Melissa McKay – Investor Relations Christine Day – President and CEO John Currie – Chief Financial Officer Sheree Waterson – EVP, General Merchandise and Production Manager Delaney Schweitzer – EVP of Stores Deanne Schweitzer – Head, Strategy and E-Commerce

Michelle Tan – Goldman Sachs Paul Alexander – Bank of America/Merrill Lynch Tracy Kogan – Credit Suisse Edward Yruma – KeyBanc Liz Dunn – Thomas Weisel Partners John Morris – BMO Capital Janet Kloppenburg – JJK Research Chi Lee – Morgan Stanley Claire Gallacher – Capstone Investments Richard Jaffe – Stifel Nicolaus Howard Tubin – RBC Capital Markets Taposh Bar – Jefferies Jennifer Black – Jennifer Black & Associates Kristine Koerber – JMP Securities Laura Champine – Cowen and Company

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Lululemon Athletica First Quarter 2010 Results. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to introduce your host for today, Ms. [Melissa McKay]. Ma’am, please go ahead.

Good morning. Thank you for joining Lululemon Athletica’s conference call to discuss first quarter 2010 results. A copy of today’s press release is available on the Investor Relations section of the company’s website at www.lululemon.com or furnished on Form 8-K with SEC available on the commission’s website at www.sec.gov. Today’s call is being recorded and will be available for replay for 30 days shortly after the call in the Investor Relations section of the company’s website. Hosting today’s call is Christine Day, the company’s President and Chief Executive Officer; and John Currie, the company’s Chief Financial Officer. Before we get started, I would like to remind you the company’s Safe Harbor language. Statements contained in this conference call which are not historical facts may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual future results might differ materially from these projected in such statements due to a number of risks and uncertainties, all which are described in the company’s filings with the SEC. Now, I’d like to turn the call over to Christine Day, Lululemon Athletica’s Chief Executive Officer.

Thank you, Melissa. Good morning, everyone. And thank you for joining us to discuss our first quarter results. With me today are John Currie, our CFO; Sheree Waterson, our EVP, General Merchandise and Production Manager; Delaney Schweitzer, our EVP of Stores; and Deanne Schweitzer, Head of Strategy and E-Commerce. Following my opening remarks, I’ll turn the call over to John, who will go through the financial details of the quarter. We are very pleased with our first quarter results, as our momentum from the fourth quarter continued into 2010. Our comparable store sales were 35% for the quarter on a constant dollar basis and we delivered $0.27 in diluted earnings per share. This was our company’s best ever first quarter, as we were able to generate very strong same store sales growth in both the U.S. and Canada. In the first quarter, we saw our trailing 12-month average sales per square foot reach $1,428, an improvement from last quarter’s $1,318. All age classes are comping positively with our 2008 U.S. age class leading the way. We also added incremental profits from our e-commerce business, leveraged our strategic investments in infrastructure and managed our inventory and our margins for a strong flow-through of earnings. We believe we took the right amount of inventory risk to drive sales and used our rapid response strategies to respond to incremental sales opportunities. Our inventory levels now match sales trends with opportunities to continue to refine channel allocation to e-commerce and to chase smaller sizes to meet market demand. Our yoga and run lines continue to lead sales demand as well as strong growth in equipment and accessories. As discussed previously, we work toward a target profile of at least 50% gross margin and 20% operating margin, and as you can see we have achieved these targets in the first quarter. As a growth company, we will continue to make strategic investments to protect our iconic items such as the Hoodie, while scaling our infrastructure and people capacity as part of managing our brand and business model. As you have seen in the past quarters, we have made these investments while keeping the overall business model at a relatively stable level, near or long-term targets. As we strategically manage our brand and business for the long-term, from quarter-to-quarter there will be incremental flow-through or occasionally contractions in gross margin or operating margin. The flow-through this quarter was very strong due to a combination of market factors, such as strong demand for our product, leverage on sourcing, limited markdowns and timing of investments towards the back half of the year, as well as, leverage on stronger sales. Looking forward, we do see some sourcing pressure from materials and labor costs and reductions in out of stock. Turning to revenue growth, our first priority remains growing existing stores. Our second is e-commerce and our third is new store openings. We have opened four stores in the first quarter in North America. We have also opened 14 showrooms in Q1 and will open 30 more between Q2 and Q3 for 44 new showrooms being added this year to the 14 existing at the end of 2009. We have closed one in St. Louis, upon the opening of our new store in the same market. We continue to be very excited about our e-commerce opportunity. Our direct-to-consumer business is now 6.6% of our revenue and a key growth vehicle for the company. We are investing an additional site performance and online community web strategies in the second half of the year, as well as, additions to our merchant and planning team to ensure better inventory flow to this channel. We are on track to achieve our stated objective of 10% to 12% of sales. Our new distribution center in Sumner, Washington, is up and running in parallel and will begin deliveries to our U.S. stores next week. It will support all of our channels of business in the U.S., retail, e-commerce and strategic sales. As announced in earlier press release, we are now the majority shareholder in our Australian business. While this is not material to earnings, it is a great opportunity to test our ability to grow and support a strategic international expansion as one of our longer term growth opportunities. We are very fortunate to have David Lawn, the former CEO of Rip Curl as our CEO in the market. He and his team have done a great job building our brand in this key athletic market. So while it was a great quarter, we were not perfect. Going forward, we can do an even better job flowing product to a multi-channel business especially our e-commerce channel. We also delayed showroom openings to divert product to our retail stores and to secure the right locations. And while we have made strong progress in our system and people capacity, we are still at the early stages of building the infrastructure for a multi-channel business that is responsive and nimble as we need to be to outperform in today’s macro-environment. So it is now my pleasure to turn the call over to John to go through the details of our financial results and give you our outlook for the second quarter. John?

