Lululemon(LULU.US)FY24Q4 earnings call: Predicting full-year 2025 revenue growth of 5%-7%, with the opening of 40-45 net new stores.

Recently, Lululemon (LULU.US) held its FY24Q4 earnings conference call. Lululemon stated during the call that the company expects full-year revenue for 2025 to be between 111.5-113 billion US dollars (up 5%-7%), excluding the 7%-8% growth from the 53rd week last year, with moderate positive growth expected in US revenue and a 1% negative impact from foreign exchange. In terms of store planning, the company plans to open 40-45 net new stores (10-15 in the Americas, mostly in international markets including China) and complete approximately 40 optimizations, increasing store area by about 10%. In terms of new product planning, the company is launching new women's products such as Glow Up (Ultralu fabric), Daydrift (Luxtreme fabric, expected to become a new core series), and Be Calm (yoga series, soft and comfortable); for men's shorts, they are launching Mile Maker and updating License to Train; for women's shorts, the Fast and Free series will introduce seasonal new styles and colors, bringing innovation to the Swiftly series (incorporating new running shorts and other innovative elements) and introducing new fabric Lulu Linen. In terms of brand strategy, there is still a significant room for improvement in brand awareness in global operating markets. The brand awareness levels in France, Germany, and Japan are still in single digits, while mainland China is in the range of 15%-20%, the UK and Australia are around 20%, and the US is relatively good but still only around 30%, indicating a large potential customer base worldwide waiting to be tapped. Specific strategies include: 1. Collaboration with the Las Vegas Rock 'n' Roll Half Marathon in February, opening a Glow Up studio in the SoHo area of New York, collaborating with designers during London Fashion Week, celebrating the opening of the Regent Street store, and hosting a member appreciation festival, all aimed at enhancing customer loyalty and attracting new customers. 2. Introducing new brand ambassadors such as golfers, tennis players, and F1 champions, and supporting athletes through activities during events to increase brand credibility and awareness. 3. Launching the new brand platform Live Like You Are Alive. Q&A Q: You forecast moderate growth in US revenue for this year. How do you define "moderate"? Is the growth pace consistent throughout the year, or does it differ by quarter? How do you determine that this level of growth is a suitable choice at the moment? A: The fourth quarter and the full year are similar in that we have received positive feedback from customers on new products, leading to stronger performance each quarter. In the first quarter, the number of new products returned to previous levels, with new products like "Glow Up" and "Daydrift" and subsequent reserves performing well as customers have responded positively. Additionally, there are anniversary products, such as new products based on the popular "align jogger" and seamless leggings, which can attract both new and existing customers. The current macro-environment is volatile, with consumers becoming more cautious and industry foot traffic being affected. However, customers have shown strong acceptance and appreciation for new products and innovations in-store, and the average transaction size and order frequency are optimistic. At the beginning of the year, we started with our unique community events, and the team is energetic, the business is dynamic, and customers favor our products. North American full-year revenue is expected to grow in the low to mid-single-digit range, with the US closer to the lower end and Canada slightly higher. We are not splitting it by quarter for now, but the trends in the first quarter are similar to the fourth quarter, with a slight decline in foot traffic due to macro factors. However, with strong performances from new products, we believe that future improvements in foot traffic can help us gain a competitive edge. Last year, there was a more significant decline in revenue in the US in the second quarter, so there is more pressure for growth in the first quarter this year compared to the same period in 2024. Q: Can you talk about your future marketing strategies? How effective are activities like "Membership Madness Week" in attracting and retaining consumers in the US market? A: At the beginning of this year, we have been very proactive, focusing on and implementing a variety of large community events, with results that are very encouraging. These activities are mainly aimed at attracting new customers, increasing loyalty among existing customers, retaining high-value customers, and deepening their love for the brand. Some of the highlights from the earlier activities include supporting ambassadors participating in events in Melbourne, Phoenix Open, Indian Wells, and other locations, as well as integrated marketing efforts around new products at the New York "Glow Up" studio. Customer participation has been enthusiastic, with thousands of people signing up. "Membership Madness Week" was even more successful, with over 15,000 customers signing up for community fitness events in North America (primarily in the US), with some community events having waiting lists of over 1,000 people, indicating high participation rates and attracting a large number of new customers. This is the unique advantage of our brand: we can launch activities and promote them through community and ambassador integration, which we know to be hugely valuable, and this year we plan to hold more activities than last year. By looking at the rhythm of these activities in the first 8 weeks, one can understand their effectiveness. The high customer participation rates, combined with positive engagement on social media and media attention, help to increase brand awareness without additional prompts. This unique method, involving