the world segment, revenue grew by 36%, with comparable sales increasing by 31%. In our store channel, total sales increased 15%, with comparable store sales increasing 6%. We ended the quarter with a total of 711 stores across the globe.
Megan: Our adjusted gross margin increased 200 basis points relative to last year and was driven primarily by the following.
Megan: A 210 basis point increase in overall product margin, driven primarily by lower air and ocean freight costs as well as lower airfreight usage offset slightly by 10 basis points of deleverage on foreign exchange.
Meghan Frank: Where footage increased 15% versus last year, driven by the addition of 56 net new Lululemon stores since Q4 of 2022. During the quarter, we opened 25 net new stores and completed 15 optimizations. In our digital channel, revenues increased 17% and contributed $1.7 billion to the top line, or 52% of total revenue. By category, women's revenue increased by 13% versus last year, men's increased by 15%, and accessories grew 40%. We also experienced ongoing strength in traffic across channels, stores, and e-commerce, both increasing by approximately 20%. This speaks to the strength of our Omni operating model as we engage with our guests in ways most convenient to them.
Megan: Markdowns were in Q4 were relatively flat with last year.
Megan: Gross margin was favorable to our updated guidance of 120 to 130 basis points, driven predominantly by 40 basis points of leverage on fixed costs 20 basis points of favorability in product margin driven mostly by lower freight costs and 10 basis points of favorability in FX.
Megan: Moving to SG&A.
Megan: Our approach continues to be grounded and prudently managing our expenses, while also continuing to strategically invest in our long term growth opportunities.
SG&A expenses were approximately $990 million or 39% of net revenue compared to 29% of net revenue for the same period last year.
Megan: The deleverage in SG&A was driven by our continued strategic investments in brand building technology and foundational infrastructure.
In addition to increased depreciation and amortization related to investments made in 2022 and 2023.
Meghan Frank: Gross profit for the fourth quarter was $1.9 billion, or 59.4% of net revenue, compared to the adjusted rate of 57.4% of net revenue in Q4 2022. Our adjusted gross margin increased 200 basis points relative to last year and was driven primarily by the following. A 210 basis point increase in overall product margin driven primarily by lower air and ocean freight costs, as well as lower air freight usage, offset slightly by 10 basis points of deleverage on foreign exchange. Markdowns in Q4 were relatively flat with last year. Gross margin was favorable to our updated guidance of 120 to 130 basis points, driven predominantly by 40 basis points of leverage on fixed costs, 20 basis points of favorability on product margin, driven mostly by lower freight costs Moving to SG&A, our approach continues to be grounded in prudently managing our expenses while also continuing to strategically invest in our long-term growth opportunities. SG&A expenses were approximately $990 million, or 30.9% of net revenue, compared to 29% of net revenue for the same period last year.
Megan: This was partially offset by savings related to the evolution of our Lulu Lemon studio business model.
Megan: Foreign exchange contributed 40 basis points to the deleverage in the quarter.
Megan: Operating income for the quarter was 914 million or 28, 5% of net revenue compared to an adjusted operating margin of 28, 3% in Q4 2022.
Megan: Tax expense for the quarter was $262 million or 28, 1% of pretax earnings compared to an adjusted effective tax rate of 28, 7% a year ago.
Megan: The decrease relative to last year is due primarily to an increase in tax benefits related to stock based compensation and some favorable adjustments upon the filing of income tax returns.
Megan: This was partially offset by an increase in accrued withholding tax on earnings in Canada.
Megan: Net income for the quarter was $669 million or $5.29 per diluted share compared to adjusted earnings per diluted share of $4 40 for the fourth quarter of 2022.
Megan: Capital expenditures were approximately $207 million for the quarter flat with Q4 of last year.
Megan: Q4 spend relates primarily to investments that support business growth, including our multiyear distribution Center project store capital for new locations relocations and renovations and technology investments.
Turning to our balance sheet highlights we ended the quarter with $2, two 4 billion in cash and cash equivalents and nearly $400 million of available capacity under our revolving credit facility.
Meghan Frank: The deleverage in SG&A was driven by our continued strategic investments in brand building, technology, and foundational infrastructure, in addition to increased depreciation and amortization related to investments made in 2022 and 2023. This was partially offset by savings related to the evolution of our Lululemon Studio business model. Foreign exchange contributed 40 basis points to the deleverage in the quarter. Operating income for the quarter was $914 million, or 28.5% of net revenue, compared to an adjusted operating margin of 28.3% in Q4 2022. Tax expense for the corridor was $262 million, or 28.1% of pre-tax earnings, compared to an adjusted effective tax rate of 28.7% a year ago. The decrease relative to last year is due primarily to an increase in tax benefits related to stock-based compensation and some favorable adjustments upon the filing of income tax returns. This was partially offset by an increase in the crude withholding tax on earnings in Canada.
Megan: Inventory at the end of Q4 was $1 3 billion.
Megan: We're pleased with our inventory levels, which declined 9% versus last year.
Megan: Relative to our expectations higher revenue and foreign exchange contributed to the decrease.
Megan: On a unit basis inventory increased approximately 1%.
Megan: During the quarter, we repurchased approximately 120000 shares at an average price of $450.
Megan: And the full year 2023, we repurchased approximately $550 million of stock at an average price of approximately $375.
At the end of Q4, we had approximately $1 2 billion of capacity remaining on our share repurchase authorizations.
Speaker Change: Let me now shift to our guidance outlook.
Speaker Change: At the start of my remarks were being disciplined and agile with our planning for 2024.
Our teams are focused on maximizing our performance in the current environment and delivering for our guests this year and beyond.
Speaker Change: We remain committed to our power of three times to growth plan.
Speaker Change: Beginning with the full year of 2024, we expect revenue to be in the range of $10 seven to $10 8 billion.
Speaker Change: This range represents growth of 11% to 12% relative to 2023.
Speaker Change: Excluding the 50 <unk> week that we have in the fourth quarter of 'twenty 'twenty four we expect revenue to grow 10% to 11%.
Meghan Frank: Net income for the quarter was $669 million, or $5.29 per diluted share, compared to adjusted earnings per diluted share of $4.40 for the fourth quarter of 2022. Capital expenditures were approximately $207 million for the quarter, flat with Q4 last year. Q4 spend relates primarily to investments that support business growth, including our multi-year distribution center project, store capital for new locations, relocations, and renovations, and technology investments. Turning to our balance sheet, we ended the quarter with $2.24 billion in cash and cash equivalents and nearly $400 million of available capacity under our revolving credit facility. Inventory at the end of Q4 was $1.3 billion. We are pleased with our inventory levels, which declined 9% versus last year. Relative to our expectations, higher revenue in foreign exchange contributed to the decrease. On a unit basis, inventory increased approximately 1%. During the quarter, we repurchased approximately 120,000 shares at an average price of $450.
Speaker Change: We expect to open 35 to 40 net new company operated stores in 'twenty 'twenty four and complete approximately 40 co located optimizations. This.
Speaker Change: This will contribute to overall square footage growth in the low double digits.
