Lorraine Hutchinson

Lorraine Hutchinson asked about the company's pricing strategy, specifically the customer reaction to recent price increases and the commitment to protecting opening price points, especially for the Urban Outfitters brand.

Answer

Tricia Smith, CEO of the Anthropologie Group, explained that price increases were strategic and targeted, resulting in little to no customer resistance. She affirmed the commitment to maintaining opening price points. Richard Hayne, CEO of Urban Outfitters, added that all brands are protecting opening price points and most price increases are likely behind them for the next year.

Lorraine Hutchinson asked about Urban Outfitters' pricing strategy, specifically the customer reaction to recent price increases and the company's commitment to protecting opening price points, especially for the Urban brand.

Answer

Richard Hayne, CEO of Urban Outfitters, and Tricia Smith, CEO of the Anthropologie Group, explained that price increases were strategic and not across-the-board, with little to no customer resistance. They emphasized a commitment to maintaining opening price points and pricing architecture, anticipating minimal further price increases next year.

Lorraine Hutchinson of Bank of America sought more strategic details on the execution of price increases to offset tariff pressures, asking if they would be applied across all brands or focused on higher-priced items.

Answer

Tricia Smith, Global CEO of Anthropologie Group, explained that Anthropologie will use gentle price increases where value permits, while protecting opening price points. Sheila Harrington, Global CEO of Urban Outfitters & Free People Groups, confirmed a similar strategy for Free People and Urban Outfitters, emphasizing the importance of the value equation and maintaining welcoming price points for consumers.

Lorraine Hutchinson questioned if Burlington sees any risk of losing market share due to a competitor's accelerated comps driven by increased marketing, in-store inventory, and store refreshes, and followed up on Burlington's Q3 pricing strategy and its impact on comp, as well as the Q4 pricing strategy.

Answer

Michael O'Sullivan (CEO) clarified that off-price retailers primarily gain share from non-off-price retailers, not each other, emphasizing Burlington's overall market share gains and the benefit of a healthy off-price sector. He described Burlington's pricing strategy as 'very careful,' avoiding price increases unless seen elsewhere and focusing on margin/expense offsets for tariffs, noting limited, successful tests of higher prices in Q3 and a potential for more aggression in Q4 depending on market and tariff rates.

Lorraine Hutchinson asked Michael O'Sullivan if Burlington sees any risk of losing market share given that an off-price peer is accelerating comparable store sales with increased marketing, in-store inventory, and store refreshes. She also followed up on Burlington's Q3 pricing strategy, its impact on comp, and the strategy for Q4.

Answer

CEO Michael O'Sullivan stated that Burlington views a strong off-price sector positively, as the company primarily competes with non-off-price retailers for market share, not just other off-price players. He emphasized Burlington's significant total sales growth as evidence of market share gains from the broader retail market. Regarding pricing, he reiterated a 'be very careful' strategy, avoiding retail price increases unless observed elsewhere and focusing on other margin/expense offsets for tariffs, which successfully grew margin and earnings in Q3. He indicated potential for more aggressive pricing in Q4 depending on market conditions and future tariff rates.

Lorraine Hutchinson of Bank of America asked for an update on sales trends among different demographic groups, particularly lower-income and Hispanic customers. She also inquired about the overall off-price merchandise availability and the extent of tariff-related cost pressure from vendors.

Answer

CEO Michael O'Sullivan described Q2 performance as broad-based, noting that stores in lower-income trade areas and high-Hispanic trade areas (excluding Puerto Rico and border stores) both performed slightly above the chain average. He confirmed that merchandise availability is currently 'very strong,' which enabled the company to chase the 5% comp. He reiterated that tariff cost pressure is real but was successfully offset in Q2 through aggressive actions, a strategy they will continue.

Lorraine Hutchinson of Bank of America asked about sales trends among lower-income consumers and other demographic groups, and questioned the significant increase in reserve inventory.

Answer

CEO Michael O'Sullivan stated that while the Q1 sales slowdown was broad, stores in lower-income and high-Hispanic trade areas continued to show relative outperformance. EVP & CFO Kristin Wolfe explained that the 31% year-over-year increase in reserve inventory was a strategic decision to purchase tariff-free, branded merchandise already in the U.S., providing flexibility and value for later in the year.

