Q4 2025 lululemon athletica Inc Earnings Call

Speaker Change: [music].

Thank you for standing by this is the conference operator, welcome to the Lululemon Athletica, Inc. Fourth quarter and full year 2024 financial results Conference call.

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Howard: I'd now like to turn the conference over to Howard to bin Vice President Investor Relations for Lululemon Athletica. Please go ahead.

Speaker Change: Thank you and good afternoon, welcome to Bill Lemons fourth quarter earnings call. Joining me to talk about our results are Calvin Mcdonald, CEO and Meghan Frank CFO.

Speaker Change: 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 Lulu lemon future.

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

Speaker Change: 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.

Speaker Change: 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 press.

Press release and accompanying annual report on Form 10-K are available under the investors section of our website at Www Dot Dot com.

Speaker Change: 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 now.

Calvin McDonald: Now I would like to turn the call over to Calvin.

Calvin McDonald: Thank you Howard I'd like to welcome everyone to our fourth quarter call I'm pleased to be here to discuss our results, which contributed to another year of growth at Lulu Lemon and also speak to our outlook for 2025.

Calvin McDonald: On today's call I'll start with our performance in quarter, four which exceeded the revised guidance. We provided in January and I'll also share. Some key highlights on our annual performance next I will provide insights into our product innovation and the strength of our pipeline.

Calvin McDonald: Then detail our strategies to raise our brand awareness, which remains a significant opportunity for US globally. Megan will then review our financials and provide our guidance for the first quarter and full year of 2025, then we'll take your questions. So let's get started.

Megan: In quarter four total revenue, excluding the 53rd week increased 8% or 9% on a constant currency basis operating margin increased 40 basis points to 28, 9% and earnings per share increased 16%.

Megan: In addition in quarter, four we repurchased $332 million of stock, which brings our total repurchases in 2024 to $1 $6 billion, which demonstrates our confidence in the long term prospects for Lulu Lemon ship.

Megan: Shifting now to our full year 'twenty 'twenty four results total revenue was $10.6 billion and excluding week 53 increased by 8% or 9% in constant currency.

Megan: Adjusted operating margin increased 50 basis points to 23, 7% and adjusted earnings per share increased 15%.

Megan: Since 2021 which is the base year of our current power three times to five year plan, we've grown revenue at a 19% CAGR increased adjusted operating margin by 170 basis points and grew adjusted EPS at a CAGR of 23%. This puts US ahead of our targets for all of these.

Megan: Key metrics as we entered the fourth year of our plan I want to thank our teams across the enterprise for their ongoing dedication and commitment to our company. If it wasn't for this global collective we would not be able to deliver these results.

Megan: I'd now like to spend a few minutes discussing our product and sharing some highlights from our pipeline of innovation.

Megan: In quarter, four we were happy with their performance across merchandise categories, outerwear, and second layers perform well for both women and men and within accessories bags continued to be well received overall, we were pleased with the guest response to the newness, we brought into our core franchises for the holiday season.

Megan: Looking at quarter, one we have increased our level of newness on par with the past. We believe this increase along with a robust pipeline of innovation will enable us to meet the expectations of our guests and I'm excited about what the product teams are bringing to market this spring and throughout the year.

Megan: We started the year strong with the launch of several new innovations.

Megan: Well what is our newest technical franchise for women made from a new version of our proprietary ultra Lou fabric. The glow uptight offers a smooth and sculpted fit designed to be used for a variety of training workouts. We also introduced the tank top and intend to expand the line in future seasons.

Megan: They drift as our newest lifestyle trouser for women made from our luck stream fabric. This casual pant offers technical features that provides superior comfort and versatility. Initial response has been very strong and we've been selling out across several sizes and colors. The teams are chasing into it now and we have several.

Megan: <unk> planned for later this year based on this response to performance. We believe day drift will become a new core franchise and finally, there has become the latest addition to our yoga assortment and offers incredible softness or relaxed fit and extreme comfort whether on or off the map.

Megan: These are just some of the recent product launches, which have been well received by our guests and demonstrate how we continue to innovate and bring newness into our core activities. While also expanding our casual offerings. We're pleased with the positive feedback from guests, which is in line with our expectations and consistent with past successful product launches.

Megan: And we're excited about our product pipeline and I'd like to share a few examples.

Megan: Within shorts for men, we recently launched a new run franchise called mile maker and will soon update license to train to further lean into this franchise opportunity for women will update fast and free with new seasonal styles and colors. Later this year and will bring innovation into our swiftly franchise, including a new run shoe.

Megan: Sure.

Megan: We will introduce a new fabric called Lulu Linden, which has the look and feel of blend in and also include some technical performance attributes we are known for.

Megan: And we're excited about the plans we have in place to celebrate the 10th anniversary of our iconic align franchise. We recently introduced the aligned Palazzo Pat will expand further with other new bottoms, including a lagging with no front seat our guests had been asking for this innovation and we believe this style along with all the other newness and innovation, we are bringing to them.

Megan: Market will help drive new guest acquisition and increased purchase from existing guests as well.

As you can see our teams have been hard at work solving for the unmet needs of our guests and we feel good about our product pipeline for 2020 five our unique approach to innovation is grounded in creating technical apparel with wide ranging and adaptable use cases, the strength of our pipeline along with seasonal updates to our core styles brings new.

Megan: <unk> into our assortment on a regular basis and helps drive guest loyalty repeat purchase and long term value I'm pleased with the styles. We've launched so far this spring and I'm looking forward to the innovation lined up for the remainder of the year.

