[Management View]
lululemon reported Q1 2025 revenue of $2.4 billion, up 7% YoY (8% in constant currency), driven by strong international growth, particularly in China Mainland (+22% in constant currency). The company highlighted product innovation, including successful launches like Align No Line and Daydrift, and increased unaided U.S. brand awareness to 40%. Management emphasized strategic investments in distribution, technology, and international expansion, supported by a strong balance sheet with $1.3 billion in cash and no debt.

[Outlook]
Full-year revenue guidance remains at $11.15-$11.3 billion, implying 5%-7% growth (7%-8% excluding the prior year’s fifty-third week). Gross margin is expected to decline 110 basis points due to tariffs and markdowns, with mitigation efforts like modest price increases and sourcing shifts expected to take effect in H2. Operating margin is forecasted to fall by 160 basis points YoY. The company plans to open 40-45 net new stores, primarily in international markets, with a focus on China.

[Financial Performance]
- Revenue: $2.4 billion (+7% YoY, +8% constant currency).
- Comparable Sales: +1%; Americas -1%, China Mainland +8%, Rest of World +7%.
- Gross Margin: 58.3% (+60 bps YoY), driven by lower product costs and improved markdowns.
- Operating Margin: 18.5% (-50 bps YoY).
- Diluted EPS: $2.60 (+2.4% YoY).
- Inventory: Dollar value +23%, units +16%, driven by tariffs and FX.

[Q&A Highlights]

**Question 1:** Can you expand on mitigation efforts for tariffs and provide insights into U.S. category performance?
**Answer:** Management plans modest, targeted price increases on a small portion of the assortment and sourcing efficiency actions, with impacts expected in H2 and into 2026. U.S. category performance showed balanced strength across lifestyle and activity segments, with successful launches like Daydrift and Align No Line. Early sell-throughs and guest feedback were positive, and full distribution is planned for H2.

**Question 2:** What are the drivers of comp trends, and how did Q1 progress into Q2?
**Answer:** Q1 saw a decline in U.S. store traffic, partially offset by higher average transaction values. Conversion trends were stable. April-May trends were consistent with Q1, with no material changes.

**Question 3:** Why not take more aggressive pricing actions to offset tariffs, and what explains the disconnect between top-line and bottom-line guidance?
**Answer:** Management emphasized strategic pricing to maintain brand positioning, with modest increases planned. The 160 bps decline in operating margin guidance is entirely due to tariffs, with no significant changes in expense posture.

**Question 4:** How does Q2 guidance reflect trends in The Americas and China?
**Answer:** Q2 guidance assumes similar U.S. trends as Q1, with China expected to grow 25%-30% for the year. The timing of Chinese New Year impacted Q1 comps by four percentage points.

**Question 5:** Why is markdown guidance more cautious despite no current uptick?
**Answer:** Management cited macroeconomic uncertainty and consumer confidence as reasons for embedding a slight increase in markdowns (10-20 bps YoY) in H2 guidance, despite Q1 markdowns declining by 10 bps.

**Question 6:** What is the outlook for U.S. comp growth and differences between Canada and the U.S.?
**Answer:** U.S. growth remains challenged by cautious consumer behavior, but lululemon gained market share in premium activewear. Canada showed stronger performance, with less consumer caution.

**Question 7:** What is the store growth potential in China, and how does traffic compare globally?
**Answer:** lululemon operates 154 stores in China, with plans to reach 200 under its current strategy. Traffic trends in China remain strong, with double-digit growth, and the market remains the company’s lowest markdown region.

**Question 8:** How is inventory impacted by tariffs and FX, and when will pricing actions take effect?
**Answer:** Inventory dollar growth (+23%) reflects higher average unit costs due to tariffs and FX. Pricing actions will roll out in late Q2 and Q3, with tariff impacts more pronounced in Q2.

**Question 9:** What is driving lower product costs, and will this continue?
**Answer:** Lower product costs were driven by mix shifts and lower airfreight. Management does not expect product costs to be a variance driver for the full year.

**Question 10:** How does SG&A guidance reflect investment timing?
**Answer:** Q2 SG&A deleverage (170-190 bps) reflects foundational investments, depreciation, and normalized expenses like store labor. Full-year SG&A deleverage is expected at 50 bps.

**Question 11:** What explains the deceleration in China comps, and is it still a full-price market?
**Answer:** Q1 China comps were impacted by the timing of Chinese New Year and outsized non-comp growth last year. China remains lululemon’s highest full-price market globally.

**Question 12:** Is lululemon more exposed to macro risks in China and Rest of World?
**Answer:** Management sees no change in long-term opportunities, with strong double-digit growth and market share gains in international markets. The company remains underdeveloped globally, with significant runway for growth.

[Sentiment Analysis]
Management maintained a confident tone, emphasizing long-term growth opportunities and strategic investments. Analysts expressed cautious optimism, focusing on tariff mitigation, U.S. traffic trends, and markdown assumptions.

[Quarterly Comparison]
| Metric | Q1 2025 | Q1 2024 | YoY Change |
|-------------------------|-----------------|-----------------|------------|
| Revenue | $2.4B | $2.24B | +7% |
| Gross Margin | 58.3% | 57.7% | +60 bps |
| Operating Margin | 18.5% | 19.0% | -50 bps |
| Diluted EPS | $2.60 | $2.54 | +2.4% |
| Inventory (Dollar) | +23% | N/A | N/A |

[Risks and Concerns]
1. Tariff impacts on gross margin, with mitigation efforts delayed until H2.
2. U.S. traffic declines and cautious consumer behavior.
3. Potential for increased promotional activity in the U.S. market.
4. Macroeconomic uncertainties affecting markdown assumptions.

[Final Takeaway]
lululemon delivered solid Q1 results, driven by international growth and product innovation, but faces near-term challenges from tariffs and U.S. consumer caution. Management’s strategic focus on pricing, sourcing efficiencies, and new product launches positions the company for long-term growth. Investors should monitor tariff mitigation progress and U.S. traffic trends as key indicators for H2 performance.