Lorraine Hutchinson questioned why the fiscal 2025 operating margin expansion guidance is more conservative than the initial 2024 guidance, given similar comp sales assumptions. She also asked about the impact of increased capital expenditures for distribution center purchases on the company's debt levels and share repurchase plans.

Answer

CEO Michael O'Sullivan explained that the company made faster-than-expected progress on margin improvement in 2024, achieving 100 bps of expansion versus the 10-50 bps guide. This was driven by exceeding sales plans and accelerating merchandise margin and supply chain savings. For 2025, the guidance reflects a more measured pace of progress. Executive David Glick addressed the CapEx question, stating that the increase is driven by the opportunistic purchase of the California DC. He noted that while they may evaluate raising debt, the impact on leverage ratios would be modest, and the company expects to continue its share repurchase program at levels similar to fiscal 2023 and 2024.

Lorraine Hutchinson questioned management on the health of the consumer, the evidence of trade-down traffic, and whether any unusual tailwinds boosted Q2 comps that might not persist.

Answer

CEO Michael O'Sullivan explained that a greater focus on value has spread across demographic groups, driving trade-down traffic. He also noted that pressure on the core low-income shopper has moderated, with their store performance now aligning with the chain average. He identified favorable weather as a significant tailwind, estimating it contributed 1-2 percentage points to the quarterly comp.

Lorraine Hutchinson of Bank of America asked if Burlington is seeing strength from lower-income consumers, similar to other retailers, and requested any other callouts on comp trends by demographic. She also questioned the drivers behind the 31% year-over-year increase in dollar terms for reserve inventory.

Answer

CEO Michael O'Sullivan confirmed that while the Q1 slowdown was broad-based, stores in lower-income and high-Hispanic trade areas continued to outperform the chain average, continuing a trend from 2024. He noted the one exception was a significant fall-off in performance at southern border stores. EVP & CFO Kristin Wolfe explained that the large increase in reserve inventory was a strategic move to acquire great deals on branded merchandise already in the U.S. to get ahead of tariffs, making it a key lever of flexibility.

Lorraine Hutchinson asked about the current level and content of Athleta's inventory and for a timeline on when sales for the brand might begin to stabilize.

Answer

Richard Dickson, President and CEO of Gap Inc., acknowledged disappointment in Athleta's trend, noting Brand President Maggie Gauger's efforts to reset the brand for long-term success through leadership team building, assortment editing, and consumer study. Katrina O'Connell, CFO, added that Athleta's inventory levels were lowered in Q2 and are aligned with the lower sales trend for Q3 and Q4, with prudence maintained until product and marketing improve.

Lorraine Hutchinson asked about the level and content of Athleta's inventory and for a timeline regarding when Athleta's sales might begin to stabilize.

Answer

Richard Dickson, President and CEO, acknowledged disappointment in Athleta's trend, noting Brand President Maggie Gauger is focusing on a long-term reinvigoration, building her team, editing assortments, and evaluating the customer experience. He stated it's a reset year with no specific sales stabilization timeline. Katrina O'Connell, CFO, added that Athleta's inventory levels were lowered in Q2 and aligned to lower sales trends for Q3 and Q4, with confidence in inventory quality but prudence until product and marketing improve.

Lorraine Hutchinson asked Jim Conroy to elaborate on how the branded strategy has driven comp acceleration over time and the remaining opportunity, particularly in the ladies' business.

Answer

Jim Conroy (CEO) detailed the sequential improvement in the ladies' business, which evolved from being a drag in Q4 2024 to comp-enhancing in Q3 2025. He sees 'a fair amount' of future opportunity, expecting outsized growth for the next three quarters and continued innovation in that part of the business.

Lorraine Hutchinson asked about the branded strategy as a key driver of comp acceleration, how its benefit has built over time, and how much more opportunity remains, particularly in the ladies' business.

