Good day, ladies and gentlemen, and welcome to lululemon athletica Quarter One 2011 Results Conference Call. [Operator Instructions] As a reminder, this is being recorded. I would now like to introduce Mr. Joe Teklits with ICR.

Great. Thank you. Good morning, everyone. Thanks for joining us to discuss lululemon's conference call for first quarter 2011 results. A copy of today's press release is available on the Investor Relations section of the company's website www.lululemon.com or furnished on Form 8-K with the SEC available on the commission's website at www.sec.gov. Also available in the Investor Relations section of the company's website will be a recording of today's call which will be available for 30 days as a replay shortly after the call ends. Hosting the call today is Christine Day, the company's CEO; and John Currie, the company's CFO. First, we would like to remind everyone that 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 results might differ materially from those projected in such statements due to a number of risks and uncertainties, all of which are described in the company's filings with the SEC. And now I'd like to turn the call over to Christine Day. Christine M. Day: Thank you, Joe. 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 Management Source -- and Sourcing Executive; Delaney Schweitzer, our EVP Retail Operations; and Chris Ladd, our head of global e-Commerce. Following my opening remarks, I will turn the call over to Chris and then John will go through the financial details for the quarter. We are again very pleased with our start to fiscal year 2011. Given our inventory constraints, combined with our focus on transitioning our e-Commerce platform, we approached the plan for the first quarter conservatively. However, thanks to our strong partnerships with our manufacturers, we were able to source additional inventory for April and maximize the productivity of the inventory we had to work with, both in sales and gross profit dollars. And although we had a few bumps in the road given the complexity of the e-Commerce project, for the most part we saw a relatively smooth transition to our platform, thanks in a big way to our new CIO Kathryn Henry and our e-Commerce team. It took a little longer than expected to merchandise our online catalog by about 2 weeks, but we are now to a point where our online store is matching our retail stores about as much as we want it to. Our online store inventory will be in a good position to support a strong back half of the year. So while we planned e-Commerce down as a percentage of revenue through the transition, we already see it climbing back towards a 10% run rate and expect to be close to 10% of total revenue for the full year. Looking at the performance of our retail stores, they also performed as expected for the quarter. February was strong but inventory constraints held back sales in March and then April rebounded as we were able to chase inventory. Our same-store sales comparison of 16% drove our trailing-12-months average sales per square foot in comp stores to new highs, just over $1,800, up from $1,428 a year ago. We believe there is room for continued productivity increases as we build our inventory position, invest in our stores and our people, and execute our strategy. Our second quarter product mix is still somewhat transitional, as chasing products for April had some impact on the optimal mix of products in stores today, but we are in a better position overall in Q2 than we were in Q1. Looking ahead, our richest opportunity is maximizing the size curves and seasonal allocation of product to our stores. We also continue to innovate our yoga and run lines, which are the major drivers of our sales growth. We are in the fortunate position of being able to manage the rate of innovation and keep a strong pipeline ready for execution. New fabrics, construction and styling are how we continue to evolve our core lines. Our exploration into various new categories, such as our small cycling collection this summer, have received a strong response and is an example of a growth opportunity we can pursue in the future. What we really strive for is healthy growth. We believe the best strategy to deliver shareholder value is a balanced growth strategy that focus on driving organic top line revenue through technical and innovative product, excellent execution of our community strategy to build brand loyalty, a culture of personal accountability and development, and delivering strong sales growth through to drive profitability. We believe our strong execution of this balanced growth strategy creates a competitive advantage, maximizes shareholder value and creates a space for our people to excel. While we remain cautious about the macro-environment, we are confident that our business momentum will remain on trend for fiscal year 2011 and are confident in our ability to navigate the cost pressures to sustain our healthy business model. I also want to highlight that one of our top initiatives in the first quarter was bringing our entire e-Commerce platform in-house. Our major accomplishment and a project we are happy to have behind us. And what I want to do now is turn the call over to Chris Ladd to give you some additional details on the transition and what it will mean for our business going forward. Chris?

