Earnings Call: Q1 2022

Jun 3, 2021

Thank you for standing by. This is the conference operator. Welcome to the Lululemon Athletica First Quarter 2021 Earnings Conference Call. As a reminder, all participants are in listen only mode and the conference is being recorded. Call. Star then 1 on their telephone keypad. I would now like to turn the conference over to Howard Tubin, Vice President, Investor Relations for Lululemon Athletica. Please go ahead. Thank Welcome to the Lululemon Athletica First Quarter Earnings Conference Call. Joining me today to talk about our results are Calvin McDonald, CEO and Megan Frank, CFO. Before we get started, I'd like to take this opportunity to remind you that our remarks today call. We'll include forward looking statements reflecting management's current forecast of certain aspects of Lululemon's future. Call. These statements are based on current information, which we have assessed, but which by its nature is dynamic and subject to rapid and even abrupt changes. Call. 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, call, including those we have disclosed in our most recent filings with the SEC, including our annual report on Form 10 ks 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. Call. A reconciliation of GAAP to non GAAP measures is included in our quarterly report on Form 10 Q and in today's earnings press release. Call. In addition, the comparable sales and store productivity metrics given on today's call are in constant dollars. The press release and accompanying quarterly report Form 10 Q are available under the Investors section of our website at www.lululemon.com. Call. Before we begin the call, I'd like to remind our investors to visit our Investors site, where you'll find a summary of our key financial and operating statistics for the Q1 as well as our quarterly infographic. Today's call is scheduled for 1 hour, so please limit yourself to one question at a time to give others the opportunity to have their questions addressed. Call. And now, I'd like to turn the call over to Calvin. Thank you, Howard, and hi, everyone. I'm excited to speak with you about our Q1 results quarter. As the press release describes, we're off to a particularly strong start to 2021 with revenue growth of 88% over the same period last year. And when you look at our 2 year CAGR, our performance truly stands out and shows the sustained momentum in the business. Quarter. Our first quarter results reflected our strength across all drivers of growth, fueled by the continued expansion in our e commerce business, I want to take a moment to recognize the resiliency and agility of our teams across the globe. Their commitments and dedication enables this impressive performance and it would not be possible without them. On today's call, I will speak to our Q1 results, our power of 3 growth pillars and the progress quarter delivering against our impact initiatives. You'll also hear from Megan Frank, our CFO, with further details about our Q1 financial performance and our guidance outlook. We'll then be happy to take your questions. Looking at the quarter, call. Our results were driven by strength across channels, regions and product categories. Here are a few key operating metrics. Firstly, our total revenue of $1,200,000,000 reflects an increase of 25% on a 2 year CAGR basis. Call and have a unique business model that allows us to thrive in an ever changing environment. In addition, our revenue increased across each of our regions, Group, up 23% in North America and up 41% in our international markets, both on a 2 year CAGR basis. Call. Secondly, growth within our e commerce business remains strong with comps up 50%, which is on top of the 70% increase in the same quarter last year. Call. And thirdly, adjusted earnings per share were $1.16 versus $0.74 in 2019, significantly ahead of our expectations. Call. And we are also pleased to see our momentum extending into the 2nd quarter. We delivered at this high level, while we also Strategically managed a number of ongoing macro operating challenges, such as continued store closures, capacity constraints, supply chain challenges at the ports and reduced air freight capacity. While challenges of all types will no doubt remain going forward, I'm confident we will continue to manage them quarter. In summary, Lululemon continues to become stronger quarter after quarter. Call. We are very early in our growth story and we are well positioned for the post pandemic world and the opportunities ahead of us are significant and continue to expand. Call. I will now provide a bit more color on the Q1 results. We are firmly on track to deliver on our commitments contained in our Power of 3 growth plan call through our 3 pillars of product innovation, omni guest experience and market expansion. Within product innovation, we continue to leverage our Science and Field platform to deliver quarter. Our sweet spot is creating versatile and stylish products that include Technical Innovation, Comfort and Flexibility. In the Q1, we saw strength across our assortment with women's revenue increasing 23% and Men's growing 27% on a 2 year CAGR basis. I will now share a few more thoughts related to our product. Call. We saw strength in women's across the assortment as guests are responding well to both tops and bottoms. Our performance in tops was driven by core styles and franchise extensions such as the Align Tank. Our male guests returned to our stores as we emerged from the pandemic. Men's growth outpaced women's growth on both a 1 2 year basis, and we are seeing very positive momentum in our on the move assortment. Across both the women's and men's businesses, our sales success reflects our