Our new store openings in 'twenty 'twenty four will include five to 10 stores in the Americas with the rest in our international markets, primarily in China mainland.
Speaker Change: The full year, we forecast gross margin to be approximately flat with adjusted gross margin in 2023.
Speaker Change: Within gross margin, we expect both markdowns in airfreight to be relatively flat with last year.
Speaker Change: Turning now to SG&A for the full year.
Speaker Change: Before cost leverage of approximately 10 basis points versus 2023 where.
We are prudently managing our expenses, while continuing to invest strategically into our power of three times to roadmap, including investments in marketing and brand building aimed at increasing our awareness and acquiring new guests.
Speaker Change: That's meant to support our international growth and market expansion and continued investment in technology infrastructure and data analytics capabilities.
Speaker Change: When looking at operating margin for the full year of 2024, we expect it to increase by approximately 10 basis points versus adjusted operating margin in 2023, which expanded 110 basis points versus 'twenty to 'twenty two to.
Meghan Frank: In the full year 2023, we repurchased approximately $550 million of stock at an average price of approximately $375. At the end of Q4, we had approximately $1.2 billion of capacity remaining on our share repurchase authorization. Let me now shift to our guidance outlook. As I said at the start of my remarks, we're being disciplined and agile with our planning for 2024. Our teams are focused on maximizing our performance in the current environment and delivering for our guests this year and beyond. We remain committed to our Power 3x2 growth plan. Beginning with the full year 2024, we expect revenue to be in the range of $10.7 to $10.8 billion. This range represents growth of 11 to 12% relative to 2023.
Speaker Change: To date in our para three times to plan, we're tracking above our operating margin target of modest expansion annually.
Speaker Change: For the full year of 2024, we expect our effective tax rate to be approximately 30% and.
Speaker Change: An increase over the 2023 adjusted effective tax rate of 28, 7%.
Speaker Change: The increase relative to last year relates primarily to lower stock based compensation deductions and the favorable adjustments, we realized with filing our tax returns in 'twenty two 'twenty three.
For Q1, we expect our effective tax rate to be 29% to 29, 5%.
Speaker Change: For the fiscal year 'twenty 'twenty four we expect diluted earnings per share in the range of $14 to $14 20 versus adjusted EPS of $12 77 in 2023.
Speaker Change: Our EPS guidance excludes the impact of any future share repurchases.
But looking at inventory, we expect dollar inventory to decline in the high single to low double digit percent in the first half of the year.
Meghan Frank: Excluding the 53rd week that we have in the fourth quarter of 2024, we expect revenue to grow 10 to 11%. We expect to open 35 to 40 net new company-operated stores in 2024 and complete approximately 40 co-located optimizations. This will contribute to overall square footage growth in the low double digits.
Speaker Change: And then increase in the second half of the year as we anniversary last year's declines.
Speaker Change: We expect capital expenditures to be approximately $670 million to $690 million for 2024.
Speaker Change: This spend relates to investments to support business growth, including a continuation of a multiyear distribution Center project.
Speaker Change: Our capital for new locations relocations, and renovations and technology investments.
Meghan Frank: Our new store openings in 2024 will include 5 to 10 stores in the Americas, with the rest in our international markets, primarily in China. For the full year, we forecast gross margin to be approximately flat with adjusted gross margin in 2023. Within gross margin, we expect both markdowns and air freight to be relatively flat with last year.
Speaker Change: Shifting now to Q1, we.
Speaker Change: We expect revenue in the range of $2 175 to $2 2 billion Rep.
Speaker Change: Representing growth of 9% to 10%.
Speaker Change: Back to open one net new company operated store in Q1.
We expect gross margin in Q1 to be approximately flat with Q1 2023 with markdowns were relatively flat with last year.
Meghan Frank: Turning now to SG&A for the full year, we forecast leverage of approximately 10 basis points versus 2023. We are prudently managing our expenses while continuing to invest strategically in our Power of 3x2 roadmap, including investments in marketing and brand building aimed at increasing our awareness and acquiring new guests, as well as investments to support our international growth and market expansion and continued investment in technology infrastructure and data analytics capabilities. When looking at operating margin for the full year of 2024, we expected it to increase by approximately 10 basis points versus adjusted operating margin in 2023, which expanded by 110 basis points versus 2022. To date, in our Power of 3 x 2 plan, we are tracking above our operating margin target of modest expansion annually. For the full year 2024, we expect our effective tax rate to be approximately 30%.
Speaker Change: In Q1, we expect our SG&A rate Deleveraged by 130 to 140 basis points relative to Q1 2023.
Speaker Change: This will be driven predominantly by increased investments to grow brand awareness and acquire new guests and higher depreciation resulting from technology investments made in 2022 and 2023.
Let me share some additional details on our investments to grow brand awareness.
But in Q1 will be we will be activating three relatively large brand events, our footwear launch and further ultra marathon, which already took place and our team Canada kit launch later in the quarter.
Speaker Change: These events plus some other strategic investments in brand building are contributing to the deleverage.
Speaker Change: Looking at quarters, two through four we do not anticipate SG&A deleverage and as I. Previously stated, we expect 10 basis points of SG&A leverage for the full year.
Speaker Change: When looking at operating margin for Q1, we expect it to decline 130 to 140 basis points year over year, driven by our SG&A investment.
Speaker Change: I'd also note that operating margin in Q1, 2023 expanded by 400 basis points driven predominantly by air freight savings.
Meghan Frank: An increase over the 2023 adjusted effective tax rate of 28.7%. The increase relative to last year relates primarily to lower stock-based compensation deductions and the favorable adjustments we realized when filing our tax returns in 2023. For Q1, we expect our effective tax rate to be between 29 and 29.5%.
Speaker Change: In addition, we did not start accelerating our investments into our strategic roadmap until the second quarter of last year.
And as I stated previously we expect operating margin to expand modestly for the full year on top of the 110 basis points of operating margin expansion in 2023.
Speaker Change: Turning to EPS, we expect earnings per share in the first quarter to be the range of $2 35 to $2.40 versus EPS of $2.28 a year ago.
Meghan Frank: For the fiscal year 2024, we expect diluted earnings per share in the range of $14 to $14.20 versus adjusted EPS of $12.77 in 2023. Our EPS guidance excludes the impact of any future share repurchases. When looking at inventory, we expect dollar inventory to decline in the high single to low double digit percent in the first half of the year and then increase in the second half of the year as we anniversary last year's decline. We expect capital expenditures to be approximately $670 to $690 million in 2024.
Speaker Change: With that I will turn it back over to call them.
Callum: Thank you Megan in summary, I'm proud of how we closed out 2023, and the way in which we have continued to expand around the world deliver against our power of three times to strategies and create momentum in the business.
Callum: I'm optimistic that the investments, we're making in the business will contribute to another year of growth in 2024.
Speaker Change: In closing I want to thank the members of our global collective particular employees in our stores distribution and guest education centers as well as our store support centers, who engage with our guests every day and bring our brand to life.