Thanks, Christine, and good morning, everyone. Christine, I really want to thank you and the rest of the team for inviting me to join lululemon. This is a very exciting time in the company's growth and I want to acknowledge you for asking me to lead the e-Commerce business into this exciting next phase. As Christine mentioned on the Q4 call, I joined the company in February and spent the first 60 days traveling around the U.S., working in our stores and learning the business from the ground up. This was a great way to learn about our brand, meet some of our amazing store teams around the country, have inspiring conversations with our guests and of course gain perspective on the incredible opportunity for growth in our online business. I'm going to talk to you today about some of our recent accomplishments in the channel and start to lay out some of our key areas of emphasis to take this business to the next level. Q1 saw the migration from a fully outsourced business to an in-house model with the transition of our core e-Commerce platform to ATG and the migration of our e-Commerce distribution operations in the U.S. into our internal facility in Sumner. The transition by all accounts was an incredibly successful one and I personally want to thank Kathryn Henry, our CIO, and all the teams across the company for making such a complex project a great success. We successfully mitigated the business risk and managed the guest experience in line with our expectations while adding some key functionality like one-page check out, merchandising and search capabilities, rich imagery enhancements and core-business-process stabilization. Most importantly, we are now standing on solid core foundation that will enable our teams to expand and innovate our e-Commerce business. The next few months will be focused on working with the internal teams to lay out the key projects and initiatives for scale and growth. Some of the areas you'll see us focused on predominant will be in the social, global and international areas, as well as shoring up our day-to-day store operations; delivering a world-class online guest experience; impeccable customer service; and without a doubt, connecting with our guests all around the world in new and innovative ways. We have very passionate and loyal friends out there and I look forward to learning from them what they want from us, and of course, elevating the world from mediocrity to greatness one click at a time. With that, I'd like to turn the call over to John. John E. Currie: Thanks, Chris. I'll begin by reviewing the details of our first quarter of 2011, then I'll update you on our outlook for the second quarter and the full year of fiscal 2011. As announced yesterday, our shareholders approved our proposed 2-for-1 stock split at our annual meeting on Wednesday. This split is expected to take effect in early July, but please keep in mind that all comments with regards to share count and per-share amounts in our results and outlook are on a pre-stock-split basis. So for the first quarter, our net revenue rose 35.1% to $186.8 million from $138.3 million in the first quarter of 2010. The increase in revenue was driven by comparable-store sales growth of 16% on a constant-dollar basis. The addition of net new -- I'm sorry, 12 net new corporate-owned stores in North America since Q1 of 2010; the consolidation of Australian operations, which now includes 5 showrooms and 12 stores, of which there have been 3 net openings since Q1 of 2010; the addition of 17 net new showrooms opened in the U.S. since Q1 of 2010; direct-to-consumer sales, which increased by $4.6 million; and a stronger Canadian dollar, which had the effect of increasing reported revenues by $4.3 million or 3.1%. During the quarter, we opened 3 corporate-owned lululemon stores in the U.S. and one in Australia. We also opened one corporate-owned ivivva store in Canada. We ended the quarter with 142 total stores versus 128 a year ago, 138 of which are corporate owned, including the 12 in Australia, and 4 franchised stores, all in the U.S. There are now 108 stores in our comp base, 42 of those in Canada and 66 in the United States. Corporate-owned stores represented 83.8% of total revenue or $156.5 million versus 83.6% or $115.6 million in the first quarter of last year. Other revenue, which includes franchise, wholesale, showrooms, warehouse sales and outlets, totaled $16.5 million or 8.8% of revenue for the first quarter versus $13.6 million or 9.8% of revenue in the first quarter of last year. Revenues from our direct-to-consumer channel totaled to $13.8 million or 7.4% of total revenue versus $9.1 million or 6.6% of total revenue in the first quarter of last year. As I had mentioned on our earnings call last quarter, we planned down our e-Commerce sales due to the transition to an in-house e-Commerce platform. To facilitate a smooth cutover, we gradually reduced inventory allocated to the third-party fulfillment provider so that inventory to be transferred was minimized at the mid-April go-live date. We then gradually increased the assortment on our new platform and recently returned to a more complete assortment level. Gross profit for the first quarter was $109.7 million or 58.7% of net revenue compared to $74.4 million or 53.8% of net revenue in Q1 of 2010. The factors which contributed to this 490 basis point increase in gross margin were as follows: A decrease in product cost related to an adjustment to recognize previously unrecorded benefit of certain input tax credits from previous periods, which contributed 140 basis points of the improvement. This is a onetime adjustment and, ignoring its impact, our normalized gross margin would have been 57.3%. Product margin improvement of 90 basis points. Higher product costs due to inflationary pressures from raw materials and labor, along with higher air freight to accelerate product deliveries were more than offset by reduced markdowns and lower shrink obsolescence and damaged-inventory provisions. Leverage on non-merchandise costs such as occupancy, depreciation and product and supply-chain team costs, including the efficiencies from our new distribution center in the U.S., contributed 190 basis points of improvement. And foreign exchange improvement of 70 basis points due to a stronger Canadian dollar. SG&A expenses were $8 million (sic) [$58 million] or 31% of net revenue compared to $41.9 million or 30.3% of net revenue for the same period last year. The 38.5% SG&A dollar increase is due to an increase in store compensation and operating expenses associated with new stores, showrooms, outlets and growth at existing locations; an increase in administrative costs and variable service provider fees associated with a higher sales volume from our e-Commerce channel; SG&A and head office costs from our Australian operations, which we began accounting for on a consolidated basis, commencing from the date of our ownership increase in Q2 of 2010; an increase in head office employee costs, including management incentive-based compensation, stock-based compensation, other head office costs as a result of the investment in infrastructure and resources needed to sustain a long-term growth trajectory; and finally, the higher Canadian dollar, which increased SG&A by $1.2 million or 2.1%. As a percentage of revenue, our first quarter SG&A increased 70 basis points due to growth in our e-Commerce in Australia channels, which carry a higher SG&A component than our corporate stores. The SG&A deleverage also reflects the compression from preopening costs incurred in Q1 related to Q1 store openings and early Q2 openings. As a result, operating income for the first quarter was $51.7 million or 27.7% of net revenue compared with $32.5 million or 23.5% of net revenue in 2010. Ignoring the impact of the onetime input tax credit adjustment, operating income would have increased 51% to $49 million and operating margin would have expanded by 280 basis points to 26.3%. Tax expense for the quarter was $19.1 million or a tax rate of 36.3% compared to $13 million or a tax rate of 40% in the first quarter of 2010. Net income for the quarter was $33.4 million or $0.46 per diluted share, of which $1.7 million net income or $0.02 per diluted share resulted from the onetime input tax credit adjustment. This compares with net income of $19.6 million or $0.27 per diluted share for the first quarter of 2010. Our weighted average diluted shares outstanding for the quarter were 72.5 million versus 71.6 million a year ago. Capital expenditures were $74.8 million in the first quarter, resulting mainly from the purchase of our Store Support Centre in the Kitsilano area of Vancouver for $65.1 million plus acquisition-related costs, and also cost associated with new store build out, existing store renovations and IT capital expenditures. We ended the quarter with $260.9 million in cash and cash equivalents. With respect to inventory, we started the quarter under-inventoried to meet first quarter demand, but were able to accelerate product deliveries in April, which helped to alleviate some of our inventory constraints. Inventory at the end of the first quarter was $64.4 million or 27% higher than at the end of the first quarter of 2010. Although this is still somewhat lower than the increase we anticipate in our revenue in the second quarter, as the quarter progresses, we'll continue to accelerate product deliveries to improve our product flow and in-stock position. And by the end of the second quarter, into the fall, we expect to be in a healthy inventory position to meet demand. Which leads me to our outlook for the second quarter of 2011. This outlook assumes a Canadian dollar at par with the U.S. dollar compared to an average exchange rate of $0.96 in Q2 of 2010. We anticipate revenue in the range of $200 million to $205 million. This is based on a comparable-store sales-percentage increase in the mid-to-upper teens on a constant-dollar basis compared to the second quarter of 2010. Then, we plan to open 6 lululemon stores in the U.S. and one in Australia during the second quarter. We expect some gross margin expansion versus the second quarter of 2010, driven by leverage on fixed costs such as occupancy and depreciation, partially offset by higher product costs from sourcing pressures in both labor and raw materials. Sequentially from Q1 2011, we expect gross margin to decline due to the nonrecurring benefit we realized in Q1 related to input tax credits, a slightly higher proportion of air freight to accelerate product deliveries, and more normalized markdowns as we have and will continue to build sufficient inventory levels. During the second quarter, we expect to gain cost efficiencies as the result of the transition of our e-Commerce platform to an in-house model, although some of this will be reinvested back into e-Commerce to build the infrastructure and teams required for the rapid growth we expect from this channel. We'll also be investing in higher store-level compensation designed to attract and retain the best staff, incurring preopening costs related to the 7 stores planned to open in Q2 and additional stores planned to open in early Q3, and adding additional resources at our head office to continue to drive long-term scalability and growth. As a result, we expect to deleverage on SG&A as a percentage of revenues versus the second quarter of 2010. Assuming a tax rate of 36% and 72.6 million diluted average shares outstanding, we expect earnings per share in the second quarter to be in the range of $0.42 to $0.44 per share. For the full fiscal 2011, we anticipate we'll open up to 30 corporate-owned stores, including ivivva, in Australia. We expect net revenue to be in the range of $915 million to $930 million for the fiscal year, representing revenue growth of approximately 30% over 2010. For the year, we expect gross margin to decline slightly from fiscal year 2010. As we've discussed on previous earnings calls, sourcing pressures are expected to be greater in the second half compared to the first half of 2011, and we now expect will account for approximately 225 to 250 basis points of gross margin compression relative to the back half of 2010. We also expect to see more normalized markdowns as we bring inventory levels back to appropriate level. This will be offset by leverage on fixed costs such as occupancy and depreciation, which will vary depending on the seasonality of sales volumes between Q3 and Q4. Keep in mind also when we transition into fall and winter, there's a seasonal mix shift in our product assortment that will result in lower merchandise margins compared to the first half of 2011. Adding all this up, we expect our second half gross margin to be in line with our historical targets, which is in the low to mid-50s range. We do, however, expect to enjoy leverage on overall SG&A as we gain cost efficiencies from the transition of our e-Commerce platform to the in-house model and leverage on our SSC costs in place, offset by higher store compensation designed to attract and retain the best staff and investments to continue to drive longer-term scalability and growth. As a result, overall, we expect our operating margin to leverage slightly over 2010. We expect 2011 fiscal year earnings per share to be approximately $2.10 to $2.16. This is based on 72.8 million diluted weighted average shares outstanding and it assumes an effective tax rate of 36%. We expect capital expenditures to be between $110 million and $115 million for fiscal 2011, reflecting the purchase of our Store Support Centre in the first quarter as well as new store build outs, renovation capital for existing stores, IT and other head office capital expenditures. With that, I'll turn it back to Christine. Christine M. Day: Thanks, John. As always, I'd just like to thank and point out that these business results are the results of a hard-work effort and commitment and passion of all our people in the company, and I'm really proud of the results they produced for the quarter. So with that, we'll turn it over to Q&A.

