With a combined revenue of $21 trillion and $2.1 trillion in profits, the 2026 Fortune 500 is the definitive list of America's largest companies.

Fortune 500

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The athletic-wear brand has been on a tear since 2020; in 2023, it joined the Fortune 500 list of the largest U.S. companies by revenue. (Lululemon is headquartered in Vancouver, BC, but incorporated in the U.S.) The company has benefited both from the pandemic-era work-from-home boom and from a return-to-work culture in which more workplaces are more accepting of casual attire. Analysts see Lululemon’s fast-growing men’s clothing lines and its soaring popularity in China as future growth drivers.

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This year’s Fortune 500 marks the 67th running of the list.

Collectively, the ranked companies produced a three-year average shareholder return of 33%, vs. 19% for the S&P 500.

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100 Fastest-Growing Companies

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<p class="p1">Lululemon has weathered countless challenges to its dominance in premium athletic casual wear, a category it invented years ago. It has done so with a steady stream of new products and lots of R&amp;D into fabric development. The retailer this year bought home fitness system Mirror, telegraphing a longer-term move beyond apparel as it looks to continue the fast growth that has seen sales double to $4 billion in the past four years.</p>

Collectively, the ranked companies produced a three-year average shareholder return of 19%, vs. 11% for the S&P 500.

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Shale rules! That’s the lesson of the latest edition of our annual list of public companies with the most stellar three-year profit, revenue, and stock growth. 

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Lululemon Athletica and its subsidiaries design, manufacture, and sell apparel, footwear, and accessories for athletic activities like yoga and running. The company was founded in 1998, and operates more than 750 stores.

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Lululemon athletica (LULU): Company Profile, Stock Price, News, Rankings

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Lululemon athletica

lululemon athletica

Thank you for standing by. This is the conference operator. Welcome to the Lululemon Athletica Inc. Third Quarter twenty twenty four Results Conference Call. As a reminder, all participants are in listen only mode and the conference is being recorded.

After the presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Howard Tubin, Vice President, Investor Relations for Lululemon. Please go ahead.

Welcome to Lululemon's third quarter earnings conference call.

Joining me today to talk about our results are Calvin McDonald, CEO and Meghan Frank, CFO. 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 Lululemon's future. 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. 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 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. 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. In addition, the comparable sales metrics given on today's call are on a constant dollar basis. The press release and accompanying quarterly report on Form 10 Q are available under the Investors section of our website at www.lululemon.com. 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 third 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. And now, I'd like

be here today to discuss our quarter three results, which exceeded our expectations, as well as our outlook for the holiday season and the fourth quarter overall. On today's call, I'll start with some highlights from Thanksgiving and Black Friday weekend. I'll then discuss our quarter three performance beginning with North America and the progress we are making in our U. S. Business.

Next, I'll share insights on our international business where momentum remains very strong. Then I'll speak to product. Megan will review our financials and guidance outlook, and we will close by taking your questions. So let's get started. We are pleased with our business over the extended Thanksgiving weekend and the traffic trends we saw across both our store and e commerce channels.

In fact, on Black Friday, we had the most visits ever to our shop app and e commerce site. Unlike others in this space, we do not run sale events across our entire store. We leveraged the increased traffic over this period to clear through product we are not taking forward and to feature full price style. We are happy with how the guests responded to both with full price sales driven by some of our key franchises, including Define. While we feel good about the start of the holiday season, we still have large volume weeks in front of us.

And given the shorter holiday shopping season, we continue to be thoughtful in our planning for quarter four overall. Now looking at quarter three, total revenue increased 9% or 8% in constant currency. By region, China Mainland increased 39% or 36% in constant currency. The rest of world grew 27 or 23% in constant currency and The Americas increased 2%. By merchandise category, men's increased 9% and women's and accessories both increased 8%.

Adjusted operating margin increased 70 basis points to 20.5% and adjusted earnings per share increased 13%. In addition, demonstrating our continued confidence in the business, our Board recently authorized a $1,000,000,000 increase in our share repurchase program. In quarter three, we repurchased $4.00 $9,000,000 of stock, which brings us to $1,400,000,000 year to date. Including the additional authorization, we have $1,800,000,000 available to repurchase our shares. I'll now turn to the details about our quarter three, beginning with our performance by region.