Answer

CEO Jim Conroy explained that the ladies' business, which was a drag in Q4 2024 and flattish in Q1/Q2 2025, became "comp-enhancing" in Q3 2025, performing better than the chain average. He sees "a fair amount" of future opportunity, expecting outsized growth for the next three quarters until the anniversary of the investment, with continued innovation ideas.

Lorraine Hutchinson from Bank of America asked about the company's increased appetite for raising prices, how customers are responding, and whether price increases are expected to fully offset tariff pressures by the next fiscal year.

Answer

CEO James Conroy clarified that any price changes have been very modest, with a low single-digit change in AUR. He emphasized a cautious approach, stating Ross will monitor the broader retail landscape before making significant changes to maintain its value proposition. He anticipates that by next year, the market will reach a new price equilibrium, and the company will not need to call out tariff impacts separately.

Lorraine Hutchinson asked if enhancing the store environment and developing marketing would require a significant step-up in investment or could be accomplished within the existing margin structure.

Answer

CEO James Conroy responded that any investments would need to be prudent, either cost-neutral or justified by a proven ROI. He mentioned that the company has already been investing in upgrading the store fleet and will look to find funds to enhance marketing over time.

Lorraine Hutchinson asked for a quantification of the expected merchandise margin decline in the second half and whether additional operating efficiencies would be available to offset pressure into next year.

Answer

CFO Adam Orvos declined to quantify the second-half merchandise margin impact but stated it is expected to be greater than the 80 basis point decline in Q2. He identified domestic freight, distribution costs, and incentive costs as the primary offsets. Group President and COO Michael Hartshorn noted it was too early to discuss specific plans for 2025.

Lorraine Hutchinson asked if the new strategic plan requires more investment than initially anticipated, given the weaker underlying business, and how to think about 2026 margins considering these investments balanced with cost cuts.

Answer

CEO Daniel Heaf confirmed the core business was weaker than initially thought, masked by promotions and adjacencies, and stated that 2026 will involve significant investment in brand and product for long-term growth. CFO Eva Boratto mentioned targeting $250 million in additional savings over two years to fund these investments, acknowledging that deleverage will be a pressure until top-line growth is achieved.

Lorraine Hutchinson asked if the new plan requires more investment than initially anticipated and how to balance these investments with cost cuts to understand the 2026 margin outlook.

Answer

CEO Daniel Heaf confirmed that the comprehensive diagnostic revealed a weaker core, necessitating investment in the brand and product for 2026. He noted that teams are working to unlock $250 million in additional savings over two years to fund these investments. He acknowledged that deleverage is expected until top-line growth is achieved.

Lorraine Hutchinson asked about recent marketing changes focused on emotional connection over promotions, customer response, and the specific tariff impact in Q3 versus Q4.

Answer

CEO Daniel Heaf described practical marketing elevations, such as improved digital photography and using store windows for storytelling, which have been well-received by consumers. CFO Eva Boratto detailed that tariffs will have a disproportionate impact on Q3, representing a 240 basis point headwind ($40 million), compared to a 100 basis point impact in Q4, primarily due to the temporary 145% China tariff.

Lorraine Hutchinson inquired about new CEO Daniel Heaf's plans for marketing, the potential to accelerate global growth, and what new forms of distribution beyond the company's own channels might entail.

Answer

CEO Daniel Heaf explained his vision for marketing to be more emotionally resonant and less reliant on promotions, with a focus on product innovation and ingredient stories. Regarding international expansion, he sees a significant opportunity and plans to assess priority markets and business models. For distribution, he emphasized a strategic approach to reaching new consumers on new platforms where they already are, moving beyond the company's existing channels.

Lorraine Hutchinson from Bank of America asked if there were any categories or customer demographics where raising prices had been less successful for TJX. She also inquired about the company's agility in pivoting its pricing strategy if consumer pushback were to occur during the holiday season.

Answer

President and CEO Ernie Herrman stated that TJX had only one category where price adjustments were unsuccessful, leading to a quick pivot back to original pricing, indicating a 95% success rate overall. He emphasized the company's cautious approach to pricing, waiting for market trends, and closely monitoring selling data and value perception scores. CFO John Klinger added that TJX's fast inventory turn provides the flexibility to react quickly to market changes.