[Operator Instructions] Our first question comes from Michelle Tan from Goldman Sachs.

I was wondering if you could maybe give us some perspective on just the update on what you're seeing in some of the newer markets. And then also, I know there's been some questions raised around quality. I know you guys are historically pretty maniacal about it. I remember the zipper write-off in first quarter of '09, but I was wondering if you're hearing anything that concerns you at all on that front, and how you're monitoring the quality situation as you chase capacity. Christine M. Day: Great. Maybe I'll start with that one, Michelle, and then come back with the second one on your markets. Overall, what we can tell you is that our statistics for damage, returns, negative guest comments are down across the board and the lowest levels, thanks I think to a lot of the quality things that we put in place. I think some of the noise that we've heard a little bit is around luon, so I do want to point out that there is some variation in the fabric family of luon that I think causes a little bit of confusion. Our luon has been the same for over 7 years and we are maniacal about protecting that standard. But we also have innovation in luon, such as the luon light, the brushed luon. Last year we did a test with Silverescent and we also did a test with a higher-wicking luon that had a softer hand feel in the garment. And we do monitor the quality and feedback on those items in particular because we're always looking to push luon to the next level. So it's important we have that rate of innovation out there. But we haven't seen any increase in negative comments and the cost of that quality protection and the cost of the innovation are already in our model. And then let's talk about markets. We are so excited. We -- in the new markets across the board and the new store openings, Delaney and her team have done a fantastic job. We really see the new stores opening at the highest rates we've ever been able to achieve across the board. And particularly, key markets in the Midwest have really responded well to the lululemon openings, in markets like Ohio. Delaney, where else would you like to point out?

Ohio was actually was one of our most proud of openings for Q1 for sure. But we have new markets that we're opening this year, I think 10 new markets. We're balancing it with our existing markets. So we have showrooms in all of these markets, so we're making friends wherever we go and tracking it through e-Comm and able to see kind of what's happening in each of these markets, so we're really excited about what's happening across the U.S.