Thanks, Christine. I’ll begin by reviewing the details of our first quarter 2010 results and then I’ll update you on our outlook for the second quarter and the full fiscal year 2010. For the first quarter of fiscal 2010, total net revenue rose 69.3% to $138.3 million from $81.7 million in the first quarter of 2009. The increase in revenue is driven by comparable store sales growth of 35% on a constant dollar basis, boosted in particular by strong momentum in our 2008 age class of U.S. stores. The addition of 11 new corporate-owned stores and three franchise stores in Australia since Q1 of 2009, e-commerce sales which increased revenues by $8.1 million and a stronger Canadian dollar which had the effect of increasing reported revenues by $13.5 million or 11%. During the quarter we opened four corporate-owned Lululemon stores. We ended the quarter with 128 total stores versus 114 a year ago, 114 of which are corporate-owned and 14 which are franchises, including the nine in Australia. There are now 97 stores in our comp base, 38 of those in Canada and 59 in the United States. Corporate-owned stores represented 83.6% of total revenue or $115.6 million versus 89.3% or $72.9 million in the first quarter of last year. Revenues from the direct-to-consumer channel, which includes e-commerce and phone sales totaled $9.1 million or 6.6% of total revenue versus $0.9 million or 1.1% of total revenues in the first quarter of last year. Other revenue which now includes franchise as well as wholesale, showrooms and outlets, totaled $13.6 million or the remaining 9.8% of revenue for the first quarter. Gross profit for the first quarter was $74.4 million or 53.8% of net revenue, compared with $35 million or 42.9% of net revenue in Q1 of 2009. The perfect storm of factors contributing to this 1,090 basis point increase in gross margin included the following. Merchandise margin improvement of 480 basis points, which was driven by improved product costing on our spring merchandise and strong sell-through, which resulted in very low markdowns, leverage on non-merchandise costs such as occupancy, depreciation and product and supply chain team costs contributed 410 basis points of improvement, and foreign exchange improvement of 200 basis points due to a stronger Canadian dollar. SG&A expenses were $41.9 million or 30.3% of net revenue, compared with $25.2 million or 30.8% of net revenue for the same period last year. The SG&A dollar increase is due to a natural increase in store labor and operating expenses associated with new stores, showrooms, outlets and growth at existing locations, an increase in administrative costs and service provider fees associated with our e-commerce website, higher legal fees associated with employment matters and legal settlement costs, an increase in professional fees and other corporate head office costs as we reinvest into our support functions in response to the increase in demand, higher management incentive based compensation and finally, a strengthening Canadian dollar, which increased our reported SG&A by $3.5 million. Nonetheless, we were able to achieve a 50 basis point reduction in SG&A as a percentage of revenue, contrary to our expectation when giving guidance for the quarter that we would see SG&A deleverage as a percent of revenue against Q1 2009. This was largely due to leverage gained through improved store productivity, delay in timing of new showroom pre-opening costs and some delay in new hires in support functions at the store support center. As a result, operating income for the first quarter was $32.5 million or 23.5% of net revenue, compared with $9.9 million or 12.1% of net revenue a year ago. Tax expense for the quarter was $13 million, recorded at a rate of 40% versus 34.4% in 2009 and our previously expected tax rate of approximately 35%. Our strong operating performance has resulted in the continued accumulation of significant undistributed earnings in our Canadian operating subsidiary. Accounting rules require an additional tax expense to be accrued to reflect the future tax which may be incurred if and when excess funds are repatriated to the parent company by way of dividends. As we discussed on our last call, we’ve been reviewing our tax rate assumptions in light of this potential additional future tax. While we are comfortable with the taxes accrued on our accumulated Canadian earnings through fiscal 2009 and we continue to investigate planning opportunities, which could reduce or eliminate this additional tax on future earnings as well, we’ve decided to take a conservative stand and increase our tax rate to 40% for 2010 commencing in Q1 to account for this potential future tax. Net income for the quarter reflecting this higher tax rate was $19.6 million or $0.27 per diluted share. This compares with net income of $6.5 million or $0.09 per diluted share for the first quarter of 2009. Our weighted average diluted shares outstanding for the quarter were $71.6 million versus $70.3 million a year ago. Turning to the key balance sheet highlights, again this quarter we generated strong positive cash flow and ended the quarter with cash and cash equivalents totaling $173.6 million. We continue to have a healthy working capital position and no debt. Inventory at the end of the quarter was $50.8 million, which was $6.1 million or 13.7% higher than at the end of the first quarter in 2009. This