Meghan Frank: This spend relates to investments to support business growth, including a continuation of our multiyear distribution center project, Store capital for new locations, relocations, and renovations, and technology investments. Shifting now to Q1. We expect revenue in the range of $2.175 to $2.2 billion, representing growth of 9 to 10 percent. Additionally, we expect to open one net new company-operated store in Q1. We expect gross margin in Q1 to be approximately flat with Q1 2023, with markdowns relatively flat with last year. In Q1, we expect our SG&A rate to G-leverage by 130 to 140 basis points relative to Q1 2023.
Speaker Change: They're responsible for driving these results and they will be the engine that will fuel all we will accomplish going forward. We will now take your questions.
Speaker Change: We will now begin the question and answer session analysts who wish to join the question queue. My Breath Star then one on the telephone keypad.
Speaker Change: You'll hear a tone acknowledging your request if youre using a speakerphone. Please pick up the handset before pressing any keys to withdraw your question. Please press Star then two.
Speaker Change: The first question comes from Alex Scott with Morgan Stanley. Please go ahead.
Speaker Change: Yeah.
Alex Scott: Great. Thanks, so much for taking the question I just wanted to hone in on the comment on the challenging consumer behavior. Just wondering are you seeing that in some pockets of the business more than others or is it broad based is it a tropical conversion problem or how do you see that and then does that mean that the business is currently running at the <unk> guide like that now.
Speaker Change: Nine of 10% I believe.
Meghan Frank: This will be driven predominantly by increased investments to grow brand awareness and acquire new guests, and higher depreciation resulting from technology investments made in 2022 and 2023. Let me share some additional details on our investments to grow brand awareness. But in Q1, we will be activating three relatively large brand events. Our footwear launch and further ultra marathon, which have already taken place, and our Team Canada kit launch later in the quarter. These events, plus some other strategic investments in brand building, are contributing to the deleverage. Looking at quarters two through four, we do not anticipate any SG&AD leverage.
Speaker Change: Or how should we think about that comment in relation to the to the first quarter guidance. Thanks a lot.
Speaker Change: Thanks, Alex in terms of what we're seeing as I mentioned, all international markets, including Canada are continuing their strong momentum into Q1.
Alex Scott: And in the U S is where we're really navigating the dynamic retail environment with a consumer that is a little soft are coming into the year. I think we have an opportunity a I know we have an opportunity in this market in particular some are in.
Alex Scott: And around our product as I mentioned, our sizing in particular in a zero to four is something we were chasing into a color where we had color it performed well and honestly, we just did not have enough.
Meghan Frank: And as I previously stated, we expect 10 basis points of SG&A leverage for the full year. When looking at operating margin for Q1, we expect it to decline 130 to 140 basis points year over year, driven by our SG&A investments. I'd also note that operating margin in Q1 2023 expanded by 400 basis points, driven predominantly by air freight savings. In addition, we did not start accelerating our investments in our strategic roadmap until the second quarter of last year. And as I stated previously, we expect operating margin to expand modestly for the full year on top of the 110 basis points of operating margin expansion in 2023. Turning to EPS, we expect earnings per share in the first quarter to be in the range of $2.35 to $2.40 versus EPS of $2.28 a year ago. And with that, I will turn it back over to Calvin.
Alex Scott: And both of these are attribute to over index in the U S, which is where I see the opportunity.
Alex Scott: And we're going to continue to play offense in the market. The innovation our product pipeline remains very strong for this year and we have some exciting brand initiatives. In addition.
Alex Scott: Where is that showing up we're seeing a slowdown in traffic in the U S. But it's still positive and conversion is down slightly and I link I link that to some of the product opportunities. We have in the sizing and color, which as I said, we will we are chasing until we get stronger through the quarters.
Speaker Change: Great and Alex I'd, just add on on the Q1 guide relative to current trends, we don't speak to inter quarter trends, but as Kevin shared we were off to a soft start in the U S with all other regions performing strongly.
Calvin R. McDonald: Thank you, Meghan. In summary, I'm proud of how we closed out 2023 and the way in which we have continued to expand around the world, deliver on our power of three times two strategies, and create momentum in the business. I'm optimistic that the investments we're making in the business will contribute to another year of growth in 2024. In closing, I want to thank the members of our global collective, particularly our employees in our stores, distribution, and guest education centers, as well as our store support centers, who engage with our guests every day and bring our brand to life. They are responsible for driving these results, and they will be the engine that will fuel all we accomplish going forward.
Speaker Change: Strongly and did guide to the 9% to 10% growth, which we feel is appropriate given what we're seeing in terms of trends.
Speaker Change: Okay.
Speaker Change: Thanks, a lot good luck.
Speaker Change: Thank you.
Speaker Change: The next question comes from Lorraine Hutchinson with Bank of America. Please go ahead.
Lorraine Corrine Maikis Hutchinson: Thank you. Good afternoon, I was hoping you could provide a state of the union on the men's business growth stabilized after decelerating a bit last year, where do you see the largest opportunities to defend and grow share in the men's business.
Lorraine Corrine Maikis Hutchinson: Great. Thanks, Lorraine as I mentioned I'm very excited about the product pipeline for men's this year.
Lorraine Corrine Maikis Hutchinson: Last year, our mens business did increase as you indicated in the Q4, which was great to see that momentum back into our men's business total year was 15% growth and two years into our power of three times to plan, we've grown our men's revenue at a 21% CAGR. So ahead of that.
Operator: We will now take your questions. We will now begin the question and answer session. Analysts who wish to join the question queue may press star then 1 on the telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any key.
Lorraine Corrine Maikis Hutchinson: That goal.
Lorraine Corrine Maikis Hutchinson: We continue to put on share through all of last year, we did see the male guest in general pull back a little bit in the category of apparel and athletic and I think Q4, we are seeing him being drawn back in on innovation, which I will highlight a few that are for this year.
Operator: To withdraw your question, please press star, then two. The first question comes from Alex Straton with Morgan Stanley. Please go ahead. Great. Thanks so much for taking the question. I just wanted to hone in on the comments about the challenge of consumer behavior. Just wondering, are you seeing that in some pockets of the business more than others, or is it broad-based?
Lorraine Corrine Maikis Hutchinson: Very encouraged by one is as you know in our.
Lorraine Corrine Maikis Hutchinson: Our a b C franchise, both the trouser and five pocket. It was only a few years ago that we had one fabric offering and that was warped stream. Since then we've added utility <unk>. We've added woven are and we are launching a versa twill product this year, which is feels more it's a proprietary performance.
Calvin R. McDonald: Is it a traffic or a conversion problem, or how do you see that? And then, does that mean that the business is currently running at the 1Q guide, like that 9% to 10%, I believe? Or how should we think about that comment in relation to the first quarter guidance? Thanks a lot.
Calvin R. McDonald: Thanks, Alex. In terms of what we're seeing, as I mentioned, all international markets, including Canada, are continuing their strong momentum into Q1. And in the U.S., where we're really navigating a dynamic retail environment with a consumer that is a little soft coming into the year. I think we have an opportunity.
Lorraine Corrine Maikis Hutchinson: I'm in space, but it feels more of a handful of our cotton. So it's fantastic for the lighter a warmer months in it.