Lorraine Hutchinson inquired about specific categories or customer demographics where price increases have been less successful and the company's agility in pivoting if consumer pushback is observed during the holidays.

Answer

Ernie Herrman, President and CEO, stated that TJX's pricing strategy has been approximately 95% successful, with only one category requiring a pivot back to original price points. He emphasized the company's cautious approach, relying on actual sales data and constant monitoring of value perception scores. John Klinger, CFO, highlighted that TJX's rapid inventory turn provides the flexibility to react quickly to market feedback.

Lorraine Hutchinson asked if pricing was a significant factor in Q2 tariff mitigation and a driver of comparable sales, and also inquired about the customer's reaction to any higher price points.

Answer

CFO John Klinger stated that customer transactions continued to drive overall comps. CEO Ernie Herrman clarified that the primary driver of tariff mitigation was not raising prices but rather merchants capitalizing on excellent market opportunities to buy better. He also credited the planning and allocation teams for efficiently managing markdowns, which supported merchandise margin.

Lorraine Hutchinson asked for details on the composition of new customers by age and income level, and whether there have been recent changes or signs of trade-down.

Answer

CEO Ernie Herrman acknowledged a growing skew towards younger customers (18-34) but stressed the company's core competitive advantage is trading broadly across all age and income demographics. CFO John Klinger added that TJX saw positive performance across all income categories it tracks during the quarter.

Lorraine Hutchinson asked about the timeline for the abatement of pressure from Salomon's distribution pruning and the current status of Salomon's US brand awareness.

Answer

Guillaume Meyzenq, CEO of Salomon, indicated that the pressure from distribution pruning is expected to abate by the end of H1 2026, leading to a completely fresh and new distribution setup.

Lorraine Hutchinson asked about Salomon's distribution pruning efforts, when the associated pressure on sales is expected to abate, and the current state of U.S. brand awareness for Salomon.

Answer

Guillaume Meyzenq, CEO of Salomon, explained that the pruning of less relevant distribution channels, which has caused some negative building blocks, is expected to largely conclude by the end of H1 2026, leading to a completely fresh distribution setup. He noted that most of the changes have already been implemented.

Lorraine Hutchinson from Bank of America Corporation questioned the company's pricing strategy across its brands, asking about price increases being implemented to offset tariffs and the resulting customer response.

Answer

CFO Andrew Page stated that the company has implemented some price increases for the Wilson brand, approximately 10% on certain products, to mitigate tariff impacts. However, for the Arc'teryx and Solomon brands, he noted that while they possess 'untapped pricing flexibility,' they have successfully managed tariff pressures so far without needing to raise prices.

Lorraine Hutchinson asked about Nike's strategies for turning around the digital business in Greater China and the estimated cost and timeline for store refreshes in the region.

Answer

Elliott Hill, President and CEO, reiterated Nike's long-term commitment to China, focusing on leading with sport, innovative product, local assets, and improved storytelling. He acknowledged the promotional digital marketplace and the need for stronger operational execution in physical monobrand stores. Matt Friend, EVP and CFO, stated that significant investments were made to clean up inventory, but sustained sell-through improvement is crucial. He noted encouraging initial store pilots but indicated more work is needed before scaling, expecting China to remain a top-line and margin headwind for FY26.

Lorraine Hutchinson asked for an update on strategies to turn around the digital business in Greater China and inquired about the cost and timeline for store refreshes in the region.

Answer

President and CEO Elliott Hill reiterated confidence in the long-term China opportunity, driven by leading with sport and innovative product, including local-for-local offerings. He highlighted efforts to tell better stories with global and local athletes and elevate the overall marketplace. Elliott Hill acknowledged the promotional digital marketplace and structural differences, discussing testing new physical store concepts focused on operational strength and improved sell-through. EVP and CFO Matt Friend noted significant investments in China over the last three quarters to clean inventory, resulting in an 11% reduction. He stated that China would remain a top-line and margin headwind for FY26, but expressed encouragement regarding initial store pilots, which are outperforming the broader fleet, with plans to scale once performance targets are met with partners.

