These are my notes so far from the earnings call. I may add more to this tonight but for now I’ve just spent three hours listening to the call, taking notes, reading the transcript, finding the informative links for within this post, making sense of it all, reading between the jargon and constantly googling how to spell ‘silhouette’. Please bear with me. I hope to have more notes tomorrow from a more informed reader. I am not an investor nor have I any qualified analytic knowledge about lululemon earnings information, this is just my takeaway from the earnings call and the question and answers as a customer and fan of the brand. Do note again as I mentioned before that Lululemon has opted to do the webcast at 4:30 EST on a Thursday of a long holiday weekend (in my opinion, strategically getting ahead of media attention) Lululemon has never before had earnings calls this late, and this is also the first time they didn’t provide playback options immediately. The playback of the call was made available late this evening.
**Since launching the website they are enhancing customer experience. The new website launch allows them to do A/B testing with customers (showing different versions to different customers and analyzing response). They have a robust database that 50% of customers are currently enrolled in, allowing them to analyze guest behaviour and create greater engagement. They are working on reducing all friction from customer experience (really? removing floating product images with modelled product images for thumbnails I guess). They are looking at website product stages, checkout response, checkout processes (abandoning items in carts and not checking out) new ship from store option (vs. from warehouses) currently in 11 stores and will be in 65 stores by the holidays. This allows them to sell through product assortments at full price vs. having to create markdowns to move inventory since they will be gathering inventory for shipping to customers from stores and warehouse.They have sitched weekly emails which where formerly product focused to being more event focused. They are creating a more agile and nimble system where they can create change immediately. with the new website they are able to see within a few hours how product pages are doing. (they are obsessed with conversion rates and analytics). Also worth noting in the database and analytics information is that stores are now providing free wifi access.
** Later in the year we will have a Black Friday collaboration with Janaina Milheiro, known as ‘feather girl’ She is a textile designer from Paris who works regularly with couture houses. We can expect to see the artistry of her feather designs with technical silhouettes with new fabrics to create digitally engineered prints.
**stores opening with smaller footprints ‘hyper-local’. They will be opening smaller scale stores which are community dedicated. Mountain resorts, beach resorts with a specialized product assortments. strictly run products for run communities, men’s only stores etc. etc.
**NULU is being released this September and is Lululemon’s first naked sensation cardio pant. Sweat wicking, quick drying, lightweight coverage and gentle compression engineered to minimize distractions. It’s specifically engineered for indoor workouts such as spin. Raising the bar on craftsmanship and dialing up visual impact of prints and colors and details utilizing highly technical processes that allows us to achieve a rich level of color and detail without sacrificing function. They are ‘coming back’ to being design focused and working on fit, layering and outfitting. Laurent emphasized several times the ‘outfitting’ theme and the guests ability to create outfits with the new designs. I believe this to mean the focus on black/white textural bottoms. Currently they have a ratio of 1.2 to 1.3 on tops and bottoms and they hope to increase that ratio to 1.5.
**The shop-in-shop store they opened in Harrods in August is doing very well and they plan to open a new massive 82,000 square foot store in St. Regent (London) in Q4, which sees 7 1/2 million visitors each year. This store will have a special limited edition collaboration line with Central St. Martins fashion students and it will be exclusively sold at this location. A later investor questioned wether they would have further ‘wholesaler chanel’ opportunities and Laurent was quick to point out that they are autonomous and the structure we have of vertical sales allows us to leverage product margins in exploring product technologies. All inventory and staff at the Harrods location are Lululemon owned, not inventory wholesale purchased by Harrods with Harrods trained staff.
**Price increase. A very savvy investor questioned their previous earnings calls remarks about May starting off a bit slow (customer traffic) vs. what they have reported the earnings being for the quarter. He questioned wether or not this was an isolated blip or if the trend continued throughout May and to the end of Q2 and then perhaps had a stronger finish? The response: “comp question first. we did see the course start out slow in a traffic standpoint. We did not see a meaningful improvement in the traffic trend throughout the quarter. That remained a headwind for us throughout the second quarter. There where other API’s that helped offset that. As we drilled closer to AUR it was a combination of favourable mix and price. That trend is expected to go into 2017. ” This basically acknowledges that they have had a significant slow down in traffic but they where able to salvage earnings by other means (lesser product availability, increased margins) and a well performing Seawheeze showcase store (they broke 2 million this year at Seahweeze, last year they where at 1.75). Later on in the call it was acknowledged that August was very trim for product but that it was not a bad position because it prevented them from having to resort to markdowns. I think if we look at the WMTM inventory levels and listen to what readers are saying about inventory at the outlet stores this points to a really huge problem they are masking. Another investor question asked about the large shipper bankruptcy potentially affecting guidance and inventory over Christmas. The response was that “We don’t have any concerns over supply chain or suppliers or shipping partners that we use. We have a close relationship with ‘blue chip’ partners. There is no disruption from our shipping partners and our guidance reflects the confidence we have in our supply chain structure.’
Laurent commented earlier in the Q&A period that ‘We have seen no price resistance where we’ve created value for our guests’.
Another very savvy investor and who has obviously done her blog homework has asked ‘Please elaborate on what the response has been on some of the new product that has started coming out over the past few weeks and how it is resonating with customers. Response: “In August we where really lean in our summer products. We certainly left some business on the table in some of this new product that flowed through the store and online (no typical fall product drops as I’ve been remarking the past three weeks!) We are pleased with the assortment and how the assortment merchandised together (outfitting potentials/product theme) We had vision in design studio and cardio (the sculpt tights and greyvy line). Laurent earlier referred to it as ‘minimalist studio collection’. “Guests are responding to mesh, braiding and bonded seams.” There has been sequential improvement in the bra and tank lines. Overarching vision that expands to the mens line allows the guest to put together outfits more easily and in a powerful way. ” (I really F**king hate this kind of jargon. Who puts together outfits in ‘powerful’ ways? why are they overarching so much on outfit? this is essentially just driving tank to pant ratio sales and increasing bra sales with the new tank silhouettes which require you to coordinate bra/tank purchases).