Okay. Actually, can I sneak one more in? Christine, on the cycling line that you mentioned, I know spin is kind of a category that seems to be gaining a lot of popularity among people who I would think are potential lulu customers. I guess I'm curious. In the past you've talked about it as a relatively small opportunity. I mean, are you thinking about it any differently? And how do you think about it relative to things like run that you've done in the past? Christine M. Day: We think it's one of those -- as we're seeing it kind of shape up going forward, we definitely see an opportunity in not only like road bike, which we see is big, just general cycling and people using the bicycle more for commuting and practice and the need to have cycling clothes that work into the same way that our yoga works into -- from studio to home to work and mix and match in the wardrobe. We see cycling as being another opportunity that's like that and you'll see us innovate on a broad thing from indoor spin to outdoors and test a bunch of things as we kind of hone that. But always what's most important for us is getting the technical features right first. So we believe in testing a product in to get that anchor product that we know people love, and then we grow the line from there. So we're not in a hurry to do it. It's testing it, getting the technical aspect of it right and then growing it, which is how you saw us grow the run line.

Our next question comes from Lorraine Hutchinson from Bank of America Merrill Lynch.

I was just hoping for an update on your showroom strategy. How many are open right now? And then how many do you plan to add over this year? And then also on the new store target of 30 for this year, do you view that as your maximum opening potential? Or do you think that you could accelerate that in 2012 and 2013?

This is Delaney again. In terms of our showroom, we currently have 54 showrooms in operation. For this year, we're looking at potentially opening another 9 since we've opened, I believe, 4 already. But those numbers can change throughout the year as we see what's happening, so those aren't fully confirmed. In terms of the showroom strategy moving forward, we continue to innovate and look at what we want, what each market need us to do, whether it be a showroom or go right into a store. But we continue to innovate through our showroom strategy and make sure that we're finding great people that, a, want to be our guest; and, b, want to work for lululemon. And then what was the other question? What was your second question, sorry?

How many stores do you think you could open in a given year? Could you see that 30 accelerate in 2012 and 2013? John E. Currie: Yes, I mean, the 30 is our target for this year and that includes 25 lululemon stores. I mean that could change one or 2 either direction. Going forward, because of the showroom strategy, because of all the other things we're putting in place, we're setting ourselves up to be capable of more aggressive store expansion. But we don't have a number target for 2012 yet. The number will be whatever the number of markets that are ready for us. Christine M. Day: And I think the focus Delaney and our head of store development, Wynn [Wynn Spencer], have worked on is a strong pipeline and, what does it take not only to identify all the right locations, but what does it take to get ready to open in a strong way? And I think that strong partnership that we have produces the results that you see and is a key part of our strategy. And so overlooking that, we also look at strategic sales, we look at online sales for market readiness. We have a lot of metrics, and we'll open the right number that we see the consumer demand. Where we don't want to be is opening before that demand has been created, before we have a manager we can really believe in, or before we build the relationships with the guests. So we're always after the high-quality growth because that's what allows our business model to deliver the results.

Our next question comes from Janet Kloppenburg from JJK Research.

A couple of questions. First, if you could talk a little bit more about the cycling category, how early are we in the stage of SKU rollout? Is it in all stores? Is there other -- is there a lot of opportunities for this category? Could it rival that of yoga and run? Also, I was wondering if you could talk a bit about your outlook for pricing pressure next year. We are hearing from a lot of folks that fiscal '12 input pricing is coming down a bit. And I also was wondering if you could talk a little bit about ivivva. It sounds like you're starting to open more stores there. And I'm wondering about the viability of that concept for America and also, how big you envision that category could be. Christine M. Day: Okay. So I'll start with cycling. And I think what -- we -- right now, we believe that run and yoga are still such big white space. And as I talked about earlier, we want to keep some innovation back for it to drive that future growth and we also don't want to be distracted from what we believe are the 2 biggest growth categories. So we view kind of testing our way into it. But we also do see it's a great white-space opportunity, just like really yoga was to do a lot around. So we'll continue to develop that, but in terms of being in a hurry to develop something or needing to develop it to drive sales, we're not in a hurry from that perspective and getting it right, getting the technical product and exploring is really what we're doing there and we'll continue to do for some time and -- so that when we are ready to go, we're ready to go there. Pricing pressure, I don't think we've really seen a lot there. We have seen some cotton coming down. John E. Currie: Yes, for 2012, of course, we haven't placed the buys yet so it's really too early to give much clarity, but there are indications that there is some relief in some of the inflationary pressure that we've seen through 2011. Christine M. Day: And for ivivva, we're really excited about the results that we're seeing in the ivivva model. We're already producing square foot -- sales per square foot numbers that are above the industry average in that concept. The work that we've done on the product line has strengthened the gross margin to a strong gross margin and as we increase our buys, we'll continue to get leverage on that. So it's a healthy business model and it's growing, and I think what we've learned about the guest is there's really -- there is some white space around that. So I think if we size that price compared to traditional children's wear or traditional sportswear, you'd probably get a smaller number based on those analytics than what we believe the opportunity for that concept is, because it's a combination. And we really feel like we've hit a great spot there with that dance, gymnastics and then the fitness line and skate being the big hitters. So we're really happy with what we've seen there. What you'll see us do is take it to online in Canada first. And then time permitting, we hope to get it online for the U.S. for the holiday season, but that still will be dependent on our resources to make that happen. And if not, then we'll launch it in spring of next year in the U.S., though we do anticipate we'll get a lot of demand, because we've already gotten a lot of calls about asking us when we're going to get that concept in. This year you'll see us open a couple of new stores. We've had some pop-up stores similar to the lululemon, but in its own unique way. We've done some test stores for that concept, so -- and those have been very well received, particularly in the Toronto market.