ability to consistently introduce new innovation to our guests as we expand core and newer categories and leverage our spectrum of raw materials. We're in the early days of our product journey with ample opportunity to expand across our 4 key product areas of yoga, run, train and on the move. And speaking of run, quarter, we launched a global run campaign that highlights how we are making running more accessible and inclusive, and we took a broad based approach that included messaging that featured male and female athletes and a broad range of products, a platform that highlighted existing Conference Call of the Year's Evelyn Suarez, such as ultra marathon runner, Myrna Valerio, Brooklyn based Filmmaker and Founder of Running TO Protest Coffee, Canadian 10000 Meter Record Holder Natasha Wodak and Olympian leader and mentor, Colleen Quigley. I'm pleased with the results of our rent campaign and it's an example of the leadership Nicki Newburger, our Chief Brand Officer is bringing to the company and I look forward to her joining us on a future call. Quarter. Let me now turn to our omni guest pillar and the strength we saw across channels in Q1 with the upside in revenue driven by both our stores and e commerce businesses. Call. Here are a few highlights I'd like to share. The healthy comps in our e commerce channel were driven by a mix of new and existing guests. Call. We're also happy to see the investments in our digital business paying off and we're continuing to improve product education, offer better quarter. When looking at our store channel, I remain very enthusiastic about our performance. Call. We are committed to stores and we are building more stores this year and seeing more and more great real estate opportunities become available in great areas in key cities around the globe. We will continue to be opportunistic in grabbing these locations as they become available. Call. We are also fortunate to have our store teams in a good position as well. The pay protection initiative we implemented last year 4 employees has allowed us to retain and engage them throughout this period. This meant we could reopen stores quickly and this agile and dedicated team has allowed us to continue to support the increased traffic momentum in the stores that we are experiencing now. Call. This helped us deliver against our plans to kick start our stores and reengage our store only guests. Here are some details on our performance. 1st. Firstly, store productivity improved to 88% of our levels in 2019. This exceeded our quarter. And as a reminder, these capacity constraints are just starting to lift in many markets in this quarter. Touching on MIRROR, call. We continue to be pleased with the performance of Mirror and the opportunities within the at home fitness space. Mirror had a strong Mother's Day and remains on track quarter to deliver $250,000,000 to $275,000,000 in revenue in 2021. We continue to leverage the Lululemon ecosystem and by the middle of this month, Mirror will be featured in nearly 90 Lululemon locations in the United States. We're well on our way to 200 shop in shops in time for the holidays later this year. Call. In addition, we now have dedicated mirror specialists among our educators in each of these stores and the early sales results are encouraging. Call. We will have more to share about Mirror later in the year as we gear up for new features, add more live classes and expand into Canada, 1st international market of several we will see in the future from here. Switching now to our international call. We continue to be very pleased with our results and our growth potential across our three regions of China, Asia Pacific and EMEA. Call. Andre Mastrini has hit the ground running as he leads our international team and sets ambitious growth goals. And I look forward to having Andre join us in the future for a call. Call. From our new stores in China to continued growth in Asia Pacific to our online performance in EMEA, the results continue to reinforce that we are early in the growth trajectory. Call. And as I have said before, I can see a time in the near future where our international business grows in size to be equal to our North America business. Call. In closing, I'm proud to share a few details about our latest impact initiatives, which helps us to achieve our multi year goals, including our goal to make 100% of our products with sustainable materials and end of use solutions. We launched Lululemon like new last month, our first re commerce program. This is a trade in and resale program for our guests and all of the profits are reinvested in our sustainability initiatives. We have launched in California and Texas and the response is encouraging. This kind of program reduces carbon, water and waste and also enables us to attract new guests, call, particularly younger guests who are fans of thrifting. In the quarter, we also introduced our EarthDye collection, which is made completely from materials upcycled call from plants and uses less water and is an example of the type of collections we're expanding in the future. In closing, these results and our continued focus on innovation demonstrate our confidence in the future and how we can continue to pull the many levers of growth we have available to us. Quarter. Let me now hand it over to Megan for a review of our Q1 financials and our guidance outlook. Megan? Thanks, Calvin. Our Our Q1 results were strong relative to last year's COVID impacted quarter, but more importantly relative to Q1 of 2019 as well. Quarter. On a 2 year CAGR basis, we saw double digit top line growth across all major regions, with the standout being Mainland China with an approximately 90% 2 year CAGR. We