inventory level is more in line with our expected sales productivity and should support our planned growth in the second quarter with less reliance on our rapid replenishment strategies. Capital expenditures were $5.9 million in the quarter, resulting from new store build-outs, existing store renovations and IT capital expenditures. Now I’ll turn to our outlook for the second quarter. This outlook assumes a Canadian dollar at $0.95 U.S., compared to an average exchange rate of $0.88 in Q2 of 2009. Also as previously announced, the acquisition of a majority interest in our Australian licensees will result in the full consolidation of the Australia results in our financial statements commencing from the May 12, 2010 date of acquisition. On acquisition, we operated nine stores and four showrooms in Australia and the operation is expected to be slightly profitable in 2010, although not material to our overall results. The second quarter, we anticipate net revenue to be in the range of $140 to $145 million. We expect comparable store sales percentage increase in the mid 20s on a constant dollar basis compared to the second quarter of 2009. After opening four stores in the first quarter, we expect to open one in North America in the second quarter, that being The Grove at Shrewsbury in New Jersey. In addition, we already opened one additional store in Australia in the second quarter. We expect gross margin as a percentage of sales to improve over Q2 2009, as we continue to benefit from leverage of strong sales productivity, as well as, improved product costing and favorable impact from currency. However, overall we expect some gross margin compression compared to Q1 2010 with the key differences being the anticipation of a return to more normalized markdown rates in the second quarter, as we have successfully increased our inventory levels to be more able to satisfy expected guest demand, a seasonal shift in the latter part of the quarter towards the lower margin fall product assortment and investment to add depth and additional talent to the product themes in the second quarter. Turning to SG&A, even with our expected strong revenue for the quarter, second quarter SG&A as a percentage of sales is expected to deleverage against 2009 second quarter due to a number of factors. Incremental showroom operating costs and pre-opening costs incurred approximately 30 showrooms that we anticipate opening in the second and third quarters, administrative costs and service provider fees associated with our e-commerce channel, the inclusion of Australian head office costs and a stronger Canadian dollar which will increase reported SG&A costs both at Canadian stores and at our store support center in Vancouver. Assuming our adjusted tax rate of 40% as discussed earlier and 72.1 million diluted weighted average shares outstanding, we expect earnings per share in the second quarter to be in the range of $0.21 to $0.23 per share. So looking now at our outlook for the full fiscal 2010, we currently have 12 new stores confirmed in North America with the possibility of up to 15. In addition, we expect three new stores in Australia this year, including the one which already opened in Q2. Our outlook assumes that comps in the second half of the year will begin to moderate as we lag the stronger results we experienced as 2009 progressed and for the year we expect our overall comp to increase in the mid-teens. We now expect net revenue for the year to be in the range of $620 million to $635 million. For gross margin, we expect margin compression compared to Q1. For the full year, productivity leverage and efficiency in distribution and logistics will be partially offset by higher markdowns as we have returned to more balanced inventory levels, further investment in the product teams that support growth and execution, and in the latter part of the year, higher product costs due to inflationary pressures on fabric, labor and transportation. For SG&A, we expect some deleverage during the back half of 2010, as we will partially reinvest the strong operating profit flow-through from the first half to build our platform to support our long-term growth trajectory. SG&A for the year will also be impacted by the factors mentioned with respect to Q2, including showroom openings, e-commerce service provider fees and Australia G&A costs. We will also incur some one-time costs associated with our plan to move in Q3 to a consolidated premises to held our head office or our store support center, which is presently split between two locations in Vancouver. For those of you who have visited our modest premises here, you’ll be pleased to hear that our new location will be equally modest. However, we expect to incur approximately $1.4 million in moving costs, write-off of improvements at our existing space and a double up of rent during a short period of overlap. We continue to expect capital expenditures to be between $27 and $30 million for fiscal 2010, reflecting new store build-outs, renovation capital for existing stores, IT and other head office capital. Overall we expect 2010 fiscal year earnings per share to be approximately $1.05 to $1.10, which now assumes the 40% tax rate versus our previous guidance that had incorporated a 35% tax rate. This is also based on 72.2 million diluted weighted average shares outstanding. With that, I’ll turn it back to Christine.