Really is a completely incremental offering for us are in a silhouette and our brand and our franchise that he loves our lounge product in men's is just getting stronger we launch soft Jersey last fall we've been chasing since then in the next few weeks will really be fully in an in stock position.
Calvin R. McDonald: I know we have an opportunity in this market, in particular some in and around our product. As I mentioned, our sizing, in particular in 0 to 4, is something we're chasing into. Color, where we had color, it performed well. And honestly, we just did not have enough.
Lorraine Corrine Maikis Hutchinson: <unk> to represent we've added steady state and smooth spacer.
Lorraine Corrine Maikis Hutchinson: So our lounge offering for him is the strongest it's been and we've equally launch some performance product is performing incredibly well zeroed in AR, which is a new train franchise and the pace breaker, which is our you know most versatile hero short item, bringing that into.
Meghan Frank: And both of these attributes outperform the index in the U.S., which is where we're at right now, and we're going to continue to play offense in the market. The innovation product pipeline remains very strong for this year, and we have some exciting brand initiatives in addition. Where that's showing up, we're seeing a slowdown in traffic in the U.S., but it's still positive, and conversion is down slightly. And I link that to some of the product opportunities we have in sizing and color, which, as I said, we are chasing until we get stronger through the quarters. And Alex, I just add on the Q1 guide relative to current trends; we don't speak to inter-quarter trends, but as Calvin shared, we were off to a soft start in the U.S., with all other regions performing strongly and did guide to the 9% to 10% growth, which we feel is appropriate given what we're seeing in terms of trends. Thanks a lot.
Lorraine Corrine Maikis Hutchinson: To a track our bottom and top to round out the needs for him to all those who are checking very positively we are seeing very encouraging demand on the newness and and I are very confident in our AR and our product pipeline and what we're going to see.
Speaker Change: Thank you.
Speaker Change: The next question comes from Brook Road with Goldman Sachs. Please go ahead.
Brooke Siler Roach: Good afternoon, and thank you for taking our question I was hoping you could elaborate on what youre seeing in the China market today and your outlook for growth there this year.
Brooke Siler Roach: Could you provide updated thoughts on the opportunity for further profitability improvement in the region. This year. Thank you.
Speaker Change: Thanks Brook I'll take the first half we remain.
Operator: Good luck. Thank you. The next question comes from Lorraine Hutchinson with Bank of America. Please go ahead. Thank you. Good afternoon.
Speaker Change: Excited about the potential for Lulu Lemon and are in China in Q4, our revenue increased 78% in mainland China.
Calvin R. McDonald: I was hoping you could provide a state of the union on how the men's business growth stabilized after decelerating a bit last year. Where do you see the largest opportunities to defend and grow share in the men's business? Great, thanks Lorraine.
Speaker Change: Part of that was driven by the Covid related store closures, we experienced in quarter 22, but in the full year our business grew 67%. So while we're keeping a close eye on the macro environment in the region. Our business remains very strong and we believe several factors benefit us in China.
Calvin R. McDonald: As I mentioned, I'm very excited about the product pipeline for men's this year. Last year, our men's business did increase, as you indicated in Q4, which was great to see that momentum back into our men's business. Overall, the year was 15% growth.
Speaker Change: One we.
Speaker Change: We are building from a smaller base, we have 127 stores on mainland AR at the end of the quarter and we see opportunity to continue to add.
Calvin R. McDonald: And two years into our Power 3x2 plan, we've grown our men's revenue at a 21% CAGR, so ahead of that goal. We continue to put on share through all of last year. We did see the male guest, in general, pull back a little bit in the category of apparel and athletic.
Speaker Change: We have and take a localized approach to our brand leveraging relationships locally in the community through ambassadors instructors and Influencers that has really.
Calvin R. McDonald: And I think in Q4, we're seeing him being drawn back in on innovation, which I will highlight a few that, for this year, I'm very encouraged by. One is, as you know, in our ABC franchise, both the trouser and five pocket, it was only a few years ago that we had one fabric offering, and that was Warpstream. Since then, we've added Utilitech, we've added Wovenair, and we are launching a Versatwil product this year, which feels more, it's a proprietary performance-based fabric, it feels more of the hand feel of cotton. So it's fantastic for the lighter, warmer months.
Speaker Change: Resonated locally.
And some of our most exciting activations come from that market and an ongoing strategy to keep opening new stores. So are our unaided brand awareness. We did see good improvements last year, we started the year at 9%, we ended up 14%, but 14% in a market of that size.
Speaker Change: We have a lot of opportunity to continue to grow see great momentum in the brand and are excited about how that team is activating and growing.
Calvin R. McDonald: And it really is a completely incremental offering for us in a silhouette and a brand and a franchise that he loves. Our lounge product in men's is just getting stronger. We launched Soft Jersey last fall, and we've been chasing since then.
Speaker Change: And and optimistic with our potential in that market.
Speaker Change: And then Brook I'd add them, but we don't break out regional outlooks in terms of.
Calvin R. McDonald: In the next few weeks, we'll really be fully in an in-stock position to represent. We've added Steady State and Smooth Spacer. So our lounge offering for him is the strongest it's been, and we've equally launched some performance products that are performing incredibly well. Zeroed In, which is a new terrain franchise, and the Pacebreaker, which is our most versatile hero, a short item, bringing that into a track bottom and top to round out the needs for him.
Speaker Change: China, we believe that growth rate will be significantly above our guide of 10% to 11% for the full year, excluding the 50 <unk> week of coming off of a 78% growth in Q4 and feel well positioned as we move into 'twenty four and then in terms of improving profitability in that region are near near term priority is really to grow top line.
Speaker Change: And capture as Kelvin mentioned, the unaided brand awareness opportunity, we see there and go after new guest acquisition. This year. So we've looked to continue those investments as we look into 'twenty, four but certainly see opportunity over the longer term to continue to grow that operating margin right.
Calvin R. McDonald: All those are checking out very positively. We're seeing very encouraging demand for the newness, and I'm very confident in our product pipeline and what we're going to see. Thank you. The next question comes from Brooke Roach with Goldman Sachs. Please go ahead.
Speaker Change: The next question comes from Mark I'll Traveler with Baird. Please go ahead.
Calvin R. McDonald: Good afternoon, and thank you for taking our question. I was hoping you could elaborate on what you're seeing in the Chinese market today and your outlook for growth there this year. Additionally, could you provide updated thoughts on the opportunity for further profitability improvement in the region this year? Thanks, Brooke. I'll take the first half.
Mark Traveler: Good afternoon, Thanks for taking my question.
Mark Traveler: Wanted to ask about inventory I guess this is the first time in a while I think I've heard you speak to stock outs in certain sizes and styles, perhaps weighing on sales growth. So how do you feel about the level and the mix of your current inventory what are your plans for inventory growth this year and give.
Calvin R. McDonald: We remain excited about the potential for Lululemon in China. In Q4, our revenue increased 78% in mainland China. Part of that was driven by the COVID-related store closures we experienced in quarter 22, but in the full year, our business grew 67%. So while we're keeping a close eye on the macro environment in the region, our business remains very strong, and we believe several factors are benefiting us in China. One, we are building from a smaller base.