also saw broad based strength across merchandise categories with women's, men's and accessories all growing in excess of 20% on a 2 year basis. We're proud of these results despite the ongoing impact of COVID-nineteen and we have strong momentum moving into Q2 as reflected in our updated guidance I will share in a moment. Call. Let me now share with you the details of our Q1 performance. I will also discuss specifics on our balance sheet, including our cash position, liquidity and inventories. Please note that the adjusted financial metrics I will share include the operating results of Mirror but exclude approximately $8,000,000 of acquisition related costs and their associated tax effect in Q1 2021 and $2,000,000 of acquisition related costs and their associated tax effects in Q1 2020. You can refer to our earnings release for more information and reconciliations to our GAAP metrics. For Q1, total net revenue increased 88 percent to $1,200,000,000 above our expectations of $1,100,000,000 to $1,130,000,000 this included an 82% increase in North America and a 125% increase in our international business. Call. On a 2 year CAGR basis, total revenue increased 25%. In our digital channel, revenues increased 61% on a 2 year CAGR basis, quarter above our expectations of approximately 50% growth. Ecom contributed $545,000,000 of top line or 44% of total revenue. We continue to see strength in traffic and conversion. Traffic was driven by both new and existing guests and conversion continues to benefit from positive guest response enhancements we've been making to our e com sites and mobile app. In our store channel, sales increased 3% on a 2 year CAGR basis, quarter above our expectations of flat to slightly negative. Looking at store productivity relative to 2019, Q1 improved to 88% versus 71% in Q4 of 2020. At the end of the Q1, we had 93% of our stores open. Square footage increased 10% versus last year, driven by the addition of 34 net new stores since Q1 of 2020. Quarter. During the quarter, we opened 2 net new stores. Gross profit for the Q1 was $700,000,000 or 57.1 percent of net revenue compared to 51.3 percent of net revenue in Q1 2020 and 53.9 percent of net revenue in Q1 2019. Quarter. Our gross margin increase of 3 20 basis points relative to 2019 was driven by 2 20 basis points of leverage quarter. Depreciation and Product Team Costs, an 80 basis point increase in product margin with the decline in markdowns versus 2019 and despite higher air freight expense related to COVID-nineteen. In addition, we had 20 basis points of favorability in foreign exchange. Moving to SG and A. Our approach continues to be grounded and prudently managing our expenses, while also continuing to strategically invest in our long term growth opportunities. SG and A expenses were $497,000,000 or 40.5 percent of net revenue compared to 46% of net revenue in Q1 2020 and 37.4 percent of net revenue in Q1 2019. Leverage in the quarter relative to Q1 2020 resulted from the sales increase quarter relative to the COVID impacted quarter last year. The deleverage relative to Q1 2019 is the result of consolidation of MiR's results this year, quarter but not in 2019, coupled with higher depreciation due to accelerated investments to support our e com business and COVID related operating channel costs. Adjusted operating income for the quarter was $202,000,000 or 16.4 percent of net revenue compared to 5.3% of net revenue in Q1 2020 and 16.5 percent of net revenue in Q1 2019. Adjusted tax expense for the quarter was 49,500,000 24.5 percent of pre tax earnings compared to an adjusted effective tax rate of 14.7 percent a year ago. Call. In both Q1 2021 and Q1 2020, our tax rate benefited from certain discrete tax deductions related to stock based compensation. Call. However, since our Q1 2020 profit before tax was significantly lower due to the impact of COVID, this meant that these additional discrete tax deductions had a bigger impact on our tax rate last year. Adjusted net income for the quarter was $152,000,000 or $1.16 per diluted share compared to adjusted earnings per diluted share of $0.23 in Q1 of 2020 and $0.74 in Q1 of 2019. Capital expenditures were $64,000,000 for the quarter compared to $52,000,000 in the Q1 last year. Q1 call for new locations, relocations and renovations. Turning to our balance sheet highlights. We ended the quarter with over $1,600,000,000 of total liquidity. We had approximately $1,200,000,000 in cash and cash equivalents and nearly $400,000,000 of available capacity under our revolving credit facility. Call. Inventory grew 17% versus last year and was $733,000,000 at the end of Q1. On a 2 year CAGR basis, inventory in Q1 increased 1st to increase approximately 25% to 30% relative to Q2 2020. In Q1, we repurchased 270,000 shares call at an average price of $3.11 At the end of the quarter, we had $416,000,000 of availability remaining on our current share repurchase authorization. Let me shift now to our outlook for Q2 and the full year 2021. Our guests continue to respond well to our merchandise offering, call, including both technical and on the move apparel and mirror. As we are welcoming guests back to our stores, we also remain focused on our digital business and omni capabilities to ensure we are there for our guests no matter how they want to engage with us. We also continue to plan for multiple operational scenarios as we navigate the ongoing COVID-nineteen environment. For Q2, we expect revenue in the range of $1,300,000,000 to $1,330,000,000 representing a 2 year CAGR of 21% to 23%. In terms of stores, We currently have approximately 93% of our stores open. On a 2 year CAGR basis, we expect stores to be approximately flat with