I’d just like to add that we’re very pleased with these results and we couldn’t have this be possible for the organization without the extreme dedication that we see every day on our frontlines from all of our educators, our store managers and the passionate people we have at the support center. And with that, we’re going to open it up to questions.

(Operator Instructions) And our first question comes from the line of Michelle Tan of Goldman Sachs. Michelle Tan – Goldman Sachs: Thanks. Hey, Christine, I was wondering if you could give us any early learning’s from the showrooms. I know, it’s really recent as far as the timing but any kind of clues as to the brand’s level of resonance across different markets and any markets that you’re particularly excited about out of the gate with some of these openings? And then John, a quick question on the tax rate. Should we be thinking about 40% of the ongoing rate beyond 2010 as well? Thanks.

Let me just take that one quickly. Yeah, you should be modeling 40% going forward.

I think on the showroom strategy, we’re very excited. Both in the openings that we saw this year, which have been very strong openings for the stores which tells us we’re very much on track with that strategy and overall the whole portfolio is exceeding our expectations in terms of sales, particularly on the community side. There are a few we’re learning but we’re testing three different models, stimulating existing growth in markets, testing new markets. So you have a little bit of varied performance based on the different models for showrooms but overall, we are very pleased that it’s such a safe way for us to test market opportunities, test our managers and make sure that we’re really ready when we open that store. So it’s exactly on strategy and producing those results. Michelle Tan – Goldman Sachs: Great. Thanks and good luck.

Thank you. And our next question comes from the line of Lorraine Hutchinson of Bank of America/Merrill Lynch. Paul Alexander – Bank of America/Merrill Lynch: Hi, thank you. This is Paul Alexander for Lorraine. Could you guys give us a little more color on what you’re seeing for product costing? We heard about cotton prices increasing. How much of your product is cotton and what’s happening with prices for synthetic fabrics and what are you seeing with our cut made cost and labor and such?

This is Sheree Waterson. We are seeing an increase in cotton pricing. We’re seeing an increase in nylon and there’s also Chinese labor which has gone up a bit. There have been, prior to these mitigation strategies that we’ve been employing to really minimize the impact on the margins there. So everything from further leveraging and smart planning of our raw materials to actually diversification of our supply base, so that we are manufacturing in some lower cost countries at this point. Paul Alexander – Bank of America/Merrill Lynch: Thank you.

You bet.

Thank you. And our next question is from the line of Paul Lejuez of Credit Suisse. Tracy Kogan – Credit Suisse: Thanks. It’s Tracy Kogan filling in for Paul. I have question on your e-commerce business. I was wondering how the performance of the business has been different in different geographies and do you find it’s performing best in areas where you have a store or you just opened a showroom or where you don’t have a store? And has it helped you determine future locations for stores? Thanks.

This is Deanne. And basically, yeah, to all of the above. So we do see our sales populated definitely around our brick and mortar. And when we open up a showroom, again we see our sales pop up in that area. So our brick and mortar and e-commerce are working together exactly how we expected. Tracy Kogan – Credit Suisse: Isn’t it helping you in locating future stores?

Yeah. Definitely, so -- yeah, definitely. We watch it every week and in -- what am I going to say, piece of the pie, along with the showrooms. So they are both giving us an indication as to where we should head with our real estate strategies. Tracy Kogan – Credit Suisse: Great. Thanks. And you guys also mentioned you’re testing three different showroom models. Could you give a little more information there?

So we see longer term brand-new markets where we might be open for a couple of years, so that would be part of our new market entry strategy. Then looking at extensions, specifically we’re going to put an additional store in a market. And then some are in those hip little urban communities that we might not target opening a store but they’re really critical to the brand strategy for attracting that target guest and increasing our reach in a market area. Tracy Kogan – Credit Suisse: Great. Thank you.

Thank you. And our next question comes from the line of Edward Yruma of KeyBanc. Edward Yruma – KeyBanc: Thanks very much and congratulations on a nice quarter.

Thanks, Ed. Edward Yruma – KeyBanc: Can you talk a little bit about -- you indicated that inventory was -- you’re more comfortable with our current in stock levels. At this point going forward, should we expect inventory to increase at the same rate of sales and then secondarily in terms of the gross margin impact from not doing -- not chasing inventory, what kind of lift does that give you? Thank you.

I think answering the first question, as I said, we’re comfortable with our inventory level at the end of Q1, being -- closer to being in line with our expected sales for Q2. So the answer to your question is yeah. Increases in sales would match increases in revenue or in inventory ideally going forward. In terms of gross margin, you’re right. Being more in stock does mean that we’re more likely to have more markdowns, as I said. There is a partial offset because we won’t be employing chase strategies to the same extent. It will be too granular to give you precise guidance on that but I would say the markdown impact is greater than the savings from not chasing. So net-net, there’s some deleverage on gross margin. Edward Yruma – KeyBanc: Got you. Thank you.

Thank you. And our next question comes from the line of Liz Dunn of Thomas Weisel Partners. Liz Dunn – Thomas Weisel Partners: Hi. Good morning. Let me add my congratulations. My question related to the new distribution center. You mentioned, I believe it was supposed to open at some point in May. You mentioned that some of the employee costs were delayed. Can you just give us an update on that?

It actually has been running in parallel and officially starts shipping to all of the stores on this coming Monday. So it’s up and running and I think we’re through the double costing of having the outsource plus the -- getting ready for the new. So we’ll be turning that over next week, winding down our existing partnership and be ready to go for the rest of the year. We are very excited about having that up and running. Liz Dunn – Thomas Weisel Partners: Okay. And then just one follow-up question on inventory. Having the online business, is it giving you any better visibility as to where you need to be in terms of stock-outs because I would imagine you get better data as to where you’re not in stock?