both stores and ambassadors, has been highly effective in attracting and retaining customers. I believe that this year's energy and momentum surpass previous years, enabling us to gain a competitive advantage in the market, with positive customer feedback on new products. Q: If the range of tariffs expands, what are your mitigation strategies? How significant is the quantifiable impact of tariffs based on the current circumstances? A: In terms of tariffs, we have estimated an adverse impact of approximately 20 basis points in our performance guidance, reflecting measures taken against imported goods from China and Mexico. We will closely monitor the situation and continue to review our cost structure, and if necessary, we will consider adjusting prices. Q: From the global marketing perspective, new stores have already been launched in Tokyo and London. How do you plan for future international expansion? A: The activities carried out in the US are part of a globally applicable market strategy that will be adjusted according to market maturity. In emerging communities in the US, we use large-scale activities to increase our impact and leverage store resources to create momentum. Essentially, we leverage the combined efforts of local communities, stores, coaches, and ambassadors, such as the hot sweat activities in mainland China and the actions surrounding World Mental Health Day, to reach.In cooperation with the ambassador's participation in the competition, events like the F1 event held in Shanghai, Australia in partnership with Lewis Hamilton will increase in the future.This strategy is unique and effective, with the store playing a prominent role. Although the optimization strategy has only recently started, it has already shown results, such as the excellent performance of the 11,000 square foot store in Melbourne after optimization. The planning of the Tokyo store is exciting, as Japan is a market with great potential; the new stores in Seoul and Regent Street in London also present great opportunities. We use these methods to develop and operate the market, continuously optimize, attract local customers, and attract global tourists. The positive momentum in the international and North American markets is truly inspiring. Q: How is the profit margin trend for 2025, and what factors should be considered for adjustments? Also, does the sales growth in the current quarter meet expectations? A: The operating profit margin is expected to decrease by 100 basis points this year, with over 50% of the decline coming from headwinds in foreign exchange and tariffs. In addition, we have made some investments in the business, recovering some of the expenses cut in 2024. Looking at the quarterly performance, the pressure is significant in the first quarter, mainly because Q1 was the quarter with the highest revenue growth rate in 2024. The operating profit margin in that quarter decreased by 120 basis points, and SG&A also decreased by 120 basis points, with an annual decrease of 40-50 basis points. As for the trend so far this quarter, we cannot disclose details at this time. More than half of the quarter has passed, and taking into account the current business and environment, the guidance for this quarter is a growth of 6-7%, including a 1 percentage point unfavorable factor in foreign exchange. Q: In the annual guidance, is there a possibility of improvement after the fluctuations in customer traffic in North America in the first quarter? Can the marketing activities be more aggressive to drive customer traffic in the future? A: Currently, the outlook for the second half of the year is similar to the trend in the first quarter. We have been exploring ways to increase marketing investment within the guidance range. Customer feedback has been positive, and upcoming activities are exciting, such as the 10th anniversary of "Align," which is a global event with a variety of new products and formats that can attract new customers and encourage high-value customers to update their "Naked Sensation" series clothing. We have been making continuous efforts in investment and marketing. The start of the year has been aggressive, with pleasing results globally, and we will continue to maintain that momentum to support products, new product lines, and customers. Q: Can you talk about the sales indicators after introducing new products in the United States? Although the macroeconomic conditions are weak, the sales trend in the first quarter has remained similar to the fourth quarter. Do you have confidence in this year's product line? A: In the United States, industry traffic declined at the beginning of this quarter, and we were also affected by it. Conversion rates are similar to the fourth quarter, but new products are driving Average Order Value (AOV), especially with Unit Per Transaction (UPT) improvements. Once customer traffic recovers, we can seize the opportunity, so the sales trend in the first quarter is not much different from the fourth quarter. Q: Are you confident in the current level and composition of inventory? How much room for price reduction is reserved in the gross margin guidance? A: I am quite satisfied with the inventory level. Inventory has seen double-digit high growth, which is related to the inventory pace this year. Core product categories are well stocked, and new products can be replenished in a timely manner. Price reduction levels are expected to remain stable in both the first quarter and throughout the year. Q: This year, the SG&A guidance aims to deleverage by 40-50 basis points. If sales improve, will the range remain the same? Will there be additional investments? If sales are lower, what areas can be adjusted flexibly? A: This year, there are headwinds in foreign exchange, affecting SG&A by about 20 basis points. At the same time, we are still following the "Three x2" roadmap to support international and global store expansion, brand marketing strategy, enhance brand