Megan: Shifting now to brand awareness, our teams had been delivering on our strategy to activate the lululemon brand across several of our markets around the world, particularly in the U S. We continue to focus on increasing our brand awareness, which remains low and nearly every market in which we operate for example, our unaided brand awareness.

Megan: Just in France, Germany, and Japan is in single digits and China mainland it's in mid to high teens in the U K and Australia, it's in the Twenty's and in the U S. Unaided brand awareness is in the 30.

Speaker Change: Increasing awareness and consideration as a meaningful opportunity so I want to share some of the strategies. We have in place to help us achieve this goal, including first the way we show up in our local communities through brand Activations local events and with our membership program second how we leverage relationships with our ambassadors and finally, our global brand campaign.

Speaker Change: Let's begin with our local community based Activations. These events allow us to engage directly with our guests in unique and exciting ways beyond a simple purchase transaction. Our activations are aimed at building loyalty with existing guests and attracting new guests into the brand we've hit the ground running in 2025 art.

Speaker Change: Teams have been busy bringing the lululemon brand to life in several of our markets around the world, particularly in the U S where our opportunity to grow awareness remains significant in February we partnered with the rock'n'roll half marathon in Las Vegas, we showed up in a big way along the strip with pre race yoga pure stations on the course co brand.

Speaker Change: Good product and a takeover of the sphere.

Speaker Change: Next to launch our newest franchise, we opened a glow up studio in Soho, New York for two weeks across February and March. In addition to a launch party. We hosted a variety of sweat classes for guests taught by several of our ambassadors.

Speaker Change: After trainers and local fitness instructors.

Speaker Change: In London, we celebrated our new collaboration with British fashion designer saw Nash with a launch party during London fashion week. We also celebrated the opening of our newly optimized Regent Street store with a little 11 takeover of the giant video screens in new stands and Piccadilly Circus and beginning in mid March and finishing this week.

Speaker Change: We ran membership madness. This advent included member only access to in store events free classes at studio partners and the opportunity to win entry to unique experiences will host throughout the year. This shows how we are innovating and testing premium ways to connect with our 28 million members and provide them.

Speaker Change: With access to compelling and exclusive experiences.

Speaker Change: In addition to our Activations, we continue to explore and strengthen our relationships with our global ambassadors as we start the year I am very excited about the new ambassadors, we've introduced to start 2025, including PGA golfer Max Homa professional tennis player France. This T F O and Formula One champion Louie.

Speaker Change: Hamilton this elevated roster of ambassadors helps us connect with more guests, both existing and new end markets across the globe.

Speaker Change: In quarter, one we showed how we can leverage these relationships in many ways, including Activations and expressions of fan support at the Phoenix Open Golf tournament Indian Wells tennis tournament and Formula one races in both Melbourne and Shanghai.

Speaker Change: These are great examples of how we support our athletes as they compete grow little lemons credibility and awareness across our growth activities and allow our local teams to create fun and unique activations for our guests. In addition, these events along with the high level of Activations in this period contributed to very strong.

Speaker Change: Reach and guest engagement and our own social channels to start quarter one.

Speaker Change: While our grassroots brand building strategies remain very important to us we use global campaigns to reinforce our brand positioning and bring new guests into lemon.

Speaker Change: We recently launched our new brand platform live like you're alive with a campaign featuring 78 year old fitness Influencer, Joan Mcdonald will use live like you were alive as a foundation for our messaging and will bring new creative into the narrative throughout the year upcoming chapters include the celebration of our lines 10 year anniversary in quarter two.

Speaker Change: Two and a run focused campaign later in the year.

Speaker Change: Let me now spend a few moments on our U S business and share my perspective, as we head into 2020 five.

Speaker Change: As I have shared before the missed opportunity from last year was the level of newness across our merchandise mix. The teams worked with our vendors chased into what was possible and improve the penetration of newness in the second half of 'twenty 'twenty. Four these efforts contributed to a stabilization in the U S business as the guests responded well to many of the updates we brought.

Speaker Change: Into the assortment.

Speaker Change: I would also note that importantly, our new guest acquisition and retention metric remains strong and our opportunity is to drive increased revenue per guest as we continue to bring newness and innovation into the mix.

Speaker Change: As you have seen we started this year with several compelling new product launches, but we also believe the dynamic macro environment has contributed to a more cautious consumer in fact based on a survey we conducted earlier this month in conjunction with Ipsos consumers are spending less due to increased concern.

Speaker Change: It's about inflation and the economy. This is manifesting itself into slower traffic across the industry in the U S in quarter, one, which we are experiencing in our business as well.

Speaker Change: However, we see guests who visit us responding to the newness and innovations we brought into our assortment. We believe this is a positive indication as we continued to flow new product engage with our guests through unique and compelling activations and launch brand campaigns, we're controlling what we can control and we expect to see modest growth in U.

Speaker Change: <unk> revenue for the full year of 2025.

Speaker Change: Before handing it over to Megan I'd like to highlight our square footage growth plans for 2025 stores remain an important part of our growth story not only are they highly productive, but they're also hubs in our local communities and allow us to engage directly with our guests which provides us with another important competitive advantage.

Speaker Change: 2025, we plan to grow square footage by approximately 10%, which will be driven by new store openings and our ongoing optimization program.