Yeah. What we found is it, there is a difference between what guests buy online and what they buy in the stores. And I think there’s a combination of factors in there. We have guests that shop both and then we do see some of what they’re really looking for and we do see what the hot items are. Actually, we learn more about that on Facebook and through social media, what are the guests really screaming for. And so we actually use that I think to get a little bit more indication. As we talked about and I think it was in the last call, what we’ve really seen by the addition of the run line is it’s really shifted our guest size profile down to the smaller sizes because we’re attracting a more athletic fit guest, which is perfectly in line with our target and we’ve now adjusted a lot of our buys. And in terms of allocating to the stores, you can have an aggregate number right or even to e-commerce but be wrong between the two markets of Canada and U.S. on product or allocating source to many of our buys are fully allocated so the work that Sheree and her team are doing is much more sophisticated getting right size profiles at right stores and that’s -- even if we have the right product in the warehouse in the original buy, it’s getting it down to the stores at the right mix. And that’s really been our focus and what will continue to be our focus through, I’m sure on the rest of this year and into next year. Liz Dunn – Thomas Weisel Partners: Okay. Thanks. Good luck.

Thanks.

Thank you. And our next question comes from the line of John Morris of BMO Capital. John Morris – BMO Capital: Thanks. Hey, my congratulations too on a great quarter. Let me throw a couple questions at you. John, I think in your prepared remarks, maybe it was kind of a small point. I think you had mentioned when you were discussing the SG&A comments there was a delay -- part of what was going on in SG&A was there was a delay in spending related to showroom and I think related to some of the other expenses, so maybe if you can elaborate on that. I don’t know if it was that meaningful, kind of where that delay was coming from and why? And then in terms of the new distribution center for you guys, I would imagine that would probably help in terms of speed, speed to market. Do you have any idea yet about how many days you might be cutting out of the delivery time? And how much it would help your freight expense and thoughts directionally in terms of putting you guys in a better position to be in stock in the stores? And then any quick update on ivivva would be great? Thanks.

Maybe I -- want me to do the first one on showrooms? John Morris – BMO Capital: Sure.

We made the decision as we saw we were pretty light on product. And we really wanted to take our time with locations to delay some of those showroom openings. But then we already had hired some of the managers and kept them in training. So we did see some of that expense flow through but the actual cost of opening the showroom, the rent commencement, some of those did delay and that will change going forward in the second quarter.

And other delay in SG&A spend, we’re not talking about large amounts but we’re just -- you know, we always budget for new hires at the start of the year. And it sometimes takes a bit longer to add those key positions. It’s not that material though.

Want me to answer the DC? Hi, this is Sheree Waterson. You’re absolutely right. We tend to be more efficient when we fully own our distribution center. [Rich Cashin] and his team are world class and efficiency experts. But to be honest, they will cut off a day or so in their shipping across the country and so forth. But the primary factor in speed is really flow from the marketplace or flow from our manufacturers. So that is something that we continue to improve. We flow core product several times a month. And we flow obviously our initial allocations several times as well. So we’ve made the improvements there and Rich has made improvements but the primary factor for speed to market is really ex-manufacture. John Morris – BMO Capital: And is that going to help you guys with your in-stock positioning, I would imagine quite a bit.

It will. John Morris – BMO Capital: Do you have any tracking?

Yeah. That plus some of the other initiatives that we’ve talked about on other calls, like we actually stock cut and sewn goods in Asia about six weeks worth in certain categories. And we also take a position in raw materials both here in Canada and in Asia, so that we can [quick turn]. John Morris – BMO Capital: And John, do you have any kind of quantification about how much it would help your freight costs?

I think, it would be premature to try to predict that but we’ll know more next quarter after we’ve been operating for a few weeks.

I think it’s more going to be -- the short-term will be on the operating efficiency of the DC in cost per unit on out the door and less on the freight itself because we’re still using an outsourced carrier to get to the store. So it’s really the time from the boat to the store in the distribution process, not in the shipping to the store process and then efficiency of labor costs in the DC. John Morris – BMO Capital: Okay. Great. And update on ivivva?

Yep. Deanne, why don’t you…

Deanne, here again. So we’re really -- we’re happy with our increased brand awareness of the brand. I believe we’ve mentioned before, we have opportunity to right-size this brand so as much as -- sorry, the apparel, the clothes themselves. So as much as we are seeing an increase in brand awareness and traffic to the stores, we will stifle our sales ever so slightly until August when we have the right size in the store throughout the whole line. We are continuing to look at opportunities to open up our locations in 2010. But we don’t have anything signed yet. So that’s where we’re at with ivivva but still continued very positive and happy with today’s results. John Morris – BMO Capital: Hey, thanks.

Thank you. And our next question comes from the line of Janet Kloppenburg of JJK Research. Janet Kloppenburg – JJK Research: Hi, everybody and congratulations. I had a couple of questions for Christine. I was wondering if the acquisition of the Australian business and I think of a top management team will provide a platform for further international growth and if there’s e-commerce development going on in Australia and internationally as well. For John, I wasn’t quite sure if you meant that we should be looking for gross margins to be down in the second half vis-à-vis the second half of ‘09 or whether you thought that the increases would not be as great as they will be in the first half of fiscal ‘10. And for Sheree, I was wondering if you could talk a little bit about your opportunity to move sourcing to other markets perhaps to help with cost pressures? And if you could give us some highlights on new product introductions or focus for the second half. Thanks.

Janet, I’ll start with the gross margin. What I meant was not year-over-year? What I was indicating is we see some gross margin compression compared to what you saw, the 53 plus percent that we saw in Q1? Janet Kloppenburg – JJK Research: Okay. But we could still feasibly see some increases on a year-over-year basis?