In The Americas, revenue increased 2% on both a reported and constant currency basis. Positive momentum continued in Canada where revenue increased 9%. In The U. S, revenue was flat, which was consistent with our performance in quarter two and in line with our expectations. Last quarter, I laid out our plans to drive improvement in our U.

S. Business. These plans include implementing a new reporting structure within our product team, increasing the penetration of seasonal newness within our assortments by quarter one twenty twenty five and chasing into updated colors, prints and patterns to provide guests with more options in the second half of this year. So let me share the progress we are seeing. When looking at our product team, we are beginning to see the efficiencies and anticipated benefits of our new reporting structure with our Global Creative Director reporting to me and our Chief Merchandising Officer reporting to Nicky Neuberger in her expanded role as Chief Brand and Product Activation Officer.

Our merchandising and brand teams are now more fully integrated, which leads to better coordination and faster decision making regarding how we bring our innovation to life. I'm proud of how our leaders and teams push forward this quarter and how we have made meaningful progress in creating the product organization to drive our future success. When looking at the composition of our assortments, we are on track with our efforts to increase the penetration of seasonal newness and expect to be in line with historical levels in quarter one twenty twenty five. I feel good about the quality and quantity of newness the teams have planned and I believe we are well positioned for spring. Finally, our teams have been agile and have been chasing into seasonal colors, prints and patterns.

I'm sure you've seen several examples across our key franchises. These efforts have contributed to the sequential improvement in newness within our assortment in the back half of the year. We continue to see significant potential for growth in The U. S. Our guest retention remains high and we see an opportunity to drive higher revenue per guest with more newness in the assortment.

We continue to grow our membership program and we are now 24,000,000 members strong. Our variety of benefits including early access, partner perks and members only events are resonating well. And our unaided brand awareness remains low in The U. S, at 36%, which provides a significant opportunity for growth as we continue to open and optimize stores and launch new brand campaigns and activations. In summary, I'm pleased with our progress so far as our teams are in action to return our level of newness back to historical levels in quarter one twenty twenty five.

In addition, we are benefiting from and seeing the efficiencies from the new leadership structure within our product team, with the rest of our regions performing well, I feel confident in our growth plans and strategies for 2025. Turning to our international business, momentum remains strong in all of our markets as we continue to see great acceptance of the Lululemon brand across the globe. Overall, we saw international revenue increase 33% or 30% on a constant currency basis. Here are some highlights. In China Mainland, our brand positioning of Made to Feel allows us to authentically connect with guests by offering technical product that helps enable them to live an active and healthy lifestyle and bring to life compelling activations focused on movement and well-being.

This aligns well with the government's Healthy China Two Thousand And Thirty initiative. In quarter three, our local team executed our largest activation yet centered around World Mental Health Day and the release of our fourth annual Global Well-being Report. We hosted events in nine cities anchored by our activation in Shanghai. For one week in early October, we hosted a variety of sessions for guests, including sweat sessions and experiences along the West Fund. In total, we had 15,000 guests participate in our activations across The Mainland and we generated 3,800,000,000 impressions.

I'm excited with the success and scale of this activation. One example of many from our team in China Mainland, which are intended to increase brand awareness, which remains low but is growing, bring new guests into the brand and increase engagement and loyalty with existing guests. Now let's focus on the Rest of the World segment, which is comprised of APAC and EMEA regions. We remain in the early stages of growth in these markets and have significant opportunity to expand our footprint through new store openings and expansion of key locations. In our more established international markets, we are leveraging the success of our North America optimization program.

For example, in Australia, we are seeing meaningful benefits from the strategy, including an enhanced and more premium shopping experience for our guests, an increase in our men's business through additional square footage and improved visual merchandising and an increase in online sales as these stores help attract both local guests and tourists into the brand. Our new store in the Emporium Mall in Melbourne is a terrific illustration of the effectiveness of this strategy. At 11,000 square feet, it is our largest store in APAC and is on track to be our number one store in the region in terms of revenue. We opened our first store in Australia more than twenty years ago, and this shows the growth that is possible even within our more established markets. In EMEA, we are also executing against our store optimization strategy as we recently increased the size of our stores in Berlin and Oslo and we're happy with the performance of both.