Lorraine Hutchinson of Bank of America focused on gross margin, asking if pressures are expected to abate sequentially and if there is a potential for gross margin to return to growth in the second half of the year.

Answer

CFO Matt Friend stated that margins will remain under pressure in the first half of fiscal 2026 due to 'WinNow' actions and tariff timing, but he expects the pressure to moderate in the second half. He noted the full-year gross margin will be impacted by about 75 basis points from tariffs, with a 100 basis point impact in Q1.

Lorraine Hutchinson inquired about the expected timeline for clearing out excess inventory of classic footwear franchises within both the wholesale and direct-to-consumer channels.

Answer

President and CEO Elliott Hill clarified the strategy is to "rightsize, not sunset" key franchises like the Air Force 1, Dunk, and Air Jordan 1, accelerating inventory cleanup to create space for a more balanced product portfolio. CFO Matt Friend added that by the end of Q4, these franchises' mix contribution will be down 10 percentage points, with further reductions planned for fiscal 2026. He specified that the wholesale channel cleanup will likely extend through the first half of fiscal 2026, though Air Force 1 inventory is already beginning to stabilize.

Lorraine Hutchinson asked about the receptivity of wholesale partners to NIKE's new product launches and their current sentiment regarding inventory levels in the channel for now and the upcoming spring season.

Answer

EVP & CFO Matthew Friend described partner engagement as 'very encouraging,' citing positive meetings in Paris and new collaborations like the women's fitness concept with DICK'S Sporting Goods and the HomeCourt concept with Foot Locker. He framed this as a return to a proven playbook of using sport to ignite growth across the marketplace, a strategy previously championed by incoming CEO Elliott Hill.

Lorraine Hutchinson of Bank of America requested an update on the bridal business, including plans to improve unit velocity and specific marketing strategies for the upcoming holiday season. She also asked about the results of recent pricing tests and the customer's reaction to any price increases.

Answer

Chief Operating & Financial Officer Joan Hilson noted that bridal performance is strong in the three largest brands (Kay, Zales, Jared), with AUR as a key strength. She mentioned fortifying lower price points to drive units. Hilson also detailed the success of pricing tests, which involved reduced discounting and fewer promotion days, particularly at Jared, with good customer response. CEO & Director J.K. Symancyk added that significant assortment newness has allowed them to maintain key price points despite commodity cost pressures.

Lorraine Hutchinson requested an update on the bridal business, including plans to boost unit velocity and specific marketing initiatives for the holiday season. She also asked about the results of pricing tests and customer reactions to price increases in fashion or bridal.

Answer

COO and CFO Joan Hilson expressed satisfaction with bridal performance in the three largest brands, highlighting AUR strength and stabilization/increase in natural diamond pricing. She noted efforts to fortify lower price points and focus on Kay's sales in Jared. On pricing, Joan Hilson and CEO J.K. Symancyk clarified that the strategy involves lower discounting, fewer promotional days, and modest mid-single-digit selective price increases on existing SKUs, with newness in assortments allowing for design and sourcing focus to maintain key price points.

Lorraine Maikis Hutchinson from Bank of America questioned the conservative full-year same-store sales guidance given the strong quarter-to-date performance, and asked about customer perception of lab-grown diamonds in engagement rings and the potential risk from falling prices.

Answer

COO & CFO Joan Hilson explained the prudent guidance reflects the dynamic consumer backdrop, despite positive Q1 trends in bridal recovery and AUR. CEO James Symancyk reframed the diamond strategy as defining specific roles for natural and lab-grown diamonds by brand to meet varied consumer needs. He emphasized a return to growth in natural diamond engagement and the importance of consumer education to build confidence.

Lorraine Hutchinson of Bank of America questioned if the price volatility of lab-created diamonds has altered customer perception, and whether this perception differs between the bridal and fashion jewelry categories.

Answer

CEO Virginia Drosos explained that declining lab-diamond prices have been a consistent story since 2019, leading to a more educated consumer. She stated that customers understand lab-created diamonds offer an opportunity to get a larger stone for the price but may not hold value like natural diamonds. Drosos confirmed the perception differs, with fashion customers using lab diamonds to add 'bling' affordably, which helps drive up average transaction values.