Great. And just one more. On the e-Commerce business, could you just refresh me as to which markets you now are operating or which markets have access to your e-Commerce -- the lululemon e-Commerce site?

Our predominant business is based in Canada and the U.S. And then we do pretty much ship all over the world from our DC in Sumner, Washington. So we see quite a bit of business coming from Europe, Asia, Australia. It's less than 3% of the total really, sort of outside of North America today, but we certainly see it as an opportunity for growth going forward.

So you don't have country-specific sites except for North America. Is that right, Chris?

That's correct, yes.

Okay, and do you have plans for launching company-specific (sic) [country-specific] sites in the near term?

Yes, we sort of look at it as the same strategy as our store roll out. If the demand is there, if the guest is looking for us and feel like we need our presence there, then that's the strategy that we'll take. We do see some indication in a couple of places in the world now where we could certainly support it, and we're looking at that as we go forward. Christine M. Day: And I think one of our -- yes, and just the only thing I'd add, Janet, is the first site you'll see us concentrate on is Australia, so we can support the local store market there.

Great, and what -- could that be this year, Christine?

No, I think -- we're looking at early 2012. We really just got the platform in-house, and I think it's too premature for us to be rolling out any additional markets. We've got some work to do to shore up the North American business before we expand outside of that.

Our next question comes from Claire Gallacher from Capstone Investments.

Just wanted to circle back on ivivva, to follow up on Janet's question. Did you mention if you're going to have the e-Commerce launch ahead of back-to-school ready for this year? Or will that be pushed into 2012? Christine M. Day: So for Canada, our goal is to have it late summer. It's a little touch and go just to make sure that we make it. Like what I'd like to have would be early August. It might be sometime in August. So that's what we're shooting for. In worst case, early September, which would be a little later than I'd like, but we have to let the team do it well and that's always our priority, is to have something that we can be proud about there and not rush a date. But we'll certainly, at a minimum, capture the holiday season.

Okay, great. And then if you could just give us an update on your men's business. I realize that's a small part of your business, but just kind of what's going on there? How did men's perform in the first quarter? Christine M. Day: We were definitely inventory light in the men's category. It's held its percentage of sales even through the growth. I think with men's, we're -- I still feel like we're going through a little bit of a transition. I think that the product quality, the color set and the focus has been right. But I think we're still looking. We feel like we've got a really strong line of shorts and bottoms and, I think, our signature tank, our tech tops. And I think what we're really finding in men's is what's our sweet spot, so that we can really grow that without it being an also-ran to somebody else or a distraction to us, so for our women's. And what's the right amount of space in the store for that? So I really feel like we still have a lot of room to grow in that category. The guests have loved the product and once they try it they're very loyal to the product. So I think that's still an evolving concept for us, but I know -- in my mind, we still haven't got that 100% right.

And then in the new stores that you're opening, is the men's business doing better than the older stores? Or is it kind of performing at the corporate average? Christine M. Day: Well, I think, you see a natural evolution the U.S. because the brand was introduced as the male -- female brand. You see it stronger there. In Canada, we're starting to see that shift, as more men are getting into the product and testing and trying it. So we're actually seeing healthy growth in Canada but the percentage is still less than you see in the U.S. except for the underwear. We can never keep that in-stock for the men's.

Our next question comes from Sharon Axfia (sic) [Zackfia] from William Blair.

It's Sharon Zackfia. A couple of quick questions. It looked new store productivity was very, very healthy in the quarter. Could you comment on how the class of 2010 is performing versus historical averages? John E. Currie: The new stores in 2010, and this was -- I think I mentioned this on the last conference call, and it continues to be true -- that the stores we opened last year are very close. They're all in the U.S. market and they're very close to the overall U.S. average, which is obviously very strong for first-year performance. They're at the level where we used to expect them to hit in the third year.

Okay. And then separately, I was hoping you could remind us -- on the shift to bring in e-Commerce into an in-house platform, could you remind us on what kind of the cost-savings potential is for this year from that shift, and maybe ultimately what the goal would be for e-Commerce over the next 5 years in terms of a percent of sales? John E. Currie: I think the answer for this year is a little bit different that what it's going to be going forward once we're really up to speed and normalized. The shift to get away from a variable-fee model should easily produce an additional 10 points of margin. You won't see that this year because number one, the transition is partway through the year but we're still in build mode, so you'll see a little bit of leverage this year but not to the same extent that we expect to see going forward.

And then ultimately the e-Commerce target, was it -- Christine, was it 15% over time or higher? Or... Christine M. Day: We said that's our midpoint and which we view as achievable in a couple of years. And then after that, with Chris and Sheree done deblining [ph] -- designing what the product line for that is, we do see a large opportunity to do things, like extended outerwear season, that we can't do in our stores, that we can carry product lines a little bit longer. We can bring back the classics. I mean, there's so many things that we can do. Yes, and line extensions that we don't have the opportunity to do because of our size and our stores that also produce a healthy margin. And we're doing the work now prior to prioritizing those opportunities along with all the other projects we're giving Chris. John E. Currie: Yes, we're going to set a much higher internal target just to Chris on this, so... Christine M. Day: Every time he goes into John's office, John is taking the target up. So Chris is avoiding John's office now.

One last question. I think I saw Chip [Dennis Wilson] on Facebook kind of dancing around in his Blue Sky division, so I felt that I have to ask, what is Chip up to in the Blue Sky division, if you kind of could explain what that's incubating? Christine M. Day: Way too much that we could ever execute. He's having a great time, really looking what's happening in the world of retail, what are the things that we could look at, everything from fabric to new concepts and he scares me every time he comes by my office with pictures of things he wants to do. And he's got a great little team that works with him that dimensional-izes these opportunities, so he's really working on that 3- to 5- to 10-year innovation pipeline and he's in his great space, which is "What's possible?" And that -- so we don't have to worry about innovation around here.