Mark Traveler: Things seem to be fairly lean why wouldn't there be an opportunity to perhaps drive lower markdowns in 2024, maybe walk us through some of the puts and takes you're thinking about there. Thank you.
Yeah. Thanks, Mark So inventory, we came in negative 9% on a dollar basis and plus one.
Speaker Change: On a unit basis, we feel pleased with the level and currency composition of our inventory overall Calvert did talk about a few pockets in the U S, where we feel like we've got an opportunity to accelerate what's working them in terms of inventory, but you know, we still feel well positioned from an overall perspective, I would say from a markdown perspective.
Meghan Frank: We have 127 stores on the mainland at the end of the quarter, and we see opportunity to continue to add. We have and take a localized approach to our brand, leveraging relationships locally in the community through ambassadors and startups. We have and take a localized approach to our brand, leveraging relationships in the community through ambassadors and startups. And then, Brooke, I'd add, though we don't break out regional outlooks, in terms of China, we believe that growth will be significantly above our guide of 10 to 11 percent for the full year, excluding the 53rd week.
Speaker Change: We run a very low markdown rate on generally speaking 2023 was flat to 22 in 2019, which is a healthy water line for us that's our expectation for 2024 and so at this point in time, given where you know very early in the year, we're not changing our thinking on our markdowns, but we'll continue to keep you updated there.
Speaker Change: Thank you.
Speaker Change: The next question comes from Matthew Boss with JP Morgan. Please go ahead.
Matthew Robert Boss: Please go ahead.
Yeah.
Matthew Robert Boss: Could you speak to multiyear drivers of positive comp growth in the Americas, maybe relative to the high single digits last year. We're just areas that you see to continued market share regardless of the macro.
Meghan Frank: We're coming off of 78 percent growth in Q4 and feel well positioned to move into 24. And then, in terms of improving profitability in that region, our near-term priority is really to grow top line and capture, as Calvin mentioned, the unending brand awareness opportunity we see there and go after new guest acquisition this year. So, we've looked to continue those investments as we look into 24, but certainly see opportunity over the longer term to continue to grow that operating margin profit. The next question comes from Mark Altschwager with Baird. Please go ahead. Good afternoon.
Operator: Hey, Matt I think here at the beginning of your question cut off do you mind just repeating it.
Matt: Sure Yeah, I think the operator held it on so what I was asking is on the early innings growth story that that but I know Calvin you are.
Matt: That you speak to just how the Americas fits into that and as we think about same store sales growth in the Americas relative to the high singles. This year, just how best to think about multiyear drivers or areas to see continued market share regardless of what the Americas macro may look like.
Speaker Change: Yes, Thanks, Matt.
Speaker Change: Definitely still view across all markets being early innings and our growth story, when we look at Americas as I as I mentioned, Canada is continuing its strong momentum into quarter, one and within the U S. A you know we're navigating what we.
Meghan Frank: Thanks for taking my question. I wanted to ask about inventory. I guess this is the first time in a while I think I've heard you speak of stock outs in certain sizes and styles, perhaps weighing on sales growth. So how do you feel about the level and the mix of your current inventory?
Speaker Change: She is a dynamic retail environment and a consumer that's a little bit softer, but there are a lot of areas that we are focused on and we know can continue to drive our business that being product innovation and you donated awareness, which in the U S is still a very a very low.
Meghan Frank: What are your plans for inventory growth this year? And given that things seem to be fairly lean, why wouldn't there be an opportunity to perhaps drive lower markdowns into your inventory? 2024?
Meghan Frank: Maybe walk us through some of the puts and takes you're thinking about there. Thank you. Yep, thanks, Mark. So inventory, we came in negative 9% on a dollar basis and plus one on a unit basis.
Speaker Change: I think combined it's less than 50% in the 40% range.
Speaker Change: With a lot of exciting initiatives planned to continue to make progress on that awareness metrics. So when we look across the metric when we look across our categories, which I've always talked to before in terms of the balanced approach across men's and women's.
Meghan Frank: We feel pleased with the level and currency composition of our inventory overall. Calvin did talk about a few pockets in the U.S. where we feel like we've got an opportunity to accelerate what's working in terms of inventory, but we still feel well positioned from an overall perspective. I would say from a markdown perspective, we run a very low markdown rate. Generally speaking, 2023 was flat to 22 in 2019, which is a healthy waterline for us. That's our expectation for 2024.
Speaker Change: And accessories in the pipeline and the ability to grow and where we are from an awareness perspective, no change in U S. No change in our strategy and with this guidance are not only did we complete twenty-three ahead of our power of three times to goals, but with the guidance 2024, we will still be.
Speaker Change: <unk> ahead of our power of three times 20.
Speaker Change: 20.
Meghan Frank: So at this point in time, given we're, you know, very early in the year, we're not changing our thinking on markdowns, but we'll continue to keep you updated there. Thank you. The next question comes from Matthew Boss with JP Morgan. Please go ahead.
Speaker Change: Power of three times, two goals and we don't see a change in that.
Speaker Change: And Matt I, just add you know, we we shared our long term target of low double digit CAGR for North America. We're tracking ahead of that to date in our plan and feel comfortable with that long term target and then from a sales per square foot perspective. The U S is the highest in terms of the sales force.
Operator: Could you speak to multi-year drivers of positive comp growth in the Americas, maybe relative to the high single digits last year, or just areas that you see to take continued market share, regardless of the macro? Hey, Matt, I think you're at the beginning of your question when your question was cut off. Do you mind just repeating it? Yeah, sure. Yeah, I think the operator held it on.
Speaker Change: Perfect by store, So you know and and was continue to grow and we went through 2023. So we still feel like stores are an important part of that strategy.
Speaker Change: That's great.
Calvin R. McDonald: So what I was asking is about the early innings growth story that I know, Calvin, that you speak about, just how the Americas fits into that. And as we think about same-store sales growth in the Americas relative to the high singles this year, just how best to think about multi-year drivers or areas to take continued market share, regardless of what the Americas macro may look like. Yeah, thanks, Matt.
Speaker Change: Just one follow up could you elaborate this year on SG&A, just efficiencies or flexibility in this year's P&L to leverage on a low double digit revenues I think historically, it's mid teens to see SG&A and operating margin leverage.
Speaker Change: Yeah. So we guided for the year to 10 basis points of operating margin expansion. We we were up against a 110 basis point expansion in 2023 it's we're really pleased with the leverage we saw in 2023 mm when we looked at our 'twenty 'twenty four plants and you know we've made some.
Calvin R. McDonald: Definitely still view across all markets as being in the early innings in our growth story. When we look at America, as I mentioned, Canada is continuing its strong momentum into quarter one. And within the US, you know, we're navigating what we see as a dynamic retail environment and a consumer that's a little bit softer. But there are a lot of areas that we are focused on and we know can continue to drive our business, such as product innovation and unaided awareness, which in the US is still very, very low. I think combined, it's less than 50% in the 40% range, with a lot of So when we look across the metric, when we look across our categories, which I've always talked about before, in terms of the, Matt, I just add, you know, we shared a long-term target of low double-digit CAGR for North America. We're tracking ahead of that to date in our plan. Feel comfortable with that long-term target. And then, from a sales per square foot perspective, the U.S. is the highest in terms of sales per square foot by store.