ecom growing at approximately 55%. We expect gross margin in Q2 to increase from last year's COVID impacted quarter and also be 30 to 50 basis points higher than Q2 of 2019. Relative to 2019, our gross margin is benefiting from a higher e comm penetration and leverage on occupancy and depreciation due to pulling back somewhat on new store openings in 2020 as well as the level of rent reductions. Quarter. Our Q2 guidance reflects continued pressure from airfreight costs due to poor congestion and capacity constraints. In Q2, we expect SG and A deleverage of approximately 400 basis points relative to 2019. Drivers of the deleverage versus 2019 include higher depreciation due to accelerated investments to support our e commerce business in 2020 2021 consolidation of Mirror's results this year, but not in 2019 and COVID related costs, including labor for stores that remain closed. Quarterback. Turning to EPS, we expect adjusted earnings per share in the second quarter to be in the range of $1.10 to 1 $0.15 versus EPS of $0.74 a year ago. This includes operating results from Mirror, but excludes acquisition and integration related costs. As a reminder, we reported EPS of $0.96 in Q2 of 2019. For the full year 2021, we now expect revenue to be in the range of $5,830,000,000 to $5,910,000,000 This range continues to include $250,000,000 to $275,000,000 from Mirror and now assumes our e commerce business grows in the high single digits relative to the outsized strength we experienced in 2020. Call for e comm, we expect a modest decline in Q2 as we anniversary the height of COVID related channel shift and our online warehouse sale. And we continue to expect modest growth in Q3 and Q4. When looking at total revenue, our guidance range implies a 2 year CAGR of 21% to 22%, call, which is higher than our 3 year revenue CAGR of 19% leading up to 2020 and is well ahead of the low teens CAGR contemplated in our Power of 3 growth plan. Call. We now expect to open 45 to 55 net new company operated stores in 2021, up from our prior guidance of 40 to 50. Quarter. This includes approximately 35 to 40 stores in our international markets and represents a square footage percentage increase in the low teens. We now expect gross margin for the year to expand between 150 basis points to 200 basis points compared to the modest increase we saw in 2020. Quarter. For the year, the anticipated margin expansion continues to include approximately 50 basis points of negative impact from additional freight costs, but is still in excess of our Power of 3 plan, which assumes modest gross margin expansion annually. The outperformance is expected to be driven primarily by a shift relative to our initial plans and investment from new store openings and remodels towards digital, which impacts SG and A. When looking at SG and A for the full year, we now expect deleverage of 30 to 50 basis points versus 2020. Drivers of the deleverage continue to include consolidation of Mirror for the full year and investment in Mirror Brand Building. We expect our effective tax rate for the year to be similar to 2020. We now expect our fiscal year 20 21 adjusted diluted earnings per share to be in the range of $6.73 to $6.86 our EPS guidance continues to assume modest dilution from Mirror in the 3% to 5% range. Excluding acquisition and integration related costs, it also excludes the impact of any future share repurchases. We now expect capital expenditures to be approximately 360 $5,000,000 to $375,000,000 for 2021. The increase versus 2020 reflects increased investment in our supply chain, digital capabilities, new store openings and renovations including Mirror Shop in Shops, as well as other technology and general corporate infrastructure projects. Before handing it back to Calvin, I want to thank our teams across the globe for their agility, enthusiasm and dedication to Lululemon that allows us to deliver these and now back to Calvin for some closing remarks. Thank you, Megan. Before we take your questions, call. I just want to say on behalf of the entire management team that we are grateful to our teams who helped us deliver these results call. And who are helping us raise our expectation about what's possible for Lululemon this year and well into the future. With that, we'll be happy to take your questions. Quarter. Thank you. We will now begin the question and answer session. You will hear a tone acknowledging your request. Question. Question comes from Adrienne Yih with Barclays. Please go ahead. Quarterback. Good afternoon and congratulations on the great start to the year and the momentum continuing. Calvin, my First question is for you. It's about as you become a global brand and now you have Mirror and you're investing in that for marketing, are there any changes in how you philosophically think about the marketing, the advertising expense line, demand creation, so to speak? And when we're thinking about Mirror, how should we think about the slight dilution coming in the form of increased ad spend? And when might we in the future think about sort of a breakeven notion? I guess, another way of asking sort of that probably more simply question is when you are building the brand for MiR, do you think about investing for top line growth first and maybe not necessarily prioritizing profits, given that there's so much opportunity there. Thanks, Adrienne. I'll try to Compartmentalize that question because there's a lot of exciting topics embedded in that. Overall from a brand perspective, Many ways we're looking at increasing both awareness and consideration for Lululemon moving forward and that applies to all markets we're in both U. S, Canada and internationally. And Niki and the team