Speaker Change: We will continue to open stores in existing markets and enter several new countries this year, including Italy, as a new company operated market and Denmark, Belgium, Turkey, and the Czech Republic under a franchise model in terms of our optimization strategy. Our recent and compelling example can be seen in London with the relocation and <unk>.

Speaker Change: Expansion of our Regent Street store this door, which now spans 14000 square feet offers the largest pant wall and men's assortment in Europe as a destination for both residents and tourists are new store offers a pinnacle expression of our brand and we expect it will continue to help us attract new guests into lemon for.

Speaker Change: The U K and across Europe.

Speaker Change: We have much to be excited about in 2020. Five however, as you are aware the external environment remains dynamic and there continues to be considerable uncertainty driven by macro and geopolitical circumstances that being said we remain focused on what we can control. We've had a busy start to this year with product launches and event.

Speaker Change: Activations and I feel confident with our plans for the remainder of the year.

Megan: Megan over to you.

Megan: Thanks, Calvin we delivered Q4 results that exceeded our January guidance update as we saw strength across the key components of the P&L, including sales gross margin and SG&A.

Megan: These results contributed to another year of solid performance, but acknowledging products opportunities we've discussed in our U S business.

Megan: Key highlights in 2024 include revenue growth of 9%, excluding the 50 <unk> week and in constant dollars adjusted operating margin expansion of 50 basis points and adjusted earnings per share growth of 15%.

Megan: I'm proud that we were able to deliver these strong results, while continuing to invest in our strategic initiatives, including building brand awareness tour Activations and brand campaigns growing square footage, 14% and returning $1 6 billion to shareholders through share repurchases.

Megan: Looking at 2025, we are pleased with both the level and composition of our inventories we entered the spring season, and we're seeing good guest response to newness and innovation, we brought into our assortment.

Megan: However, we also acknowledge the uncertainty in the retail environment as the consumer is navigating a dynamic macro environment.

Megan: Well, we expect the top and bottom line growth for the year, we continue to be thoughtful in our planning.

Megan: I'll take you through our guidance in a moment, but let me now share the financial details of Q4.

Megan: For Q4, total net revenue rose, 13% or 14% in constant currency to $3 6 billion.

Megan: Excluding the 50 <unk> week, net revenue increased 8% or 9% in constant currency and constant dollar comparable sales increased 4%.

Megan: Within our regions, excluding the 50 <unk> week results were as follows.

Megan: Americas revenue increased 2% or 3% in constant currency comparable sales flat.

Megan: Country revenue increased 11% in constant currency in Canada and increased 1% in the U S.

Megan: China mainland revenue increased 38% or 39% in constant currency with comparable sales increasing 27%.

Megan: And then the rest of world revenue grew by 22% or 26% in constant currency and with comparable sales increasing by 17%.

Megan: In our store channel total sales increased 13% on a constant dollar basis, excluding the 50 <unk> week and we ended the quarter with 767 stores globally.

Megan: Square footage increased 14% versus last year, driven by the addition of 56 net new Lululemon stores since Q4 of 2023.

Megan: During the quarter, we opened 18 net new stores and completed 16 optimizations.

Megan: In our digital channel revenue increased 8% and 4% excluding the 50 <unk> week.

Megan: It contributed $1 8 billion of top line or 50% of total revenue.

Megan: And by category, excluding the 50 <unk> week men's revenue increased 12% versus last year.

Megan: Women's increased 6% and accessories and other grew 9%.

Megan: Gross profit for the fourth quarter was $2 2 billion or 64% of net revenue compared to gross margin of 59, 4% in Q4, 2020 three.

Megan: The gross profit rate in Q4 increased 100 basis points ahead of our guidance and was driven primarily by the following.

Megan: 160 basis point increase in product margin, driven predominantly by lower product costs, lower markdowns and improved shrink offset somewhat by higher airfreight.

Megan: 30 basis points negative impact from foreign exchange.

Megan: And 30 basis points of Nat deleverage on fixed costs.

Megan: Relative to our guidance, which was for a gross margin increase of approximately 30 basis points.

Megan: The upside was driven predominantly by leverage associated with higher topline prudent management of fixed expenses within gross margin and foreign exchange.

Megan: Moving to SG&A.

Megan: Our approach continues to be granted and prudently managing our expenses, while also continuing to strategically invest in our long term growth opportunities.

Megan: SG&A expenses were approximately $1 1 billion or 31, 5% of net revenue compared to 39% of net revenue for the same period last year.

Megan: SG&A was better than our guidance of 80 to 90 basis points of leverage due to higher top line and foreign exchange.

Megan: Operating income for the quarter was approximately $1 billion or 28, 9% of net revenue compared to operating margin of 28, 5% in Q4 2023.

Megan: Tax expense for the quarter was $309 million or 29, 2% of pretax earnings compared to an effective tax rate of 28, 1% a year ago.

Megan: The increase in tax rate relative to last year is due to a decrease in tax benefits related to stock based compensation.

Megan: An increase in nondeductible expenses and an increase in profits outside of the U S.

Megan: Net income for the quarter was $748 million or $6.14 per diluted share compared to EPS of $5.29 for the fourth quarter of 2023.

Megan: Capital expenditures for 235 million for the quarter compared to 207 million for the fourth quarter 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.

Megan: Turning to our balance sheet highlights we ended the quarter with approximately $2 billion in cash and cash equivalents inventory increased 9% slightly lower than our guidance for an increase in the low double digits.

Megan: We repurchased 938000 shares in Q4 at an average price of $354.