Our next question comes from Paul Luhiez (sic) [Paul Lejuez] from Nomura.

Paul Lejuez. Just wondering what was behind the macro comments you made today, which you hadn't talked about as of last quarter. Was it related more to the U.S., Canada or both? Or just kind of were you throwing it out there? And I guess also specifically if you can talk at all about the performance of U.S. versus Canadian stores, would be curious to hear any color you can provide. John E. Currie: Really, don't read too much into the comments. I mean we're all looking at the world economy, in Greece, et cetera. I just think it's prudent for us in any of our planning to be aware that the ground can be shifting. And it's nothing about what's going on in our business or Canada or otherwise. Sorry, what was the other part of the question? Christine M. Day: No, I just think that the reality is for us, we feel very in control of our business and the variables that we can manage. So we see the risks and the things that we can't, and I think it's where the potential is in the macro environment is what we'll lead into but also what we create contingency plans around, so. And we see the U.S. business is really caught up to 2-years' gap that it had I think in that '08, '09 and we see the ramp accelerating at that catch-up pace. So we feel very good about where we're at and I think it's the unknown that we're left worrying about.

Got you. And then just U.S. versus Canadian stores during the quarter. John E. Currie: Just in terms of comp, as we've been saying in the last few quarters, the rate of increase in the productivity of the U.S. stores in general is dramatically higher than what we're seeing in Canada, which is what you'd expect. We have a mature business in Canada that is still -- continues to comp positively. And we have momentum in the U.S. that, as Christine says, is seeing the U.S. catching up quickly to Canada. Christine M. Day: I think, just to be specific, we've heard other retailers comment on Canada softness. We didn't see that, but I think it was probably masked a little bit by our inventory position. So we were performing where we expected. But since we've been back in inventory, we've seen the ramp. So I think that's not something we're seeing today. But that's part of what keeps us cautious is that out there, are we just playing catch-up for lack of inventory? I think that will play out over the second quarter.

Our next question comes from Taposh Bari from Jefferies.

I wanted to ask you guys about the DC business and how you plan kind of increasing I guess the marketing around that, now you have that under an owned model. I guess specifically, if you can just talk about that. And also specifically, would you ever consider complementing your e-Commerce business with possibly a catalog or some direct marketing initiatives? Christine M. Day: So I'm sorry you said first -- the first line you said, Taposh, was that the e-Commerce business?

Yes, I just wanted to get some more clarity around how you plan on kind of increasing the marketing around that, now that you have it owned. And also would you ever consider complementing your e-Comm business with a catalog down the road? Christine M. Day: We haven't considered a catalog. I think there's -- we put some things out there like you saw us do in the transition. We actually put a little catalog, a mini-catalog out on Facebook so people could do a product look. And so you might see us do some things that are online and kind of reinventing what a catalog looks like, but not a traditional mailed, paper catalog. So I don't know that there's any reason for us to do that because we're so active in social media to reach those guests. I think you do see us drive a little bit of more online advertising in Runner's World and the Yoga Journal. But it's more print around our product and not brand -- traditional brand advertising in terms of a commercial aspect. We really, strongly believe in that guest experience, sharing and growing lululemon because it creates the strongest brand loyalty and emotional attachment, so you'll continue to see us stay away from traditional drive-transaction advertising, at least in the short term, at this stage in growth for our brand.

I do think now that we have the platform in-house, we have some unique ways to bolster our community online. And I think if you see us adding any demand-generation-type activities, it will be focused on how we further strengthen the community and using things like mobile apps is a great opportunity to do that. Christine M. Day: Yes, we have a -- it's a very interesting statistic, and even though we don't have a -- don't actually have a mobile app right now, we have -- Chris, how many of our customers actually use their iPad or phone to buy off the e-Commerce site.

Yes, right now our mobile sales are 7% of the total and we don't have a mobile-optimized website. So you can probably imagine what would happen with that percentage if we actually created an experience where people could use the phone in a friendly way to navigate the site. So that's one of the initiatives we are quickly getting underway today.

That's very helpful. And then the -- I guess the second question that I had was -- I don't know if Sheree is on the line, but maybe if you could talk about just kind of where you saw relative strength in the women's assortment, if you could talk about tops versus bottoms. I think you'd mentioned a couple of quarters ago that you were seeing really good momentum in the core business. Any kind of color there would be very helpful.

Sure. We're seeing the seasonal categories perform really well right now. So we see continued momentum with tanks, and we see unbelievable momentum with tops. So all of our Silverescent running tops and so on and so forth have been outperforming plan, as well as our crop and short categories. So really healthy seasonal business along with complementing our core business is what we're seeing. Did that help?

Yes, that does.

Our next question comes from John Zolidis from Buckingham Research.