are in a variety of different initiatives this year where we're That's all included in the guidance that Megan shared, But we are excited about the different initiatives we have planned because we see a huge opportunity around driving awareness generation both for men's as well as women and in every market we're in and we're going to lean in and do more of that. And the Run campaign is an example of us marketing ourselves more as a dual gender, showcasing both men and women, quarter. Miller:] Similarly in Mirror, there's a lot of opportunity around awareness and consideration. That's where we see Leveraging synergies within Lululemon in the stores and leveraging the 10,000,000 guests that the brand has to help drive that. Call. And we know we're investing as an acquisition vehicle to get guests in and purchase MiR. Call. And that's in the guidance as well, but we'll continue to do that. Fast forward, these brands are going to continue to be able to leverage one another and we see synergies in the community, we see synergies in refer a friend, we see synergies Across the ambassadors and the content that we're producing. So we're early in how we bring awareness across Hi, Adrienne. Thank you. So in terms of the investments in the past to breakeven. So we were really pleased by what we saw with Mirror performance in 2020, and it exceeded our expectations for sales at 170,000,000 call. And then we're reiterating our guidance for or our guidance color for Mirror for 2021, revenue range of $2.50 to 2 $75, and EPS dilution of 3% to 5%. We have a number of exciting initiatives, teed up for this year, Still early in the year for us, just given the seasonality of that business, the ramp in store openings as well as just that growth curve, we're experiencing the Mirror business. We did have a strong Mother's Day, pleased with our performance. And in terms of breakeven, we aren't putting a fine point on it right now, but excited about the future there. Definitely see it as a profitable business for us over the longer term and very much within our control. Call. Great. Thank you so much. Super helpful and best of luck. Thank you. Question. The next question comes from Ike Boruchow with Wells Fargo. Please go ahead. Yes. Hi. This is Kate on for Ike. Thanks very much for taking our question. Calvin, I guess just at a higher level, you spoke to in the quarter, the business accelerating with a 25% CAGR, I believe, on a 2 year basis versus what you were running pre pandemic. Just curious now that we're that much further along in the recovery, how you are evaluating perhaps a widening TAM opportunity on the other side of COVID. That would be helpful. Thank you. Great. Thanks, Kate. Call. Definitely. And as I've stated before, we were performing well before the pandemic. I think we led peer group during the pandemic and we're excited about the performance and confidence in our ability to continue to perform post pandemic. Call. And that's driven by the sustainable acceleration in consumer trends of living a healthier life, versatile apparel, at home sweat, and the connection of community and community sweat all play into our strengths. And we're early innings of growth. This quarter is Great example of that growth across channels, stores and dotcom, stores growth across categories, across gender men and women in our geographies. So very much early innings on that. And as that impacts It relates to TAMs, Mirror, by addition, creates a sizable TAM for us that we're excited about. We're investing in because we see a meaningful business there, a profitable business, a standalone P and L that equally will impact The Lululemon brand through strengthening the community and helping to influence and drive apparel sales. So that clearly is call. One addition to our TAM that we've we're excited about and we've added to. And then I think with sweat in general, we're seeing ongoing trends. Our positioning around run, yoga and train continue to resonate and continue to resonate and be the key activities. We have versatility and see some excitement in hike, as well as OTM. And OTM for her, we're just getting started. We know it's a good business for our men's business as we're building and year are 3 sizable TAM opportunities that we're adding to the ongoing mix of what the trend in the guest is happening and adding to the overall growth in activewear. Question comes from Mark Altschwager with Baird. Please go ahead. Good afternoon. Thanks for taking my question and congrats on the strong start here. Maybe just to start off to follow-up on Calvin, the comments you were just making on the OTM. I guess, maybe just from a marketing standpoint, I mean, there's been a lot of innovation with the On the Move assortment and that would seem to be particularly relevant, I guess, today as guests are returning to travel and in person activities. Can you speak a little bit more about how you plan to amplify that message both with Existing guest as well as for new guest acquisition? Yes. No, for sure, Mark. And I'll Break it down from product and then into women's sorry men's and then into women's. So with our men, we continue to innovate into our raw material call, as well as some of our key franchises. So building out on our ABC and Commuter, we've added the Bow Line, which we continue to marketing and drive that awareness and consideration. We know OTM is one of our big hooks that gets him into the brand and then we migrate them into the sweat and into other categories. So I think that flywheel is working, is gaining momentum and as we continue to invest top quarter. On the women's side of OTM, it really starts with product for us. And we have limited assortment and when we drop