Megan: For the full year, we repurchased approximately 1.6 billion of stock.

Megan: Share repurchases remain our preferred method to return cash to shareholders and we currently have approximately $1 3 billion remaining on our repurchase program.

Megan: Let me now share a detailed guidance outlook for full year 2025.

Megan: We expect revenue to be in the range of 11.15 to $11 3 billion.

Megan: This range represents growth of 5% to 7% relative to 2024.

Megan: Excluding the 50 <unk> week that we had in the fourth quarter of last year.

Megan: <unk> revenue to grow 7% to 8%.

Calvin McDonald: And as Calvin said, we expect revenue growth in the U S to be modestly positive for the year.

Calvin McDonald: I'd also note that we expect foreign exchange to have a negative one percentage point impact on our revenue growth rate for the year.

Calvin McDonald: We expect to open 40 to 45 net new company operated stores in 2025 and complete approximately 40 optimizations.

Calvin McDonald: We expect overall square footage growth of approximately 10%.

Calvin McDonald: Our new store openings in 2025 will include approximately 10 to 15 stores in the Americas, but the rest of our openings planned in our international markets, the majority of which will be in China.

Calvin McDonald: For the full year, we expect gross margins to decrease approximately 60 basis points versus 'twenty 'twenty four.

Calvin McDonald: We expect the decrease will be driven by deleverage on fixed costs FX headwinds and the impact of increased tariffs related to China and Mexico.

Calvin McDonald: For the full year, we expect markdowns to be relatively in line with 'twenty 'twenty four.

Calvin McDonald: Turning to SG&A for the full year.

Calvin McDonald: <unk> deleverage of approximately 40 to 50 basis points versus 'twenty 'twenty four driven by ongoing investments into our power of three times to roadmap and FX headwinds for.

Calvin McDonald: For the full year, we are planning investments in marketing and brand building and increasing our awareness and acquiring new guests.

Calvin McDonald: Investments to support our international growth and market expansion and continued investment in technology and data analytics capabilities.

Calvin McDonald: When looking at operating margin for the full year 2025, we expect a decrease of approximately 100 basis points versus 2024.

Calvin McDonald: But we remain thoughtful as the plant expenses. We also continue to invest in our strategic roadmap to enable future growth.

Calvin McDonald: As I mentioned, we are seeing headwinds from foreign exchange and tariffs while also absorbing some additional costs relative to last year as we layer back in certain expenses, including store labor hours travel and incentive comp.

Calvin McDonald: I would note that between 2020, one and 'twenty 'twenty four our operating margin increased 170 basis points, which is greater than our power of three times to target a modest operating margin expansion annually.

Calvin McDonald: For the full year 2025, we expect our effective tax rate to be approximately 30%.

Calvin McDonald: For the fiscal year 2025, we expect diluted earnings per share in the range of $14.95 to $15.15 versus EPS of $14.64 in 2024.

Calvin McDonald: Our EPS guidance excludes the impact of any future share repurchases, but does include the impact of our repurchases year to date.

Calvin McDonald: I would also note that FX pressure relative to last year is that 30 to 35 cent drag on EPS in 2025.

Calvin McDonald: When looking at inventory, we expect dollar inventory to increase in the high teens in Q1, as we anniversary last year's declines.

Calvin McDonald: We expect capital expenditures to be approximately $740 million to $760 million in 2025.

Calvin McDonald: This spend relates to investments to support business growth, including a continuation of a multiyear distribution Center project.

Calvin McDonald: Store capital for new locations, relocations, and renovations and technology investments.

Calvin McDonald: Shifting now to Q1, we expect revenue in the range of $2 335 to 2.355 billion Rep.

Calvin McDonald: Representing growth of 6% to 7%.

Calvin McDonald: The growth rate in Q1 as being negatively impacted by one percentage point related to foreign exchange.

Calvin McDonald: We expect to open three net new company operated stores in Q1.

Calvin McDonald: We expect gross margin in Q1 to be approximately flat with Q1 'twenty 'twenty four.

Calvin McDonald: We expect a modest improvement in product margin offset primarily by deleverage on fixed cost.

Calvin McDonald: Mark Downs are planned to be relatively flat with last year.

Calvin McDonald: In Q1, we expect our SG&A rate to deleverage by approximately 120 basis points relative to Q1 'twenty 'twenty four.

Calvin McDonald: This will be driven predominantly by increased foundational investments in related depreciation and also strategic investments, including those to build brand awareness to support future growth.

Calvin McDonald: When looking at operating margin for Q1, we expect deleverage of approximately 120 basis points.

Calvin McDonald: Turning to EPS, we expect earnings per share in the first quarter to be in the range of $2 53 to $2.58 versus EPS of $2.54 a year ago.

Calvin McDonald: Our EPS guidance for the quarter includes approximately six cents of incremental negative impact from foreign exchange.

Calvin McDonald: We expect our effective tax rate in Q1 to be approximately 30%.

Calvin: And with that I will turn it back over to Calvin.

Speaker Change: Thank you for your time today I am pleased with how we closed out 'twenty 'twenty four delivering results that demonstrate our leadership agility and potential for growth and I am proud of how we have started the year with new product innovations collaborations and a steady drumbeat of brand and community Activations are.

Speaker Change: Around the World. This energy will propel us forward as we navigate the current economic and political uncertainty, especially in the U S. We will control what we can control we will focus on continuing to deliver the high level of newness and product innovations our guests expect from Lulu Lemon I continue to feel confident.