Speaker Change: Reductions to discretionary spend while continuing to invest behind market expansion and as well as on going after got unaided guest awareness and new guest acquisition. So you know, we're really looking at driving into the long term opportunity. There as we also moved through 2024.
Speaker Change: That's great color best of luck.
Speaker Change: Thank you.
The next question comes from Dana Telsey with Telsey Group. Please go ahead.
Dana Lauren Telsey: Hi, can you talk a little bit about the marketing investment and how you're thinking about it this year as compared to last year and when the membership program any update on the rollout of the membership program the profile of the gas.
Dana Lauren Telsey: Seeing them getting thank you.
Dana Lauren Telsey: Hi, Dana from a from a marketing campaign perspective.
Dana: As we've signaled we continue to.
Dana: Lean in to a variety of Activations as a means to get at that unaided brand awareness.
Meghan Frank: So, you know, and it continued to grow when we went through 2023. So we still feel like stores are an important part of that strategy. That's great. Meghan, just one follow-up.
Building on the successes that we saw last year.
Dana: We continue to test and learn we did an online campaign beginning of last year are very pleased with the results followed up with a a b C campaign for him in the fall.
Meghan Frank: Could you elaborate this year on SG&A, just efficiencies or flexibility in this year's P&L to leverage on the low double-digit revenues? I think historically it's mid-teens to see SG&A in operating margin leverage. Yeah, so we guided for the year to 10 basis points of operating margin expansion. We were up against 110 basis points of expansion in 2023, so really pleased with the leverage we saw in 2023. When we looked at our 2024 plans, you know, we've made some reductions to discretionary spend while continuing to invest in market expansion, as well as going after unaided guest awareness and new guest acquisition. So, you know, we're really looking at driving the long-term opportunity there as we also move through 2024. Great job, Colin.
Dana: I'm very pleased with our without activation, we had a number of activations in mainland China.
Dana: All of those are contributing to the growth that we've seen in unaided awareness. So we know that we are acquiring guests are in these top of funnel activations are are performing and heading into this year. We have a number that we will continue to innovate and create and bring so we've kicked off this year already with <unk>.
Dana: Our city versus activation.
Dana: Which we were able to leverage quite a bit of earned media behind.
Dana: That's off to a strong start as I mentioned in particular over indexing, our with our male guest further which another earned media opportunities supported interestingly with further is we showcased up to 36 unique innovative items that will over.
Operator: Best of luck. Thank you. The next question comes from Dana Telsey with the Telsey Group. Please go ahead.
Calvin R. McDonald: Hi Dana, can you talk a little bit about the marketing investment and how you're thinking about this year as compared to last year? And then the membership program, any update on the rollout of the membership program, and the profile of the guests that you're seeing and getting? Thank you.
Dana: The next coming months appear in our lineup for run with the first being an incredible bra innovation that we'll be launching in Q3, the C O C or the Canadian Olympic Committee, which really we know from the Beijing games had a great impact on the brand from a global scale. So there are a lot.
Calvin R. McDonald: From a marketing campaign perspective, As we've signaled, we continue to lean in to a variety of activations as a means to get at that unaided brand awareness, building on the successes that we saw last year. We continue to test and learn. We did an Align campaign at the beginning of last year, very pleased with the results, followed up with an ABC campaign for him in the fall, very pleased with that activation.
Dana: Lot of exciting Activations that we will continue to really geared towards that more top of funnel unaided awareness and as I shared with you. We're seeing success on that and know we have a long way to go early innings on what the potential of the brand is in driving unaided into then consideration membership program.
Dana: Lot of exciting Activations that we will continue to really geared towards that more top of funnel unaided awareness and as I shared with you. We're seeing success on that and know we have a long way to go early innings on what the potential of the brand is in driving unaided into then consideration membership program.
Calvin R. McDonald: We had a number of activations in mainland China, and all of those are contributing to the growth that we've seen in unaided awareness. So we know that we are acquiring guests, and these top of funnel activations are performing. And heading into this year, we have a number that we will continue to innovate, create, and bring. So we've kicked off this year already with our CityVerse activation, which we were able to leverage quite a bit of earned media behind. That's off to a strong start, as I mentioned, in particular, over indexing with our mail guest. Further, which another earned media opportunity supported. Interestingly, with further, we showcased up to 36 unique, innovative items that will, over the coming months, appear in our lineup for run, with the first being an incredible bra innovation that we'll be launching in Q3. The COC, or the Canadian Olympic Committee, which we know from the Beijing Games had a great impact on the brand on a global scale.
Dana: Mentioned, we now have 17 million active members.
Dana: That's from really the program was just one year launch one year earlier, so a significant number of our guests and the program is geared to drive L. T V.
Dana: And and to drive spend and we do that through a variety of activations as well as benefits. It can be early access to product. It can be access to some of our events leveraging our partners.
Dana: Be it physically in local communities or as we did in January with peloton, having a back to sweat activation and that is driving engagement and it's having an impact on the LTV and spend metrics. So we're going to continue in that work, but it's only been less than a year and a half since we launched it.
Calvin R. McDonald: So there are a lot of exciting activations that we will continue to really gear towards that more top of funnel unaided awareness. As I shared with you, we're seeing success on that and know we have a long way to go. Early innings on what the potential of the brand is and driving unaided into consideration. Membership program.
And are very encouraged with the results so far and excited to continue building.
Dana: Building that program Dana I, just add in terms of marketing investment or marketing as a percent of sales for 2023 was four and a half.
Calvin R. McDonald: I mentioned we now have 17 million active members, and that's from when the program was just one year old, launched one year earlier. So a significant number of our guests, and the program is geared to drive LTV and to drive spend. And we do that through a variety of activations as well as benefits. For example, it can be early access to the product. It can be access to some of our events, leveraging our partners, be it physically in local communities or, as we did in January with Peloton, having a back to sweat activation.
Dana: And we're expecting to be in the range of four and a half to five and 'twenty 'twenty four and looking forward at this point in time.
Speaker Change: Thank you.
Speaker Change: Thanks.
Speaker Change: The next question comes from John Kernan with Cowen. Please go ahead.
John David Kernan: Thanks for taking my question.
John David Kernan: The Calvin we've seen new entrants in the space are they they didn't slow your momentum over the holiday in Q4, but can you talk to the durable competitive advantage that Lulu lemon maintains in terms of materials innovation scale, the depth of the offering for both men and women.
Meghan Frank: And that is driving engagement, and it's having an impact on the LTV and spend metric. So we're going to continue with that work, but it's only been less than a year and a half since we launched it, and we are very encouraged with the results so far and excited to continue building that program. Dana, I just add in terms of marketing investment, our marketing as a percent of sales for 2023 was four and a half, and we're expecting to be in the range of four and a half to five in 2024 and looking forward to it.