it. She responds incredibly well to it. We're excited about our ongoing expansion of our bottoms more into the OTM casual off the body fit. We're excited about our sweater initiatives in the back half and we're excited about 'twenty two and beyond as we really look to create versatile solutions for Those slots in her wardrobe, and that I think we absolutely have an opportunity to tap into our existing guest And sell those incremental opportunities to her. So with women, it's really about assortment and we were early with plans to And with him, we're going to keep adding and innovating, but we have a good base to start and top of funnel activity will help fuel that even further. Thank you. And then for Megan, as we think about the path to recovery, is it your expectation that the store productivity can return to pre pandemic levels or even grow from pre pandemic levels or is some of this channel shift Permanence. A lot of different regional trends that are embedded in the productivity metric you shared, just maybe any insight you can share on some of the trends in regions that have perhaps had restrictions relaxed for the longest. Thank you. Quarterback. Sure. Thanks, Mark. So we were really pleased with the improvement we saw in store productivity in Q1 at 88% quarter versus 71% in Q4. We did see improvement as capacity restrictions quarter moderated throughout the quarter, and we do fully expect to achieve 2019 levels of store productivity. At this point in time, we're not going to put a timeframe on it just given ongoing uncertainties related to COVID and we still have a level of store closures in play at this point in time, but we're really encouraged by trends we're seeing in our store base. Call. Thanks a lot and best of luck. Thank you. The next question comes from Matthew Boss with JPMorgan. Please go ahead. Great. Thanks and congrats again on the momentum. So maybe first is on the margin front. So on gross margin, 1st quarter, quarter. I guess maybe could you just help bridge drivers in the 2nd quarter forecast that you're embedding relative to 2019 and just any back half assumptions for us to consider as we think about the gross margin line through the cadence of the year? Call. Sure, Matt. So in terms of Q1, and this is relative to 2019, team, we had 320 basis points of expansion versus our initial expectation of 50 to 100. That 320 basis points was driven by 220 basis points of occupancy and depreciation and product team leverage really on that higher, sales achievement and then 80 basis points increase in product margin. We did see some good trends relative to 2019 in markdown rates. And we also did experience some pressure call as we've discussed on higher air freight expense. And then we had 20 basis points of favorability in FX. When we look to Q2, again relative to 2019, call. We are looking for 30 to 50 basis points of expansion relative to 2019 and really we are Expecting continued headwinds in airfreight, and then we have some level of rent concessions that we're anniversarying from last year. And then our Q2 revenue growth rate is slightly lower than Q1, leading to that delta. In terms of the full year, we've given some color relative to 2020. So we're expecting for the full year 150 basis points to 200 basis points expansion versus last year and that is up from our prior expectation of 100 to 150 basis points. Great. And then maybe just a follow-up for Calvin. On the outsized growth that you're seeing in e commerce quarter relative to the sequential improvement that you're also seeing at brick and mortar. I guess any changes in consumer preferences that you saw take place over the Q1 quarter maybe into May as we think by category, maybe tied more to recovery, the return of sport and some physical activity relative to the lifestyle side as maybe people are thinking about or actually leaving their houses and returning this to normal activity. Call. Yes, great. Thanks, Matt. As we shared, our active call. What we define as our activewear was still the predominant driver of our business last year. It's the core of our assortment, and it was the core of our drivers in Q1. It was good to see our men's business come back as strong as it did. We saw it continue to accelerate through 2020 and into 20 21 in the quarter and then get back to its position of driving the overall growth ahead of slightly ahead of women's. And that was really all through the sweat activity. Shorts performed incredibly well, and we did see an uptick in OTM, and very encouraged with that momentum continuing. And then with her, again, activewear was the driver, very balanced across The team has been doing a lot of work in our top business, building out our franchises, which is a big part of our franchise strategies that I've shared with everybody that we are early in taking the franchise of our bottoms and extending that fuel state through Science of Fuel head to toe, Align Tank being an example of one, but we have not done that consistently across the others and we're starting to When we do, she responds incredibly well. So our tops business really performed nicely, as well as shorts, but it was very much balanced across all categories men's and women's and geography. It's great to hear. Best of luck. Quarter. The next question comes from Lorraine Hutchinson with Bank of America. Please go ahead. Call. Thanks. Good afternoon. I wanted to follow-up on Mark's question. He was talking about store productivity returning to 2019 levels and quarter. I wanted to ask about the store profitability. You made some further progress there in the Q1. Is there any reason why the store margins wouldn't get back 2019 and perhaps surpass them as you move back toward 