I'm thrilled with the response we are seeing from guests as we improve the shopping experience in markets where we currently operate. This is a key strategy for us across all regions, including North America, as it allows us to better position our store portfolio to support our product plans, continue to drive success in key growth categories, including men's, accessories, outerwear and footwear, and drive overall sales, while continuing to deliver best in class store productivity. In addition to maximizing existing markets, we have significant opportunity to bring Lululemon to new countries across the globe. Our plans for 2025 include opening in Italy as a new company operated market and in Denmark, Belgium, Turkey and The Czech Republic under a franchise model. Let me shift now and spend a few minutes on product.

In quarter three, in women's, we saw strength in shorts, skirts and leggings in seasonal colors, while in men's, guests continue to respond well to our pace breaker and zeroed in franchises and performance and key lounge franchises. In accessories, bags continue to perform well, driven by backpacks and the crossbody styles. We built upon our success this past spring in golf by focusing on another play category, tennis, when we dropped our Lululemon Tennis Club collection during the U. S. Open in New York this quarter.

Based on the strong guest response, we continue to see an opportunity to grow our play activities and intend to evolve our strategy from a seasonal approach to one where we introduce newness into these collections consistently throughout the year. And we have been pleased with the performance of two strategic partnerships we launched recently, Fanatics in the National Hockey League and Disney. As you are aware, we have a targeted strategic sales business where we sell product to select partners, including fitness studios and university bookstores. Our Fanatics and NHL partnership builds upon the success of our campus strategy. We know there is an opportunity to bring a premium option to sports fans, which allows them to celebrate their favorite teams through our most iconic styles.

Our limited edition product collaboration with Disney combines iconic Disney imagery with our best in class technical apparel and taps into the appreciation guests have for both brands. As I step back and look at our entire product assortment, I'm excited with the newness we have planned. Our technical product is a key competitive advantage for us and our positioning as a premium athletic brand offering high style, high performance product truly differentiates us from others. Before I turn it over to Megan to discuss our financials, let me say that we remain committed to delivering on our Power of 3x2 revenue target of $12,500,000,000 in 2026, and we remain ahead of schedule. Using our revenue guidance for 2024, which we updated today, our three year revenue growth CAGR from 2021 through 2024 is 19%, ahead of the 15% CAGR target in our plan.

The solid results this quarter show the inherent strength of our brand and highlight the continued opportunity for Lululemon around the world with existing and new guests. Megan, now over to you.

Thanks, Calvin. In Q3, both revenue and EPS exceeded our expectations. Top line strength was driven by continued momentum in our international regions in Canada, while EPS also benefited from stronger than expected gross margin. Looking at Q4, as Calvin mentioned, we're pleased with the results over Thanksgiving weekend and the start of the holiday season. I would also keep in mind that nearly two thirds of the quarter remains in front of us and the macro environment remains dynamic.

As such, we continue to plan the business prudently and I'll share our detailed Q4 guidance shortly. Let me also mention that we closed on the purchase of our Mexico franchise. The transaction closed on September 10 and had an immaterial impact on our Q3 financials. However, you will see an increase of 15 stores in our company operated store count related to Mexico. These stores were not included in our new store opening plans or square footage growth guidance for the year.

Hence, they are additive. Let me now share the details of our Q3 performance. For Q3, total net revenue rose 9% or 8% in constant currency to $2,400,000,000 and constant dollar comparable sales increased 3%. Within our regions, the results were as follows: Americas revenue increased two percent with a comparable sales decline of 2% China Mainland revenue increased 39% or 36% in constant currency with comparable sales increasing 24%. And in our Rest of World segment, revenue grew by 27% or 23% in constant currency with comparable sales increasing by 20%.

In our store channel, total sales increased 13% and we ended the quarter with seven forty nine stores globally. Square footage increased 16% versus last year, driven by the addition of 63 net new Lululemon stores since Q3 of twenty twenty three. During the quarter, we opened 13 net new stores and completed 14 optimizations. In addition, as I mentioned, we added 15 stores in Mexico, which are included in the 63 net new stores and $0.16 square footage growth metrics. In our digital channel, revenue increased 4% and contributed $945,000,000 of top line or 39% of total revenue.