Speaker Change: In our power of two times to strategy and our people, who will continue to excite and engage with our guests and drive us forward at 2025 and beyond we'll now take your questions operator.

Speaker Change: Thank you well now begin the question answer session analysts who wish to join the question queue. You May Press Star then one on their telephone keypad, you'll hear children acknowledging your request if you're using a speakerphone. Please pick up your handset before pressing any keys to withdraw your question Press Star then two.

Speaker Change: Our first question is from Alex Stanton with Morgan Stanley. Please go ahead.

Alex Stanton: Perfect. Thanks, so much and congrats on a great quarter I just wanted to focus Calvin on the modest U S revenue growth you're expecting for the year can you just elaborate a little bit around how you define modest and should that be consistent throughout the year or any any difference in cadence by quarter and then just how you really arrive at that.

Speaker Change: As the right level from here Thanks, a lot.

Speaker Change: Thanks, Alex I'll take the first and then I'll pass it over to Megan to go specifically into breaking down the growth.

Speaker Change: Number for you, but as I sort of shared and Q4 are consistent with what we saw throughout the year are our guests.

Megan: Responded well to the newness that we offered through our assortment and our business continued to sequentially get stronger on the back of that newness and as we transitioned into Q1.

Megan: Our newness is back to being on par where it's been in the past as we indicated we would be in the guests have responded very well to.

Megan: To a number of new product launches that I'm excited about can continue to build into future franchises from go up they drift b com shake it out as well as what lies ahead in our pipeline, which is a very strong and I shared just a few of those with you with the 10th.

Megan: Year anniversary for a line coming up a building on the Palazzo pants that she's responded incredibly well to as well as offering a no front seem lagging which.

Megan: Which we know our guests had been asking of Tau for that within the aligned franchise as an opportunity to celebrate the 10th anniversary. We're excited about that as a means for our high value guests as well as new guests to acquire and bring in that being said we are operating within a dynamic macro environment, that's really contributed to a cautious.

Megan: Consumer where we've seen material impact to traffic across the industry.

Megan: While we've experienced some of these traffic trends the guest who is visiting has responded very well to our newness and innovation.

Megan: When we look at our U P. T average order size. Both of these are positive. So the guests are coming in are responding to the newness. They are buying more and it's having an impact. So those are very good indicators and as we continue to flow the positive newness that we see throughout the year.

Megan: As well as the Activations I would touch on North America in particular in the U S. We've started the year with a with a fantastic rhythm and cadence of very unique community based activations are.

Megan: So overall, there's a very good energy across the teams and the business and the guests are responding very well to product and we're controlling and focused on what we can control and I think we're well positioned as these macro.

Megan: The challenge is soften moving forward, but I'll allow Megan to just sort of put a little bit of color to the to the numbers as well great Alex and so in terms of the U S. We are offering color on North America growing in the low single digit to mid single digit range for the full year the U S.

Megan: On the lower end does not in Canada higher.

Calvin McDonald: And we're not breaking down the quarters, but what I would share is in terms of Q1, and it's not trending materially differently than Q4, as Calvin mentioned, we did come into the quarter and saw a decline in traffic macro traffic and that's impacting us as well and we're also seeing some really positive on our performance in.

Calvin McDonald: Terms of newness, which we believe positions us well as that traffic environment improves I would also note that the decline was more pronounced last year in the U S. In Q2, and so we're up against our largest growth rate and 24 in Q1.

Thanks, so much good luck.

Brooke Roach: The next question is from Brooke Roach with Goldman Sachs. Please go ahead.

Brooke Roach: Good afternoon, and thank you for taking my question, Kevin I was hoping you could elaborate on your marketing strategy from here are you seeing the response that you were hoping to get as you build into some of these additional customer acquisition vehicles, such as membership down. This week and then can you speak to what that's driving in terms of consumer acquisition.

Brooke Roach: And retention specifically in the U S. Thank you.

Kevin: Thanks Brook overall, how we've started this year in the energy and and really focusing in on and activating a larger activations community based events I'm very encouraged with the results that we're seeing a lot of those.

Kevin: Or geared to both acquire new guests as well as drive loyalty and our help in our retention and love for the brand with our high value guests.

Kevin: Across all of the ones that we've we've started and I shared a few of those the fight Activations are celebrating her ambassadors, where they compete around the world.

Kevin: In in Melbourne in.

Kevin: The the waste management golf Indian wells as a means to activate and then some of the other activations we've done ourselves into the integrated marketing on the back of go up and they go up studio in New York, We had thousands of guests Register.

Kevin: For membership Madness, we have over 15000 guests said of signed up.

Kevin: For community based sweat Activations with our partners around North America heavily in the U S. We have waiting lists of over a thousand for some of these activations in our communities. These are incredibly strong rich our engagement numbers and we see through those are equally a number of new guests.

Kevin: And that to me is one of the very unique aspects of our brand when I talk about or mode, and what makes us unique the ability to activate a campaign integrated across our community our ambassadors and bring to life is something we definitely see great value and plan to do even more of.

Kevin: This year than last year, and I think you'll just getting a flavor for what that looks like if you think of the first eight weeks of.

Kevin: This year to start and the pace of those activations.

Kevin: And the act as I've said the engagement has been very strong and then obviously socially as well the both earned media as well as the Halo, we get from those and that bleeds to getting into that I need a brand awareness. So youre going to see more of that we think it's a unique approach and we do it very strongly across our communities and allows for our stores.

