Lululemon Athletica Earnings Call NUGGETS: Inventory Flows, Fashion vs. Basic

On Friday, Lululemon Athletica, Inc. (NASDAQ:LULU) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Inventory Flows

Sharon Zackfia – William Blair: Just one kind of combined question, I don’t think inventory flow came up in the prepared comment. So, if you could talk about inventory flows in the quarter and how that impacted your sales? Then as we look at the third quarter, are we going to see similar kind of inventory flow constraints?

John E. Currie – CFO: Inventory flow continues to be what seems to drive our sales. In the start of the quarter, it was a bit choppy, in early May, ticked up and ebbed and flowed through the quarter. In the quarter July was our strongest month because inventory flow was stronger. I mean that will always continue to be very short term factor within each quarter.

Fashion vs. Basic

Adrienne Tennant – Janney Capital Markets: Christine, can you talk about the fashion versus basic, the transition to that, where you are now and sort of where do you think – at what point you think that balance of products will start to be where you want it to go forward for the longer term? Just really quickly clarification John, you said that the 29.5% would be through the end of the year, but then you had made a comment that it was through Q1. Should we also use 29.5% for Q1 and then go back to 36.5% for Q2, 3, 4 of ’13?

John E. Currie – CFO: I am sorry I should clarify. This adjustment is ongoing long term. And I (don’t want) to quantify it by saying there are other factors that cause minor fluctuations in our tax rate, next year – and I not giving next year guidance yet, but income will shift a little bit more towards the U.S., so that 29.5% next year is likely to be more like 30%, but the benefit that we are seeing is ongoing.

Christine Day – CEO: I think to answer your other question, I want to be really, really clear that first thing that we always do is put the beautiful details into our core basics, and technical athletic apparel, and it’s that ability to then crossover into the active wear, casual wear and that we’re always looking to do, it’s transformable clothing. So I want to be really clear that we aren`t shifting the brand to fashion. It’s always technical apparel first and what we believe we do better than anyone in the world is create such beautiful athletic products that it can be used for multipurpose and it’s always that transformability whether we are doing it in cycling or we are doing it in commuting or anything else, but we are always exploring is the way that you make function with beautiful detailings become fashion.