awareness, and make investments in basic technology for data and analytics. How SG&A changes with sales increases or decreases will depend on the business environment and dynamics. We have plans for all aspects of the business, both in up and down trends, and decisions will be based on business momentum and current environment. Q: When discussing growth in the Americas and internationally, you mentioned that the Americas are expected to grow at a low to mid-single-digit rate, which means that international growth is lower than in 2024. Where has the slowdown occurred internationally? Are there specific markets? What is the basis for this? Additionally, regarding the investments in infrastructure, strategy, and marketing that you mentioned, how flexible is the cost reduction strategy in macroeconomic downturns, and what is the trend in profit margin? A: Let's talk about revenue in various regions. The Americas are expected to grow at a low to mid-single-digit rate this year, China at 25-30%, and the rest of the world at around 20%. When planning, we consider current business trends and future environmental outlook. Although slightly lower than the five-year compound annual growth rate target, we are ahead of schedule and still committed to the long-term goal. Q: You initially expected the gross margin to remain stable at the beginning of the year, but it increased by 65 basis points by the end of the year, and the growth rate in the U.S. market was slower than expected. You have talked about the fourth quarter, but looking back at the whole year, what was different from the initial expectations? Looking ahead to 2025, are the conservative estimates from before still valid? Regarding the guidance for gross margin, sales, and SG&A this year, where are the conservative elements still present? A: In terms of differences, the year-end performance slightly exceeded expectations, leading to a better gross margin. This was mainly due to differences in product mix, resulting in initial pricing benefits, and the reduction in freight costs in 2024 also contributed to the gross margin. I believe the 2025 guidance is achievable, but there may be changes in business mix and revenue prospects that could affect profitability, although our views on these two factors are already mentioned in the guidance. Q: This year, the marketing expenses as a percentage of sales have increased to about 5%, lower than industry giants, but an increase of about 50 basis points compared to the previous year. How do you view the marketing investment for the 2025 fiscal year and in the long term? Regarding promotions, should there be an increase in investment to drive sales growth in the Americas? A: Last year faced challenges in promoting new products, and despite considering various investments, we have maintained marketing investment levels at around 5% of sales. This is a critical area of focus, with many new products and exciting marketing activities planned for this year. We will adjust investments as necessary based on business trends. Q: You mentioned the decline in customer traffic in the U.S., Canada, and China. How is the situation in other regions such as Canada, and China? Are there any abnormalities in different regions within the United States? Did the bad weather in the first quarter have any impact? A: There have been significant changes in customer traffic in the United States, with little to no substantial difference in Canada and international markets. Changes in the lunar New Year schedule have presented some obstacles for the first quarter in China and international business. There are no significant differences in various regions in the United States. Q: Have you noticed any widespread changes in the U.S. market? Are the changes more pronounced in men's or women's clothing? A: The changes are not widespread, and there is no clear distinction between men's and women's clothing industry.In terms of performance, compared to the fourth quarter, we did not see any significant changes. As mentioned earlier, women's clothing grew by 6% and men's clothing grew by 12%. The missed opportunities for new product promotion last year were mainly in the women's clothing business.Now we have returned to the right track. As I said, from indicators such as the average quantity of items per order and average order amount, female consumers have shown positive feedback. So I believe this is definitely a good thing for us, as the women's clothing product series returns to the traditional new product and innovative fusion model. Q: You mentioned that innovation and new products will continue to be launched, but it sounds like there hasn't been much improvement in the North American trend from now on. Considering the flow of goods, shouldn't the US market get better as you progress? A: We expect growth of 6% - 7% in the first quarter, and 7% - 8% for the whole year. The growth rate for the Americas region in 2024 is 3%, with this year expected to be in the low to mid single digits. This range takes into account the acceleration in the Americas, but there is uncertainty this year, so we are very cautious in our business planning. Q: Could you please explain the growth situation of store areas? How much do you plan to increase the store area in the United States this year? And how much do you plan to increase the store area in China? A: We do not disclose the details of store area growth individually. This year, we will add a net of 40 - 45 stores, with a 10% increase in area, in line with the "Three x2" low double-digit target. We will open 10 - 15 stores in North America, with the rest in international locations, mostly in China. Q: For those new stores opened in the United States, will you expand the store area this year? A: Yes. We will continue to implement our optimization strategy. So in 2024, we implemented a total of 39 store optimizations globally, and currently we plan to implement 40 optimizations globally in 2025.