And by category, men's revenue increased 9% versus last year, while women's and accessories both increased 8%. Gross profit for the third quarter was $1,400,000,000 or 58.5% of net revenue compared to adjusted gross margin of 58.1% in Q3 twenty twenty three. The adjusted gross profit rate in Q3 increased 40 basis points ahead of our guidance and was driven primarily by the following: a 50 basis point increase in product margin driven by lower inventory provision expense versus last year and favorable IMU, offset by higher freight costs. Markdowns were flat year over year. 20 basis points of net deleverage on fixed costs and 10 basis points of favorable impact from foreign exchange.

Relative to our guidance, which was for a decline in gross margin of 50 to 60 basis points, the upside was driven predominantly by prudent management of fixed expenses within gross margin, better IMU, lower DC operating costs and the timing of expenses related to certain store real estate projects. 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 approximately $910,000,000 or 38% of net revenue compared to thirty eight point two percent of net revenue for the same period last year. SG and A was slightly worse than our guidance of 40 to 50 basis points of leverage due to approximately 20 basis points of negative impact from foreign exchange. Operating income for the quarter was approximately $491,000,000 or 20.5% of net revenue compared to adjusted operating margin of 19.8% in Q3 twenty twenty three.

Tax expense for the quarter was $153,000,000 or 30.2% of pre tax earnings compared to an adjusted effective tax rate of 28.1% a year ago. Net income for the quarter was $352,000,000 or $2.87 per diluted share compared to adjusted EPS of $2.53 for the third quarter of twenty twenty three. Capital expenditures were approximately $178,000,000 for the quarter compared to approximately $163,000,000 in the third quarter last year. Q3 spend relates primarily to investments in support business growth, including our multi year distribution center project, store capital for new locations, relocations and renovations and technology investments. Turning to our balance sheet highlights.

We ended the quarter with $1,200,000,000 in cash and cash equivalents. Inventory increased 8% lower than our guidance for an increase in the mid teens. We repurchased 1,580,000.00 shares in Q3 at an average price of $259 Year to date, we've repurchased approximately $1,400,000,000 of stock. Share repurchases remain our preferred method to return cash to shareholders and we currently have approximately $1,800,000,000 remaining on our repurchase program, including the recent $1,000,000,000 increase in authorization. Let me now share our detailed guidance outlook for the remainder of the year.

As I mentioned, we are pleased with our performance at the start of the holiday season, but given fewer shopping days between Thanksgiving and Christmas and an uncertain macro environment, we continue to plan the business prudently. Starting with full year 2024, we now expect revenues to be in the range of $10,452,000 to $10,487,000 This range represents growth of nine percent relative to 2023. Excluding the fifty third week that we have in the fourth quarter, we expect revenue to grow 7%. I'd also note that our revenue range now includes an incremental $20,000,000 of negative impact related to recent fluctuations in foreign exchange rates. We expect to open approximately 40 net new company operated stores in 2024, excluding Mexico and complete approximately 40 co located optimizations.

Excluding Mexico, we expect square footage to grow in the low double digits and including Mexico, we expect overall square footage growth in the low teens. Our new store openings in 2024 will include approximately 10 stores in The Americas, inclusive of two company operated stores in Mexico in Q4, with the rest of our openings planned in our international markets, primarily in China Mainland. For the full year, we now expect gross margin to increase approximately 10 to 20 basis points versus our adjusted gross margin in 2023. We continue to expect markdowns to be relatively flat with last year. Turning to SG and A for the full year, we now expect it to be 20 to 30 basis points higher versus 2023.

We're prudently managing our expenses while continuing to invest strategically into our Power of 3x2 roadmap, including investments in marketing and brand building aimed at increasing our awareness and acquiring new guests, investments to support our international growth and market expansion, and continued investment in technology infrastructure and data analytics capabilities. When looking at operating margin for the full year 2024, we continue to expect a decrease of 10 to 20 basis points versus adjusted operating margin in 2023, which expanded 110 basis points versus 2022.

full year 2024, we continue to expect our effective tax rate to be approximately 30%. For the fiscal year 2024, we now expect diluted earnings per share in the range of $14.08 to $14.16 versus adjusted EPS of $12.77 in 2023. Our EPS guidance excludes the impact of any future share repurchases, but does include the impact of our repurchases year to date. When looking at inventory, we continue to expect dollar inventory to increase in the mid teens in Q4. We continue to expect capital expenditures to be approximately $670,000,000 to $690,000,000 for 2024.