Kevin: Our ambassadors to be involved it's unique and it's having an impact on both retention and acquisition. So I'm very pleased with how we've started this year I think the energy and the cadence is a very strong stronger than we've done and I think a number of years and really feels that we're on the offense in this market and guests are responding well.

Speaker Change: And in the newness, they're responding well to and as Meghan said, we're focused on what we control and set up well for.

Speaker Change: For the rest of the year as the macro challenges soften and if they do.

Speaker Change: Great and then can you elaborate on E.

Speaker Change: That you have embedded in your guidance for tariffs. This year, if tariffs were to widen into a broader set of geographies. What are your mitigation strategies right now and what is the quantification of the current tariff impact into that kind of what youre seeing today.

Speaker Change: Yeah, absolutely and so in terms of tariffs who've got approximately 20 basis points of a headwind embedded in our guidance, which is reflective of current actions on China.

Speaker Change: China and in Mexico imports.

Speaker Change: And closely monitoring the environment will continue to look across our cost structure as well as to pricing and you know should should the environment change so definitely keeping a close eye on that.

Speaker Change: Thanks, so much.

Dana Telsey: The next question is from Dana Telsey with Telsey Group. Please go ahead.

Speaker Change: Hi, Calvin as you think about the effectiveness of the marketing on what you're seeing globally I saw the new store in Tokyo, Obviously, London also how are you planning for international go forward and how do you think of the activation staff and then Megan on the my James the cadence of margins as we go through.

Speaker Change: 2025 are there any puts and takes of what we should be mindful of and just lastly for the first quarter sales growth guidance are you currently within those rates now thank you.

Speaker Change: Yeah.

Speaker Change: Thanks, Dan and I'll take the first part of.

Speaker Change: The Activations that you that I've referred to.

Speaker Change: In the U S is absolutely our go to strategy a go to market strategy around the globe and we we we customize it based on the maturity of the market obviously the U S. We have an opportunity to amplify a deeper with bigger activations in communities in newer markets.

Speaker Change: Leverage and tap into the store base more and then build the momentum and the size and activate but the general formula of leveraging local market community stores educators ambassadors.

Speaker Change: And there are a number as you know around the globe are from sweat games in mainland China are to what we did with the world Mental health day in many markets that were shared how we're activating around are these global a competitive events that our ambassadors compete in we just did a few formula one races.

Speaker Change: In both Shanghai, and Australia with the Lewis Hamilton being one of our latest ambassadors planning to do that across a lot of our activities. So that is absolutely one of our unique go to market strategies that I think we do better than.

Speaker Change: Then most and <unk> stores play a big part of that and how we activate those and we're early in our optimization.

Speaker Change: Strategies and plans if you look back over the last last year, but even just the last few quarters, we bought in mice a store in Melbourne, a 11000 square feet and its performing incredibly well you mentioned the store in Tokyo, We have exciting plans plan for Tokyo see Japan, as a big growth market for us.

Speaker Change: We have an exciting planning opportunity in South Korea, and Regent Street that just opened that's performing very well with an incredible activation both on the back of a cell Nash and fashion week as well as the the Activations. The store teams did so that is.

Speaker Change: A big part of how we go and activate youre going to see more of that as well as these optimizations that continued to perform well and both acquire local gas as well as a welcome a global tourist guests into the brand that we acquired as well as as they travel I'm wanting to come in and see the brand and the products. So excited about the momentum in <unk>.

Speaker Change: And both internationally as well as in North America.

Speaker Change: Okay, and I'll take the margin piece. So in terms of op margin. We are guiding to 100 basis point decline for the year at the highest level I'd just call out FX and tariff headwinds are a little bit over 50% of that decline in op margin and then we've got some investments in the bid.

Speaker Change: Mr add back on some of the expense area as we've pulled down in 'twenty four and so it would be those three buckets is incremental headwinds unique to this year and then we also are continuing to invest into our power of three times to road map and you know with our confidence on the long term and and in terms of quarters. You know, we've got a little bit more pressure as we call.

Speaker Change: That would in terms of Q1, it's also related to Q1 being our highest revenue growth rate in 'twenty force, you've got 120 basis points decline in op margin there I'm pretty similar story in terms of SG&A. So 120 basis points deleverage in Q1, and then 40 to 50 for the year. So I think that's the color I'd offer there and then you all.

Dana Telsey: I had a question Dana on a quarter to date trend, we're not breaking out specifics on quarter to date trend, but I would share where about 50% through the quarter and looking at current trends of business and mindful of the environment and you know, we did guide to 6% to 7% growth for the quarter with one.

Speaker Change: <unk> point also of an FX headwind embedded in that.

Dana Telsey: Thank you.

Speaker Change: As a reminder, all realize that currently asked to limit themselves to a single question.

Dana Telsey: The key if they have more.

Speaker Change: The next question is from Lorraine Hutchinson with Bank of America. Please go ahead.

Lorraine Hutchinson: Thank you good afternoon.

Lorraine Hutchinson: Any improvement from the choppy first quarter traffic performance in North America, and the full year guidance.

Lorraine Hutchinson: Are there ways to be more aggressive on some of these marketing activation to drive stronger traffic as we move through the year.

Calvin McDonald: Hi, Lorraine I would say our balance of year outlook reflect similar trends to Q1 at this point of time I'll, let Calvin 10 minute marketing, yeah, and I think the we're always Ah <unk>.