Speaker Change: Yeah, Thanks, John I'll break that down into how I view, it which is really two components. One is the what's what's fueling the momentum in the business and obviously you know what are the unique strengths or the moat of the brand and how unique our we are when we look and compare ourselves to others. So from a moment.
Speaker Change: Tim perspective, you know, we know that our unique approach to innovating, putting unmet needs of the guests first and delivering the solutions through science of feel beginning with fabrics, but into fit and overall into performance and then into that product, which.
Operator: Thank you. The next question comes from John Kernan with Cohen. Please go ahead.
Calvin R. McDonald: Thanks for taking my question. Calvin, we've seen new entrants in the space, but they didn't slow your momentum over the holiday in Q4. But can you talk about the durable competitive advantage that Lululemon maintains in terms of materials, innovation, scale, and the depth of the offering for both men and women? Thanks, John.
Speaker Change: Which then drives the engagement and with our community.
Speaker Change: And guess relationships.
Speaker Change: Which then unlocks further unmet needs is really the momentum driver of this business and when I look at where we sit in terms of the innovation the product and the activation with our guests and how they are engaging in any.
Calvin R. McDonald: I'll break that down into how I view it, which is really two components. One is what's fueling the momentum in the business and, obviously, what are the unique strengths or the moat of the brand, and how unique are we when we look and compare ourselves to others. So from a momentum perspective, we know that our unique approach to innovating, putting unmet needs of the guests first and delivering the solutions through the science of feel, beginning with fabrics but into fit and overall performance, and then into that product, which then drives the engagement with our community and guest relationships, which then unlocks further unmet needs, is really the momentum driver of this business.
Speaker Change: And all Activations, we do and the relationships with our stores with our educators NPS scores are very very positive good momentum across all markets. When I look at those attributes and then when I look at what makes Lululemon unique I really stack it and build it across both.
Speaker Change: Our model and our brand and I think the uniqueness is all of these elements combined other competitors or brands may have elements of these but when I look at our model and.
Speaker Change: Our product and the consistency of true innovation at the performance level not at a fashion level, but at a performance level into our community and the way in which we activate across our partner platform and then through our stores and our ambassadors the scale in which we're able to do that.
Calvin R. McDonald: And when I look at where we sit in terms of innovation, product, and activation with our guests and how they're engaging in any and all activations we do in the relationships with our stores, with our educators, NPS scores are very, very positive, and good momentum across all markets when I look at those attributes. And then when I look at what makes Lululemon unique, I really stack it and build it across both our model and our brand. And I think the uniqueness is all of these elements combined.
Speaker Change: Compared to others, and then combined with our D to C model, where not only do we own the relationship with our guests, but there are inherent benefits of margin structure. It allows us to invest other ways in our business to further differentiate and then into brand being a dual gender brand that has.
Speaker Change: Permission across wear occasions from pinnacle podiums sweat all the way through of lounge, and social we believe is incredibly unique and we bring that performance perspective to all of those needs of the guests and then into the age listeners of the brand where if you look.
Calvin R. McDonald: Other competitors or brands may have elements of these, but when I look at our model and our product and the consistency of true innovation at the performance level, not at a fashion level, but at a performance level within our community and the way in which we activate across our partner platform and then through our stores and our ambassadors, the scale in which we're able to do that compared to others, And then combined with our D2C model, where not only do we own the relationship with our guests, but there are inherent benefits of a margin structure that allows us to invest in other ways in our business to further differentiate. And then into the brand.
Speaker Change: And I've said before you go to stores mom, daughter, and Grandma can be shopping.
Speaker Change: In the brand and are actually add because of the brand to the others and I think that's rooted in the notion of the solutions that we offer and provide for that stack. When I go through the competitor list Ah I don't see anyone that compares to that and we think that is really the.
Calvin R. McDonald: Being a dual gender brand that has permission across wear occasions from pinnacle, podium sweat, all the way through lounge and social, we believe it is incredibly unique. And we bring that performance perspective to all those needs of the guests. And then into the agelessness of the brand.
Speaker Change: Strength of this brand and where we look to disrupt ourselves, where we look to invest and definitely fuel and plugs into our momentum, but that's that's how we compare and look at ourselves and see a lot of strengths in that and the ability to keep driving our business.
Calvin R. McDonald: Where? If you look, and I've said before, you go to stores; mom, daughter, and grandma can be shopping for the brand and are actually advocates of the brand to others. And I think that's rooted in the notion of the solutions that we offer and provide for that stack. When I go through the competitor list, I don't see anyone that compares to that.
Speaker Change: That's very helpful. Thanks, Megan just just a follow up maybe shifting more towards the model the decision to go towards a geographic level disclosure versus the channel disclosure before.
Speaker Change: Should we think about omni channel comps going forward, you've obviously made some big investments across stores and digital I think a lot.
Calvin R. McDonald: And we think that is really the strength of this brand and where we look to disrupt ourselves, where we look to invest, and definitely fuels and plugs into our momentum. But that's how we compare and look at ourselves and see a lot of strengths in that and the ability to keep driving our business. Very helpful. Thanks. Meghan, just a follow-up, maybe shifting more towards the model, the decision to go towards a geographic level disclosure versus channel disclosure before. How should we think about omni-channel competitions going forward?
Speaker Change: Focus more on co located stores recently in larger stores, how should we think about the balance between corporate store sales and and you can see now.
Speaker Change: Yeah. So we had shared when we set out. This this power of three times to plan that we expected E comm to grow slightly ahead of him our CAGR of 15% sales CAGR.
Speaker Change: In stores slightly below I would say over the long term time period that view hasn't changed and we've seen you know I would say strength in both channels coming off of 'twenty three.
Speaker Change: E Com total growth, 17% stores 21 E comm comp at 17 in stores at nine am so continue to see opportunity across both channels and leveraging that on the ecosystem.
Meghan Frank: You've obviously made some big investments across stores and digital. I think you have focused more on co-located stores recently and larger stores. How should we think about the balance between corporate store sales and DTC now?
Speaker Change: Got it thank you.
Speaker Change: Thank you.
Meghan Frank: Yeah, so we had shared when we set out this power of three times two plan that we expected e-commerce to grow slightly ahead of our CAGR, our 15% sales CAGR, and stores slightly below. I would say over the long-term time period, that view hasn't changed. We've seen, you know, I would say strength in both channels coming off of 23.
Speaker Change: The next question comes from Paul as you.
Paul: Citi. Please go ahead.
Hi. Thank you. This is Kelly on for Paul I, just wanted to follow up on the slowdown that you're seeing in the U S. Currently.
Kelly: It is one category of gender driving a slowdown or is it is it more broad based and then secondly, I'm just curious if you're assuming a sudden pick up in traffic in the U S.
Meghan Frank: E-comm total growth 17%, stores 21, e-comm comp at 17, and stores at 9. So, continue to see opportunity across both channels and leverage that omni ecosystem. Got it.
Kelly: As a result of some of these marketing investments you're making in <unk> as we move throughout the year. Thank you.
Speaker Change: Hey, Kelly and I would say the slowdown we're experiencing in the U S is fairly broad based as Calvin mentioned, we have identified some opportunities that we can go after and product and specifically on color and on womens sizing them. So on the zero to four size range and then in terms of.