You should see year-over-year increases, yeah, definitely. Janet Kloppenburg – JJK Research: Okay. Thanks.

For international, on the e-commerce side, we already do ship internationally and what we’re working on behind the scenes is putting an additional modules in place that make it easier for the guests to pay for the duty and taxes and the shipping and for us to do credit card verification. So that work is under way right now, which should actually increase our international reach. Australia actually is one of the markets where we see the most demand internationally from e-commerce because of the work that David and his team have done there. So we don’t necessarily need to build out fulfillment or a unique face in our e-commerce just to reach that guest there or frankly anywhere else. We will start to next year focus on additional languages on our e-commerce platform as well. Janet Kloppenburg – JJK Research: What about further expansion internationally, given the platform now in Australia?

Yeah. I think we have a lot to learn. It’s now treated as a company operated or owned market but still a very small team there on the ground because it wasn’t done with another partnership. So it’s a pretty grass roots operation there that works closely with our team and we’ve been learning a lot. But I think one of the things we’re really careful about is adding a lot of complexity to our business, especially because they’re still very small in size and we already added the complexity of the e-commerce channel. So that I think is what we’re really trying to make sure that we work through to do things well and optimize both our U.S. strategy and our e-commerce strategy before we take on any additional complexity. We are -- you know, have a small business development team here that we’re working with to help us build the model but that’s really -- we’re at the very early stages and there was a false rumor that we were going to London. Let’s just get that on the table now, it was a false rumor. We don’t have a real estate partner signed in that market. Janet Kloppenburg – JJK Research: Would that be a market you would consider in the short term?

You know, I think it’s tempting because of the Olympics and the success we had here. But I think for us it’s really about managing the complexity and that’s going to be the thing that guides us and I’d like to really get through this e-commerce transition with the next platform before we take on any additional complexity. Janet Kloppenburg – JJK Research: Great. Good luck. Hi Sheree.

Hey. I’ll answer first your question regarding sourcing. Our primary strategy is that we are shifting from about 7% to about 27% of our goods being manufactured in Southeast Asia and that goes for raw materials as well as cut and sewn goods and those countries are primarily Vietnam, Cambodia and then Bangladesh that we’ll be diversifying to. In terms of new product innovations or introductions, so for first quarter you saw more hot yoga and we had the introduction of the Matt and as part of our equipment and then for summer, we’d introduced UV sun protection in running which has been a run-away hit, no pun intended, along with lightweight running swift fabric in our running shorts, our tops and our running skirts. And then you will see a great introduction at the early part of Q3 which will be reflective running fabric where we actually have the reflective yarns woven into the fabric and of course, there’s more but we can’t tell you that just yet. We’ll have to surprise you later. Janet Kloppenburg – JJK Research: That’s fine. Christine, would you reiterate again what your sales per square foot levels were? I wasn’t sure. Was it 1350?

I’m going to have to put my glasses back on for that one, Janet. It’s one four -- sorry, so it’s 1428… Janet Kloppenburg – JJK Research: Okay.

… which was improvement from last quarter’s, $1318. Janet Kloppenburg – JJK Research: Okay. Perfect. Thanks so much. Good luck.

Thank you.

Thank you. And our next question is from the line of Chi Lee of Morgan Stanley. Chi Lee – Morgan Stanley: Hi. Good morning everybody. Sheree, if I can ask one more follow-up question just on sourcing itself. Maybe a little more directly, I think you guys were about 75% China exposed on sourcing last year. Where could we see that number go to by the end of this year? And what pricing strategies are you guys looking at, in light of the inflationary pressures?

Okay. The first thing is you were asking about China. I can tell you this. Strategically, we are looking to bring China down to just over half of our total sourcing, our total manufacturing. And the second thing was price pressures and how we see that in terms of retail. You won’t. You won’t. We are a premium manufacturer. We are a premium brand and the way we price goods, is through the right value equation for our guest and we like exactly where we are right now. Chi Lee – Morgan Stanley: Okay. And that target to really get China down to sort of 50%, how long do you think it would take you to get there?

Over the next several years. Chi Lee – Morgan Stanley: Okay. Great. Then, could we get a little bit more color just in terms of the drivers behind the comp traffic conversion and ASP?

We’re definitely seeing traffic up and that’s probably the leading indicator. We’re also seeing stronger conversion rates and stronger ticket. So it’s coming from all three, but in that order. Chi Lee – Morgan Stanley: Okay. Helpful. Thank you very much.

Thank you. And our next question comes from the line of Claire Gallacher of Capstone Investments. Claire Gallacher – Capstone Investments: Thank you. Just a quick question about the performance that you saw in the U.S. versus Canada. Did you see any notable differences in traffic or buying patterns, any kind of difference in the consumer between the U.S. and Canada?

I think the best way to answer that, overall, as Christine said in her remarks, the real stand-out was the class of stores that we opened in a lot of new markets towards the end of 2008, which overall the comp store increase in that class was well above the already high average that we posted. And that’s definitely traffic, primarily, because those are stores in markets that the guest is finally discovering the brand. Claire Gallacher – Capstone Investments: Okay. Great. And then so my follow-up really was going to be about any kind of regional differences in the U.S. and I’m guessing the answer really is where the 2008 stores are located is really where you saw a nice lift within U.S.?