Calvin McDonald: Testing and learning and looking for ways to continue to invest within the parameters of the our guidance to add to marketing and I think I'm very pleased with the current to response from our guests excited.

Calvin McDonald: Excited about the the campaigns coming as I mentioned, the aligned 10th year anniversary a will be a large activation around the globe supported with a lot of product a new product and ways that I think will engage both with new guests as well as our high value guest and reasons to.

Calvin McDonald: To update there are there are line wardrobe. So we always look for ways to keep leaning in and investing and as I mentioned that the cadence and rhythm to start this year has been definitely on the offense and I'm pleased with the results and those results around the globe and we're going to continue to to be on offense.

Calvin McDonald: And support the the product in the pipeline of newness, that's coming in with our guests.

Calvin McDonald: Thank you.

Matthew Boss: The next question from Matthew Boss with Jpmorgan. Please go ahead.

Matthew Boss: Great. Thanks, So Calvin could you elaborate on sales metrics in the U S. As you've as you've introduced recent newness just your confidence in this year's product pipeline with first quarter to date sales trends unchanged relative to the fourth quarter. Despite the softening macro that I know you cited and then Megan.

Speaker Change: Just your comfort with content and composition of inventory today, and what have you, but what have you embedded for Mark Downs in the gross margin guide.

Speaker Change: And so in terms of our sales in the U S and so we did come into the quarter and saw a negative traffic trend industry wide, which is impacting us.

Speaker Change: Similar conversion I'd say to what we experienced in Q4 and then we've seen an improvement in a O V and specifically U P Ts and really a reaction to the newness in our assortment and again feel that positions us well for when traffic rebounds, So Q1 trends for the U S not materially different than Q4, and then in terms of.

Speaker Change: Our inventory and I'm pleased with the level and composition of the inventory and we are offered some color on high teens growth and its really related to just the cadence of our inventory as we move through this year being in a good in stock position in core bringing in newness and we also or expecting.

Speaker Change: Markdowns for both Q1 and the full year at this point in time.

Speaker Change: That's great color best of luck.

Speaker Change: Okay.

Speaker Change: Next question is from Janine Stichter with V. P. I G. Please go ahead.

Janine Stichter: Alright, Thanks for taking my question and a question for Meg and I was hoping you could just.

Speaker Change: I ran a bit on your SG&A philosophy with the guidance you gave for Deleveraged 50 basis points this year at least.

Speaker Change: See better sales would we expect it to still be in that range or would you put that put more into SG&A or on the flip side. If we have sales come in weaker maybe just elaborate on some of the areas where you might have some blacks. Thank you.

Speaker Change: Yep. Thank you.

Speaker Change: And so as I mentioned, we do have a headwind in FX for the year and then in terms of how that impacts SG&A. It's about half of the 40 basis point FX headwind to 20 basis points impacting SG&A.

And then also as I mentioned, we are still investing behind our power of three tends to road map and so and continue to support our international strategy, our store expansion strategy across the globe, our marketing and brand as Calvin mentioned in going after that unaided brand awareness piece and then another one I mentioned was just tap tack in terms of found.

Speaker Change: They saw investments in data analytics, and you know I think it will depend on the environment and the business dynamics in terms of warehouse G&A moves them with either increasing or decreasing sales, we always have contingencies across the business both on the upside and downside and then it will depend on the momentum we're seeing in the business and the current environment in terms of how we are.

Speaker Change: Approach that.

Speaker Change: Great. Thanks, so much.

Speaker Change: Okay.

Speaker Change: The next question is from Alicia Sherman with Bernstein. Please go ahead.

Alicia Sherman: Thank you so much I'm talking about the Americas versus international growth you talked about a kind of low to mid single digit outlook for the Americas mm, that's what put international growth quite a bit lower than what you did in 2024 can you give some color around where you may be seeing a slowdown internationally.

Speaker Change: Are there particular markets and.

Speaker Change: And then what gives you you know what.

Speaker Change: What your assumption is coming from and then a quick follow up on your levels of investment you know you talked about foundational investments strategic investments marketing can you talk about how flexible the cost basis to the downside in the event of a tougher macro scenario what would the margin progression look like thank you.

Speaker Change: Yeah, and so in terms of.

Speaker Change: The new by geography are as I said, we're offering color on America's low single digit to mid single digit for the year and China, 25% to 30% rest of world approximately 20% and so you know we're being thoughtful in our planning our looking at current trends of the business end and the forward outlook in terms.

Speaker Change: The environment and so a little bit below what is embedded in our five year CAGR, but we remain ahead of schedule and and really pleased and committed to that long term target there.

Speaker Change: And then in terms of flex across the P&L and as I. Just mentioned you know we do have a number of contingency lovers and dependent on you know business outlook at this point in time I would say, we remain really focused on the long term and driving into our long term opportunity while navigating some near term headwinds are particularly without facts on tariffs.

Michael: The next question is from Michael <unk> with Evercore. Please go ahead.

Speaker Change: Hey, guys. Thanks for taking our question here so.

Speaker Change: Megan you started the year guiding gross margin flat and finished up 65 basis points in the U S slowed from where you thought it was going to be a year can you just help me I know you offer some comments on <unk>, but when you look at the year in total what went different than you thought earlier in the year and I'm curious where as you look at 2020 fives do those.

Speaker Change: Those pockets of conservatism still exists or where do you see conservatism in the guidance for the year, both in gross margin again, as well as and in sales and SG&A.