The spend relates to investments to support business growth, including a continuation for a multiyear distribution center project, store capital for new locations, relocations and renovations and technology investments. Shifting now to Q4, we expect revenue in the range of $3,475,000,000 to $3,510,000,000 representing growth of 8% to 10% or 3% to 4% excluding the fifty third week. This range includes the incremental negative $20,000,000 impact from foreign exchange I previously mentioned. We expect to open 18 net new company operated stores in Q4, including two in Mexico. We expect gross margin in Q4 to decrease 20 to 30 basis points relative to Q4 twenty twenty three.

The decrease will be driven predominantly by deleverage on fixed costs and our ongoing investment in store growth and our multiyear distribution center project. We expect product margin to increase 60 to 70 basis points inclusive of approximately 40 basis points of higher freight costs. We continue to expect markdowns to be slightly improved versus Q4 twenty twenty three. In Q4, we expect our SG and A rate to deleverage by 90 to 100 basis points relative to Q4 twenty twenty three. This will be driven predominantly by increased foundational investments and related depreciation and also strategic investments including those to build brand awareness to support future growth.

When looking at operating margin for Q4, we expect deleverage of approximately 110 to 130 basis points. Turning to EPS, we expect earnings per share in the fourth quarter to be in the range of 5.56 to $5.64 versus adjusted EPS of $5.29 a year ago. We expect our effective tax rate in Q4 to be approximately 29.5%. And with that, I will turn it back over to Calvin.

Thanks, Megan. As you can see from our results, our business continues to deliver across our international markets and we are pleased with the start to the holiday season in North America. Looking ahead, we are excited about the work underway across our product organization to create the pipeline of newness that guests expect from us, both in the near and long term. And as we build our brand awareness and continue to strategically expand globally, the opportunities in front of us are significant. As we head into the final weeks of the year, I want to thank our teams around the world who made these results possible.

I continue to be impressed by the agility and resilience of our teams who demonstrate why Lululemon is one of the enduring growth stories within retail. Thank you all for joining us. Megan and I look forward to taking your questions now. Operator?

Thank you. Our first question is from Alex Stratton with Morgan Stanley. Please go ahead.

Perfect. Congrats on a great quarter. Thanks for taking the question. I just wanted to focus on U. S.

Sales. It looks like they stabilized on a quarter over over quarter basis. So I'm just curious, do you view this kind of as a bottom for that geography and should it improve from here? And maybe thoughts on the longer term growth rate of that business? Thanks a lot.

Thanks, Alex. In terms of quarter three, as you mentioned, performance was what we had expected and our plan on our newness was equally on our expectations. In Q4, our newness is getting sequentially stronger. And as mentioned, we're off to a good start the holiday and happy with our regular price performance over the Thanksgiving weekend. We continue to see good response to newness from our guests and we're on plan to hit that historical number by quarter one.

And when I look at our guests, I'm happy with the absolute growth number. Our retention with our guests remains very strong and the opportunity remains, as I've spoken to in the past, revenue per guest related to newness. And when I look at brand awareness and our opportunities of category expansion, we still see growth in The U. S. Market and know that it's within our control and focused on the product decisions.

And that's what the team is focused on. And in terms of our power of three times two growth guidance numbers and our view of North America, nothing has changed.

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

Thank you. Good afternoon. Megan, can you talk about the reasons for

the mid teens inventory growth in the fourth quarter? How much of this is holding on to slower moving core versus chasing seasonal color and pattern? And how are you planning inventory for the first half of 'twenty five?

Thanks, Lorraine. So we came in at plus 8% at the end of Q3. We actually guided to the mid teens for inventory. And our view on Q4 hasn't changed. We're expecting to end Q4 in the mid teens growth rate.

I would say over the longer term, we aim to manage inventory in line with our sales growth. We are chasing into seasonal and munis. So definitely is impacting, I would say, our growth rate at the end of the year to set us up for our goal of reflecting the business and specifically The U. S. As we move into the first half of next year.

If you look at our inventory turns, they're pretty much in line with history, a little bit slower than history actually. So we feel well positioned as we move into Q4 and then into 'twenty five as well.