Two questions. One, I was wondering if you could attempt to quantify how much the lower inventory levels held back the comp in the first quarter. Do you have any way of quantifying that? And then second, it's a little bit of a broader question. When you talk to your customers and you discuss with them where else they might be shopping for similar product, where do you think you're taking share? And to the extent that you can see what some of your competitors are doing, do you think more competitors are trying to copy or come out with similar product to what you have in your stores? John E. Currie: Maybe I'll take the first question, just trying to guesstimate what the potential could have been had we been in better inventory position. I think the best way to think about it is just looking at how the sales trended through the quarter. We came into the quarter. February was strong. And as the months progressed and towards the end of February, we sort of hit our low point in the inventory. So as expected, March, the comp was very low, low double digits. And then into April, I guess, first the second week of April, as our inventory position improved again, we saw the comp rebound. I mean, I don't give monthly comps but I think it is important to give the detail. April was around a 20% comp. So I think it's easy enough to say that had there not been in the inventory dip in the middle, 20% could have been achieved for the quarter. Christine M. Day: Sorry, I was just going to go answer that. Your question really about where do we see other guests shop, I mean, the historically, if they're a runner, they have probably been in the Nike run product and then they try our product and they still probably have a family that they -- of products that they use from Nike. And our goal is to continue to win that guest over with our technical product. We've made some great strides, I believe, in the run short in particular and if you just look at -- if you go to any race now, you'll see a well-represented fraction of lululemon and I think particularly in the men's shirt, you see us gaining a lot of share in that category for men as well as our run-response short. So we're continuing to refine that technical product and really go after more of that marathon runner. I would say that we've really gotten the light runner and the half-marathon runners, so continue to refine into that more technical space what's needed. In other categories such as yoga, probably the one thing that we don't have enough of in the lineup for some guests is a more light organic or cotton product. We really find that it's at our quality standard and length that we want to have the garment last for the guest, that we're not going to be doing the filmy tops and a lot of the other things that guests get that are only going to last a season or shorter. And that's not our space, so we kind of don't look at growing market share there because of our technical product focus and our desire not to be seen as active wear, but true athletic wear. So there are some categories we opt out to which leave some white space for competitors, and that's really where we see a lot of the soft line substitution, is into those spaces.

Our next question comes from Liz Dunn from FBR.

I have some questions regarding the inventory position. Are you having any trouble finding factories that meet your standards? Because other athletic and technical apparel manufacturers seem to have inventory up more than the rate of sales. But some are mentioning capacity constraints. So that's one question. And related to that, I recently found groove pants from like 4 different countries in one store, so I'm just -- I found that curious, and was just kind of wondering what your strategy is there. Also, John, your comments regarding gross margin for the back half are more specific, but sound about consistent with your prior view. Is that right? And are you bought through the balance of the year? Christine M. Day: So let me start with our manufacturing base. So our fabrics are really manufactured in just a very small handful of factories, so that we can really control the quality of the fabric. Then the fabric is shipped to several manufacturers. But we have a very small base of manufacturers that we expand with, so -- and so that we can control the quality, we're not usually their beta when they open a new factory. We wait until the sewing capacity is at the level that we can go into, which is why we're a little slower in building our factory base and our capacity than other people, to protect that quality. But while maybe the one factory is in -- one factory owner could own a factory in 4 countries, which is what you see, but it's run by the same general organization that we partner with. And that we do a multiyear capacity-planning exercise with those factory partners to grow to that future demand in partnership together. And that allows us to ensure that we not only meet the quality but that we have a commitment to helping them grow in a way that's healthy, that meets all of the environmental standards, that meets all the labor standards, the health and safety standards, clean water standards that matter to us as we grow that factory base. So the cut-and-sew portion could be in different countries, which is what you were seeing on the groove pant.

Okay, and then, John, regarding the gross margins? John E. Currie: Yes, as you say, the guidance on the gross margin in the back half is consistent with what I've said in the past. We have placed the buy for the seasonal component of the back half of the year. Of course, there's some additional ongoing flow throughout the year, but yes, it's consistent pretty much with what we've said before.

Okay. In terms of Canada, it looks like there was a bigger deceleration in Canada in the quarter than the U.S. Was there some reason that the inventory was -- affected Canada more than the U.S.? Christine M. Day: Yes, as we looked at the inventory assortment and going into Q1, there was less because we buy separately and ship into 2 different DCs. The buy for Canada was a little lighter in the first quarter, so they suffered a little bit more from our inventory shortage than the U.S. market did.

Okay. And then just finally, big drop in payables, was there anything behind that? John E. Currie: No, I mean a lot of it was accrued income tax allotted the end of the year. It's just normal payrolls -- or payables cycle.

Our next question comes from Edward Yruma from KeyBanc Capital Markets. Unknown Analyst -: This is Jane [ph] in for Ed. I just had 2 questions. Your inventory turnover in the quarter, was it -- did it increase in-store? Or is the higher comp needed to drive your new-store growth? John E. Currie: Sorry, can you repeat that question? Unknown Analyst -: Your inventory turnover in the quarter, did it increase in-store? Or was the higher comp needed to drive new-store growth? John E. Currie: Sorry, I'm really struggling to understand the question. Christine M. Day: Inventory turnover in-store did increase, of course, yes. Unknown Analyst -: More than what's needed to drive, let's say, costs for new-store growth? Christine M. Day: I don't think I understand that question either. Unknown Analyst -: For -- costs for new-store growth... Christine M. Day: So do you mean the preopening expense for new stores and...? Unknown Analyst -: That compares to -- because you were talking about higher in-store compensation. Christine M. Day: So higher compensation for our store managers? Unknown Analyst -: Yes. Christine M. Day: Okay, so what does it take to leverage that increased investment? Unknown Analyst -: Yes. Christine M. Day: Okay, we're with you now. At our rate of growth and our high sales per square footage, it's -- the amount that we've given in a pay increase does increase our payroll, but the rate of growth of sales in those stores more than offset that investment that we've made in paying back our people, which we really believe they're the ones that drive the revenue and should share in the success of the company. John E. Currie: And just to clarify, the revisions to our in-store compensation were rolled out in April. So they had some impact in Q1, but they're more of an impact Q2 and forward. Unknown Analyst -: Okay. And then I was wondering if you, as it relates to e-Commerce, if you ever plan to fulfill the e-Commerce stores from in-store stock. Christine M. Day: At this point in time, it's not a priority for us to be able to do that. We've got some other things that are ahead of that. And I think in order to do that, you also have to be very accurate with your inventory if we try to -- and we don't have any desire to ship from store. Do we see an opportunity to have some kind of handheld or terminal that we could satisfy the demand and ship from home in the stores in the future? That's definitely something that we're considering. And there's a lot to work out from that in terms of compensating store managers and keeping all of that in line that we have to solve. It's not just a technical issue, because we want to make sure we get it in a robust solution that satisfies all the concerns with doing something like that. Unknown Analyst -: And just my last question is, as it relates to the running products, can you tell what you are most excited about for Q2 and then for the second half? Christine M. Day: For running products, what we're excited about? Unknown Analyst -: Yes, for running.