100% productivity. Hi, Lorraine. It's Megan. Yes, I think we're still dealing with a degree of COVID related expense in our store channel as well as the pressure from productivity, so store COVID related labor as well as PPE. And I don't expect there's any barriers to reaching 2019 Store Profitability Levels, Once the Productivity is normalized. Thank you. Question comes from Dana Telsey with Telsey Advisory Group. Call. Good afternoon, everyone, and congratulations on the nice progress. Calvin, part of the Power of 3 and what you talked about as international. And it sounds as if the international opportunity could be even a little bit occur a little bit faster than call from what you've seen in any of the regions you're currently in, even though small, that could be impactful for growth going forward. And lastly, as you talked about COVID costs and mentioned COVID costs. How do you see those adjusting or winding down moving forward? Thank you. Quarter. Great. Thanks, Dana. I'll take international then hand off to Megan on the COVID expenses. Call. Obviously, I think the numbers indicate the potential that we have internationally. Opportunity of this brand, this business being fifty-fifty North America International. And I don't see anything that's going to prevent us from quarter on stores because our dotcom business continued to drive growth. And in every market, we're in Australia, New Zealand or rest of call. And excited about that. So our commitment was to quadruple the business. We are definitely future of growth as we continue to see the maturity of these markets and invest in them. We're in the right markets call. And we're early in terms of our share potential in these. So we're really leaning in and focused on Maintaining and growing the momentum in these markets. And then with Andre, we'll be able to come back on a later call and share The future plans for continuing drive growth. And then Megan? Great. Hi, Dana. So in terms of COVID costs, We are beginning to see those wind down. It will really be dependent on the environment. We remain committed to our Power growth plan operating profit growth in excess of sales growth and really focused on managing our business to that. We did see operating margins for Q1 at 16.4%, which compared to 16.5 quarter in Q1 of 2019. This year's Q1 included Mirror. So we saw underlying that some really nice expansion call in Lululemon in the Lululemon side of the business and really on track to that Power of 3 growth plan. Quarter. Thank you. The next question comes from Paul Lejuez with Citi. Call. Please go ahead. Hey, thanks guys. Curious about input costs, What you're seeing and how we should think about AUC over the next several quarters and into next year and also just how you're thinking about pricing in a potentially inflationary environment? Thanks. Call. Hey, Paul, it's Megan. So in terms of input costs, we're not seeing any material impact on 2021. And anything we are experiencing is quarter. We definitely have a close eye on the market and are managing and mitigating any pressures as we move into 2021 sorry, 2022 and we'll certainly come back and share more when we provide 2022 color. And then just adding on to that, Paul, as it relates question. Because we're not seeing any direct pressure this year, we're comfortable with our pricing strategy through to the end of 2021 call. And the merchants are working with the supply team on any potential changes that we may need call to implement moving into 2022, but we're constantly evaluating our range, looking at the new innovation coming and pricing accordingly to drive the best value call for our guests. Got it. And can you just talk about your ability to chase product, just Given some supply chain constraints that were mentioned, I'm just curious how quickly you can get back into product? Call. Yes, definitely. So inventory was certainly one area where we postured to drive for growth both throughout 2020 20 as we navigated the pandemic and then into 2021. The team has been really proactive in strategically leveraging airfreight to meet guest demand and we do have the ability to chase categories and keeping a close eye question. What's going on with the supply chain, but we feel really well positioned to navigate through this year and meet guest demand. Got it. Thanks a lot guys. Good luck. Thank you. The next question comes from Kimberly Greenberger with Morgan Stanley. Please go ahead. Okay. Call. Thank you so much. I wanted to just ask the question Matt asked, but a slightly different way. As consumers are starting to emerge and go out, are you seeing a shift question in the kinds of products they're buying, let's say, particularly in the April, May timeframe. And then a question for Megan on SG and A. Obviously, this year you've given some guidance color, which is super helpful and you're looking for some deleverage relative to 2019 for MIRROR and the other factors that you cited. Call. I'm just wondering if we should think about you starting to leverage SG and A beginning in 2022, if that's a realistic expectation. And I'm just trying to sort through the COVID cost here this year to understand How much of the COVID costs will not recur in 2022? And I think call. You're putting some store payroll that will be recurring into your COVID costs. So if you could maybe separate that out for us, that would be helpful. Hi, Kimberly. I'll go first and just pick up on the first question. Quarter. We have not seen a meaningful shift in our activewear categories through the Q1. Call. As you know, a big piece of our business in sales are in core. It's in athletic activewear. Call. And I think with that, it has an embedded job in introducing color into