The next question is from Ike Boruchow with Wells Fargo. Please go ahead.

Hey, good afternoon. Let me add my congrats. Calvin, maybe just to piggyback on Alex's question, just comps are still negative, which is obviously not ideal, but your tone and your confidence on the trajectory of what's going on in the region sounds better. It sounds like the confidence is building. So maybe can you just maybe unpack some of the KPIs or whatever it is you look at that can kind of help us understand exactly why we should be confident that the negative comp trend will in fact inflect come next spring?

Okay. Thanks, Ike. The confidence is rooted in a few of the key data points that I have shared. All point to a guest who is still very engaged with our brand, remain very loyal and are reacting very well to the newness that the teams are delivering. And we know that that newness as a percentage of our overall assortment and mix is below our historical levels.

So when we see the newness, he and she is responding well to it. And seeing the work the team has been doing, the quality and quantity of that newness as a mix of our core assortment heading into Q1 of next year and through 2025 is where I get the confidence that we're back at this historical levels, that we have a guest that's still very much engaged in the brand and quite frankly is waiting for us to hit those historical levels. And we're seeing that through their spending pattern. Our overall guest growth has been strong. I'm pleased with it.

We now have over 24,000,000 members in our central membership program, and we're continuing to see very good matriculation per our plan of our younger recently acquired guests. And then it's the core guest that the team is very much focused on who's responding, but waiting for us to bring that newness, so she can continue to add to her Lululemon collection. That's what gives me the confidence. I truly believe it's decisions made with our product and we are addressing it with the new structure, the talent, the new talent and the team and feel good with what I see heading into 2025.

The next question is from Janine Strychter with BTIG. Please go ahead.

Hi. Thanks for taking my question and congrats on the progress. I want to ask a bit more on the women's business that picked up nicely from Q2, maybe a little bit more about what's going on there. And then I think you called out leggings, which is the first time we've heard that as a positive call out in a while. So just would love some more color around what's going on with the legging business and what we can expect for Q4 into next year?

Thanks, Janine. Our women's business globally and I'll start globally is performing very well, as is our men's as well as our accessories business. Really balanced growth globally. And we continue to see in all of our international markets, growth across all the categories, including our bottoms and our leggings business. In North America, particularly in The U.

S, because we saw very strong growth in Canada, the women's business and when we look at newness, again, we saw good growth. It's the missed historical levels of newness where we see that opportunity. When we look at the legging business, the bottom business and how she's responded to newness through color, prints and pattern, she responds very well. And we did gain share in both men's and women's globally as well as in The U. S.

In the premium activewear category. So we know that she is responding well to that newness and that's what the team is focused on to continue to bring. But we are seeing growth across those categories. And I just want to remind that when we talk newness, it is colors on top of our core colors and core franchises. It's not unseen, unproven newness.

We do bring that in as a percentage of our overall assortment, but a lot of what drives the newness and our guest responds to is the franchises, the silhouettes and the hero items that he and she loves, but bringing it through different colors and prints and trims and other ways in which we are adding newness to those that have always been a good driver of our business. And we've been at lower than historical levels and that's what the team is focused on in driving.

Thanks so much and good luck for holiday.

The next question is from Michael Binetti with Evercore.

Just a quick one on the model. The it looks like one of the key drivers of the gross margin in third quarter was lower inventory provisions. Would you just remind us how influential that could be in the fourth quarter? And then maybe just stepping back a little bit on the gross margin, unpacking a little bit more, maybe what's under the surface on the product margin? I think you said one of the big pieces there, Megan, was upside to the guidance was good control of fixed costs on the product side.

Is that I'm curious how sustainable that is with the high fixed cost base in North America and the negative comps in that market. Is that something that's as controllable in the fourth quarter? Or was there something unique to third quarter that let that be a bigger lever for you while the comps remain negative in your biggest market?

Great. Thanks, Michael. In terms of inventory provisions, so we provided for some inventory that sold through in the quarter and we've released some provisions. We're also lapping a higher comparison last year. We're not expecting to see big movement year over year in inventory provisions specifically when we move to Q4.