Operator: Thank you. Thank you. The next question comes from Paul Lejuez with Citi. Please go ahead. Hi, thank you. This is Kelly on behalf of Paul.
Meghan Frank: I just wanted to follow up on the slowdown that you're seeing in the U.S. currently. Is one category or gender driving the slowdown, or is it more broad-based? And then secondly, I'm just curious if you're assuming some pickup in traffic in the U.S. as a result of some of these marketing investments you're making in 1Q as we move throughout the year. Thank you. Hey Kelly.
Speaker Change: <unk>, we do have you'll see in our guidance at Q2 through Q4 as the growth rate is slightly ahead of what we're guiding to in Q1, given Q1 guide at nine to 10 am and then are the full year at 10 to 11, excluding the 50 <unk> week.
Meghan Frank: I would say the slowdown we're experiencing in the U.S. is fairly broad-based. As Calvin mentioned, we have identified some opportunities that we can go after and product, specifically on color and on women's sizing, so in the zero to four size range. And then in terms of traffic, we do have, you'll see in our guidance, Q2 through Q4 is the growth rate is slightly ahead of what we're guiding to in Q1, giving Q1 guidance at nine to 10, and then the full year at 10 to 11, excluding the 50-30. And just to clarify, is that being driven by what you would expect to be an improvement in the U.S. relative to what you're seeing in 1Q? Yeah, we'd expect some marginal. Thank you. Yes. The next question comes from Abby Zvejnieks with Piper Sandler. Please go ahead.
Speaker Change: Yes.
And just to clarify is that is that being driven by what you would expect to be an improvement in the U S relative to what you're seeing in <unk>.
Speaker Change: Yeah, we'd expect some marginal improvement.
Speaker Change: Thank you.
Speaker Change: Yep.
Speaker Change: The next question comes from hobbies waiting with Piper Sandler. Please go ahead.
Hobbies: Great. Thanks for taking my question just a follow up to that one I mean, what what what exactly is driving the Q4 Q improvement in the U S is it product or is there something that we're lapping in waikiki that we should think about any color you have there.
Speaker Change: Yeah.
Speaker Change: Yeah, I would say, it's a modest acceleration Q2 through Q4.
Speaker Change: And you know really points to some of the investments, we're making on the marketing side and in terms of new guest acquisition as well as some of the product opportunities that Kelvin pointed to it would be drivers to that yeah. I'll just add some of the our products says, we obviously mentioned that we're chasing color and size and.
Meghan Frank: Great, thanks for taking my question. Just a follow-up to that one. I mean, what exactly is driving those two Q through four Q improvements in the U.S. to get products? Was there something that we laughed about in one Q that we should think about? Any color you have there, thanks.
Meghan Frank: Yeah, I would say it's a modest acceleration, Q2 through Q4, and really points to some of the investments we're making on the marketing side in terms of new guest acquisition, as well as some of the product opportunities that Calvin pointed out would be drivers of that. Yeah, I'll just add some of those products. As we obviously mentioned, we're chasing color and size, and we expect that that will continue to improve. Starting in Q2 through, in fact, we're seeing, and as color hits now, the guests respond incredibly well to it.
We expect that that will continue to improve.
Speaker Change: Starting in Q2 through in fact, we're seeing and as color hits now the guests respond incredibly well to at Q2, our business shifts from leggings are still an important part, but shorts and skirts plays a much greater role and we're seeing.
Speaker Change: <unk> a good results in that assortment in response to the guests now and then the innovation that I that I alluded to we have a a hydrogen yarn lagging coming out in summer Ah for yoga, we have the support code bra, which is one of our further proprietary technology <unk>.
Calvin R. McDonald: In Q2, our business shifts from leggings, still an important part, but shorts and skirts play a much greater role, and we're seeing good results in that assortment in response to the guests now. And then the innovation that I alluded to, we have a hydrogen yarn legging coming out in summer for yoga. We have the support code bra, which is one of our further proprietary technology innovations coming out later in Q3. And then we have another innovation in leggings for the back half in the train category.
Speaker Change: Nations coming out later in Q3.
And then we have another innovation in leggings for the back half in the train category. So there's quite.
Speaker Change: Quite a bit of product innovation I mentioned men's just highlighted womens.
Speaker Change: That that we see playing a positive through the back half of this year.
Calvin R. McDonald: So there's quite a bit of product innovation. I mentioned men's, and I just highlighted women's that we see playing a positive role through the back half of this year. Got it. Thank you. Operator, we'll take one more question. The last question comes from Ike Boruchow with Wells Fargo. Please go ahead.
Speaker Change: Got it thank you.
Speaker Change: Operator, we'll take one more question.
Speaker Change: The last question comes from Ike <unk> with Wells Fargo. Please go ahead.
Okay.
Operator: Hey, everyone. Thanks, everyone. I guess maybe for Meghan or Calvin, is there any way you're able to let us know what comp you're specifically modeling for Q1 and for the full year, specifically based on your guidance? And then just a follow-up to that, maybe something like, you know, gross margins flat for Q1 of the year, but clearly lots of outperformance overseas. We know that the higher margin channel, I'm assuming that means North America, America's gross margins are going the other way. I guess just could you comment on that? If that's correct? Is there something that's driving that? Is it marked down?
Ike: Thanks, everyone.
Ike: I guess, maybe familiar with Calvin.
Ike: Is there any way you were able to let us know what Carl you're specifically modeling for Q1 and for the full year, specifically based on your guidance and then just a follow up to that maybe this ones for me.
Ike: Gross margins flat for Q1 in the year, but we're clearly lots of outperformance overseas, we know that the higher margin channel I'm, assuming that means the north America or the Americas gross margins are going the other way I guess could you could you comment on that if that's if that's correct is there something that's driving that is it marked down and just deleverage.
Ike: Kind of curious how you would how you would think about that.
Speaker Change: Thanks, Mike.
Meghan Frank: Is it just the leverage? I'm just kind of curious how you would think about that. Thanks, Ike. So we aren't providing forward-looking comps, but we would share that we see North America below the guided growth range and then international significantly above it. In terms of margins, as I mentioned, relatively flat markdowns year over year. And, as you mentioned, we do have an overpenetration in our international regions. We are still investing in our DC distribution center network. That's a multi-year investment.
Speaker Change: So we arent, providing forward looking comps and but we would share that we see North America below the.
Mike: The guided growth range, and then international significantly above in terms of margins and you know as I mentioned relatively fought markdowns year over year.
Mike: And as he mentioned, we do have no further penetration in our international regions. We are still investing behind our D. C and distribution Center network, that's a multi year investment and so that would be embedded in our in our gross margin guide that we've provided.
Meghan Frank: So that would be embedded in our gross margin guide that we've provided for you. Okay. Thank you. That's all the time we have for questions today. Thank you for joining the call, and have a nice day. transcript Emily Beynon transcript Emily Beynon transcript Emily Beynon
Mike: Okay.
Speaker Change: Thank you.
Speaker Change: That's all the time, we have for questions today. Thank you for joining the call and have a nice day.
Speaker Change: Okay.
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