Speaker Change: Yeah, Thanks, Michael and so I would say in terms of what played out differently. You know topline I think we saw a little bit of an outperformance as he moves on to close out the year, which would provide a little bit of leverage in terms of gross margin. We also makes it a little bit differently by category and saw and I am you benefit from that and as well as some reduced freight rates and impacting our gross.

Speaker Change: Margin in 'twenty four.

Speaker Change: So you know believe we're well positioned in our guidance in terms of twenty-five Ah you know the mix of business could could could come out different there as well as you know the top line out outlook could impact our leverage point, but I would say at this point in time, our current view on mix of business and revenue outlook is embedded in our guidance color.

Speaker Change: Thank you.

John Kernan: The next question is from John Kernan with TD Colin. Please go ahead.

John Kernan: Good afternoon, Thanks for taking my question.

Speaker Change: Maybe it looks like.

Speaker Change: Marketing went up to about 5% of sales. This year, it's still below some of your bigger peers I think it's up about 50 basis points year over year, how do you think about marketing with the fiscal 'twenty five and also long term, it's just something.

Speaker Change: Given all the Activations with Calvin talked to earlier.

Speaker Change: Flex up to drive, but fast yourself in Americas.

Speaker Change: Yeah, So marketing was an area, where when we navigate it last year and some of the challenges we had with newness and looked across our P&L investments, we maintained our investment in marketing and we did see him our penetration of sales tick up a little bit on to that 5% range. That's what we're expecting as we move.

Speaker Change: 25, and it is definitely an area. We were closely monitoring we've got a lot of excitement in terms of product newness and active marketing Activations as you move throughout this year and so dependent on business trend.

Speaker Change: And it's an area, we would look to flex up if that's appropriate.

Speaker Change: Got it thank you.

Speaker Change: The next question is from Paul as you with Citi. Please go ahead.

Speaker Change: Hey, Thanks, guys.

Speaker Change: On the traffic slowdown I think you specifically mentioned the U S. But can you talk about what you saw in the other regions, including Canada, including China International rest of World.

Speaker Change: Anything within the U S that you could call out regionally, obviously theres been some unfavorable weather in the first quarter curious if you're seeing any impact from that thanks.

Speaker Change: Yeah. So in terms of traffic I would say the notable a trend we saw with that shift in the U S. Nothing materially different in terms of either Canada or the international markets I would call out just the difference in lunar new year timing a shift in the timing. This year does have a little bit of a headwind on Q1 and.

Speaker Change: In terms of our China trying to in overall international.

Speaker Change: And then in terms of U S. Regional we arent seeing any meaningful differences regionally and in terms of whether I would say are really focused on while we can't control.

Speaker Change: Yes.

Speaker Change: Thanks, Good luck.

Speaker Change: Thank you.

Speaker Change: The next question is from Ike <unk> with Wells Fargo. Please go ahead.

Speaker Change: Hey, Thanks for taking my question just to keep going with the U S. And it is this is this if what you're seeing more broad based because it more on the women's side more on the men's side just kind of curious what you see there and then given Calvin you your talk of the innovation and newness flowing through as the year progresses, it sounds like you're baking.

Speaker Change: Jim.

Speaker Change: Essentially no improvement in North America trend from here shouldn't we be expecting North America I'm, sorry, you mean, the U S specifically to improve as the year progresses, given the merchandise flow that you're speaking to.

Speaker Change: [laughter] things like in terms of difference between our men's and women's business. We haven't seen any material notable change from Corp, fourth quarter, which we talked about with women's up six men's up 12.

Speaker Change: The big opportunity in Mis newness last year was really in our women's business.

Speaker Change: And we've we've gone back to at par on that and she has responded.

Speaker Change: Mentioned across some of those metrics I shared U P. T average order size. So I think that is definitely a positive for us and being back in a traditional mix of newness and innovation across the assortment for her we.

Speaker Change: We are seeing good results to that.

Speaker Change: And I'll, let to Megan reference the second part, yes, so and we are guiding 6% to 7% in Q1, and then 7% to 8% for the full year and the Americas came in at 3% growth for 'twenty for them and we offered color at low single digit to mid single digit so I would say that range captures.

Speaker Change: You know a potential uptick there, but being thoughtful in terms of how we're planning the business given some of the uncertainty this year.

Speaker Change: Fair enough.

Speaker Change: Yeah.

Speaker Change: The next question is from Jay sole with UBS. Please go ahead.

Jay Sole: Great. Thank you so much with possible to clarify on the square footage growth how much square footage drove your planning for the U S. This year and also how much square footage drilled youre planning for China. Thank you.

Jay Sole: We're not breaking up the specifics on square footage growth and but what I can offer is we've got 40 to 45.

Jay Sole: Net new openings for the year square footage growth of 10%, which is in line with our power of three times to targeted up low double digits. North America is about 10 to 15 openings within that the balances international the majority of those would sit in China and we'll continue to keep you updated as we move throughout the year.

Jay Sole: And then on some of the.

Jay Sole: This adds to the store and that's happened in U S E upsizing stores in the U S. This year.

Jay Sole: Yeah, we continue to pursue our optimization strategy.

Jay Sole: And so we had a total of globally 39 optimizations on in 'twenty 'twenty four and were currently planning 40 for 'twenty or 'twenty five globally.

Speaker Change: Got it thank you so much.

Jay Sole: Okay.

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.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].