If we look at what drove our Q3 margin, 50 basis points was from product margin, it was from the lower provisions as you mentioned. We saw some benefit in higher IMU, partially offset by higher freight and then markdowns were flat. We did have a little bit of deleverage on fixed costs and then

favorability on FX, the 20 basis points deleverage on fixed costs, 10 basis points favorable on FX. When we look at Q4, we guided to a decrease of 20 to 30 basis points. In that, we are expecting a benefit in product margin of about 50 to 60 basis points of markdown slightly under last year and then offset partially by some deleverage on fixed costs with store growth in DC specifically on a little bit of a lower revenue trend.

The next question is from John Kernan with TD

most of us were over there with you back in October. Can you talk to what you're seeing on the ground in China both from a top line and margin perspective? I think in the first half of the year, the China segment contribution margin was in line with Americas. Just wondering how you're planning it for the

Yes. Thanks, John. So we've been really pleased and continue to be pleased with our China performance. So our China Mainland growth on a constant currency basis is 37% in Q2, '30 '6 percent in Q3. And we saw a positive impact from a bottom line perspective.

We are seeing really healthy operating margin expansion with revenue exceeding our expectations to a degree. I think as Brad mentioned before, it's not a region where we're looking right now to optimize operating margin. I'm really focused on driving our long term trend, but certainly see opportunity there over the longer term. And I think we'll put a final point on how we see the regions playing out as we get into March and then 2025. And then I would share we continue to be pleased with our China trends as we move into Q4.

And we do expect that we're not offering specific guidance by region China to be above 30% growth rate again in the quarter.

the world. It sounds like you're more confident in store openings in some new markets. Maybe talk to some of the investments you're making there and the confidence you have in those markets.

Yes. As I mentioned, plan for next year, which will be a known market is Italy. And then on the success of some of the markets with our franchise model, we'll be opening Denmark, Belgium, Turkey and Czech Republic through our franchise model and partnerships. And it really is the confidence we have in the brand momentum in every market we're in globally. And we continue to monitor markets and look for opportunities to expand.

We look for readiness in terms of obviously spending power, but also interest within the activities that we play into. So that sort of sweat readiness in these markets. And we know we're early in the markets we're in, both in terms of awareness and market share, and we want to continue to fuel and drive those. But these are markets that have definitely we've seen a nice progression and readiness for our business and our brand and want to continue to add to our international portfolio and build on that momentum we're seeing. As you know, I've spoken to our international business is performing incredibly well in every market we're getting pulled into markets versus pushing ourselves into.

And it's still a low percentage of our overall mix of revenue. And we're excited about continuing to drive it, grow it and see it representing a much greater percentage, the overall revenue of the company. And these market growths are just additions to that momentum that we see coming in 'twenty five and beyond.

The next question is from Matthew Boss with JPMorgan. Please go ahead.

Great. Thanks. So Calvin, could you elaborate maybe on the cadence of traffic in North America as the third quarter progressed and into holiday? And maybe just speak to new customer acquisition and also the start to holiday internationally?

In terms of traffic trends throughout the quarter, we don't actually disclose monthly traffic. But I'd say overall, there, Matt, we were pleased globally with traffic across both channels. And in terms of The U. S. Specifically, ecom channel remains positive and our stores were slightly lower than last year.

But The U. S. Did come in overall in line with our expectations for Q3. And as Calvin mentioned earlier, guest retention continues to be strong. The opportunity remains in revenue for guest as well as conversion.

And we've been pleased with the holiday period.

Yes. I'll just add. And I know it's been a few calls since we shared the membership number. And I'll remind you that 24,000,000 membership base, that is just North America. So we're really excited in terms of that number and that initiative as a driver of guest engagement retention.

We've recently added membership perks to it using some of our third party partners and studio players. So we're excited about continuing to build that out to drive engagement, loyalty and retention or being an additional factor. But guest growth in The U. S. And North America and obviously internationally has been good this year, and we're very pleased with that.

And internationally, holiday in general for us, we're pleased with the start. It's early. There's still a lot of the quarter ahead and we're on a shortened holiday period, but pleased with the start, pleased with the mix between markdowns and regular price. As you know, we really drive and will always drive our business through regular price through newness and innovation. Markdowns, we use as a means to clear out end of season, but pleased with the results and arguably a promotional period.

Lululemon athletica Q3 2025 Earnings Call Transcript | Fortune

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Lululemon athletica (LULU) Q3 2025 Earnings Call Transcript

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