I think it’s still very much for us an age class story as we’ve been saying all along. It’s just driven by the ramp in new stores. Overall, we see healthy markets across the board, but some really strong growth of brand awareness like in the DC market has been really exciting for us to see. And I think it was, a lot of the work we did on things like the Cherry Blossom Festival, where we had 1700 people show up and yoga at the White House which we anticipated in and then the Florida market as we increased our store penetration and community there, markets we used to worry about like, Texas, no longer worries whatsoever. That team down there has done an amazing job and that combined with our real estate strategy, opening in NorthPark, so we feel -- the really good news is there isn’t a weak spot. Claire Gallacher – Capstone Investments: Great. Thank you so much. Good luck.

Thanks.

Thank you. And our next question comes from the line of Richard Jaffe of Stifel Nicolaus. Richard Jaffe – Stifel Nicolaus: Thanks very much. Now that you have or about to have your DC fully operational, is there a thought of bringing e-commerce in-house to take greater control of that piece of the business, not only the distribution and planning but the functionality of the site and to make it a wholly owned and totally controlled enterprise?

I don’t think we’ll go to wholly owned. We are working on a new really kind of online strategy, the very, very formative stages, really leveraging where we’re going in the social media and online presence. And then we are working on increasing the web, the creative design and the speed of the system and a more scalable backside, but that would still be outsourced even though we will do did the distribution piece on our self in the U.S. as we do in Canada already. So I think you’ll see a lot of improvements in the site, but we also want to focus really on the creative and social side and I think from an IT complexity right now, I don’t see us in the short-term taking on the commercial side of that site for another few years. Richard Jaffe – Stifel Nicolaus: And is there an opportunity to take the site and make it available to other countries, euro denominated, perhaps.

Yeah. And that’s part of the move that we’ll make and by adding different tastes and languages. So we definitely see that as part of the shorter term strategy within the next year. Richard Jaffe – Stifel Nicolaus: Within the next year. That’s all. Thank you.

Thank you. And our next question comes from the line of Howard Tubin of RBC Capital Markets. Howard Tubin – RBC Capital Markets: Thanks. Just a – what are your thoughts on warehouse sales maybe during the summertime frame and maybe in the winter. Are those a thing in the past or could we expect them to pop up again as you’re building your inventories a little bit.

We’ve typically only done them in Canada and one or two a year, so we do see probably doing one, coming up, but we haven’t quite agreed on the site or timing of that. So it could either be the end of second quarter, beginning of third. And we’re still pulling together what inventory we have for that, so we haven’t made the final decision. But I think definitely as we go through the balance of the year, we do expect to return to kind of a more normal accumulation. I mean our outlet stores have been underperforming, because we haven’t been shipping a lot of merchandise to those. I’m not really that worried about that underperformance, frankly. So I think you’ll see some additional revenue generate from those as we return to fuller product lines. Howard Tubin – RBC Capital Markets: Got it. Thanks. Any thoughts on all the cash that’s piling up on your balance sheet, any kind of extraordinary, out of the ordinary uses for that coming up?

I think we have to save it for taxes at this point.

It’s a wonderful problem to have. I think with any retailer that’s accumulating cash, it’s a topic. And at some point I think all companies end up with strategies to return to shareholders. But we’re still so early in our growth cycle that I think it’s a good strategy to retain that cash to fund our growth. Howard Tubin – RBC Capital Markets: That is great. Thanks.

Thank you. And our next question comes from the line of Taposh Bari of Jefferies. Taposh Bar – Jefferies: Hi. Good morning. Congratulations. We were just wondering, how and if weather variability has any impact on your business, given the large amount of outdoor and street type locations that you have. We heard California had unseasonably cool weather in April and May. I’m just trying to get a sense if you saw any changes in buying patterns as a function of that volatility?

Go ahead.

We didn’t really – Frankly, the thing that really drives our guest to our store is her passion for the brand. So if you know much about our guest, she’s willing to go to any lengths to experience our brand and to buy her components, to live a healthier life. So I think that there’s really fun stories in our stores, where we even have guests that come in that they can’t wait to see the educators, so they’re part of their network. So we’re very lucky in that way and frankly, there was minimal impact with weather. Taposh Bar – Jefferies: Great work. Thanks and best of luck in the second half.

Thanks.

Thank you. And our next question comes from the line of Jennifer Black of Jennifer Black & Associates. Jennifer Black – Jennifer Black & Associates: Hi. Let me add my congratulations as well. I have a couple of questions. I wondered if you have any incredible strategies for gift giving or the holidays and then it seems like you are still light on accessories and I wondered what your longer term plans were there. And then lastly, looks like you made some progress on the smaller size issue. Any thoughts would be great? Thank you.