these core franchises and silhouettes. But our activewear sweats, Shorts and tops have really been the uptick in momentum, but overall, the growth is across Almost every category equally, and very balanced and very balanced across geographies. Hi, Kimberly. I'll take the second part of that question. So in terms of SG and A, we're expecting for the full year 30 to 50 basis points of deleverage, which is better than our prior expectation of 50 to 100 basis points. And that deleverage is really driven by consolidation of Mirror for the full year as well as investment behind that business. And then a rebalancing of investments we did in 2020 into 2021, with the acceleration of our e commerce business, which quarter. The expenses are attributed to SG and A and some pullback on the store side of which occupancy sits up in gross margin. We're really focused on managing the business from a bottom line perspective and managing operating profit in excess of sales growth. We are not going to break out the COVID cost specifically, but really remain committed to managing to that operating profit in excess quarter. Thank you. Question. The next question comes from Omar Saad with Evercore. Please go ahead. Thanks for taking my question. I wanted to ask a follow-up on the real estate, the decision to accelerate some of those new store openings. What's giving you the confidence there? Is it real estate opportunities, market opportunities? Are you going to use the newer kind of bigger store format that has more room for men's, is that the primary format you're using? And then I have a follow-up on Mirror. Thanks. Call. Okay, Omar. Well, let me address the first. I think it's a combination of all the above. We've stated and remain very confident in our store business, in its performance, in its contribution, call and the role it plays of connecting the brand, guest acquisition and driving productivity numbers. And we've seen nothing Store Fleet Rollout. So we do have opportunity for growth in every market, including Canada and the U. S. As well as internationally. So call. We apply a conservative number on an annual basis and we are being opportunistic call. As a result, with the opportunities and around the globe where we're getting key locations with the right size in key cities and markets as a result of opportunities that are coming our way and we're capturing them because we believe in them. And in that, it is our newer models that allow for more of a men and expression, but it's not Significantly above sort of our sweet spot of stores and it does vary by market in the 3000 to 4000 range or the 5000 to 6000 1,000 ks range in North America, but it depends on the city and the location, but very still confident in our store business. Got it. Thanks for your help. Quarter. And then on Mirror, I just want to do a quick follow-up on Mirror. Who is buying Mirror? Is it are you seeing a consistent use case? Is it people who already have a home gym and they're Mac daddying it out with adding mirror to it or is it people who are trying to squeeze in with their existing space and it's such an efficient kind of interactive home Workout Solution. I'd love some color there. Thanks. Yes. No, for sure. And I'd say it's again, it's all of the above. Call. We're seeing individuals that have a number of at home fitness solutions And they add Mirror as a versatile workout solution to round that out. Call. And it's definitely caters well to individuals that don't have a distinct gym, who may not have a stud to attach a device to and want something that can function both in a space that is versatile and Sweat. And we're equally seeing a nice overlap with Lululemon guests, but Interestingly, a large number of non Lululemon guests owning Mirror. So that's where we get excited As we build out the synergies of having the Lululemon guests buy into a mirror and have the mirror Guests buy into Lululemon as their sweat solutions, but there is really a versatility in who's buying it and how they're using it and the fundamental opportunity is unlocking these synergies, which we're just getting started as we're able to tap into the stores now that we're emerging out of the pandemic and drive the awareness for the product. Thanks. Question. The next question comes from John Kernan with Cowen. Please go ahead. Question. John Kern, your line is open. Hey, sorry about that. Call. Thanks for taking my question and congrats on the big guidance increase in the top and bottom line. Thanks. Megan, call. If you look at where the business is operating from a P and L perspective, if I were to take out the high end of mere revenue guidance and maybe the midpoint of the dilution, you'd be somewhere around a 23% operating margin, which quarter, which is above comfortably above where it was in 2018. Can you just talk to the long term upside quarter margin potential for the core business, particularly as the store level margins, which you talked about earlier over to previous levels. Yes. Thanks, John. So as you mentioned, we are headed towards very healthy operating margin for Lululemon only for the full year, which is in line really with our Analyst Day expectations of operating profit and growth in excess of sales growth. We're really focused on managing that for the long term. And as we look towards the future, investing behind growth opportunities in order to maximize our top and bottom line. So we're maintaining that commitment and we are firmly on track to those Analyst Day targets, which were really grounded in growth rates. So we'll continue on that trajectory and we'll update our beyond 2023 plans at the appropriate time. Got it. Thank you. Thank you for joining the call and have a nice day.