Lorraine Hutchinson of Bank of America asked for an update on the 'Other Revenue' line, noting that while it performed better than expected in Q2, the full-year guidance was lowered. She requested a 'state of the union' on the credit business.

Answer

CFO Jill Timm explained that the 'Other Revenue' guidance was lowered because the company will begin lapping the launch of its co-brand card in the second half of the year, diminishing that revenue benefit. She also noted that sales from the core credit customer are down in the low teens, which negatively impacts accounts receivable balances and associated revenue, contributing to the lowered outlook for the credit business.

Lorraine Hutchinson asked for details on the drivers of the projected 160 basis points of operating SG&A leverage in fiscal 2026 and the long-term potential for continued leverage, especially with a planned store rollout.

Answer

CFO & COO Scott Roe attributed the leverage to a 20 basis point benefit from the Stuart Weitzman divestiture, increased productivity and profitability of the existing store fleet, and disciplined corporate expense management. He noted the company continues to invest in strategic priorities like data and analytics while finding efficiencies elsewhere, creating a positive 'flywheel' effect.

Lorraine Hutchinson from Bank of America asked for potential guardrails around the financial impact of tariffs in fiscal 2026, following the company's guidance for an immaterial impact in fiscal 2025.

Answer

CFO and COO Scott Roe explained that while specific 2026 guidance is premature, Tapestry is actively mitigating tariff impacts by pulling inventory forward, optimizing its diverse supply chain, and collaborating with suppliers. He quantified the potential exposure, noting that a 10% tariff on the roughly $900 million of U.S. imports would be a $90 million unmitigated impact. Coach CEO Todd Kahn added that AUR growth is driven by compelling innovation and brand desirability, not just cost pass-through, providing another powerful mitigation lever.

Lorraine Hutchinson asked how the company balances the near-term success of powerful handbag franchises with ensuring the product pipeline is full of newness to drive future growth.

Answer

Todd Kahn, CEO and Brand President of Coach, explained that the strategy is not to replace successful platforms but to innovate within them. He cited the Pillow Tabby as an example that created a new opportunity while enhancing the original Tabby franchise. This approach of building on cohesive platforms, like the new New York family, creates a compelling and focused story for the consumer and ensures longevity.

Lorraine Hutchinson asked for a diagnosis of the reasons for Kate Spade's recent sales declines and inquired about the expected timeline for stabilizing the brand's performance.

Answer

CEO Joanne Crevoiserat stated that while the brand's foundation is healthy with expanding margins, the key opportunity is in amplifying product innovation with more effective brand building and storytelling. She highlighted the hiring of new CEO Eva Erdmann to sharpen strategy and execution. CFO & COO Scott Roe clarified that they do not expect revenue growth for Kate Spade in fiscal 2025 and that the current trend is expected to continue for the balance of the year.

Lorraine Hutchinson asked for VF Corp's longer-term outlook on gross margin and questioned which of its brands hold the most significant opportunity for margin improvement.

Answer

President & CEO Bracken Darrell reaffirmed the company's target of achieving a 55% gross margin, emphasizing that opportunities exist across all brands, especially through premiumization at The North Face and Vans. EVP & CFO Paul Vogel added that key initiatives in product creation, business planning, and markdown management are driving this, with markdown improvements already delivering results.

Lorraine Hutchinson asked about the channel mix for Vans, specifically the size of the value channel, its strategic importance, and the health of inventory across both value and non-value channels.

Answer

President and CEO Bracken Darrell clarified that the value channel constitutes about one-third of the Vans business and will remain an important component to serve a broad consumer base. He noted inventory health is good and that the non-value channel is expected to grow faster over time as the company actively shifts its store mix.

Lorraine Hutchinson asked for more details on The North Face's performance in North America, including trends by channel and feedback from wholesale partners regarding the winter season.

Answer

CEO Bracken Darrell stated it was too early to comment on the winter season's progress but expressed confidence in delivering on guidance regardless of weather, citing the significant internal improvements in go-to-market structure that are within the company's control.