Great. So the first thing we talked about was gift giving and yeah, we started our gift giving strategy last year and it was very successful. We learned from that and we will be continuing that for Q4 of this coming year or this year. The second thing was light in accessories in general, yeah, we are. We have finally gotten back into stocking bags which has been tremendous for us. We’ve had a lot of work to do on our stock delivery, which finally now looks like we’ve got our flow going. We actually have a new strategic partner there, so we’re excited about that. And the other categories I think we’re just -- we are back filling nicely. So we had a tough time there for a while. And our mat sales are finally, we’re seeing that even out quite a bit because we’ve finally gotten our flow there. So that felt good. And then in terms of sizing, we’ve been continuing to tackle the size issue for 12 months now and just as we were getting a handle on it, we continue to have work to do regarding our shifting guests. As we introduced -- as Christine was mentioning before the run line, we’re seeing a more athletic, more slender body as one of our adding to our guest mix. So we’re now actually looking at that further and breaking that down to the – not just the style level but the style, color level. So we’re getting traction there and have made improvements for each buy that we do so.

And I think you’ll see the continued improvement in the core and black assortment but in the seasonal, in some of the seasonal styles, color waves, our strategy is a scarcity model. So if you like that size 6 or 4 in one of the color waves or seasonal styles, it’s never our strategy to be fully at demand level there, so there will always be a certain amount of noise that we expect but that helps keep the product and the brand strong which is also part of our strategy. Jennifer Black – Jennifer Black & Associates: Great. And then I guess lastly, any thoughts on men’s and men’s in the U.S. versus the men’s in Canada?

Our men’s business is continuing to gain momentum. Jennifer Black – Jennifer Black & Associates: Right.

To date, we’re about 40% over last year which is great. Our adoption has continued to increase in the U.S. And we’re getting a lot of traction there. So we’re excited about that. The U.S. market is giving us some clues about how we can optimize our business in Canada and with the onset of some things that we’re doing for our bottoms, in terms of fit logic and other things. I’m really looking forward to some of the results that we’re going to be getting in the future. Jennifer Black – Jennifer Black & Associates: Fantastic. Thank you very much and good luck.

Yeah. Thanks, Jennifer.

Thank you. And our next question comes from the line of Kristine Koerber of JMP Securities. Kristine Koerber – JMP Securities: Yeah. Hi. A couple of questions. First, can you talk about the trends throughout the quarter and maybe comment on trends into May, because a lot of retailers are saying they saw a slowdown.

Through the quarter, we’re pretty consistent. If anything, things picked up a bit towards the end of the quarter. May is really reflected in the guidance I’ve given. May was a bit odd because of just the shift of the long weekend in both Canada and in the U.S. but generally continuing quite strong. Kristine Koerber – JMP Securities: Okay. Great. And then you mentioned your operating margin, how you hit your operating margin target in the first quarter. How should we think about the operating margin over the long-term, because I know your goal is the 20s.

Yeah. We said, we’ve always worked on sort of a model of a 20% operating margin. Clearly and you saw it in Q1, the business has the potential to produce an operating margin above 20%. The caution really is we are still very early in our growth and as we grow, we will flow through additional profit to fuel future growth. So even though a forecast might show an operating margin getting up into the mid-20s, you should expect that we’ll take some of that flow-through and reinvest it in future growth and that’s why we talk about – 20% is a level we like to maintain and possibly exceed, but the real variable is our discretionary investment in growth. Kristine Koerber – JMP Securities: Okay. And then just lastly, on your new distribution center, will we see efficiencies flow through immediately?

Well, we certainly hope so.

I think in the short-term you’ve got some cost overlaps, so it will probably show up more in the Q3, Q4, yeah. Kristine Koerber – JMP Securities: Okay. Great. Thank you.

Thank you. And our final question in queue comes from the line of Laura Champine of Cowen. Laura Champine – Cowen and Company: Hi, guys. I noticed in the 10-Q that you changed the way that you break out segments, which is great. But do you – will you be releasing data for the remaining three quarters last year, so that we can get a good sense of your year-on-year trends and how to project the business?

I believe as we go forward, just to clarify, we have changed our segments. We’ve moved franchise, which is a decreasing percent, moved that into other. And we’ve broken out direct-to-consumer, which is e-commerce and phone sales because that’s a growing percent. My controller will pick his head up and he will kick me, but I believe as we go forward we’ll have to provide year-over-year comparisons based on the new segments as we’re now reporting them.

Correct. Laura Champine – Cowen and Company: So if you don’t show them until the quarter, can you just kind of talk to us about how much the Australian revenues that shift out of franchises, how much those were on an annualized basis and then maybe -- You obviously had huge growth in the direct-to-consumer, how sustainable is triple digit growth year-on-year this year?

I’m sorry. There are a number of questions in there. Starting with the franchise, there’s more to it of course than just Australia. And we have beyond Australia. We have five other franchises remaining. As we’ve said in the past, the plan is over time to eventually acquire all those franchises back. In terms of Australia, I think the best thing to do is to look at the press release that we issued on May 12th, announcing the acquisition and it does break out the revenue of that operation from last year. And then on -- I’m sorry, I’m not sure what your question was on e-commerce, triple digit growth is of course coming from zero a year ago. So as we’ve said, we’re running at 6 to 7% of total revenues today. We still believe that over some modest period of time that should rise to 10 to 12% of revenues. Laura Champine – Cowen and Company: Got it. Thank you.

Thank you. And we have to further questions in queue at this time.

All right. Thanks, everyone. And we’ll talk to you next quarter.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program. You may now disconnect. Everyone have a great day.