Lorraine Hutchinson of Bank of America asked for elaboration on how younger customers are interacting with the intimates category differently and the resulting impact on AURs, margins, and attachment rates.

Answer

CEO Hillary Super explained that younger consumers prioritize comfort and versatility, leading to a shift from traditional bras to sports bras, wireless styles, and bra tops. CFO Scott Sekella added that while sports bras carry a lower margin than traditional bras, the overall impact on the total business margin is minimal given the relative size of the categories.

Lorraine Hutchinson of Bank of America inquired about the product newness cadence for the second half of the year, particularly concerning the launch schedule for Torrid's new sub-brands.

Answer

CEO Lisa Harper outlined the upcoming sub-brand launches, with 'Lovesick' targeting a younger demographic debuting in August and 'Studio Luxe,' a higher-end concept, launching in September. She also noted that the delivery frequency for existing sub-brands like Festi and Belle Isle will increase to a monthly basis by the fourth quarter.

Focused on the high SG&A rate in the second quarter, asking if it reflects a change in investment strategy or is simply a matter of timing.

Answer

The high Q2 SG&A is due to a combination of factors including a tough comparison to last year, increased foundational and strategic investments, and the timing of adding back expenses like store labor. The full-year guidance shows a much smaller deleverage, indicating the Q2 impact is outsized and related to timing.

Lorraine Hutchinson questioned whether the full-year guidance assumes any improvement from the soft Q1 traffic in North America and if the company might increase marketing to stimulate demand.

Answer

CFO Meghan Frank stated that the outlook for the rest of the year reflects trends similar to those seen in Q1. CEO Calvin McDonald added that while they are always testing marketing effectiveness, they are pleased with the current guest response and have major campaigns planned, such as the Align franchise's 10th-anniversary celebration, within the existing guidance parameters.

Lorraine Hutchinson inquired about the drivers behind the mid-teens inventory growth forecast for the fourth quarter, asking how much is due to holding core items versus chasing new seasonal products, and about inventory plans for the first half of 2025.

Answer

CFO Meghan Frank explained that while Q3 inventory growth was lower than guided at 8%, the forecast for Q4 remains in the mid-teens. She noted this is intentionally driven by chasing seasonal newness to position the business, particularly in the U.S., for the first half of 2025. Frank added that while the long-term goal is to align inventory with sales growth, current inventory turns are only slightly slower than historical levels, and the company feels well-positioned.

Lorraine Hutchinson, using the name Lorraine Maikis, asked if Lululemon could accelerate the introduction of newness into the women's assortment in the second half of 2024 and whether the current guidance incorporates any benefit from such an acceleration.

Answer

CEO Calvin McDonald confirmed that the action plan includes chasing strong performers and fast-tracking designs, which will lead to a sequential improvement in newness through Q3 and Q4. However, CFO Meghan Frank specified that the second-half guidance is based on Q2 trends and does not factor in any meaningful positive impact from this accelerated newness, positioning it as a potential upside.

Lorraine Hutchinson of Bank of America inquired about the factors driving the flat merchandise margin in the first quarter and which brands or strategies are expected to contribute to margin upside for the remainder of the year.

Answer

CFO Katrina O'Connell clarified that while underlying merchandise margin was flat, total gross margin expanded 60 basis points due to ROD leverage. For Q2, she noted a year-over-year decline is expected due to lapping a prior-year credit card benefit. For the full year, she reiterated guidance for slight gross margin expansion, driven by both ROD leverage and merchandise margin improvement.

Lorraine Hutchinson of Bank of America inquired about the specific factors driving the flat merchandise margin in the first quarter and which brands or strategies are expected to contribute to margin expansion for the remainder of the year.

Answer

CFO Katrina O'Connell clarified that the Q1 gross margin expansion of 60 basis points was driven entirely by ROD leverage, with underlying merchandise margin remaining flat. For Q2, she noted the year-over-year decline is due to lapping a significant credit card benefit from the prior year. For the full year, she reiterated guidance for slight gross margin expansion, driven by both merchandise margin and continued ROD leverage.

Lorraine Hutchinson asked if the trend of younger customers preferring in-person shopping was continuing to build and whether this was a global phenomenon.

Answer

President of Americas David Kahan confirmed that the trend appears to be global. He attributed this to younger consumers' tendency to shop 'live' and the importance of the tactile, in-person experience with the Birkenstock brand, especially for first-time buyers.

Lorraine Hutchinson from Bank of America asked about the company's strategy for handling potential U.S. tariffs, specifically what levers it would consider and if it planned to use pricing to offset the impact.

Answer

President, EMEA Nico Bouyakhf explained that since final assembly is in Germany, the company would only be impacted by tariffs on German imports. He noted that Birkenstock has historically been able to take pricing to offset such pressures without impacting the business. The company will monitor the situation and use a combination of cost initiatives and pricing adjustments to mitigate any impact, while also acknowledging the potential indirect effects on consumer sentiment.

Lorraine Hutchinson asked about the long-term potential sales mix for the APMA region and the company's progress in establishing the necessary distribution and partnerships to support that growth.

Answer

CSO Klaus Baumann stated the long-term plan is for the APMA region to represent about 30% of total sales, growing at double the speed of mature markets. He highlighted progress with partners in China and a focus on B2C development, with 25 owned and 256 partner stores now in the region. CEO Oliver Reichert added that the growth strategy is balanced across all of APMA, not just China, to ensure mindful expansion.

Lorraine Hutchinson asked if FIGS is observing any early pricing changes from competitors due to tariffs, whether the company has an advantaged sourcing position, and if it can leverage the volatile environment to take market share.

Answer

CEO Trina Spear stated that FIGS is actively using the current situation to take share and widen its competitive moat, leveraging its scale, brand, and supply chain advantages. She noted that while a few very small competitors have raised prices, it is not a widespread trend. Spear emphasized that the tariff environment will be a challenge for other companies, creating an opportunity for FIGS to solidify its leadership position.

Lorraine Hutchinson inquired about marketing spend, asking if savings from lapping the Olympics campaign would be reinvested or lead to leverage, and where incremental investments would be focused.

Answer

CFO Sarah Oughtred confirmed there would be some rate leverage, but not to historical levels, as a portion will be reinvested. She specified investments would target top-of-funnel brand building, digital personalization, international localization, and building teams for growth channels.

Lorraine Hutchinson from Bank of America inquired about the new products launched in Q1 at IL MAKIAGE and SpoiledChild, and asked for details on the product pipeline for the upcoming months.

Answer

Global CFO Lindsay Drucker Mann highlighted the importance of product innovation for driving conversion and repeat sales. She noted a new neck cream for IL MAKIAGE launching in Q1 2025, along with other items like liquid magnesium and eye creams in the pipeline. CEO Oran Holtzman added that the company's typical cadence is to launch around five new products per brand each year.

Lorraine Hutchinson noted a change in the full-year 2025 marketing expense guidance from 15-16% previously to approximately 15% now, and asked for the drivers behind this improved outlook.

Answer

CFO Jesse Timmermans explained that the updated, more favorable guidance was a direct result of the 'continued efficiencies' the company is observing in both its brand and performance marketing channels, which increased their confidence in maintaining a lower spend ratio.

Lorraine Hutchinson of Bank of America asked for more context on the gross margin miss, questioning if it was due to a fashion miss or excess inventory, and what underpins the confidence in a return to gross margin growth in 2025.

Answer

CFO Jesse Timmermans clarified the issue was not widespread but was caused by deeper markdowns on existing markdown inventory, stemming from heavy inventory at REVOLVE and clearing older stock at FWRD. He expressed confidence for 2025 due to continued full-price strength, significant margin recovery potential at FWRD, and the expansion of higher-margin owned brands starting mid-year.

Lorraine Hutchinson of Bank of America inquired if the full-year guidance includes a gross margin impact from tariffs beyond what has already been incurred and how quickly the company can reduce its direct import exposure to China.

Answer

CFO Robert Helm confirmed the 40% gross margin guidance for the year assumes current tariffs remain in place. He noted that Ollie's has already taken steps to mitigate the impact, including reducing its exposure to China from approximately 15% of imports in the past to an expected 10% this year, leveraging its flexible buying model.