Well, every month, we drop new running products. So one thing that our design team does a phenomenal job of is continuing to inspire and delight, including me. If you look at my closet, you'd know how much I love our running products. But every season, we come out with amazing new shorts, new running skirts, our technical tops and so on and so forth. And that continues. Going forward beyond that, there's other technical pieces of the line that we are adding. Christine had mentioned that commuting is one of those and going into third quarter, we're actually looking at dropping a new commuting line. So we've always got something new up our sleeve that we're excited about. Christine M. Day: I think in the first quarter it was definitely the white run shorts, which people felt it was a great crossover, and the skirt was a great crossover piece for a lot of things that flew out the door. So we're also finding if we do things in color and print right now, that's also a really big driver of the product.

Our next question comes from Howard Tubin of RBC Capital Markets.

A quick question on international growth outside of North America and Australia. Any updated plans there? Christine M. Day: We're definitely doing all the behind-the-scenes work on the business model, evaluating the markets, looking at feature or structure capability that we need. But in the near term, we find every resource that we have really has the opportunity to be deployed to North America and because the opportunity is just so big to continue to drive that business. So we're not in a hurry to get there because there's so much demand in front of us right here. But doing the prudent planning, to be able to turn that on in the right way, which for us is always with a healthy profit objective and not with a loss that you have to clean up later or not doing it well, we're attracting talent that has global experience in a lot of key positions to build our bench to be able to manage that business well. So you'll see us do a lot of behind-the-scene things, but -- and we'll continue to do some wholesale in those markets. You'll start to see us, the e-Commerce in those markets. And eventually, we'll do some showrooms to test markets, but we're already beginning to develop the tracking capability, develop a pricing strategy. So those are the things that we're looking at right now.

Our next question comes from Stacy Pak of Barclays Capital. Stacy W. Pak: I guess I still have several questions, believe it or not. But one is if you're back to the 20% comp in April, why not guide to that sort of a level for Q2 given the inventory sales, like it's in a better position. Two, I was hoping you could comment on -- Christine, you just mentioned prints and brights. I think at least that's what you said -- comment on that in terms of the inventory. Do you think you have enough of that, as well the smaller sizes, the 2s and the 4s and also the accessories? And if not, when those kinds of things get back in stock? Can you also comment on the pricing that you took? Do you want me to keep going or come back to you on the other questions? Christine M. Day: Maybe let John take the comp one and then, Sheree, give me some notes on the prints and colors so we'll do that one. John E. Currie: Okay. Yes, as you say, we saw 20% comp in April. April we got a real surge of new inventory in. Our inventory in Q4 -- or in Q2, as we've said, isn't going to be perfect, either in terms of quantity or mix. So I don't want to assume that we'll match that surge that we had with a lot of new product in April. And so we are guiding for higher than what we saw in Q1, but I don't want to get carried away because the inventory flow is still less than optimal. Christine M. Day: And I think we also know that there were some pent-up demand in April that probably peaked April, and I think that's what we're looking at is, what's going to be that normalized rate? And we're still seeing, as the new product line comes in, that kind of starved-guest effect. But once we get full into stock I expect that to normalize a little bit. And then we do from July forward start to anniversary some pretty steep comps going into like the third quarter. John E. Currie: Well, and in fact, last year in July, for example, we had some markdowns that drove volume. So we're also lapping against that. Christine M. Day: So for prints and colors, I think we haven't had enough of those proportionately in the line in the first quarter and beginning in the second -- beginning of the second quarter. That increase is pretty dramatically in the end of back half of second quarter and the third quarter, fourth quarter. So we feel really good about where we are with that. I think we were a little light, I think, on prints and bright colors for the first quarter and that will something be that we address next year. And accessories, we've had a little bit more of a focused line that sold really well but we've seen the guests missing some breadth. We've got a great team in accessories now and I think you can look forward to us increasing that. On the size curve, we've improved. We don't have this big out-of-stock situation, but on the colored lines and the prints, we still see the 2, 4, 6s go faster and so we're constantly adjusting the amount of mix we have in that. That said, part of our strategy has always been that -- not to ever have enough of some those to keep the scarcity, to also have the guest be able to walk into a class and not be dressed in the same as someone else, which we believe fairly strongly in. So within the boundaries of that, we do expect those to turn at a faster rate, and -- but we should have something new behind it. And that's what we're working on, is to increase that. Stacy W. Pak: And then the pricing that you took in Q1 and sort of how you're viewing your opportunity to price up in the second half. And then I don't think you said -- or if you did I missed. The stores that opened in Q1, how did they open on sales per square foot versus the U.S. average? Christine M. Day: In terms of pricing, we didn't actually take any pricing. So what you'll see us do is some special edition hoodies or groove pants or jackets that might be priced higher than the norm. But we've been pretty selective about maintaining our price points. So we haven't actually taken, like, an official pricing. It's been on the item-by-item basis from adjustments, especially with special editions. And then you had your first question, which is on the new stores, which... John E. Currie: Yes, and of course, we don't have annualized numbers for the stores that just opened, so we just have a few weeks of average weekly sales. And similar to the store openings last year, they're opening anywhere from 80% to 100% of the average for the U.S. So continued very strong openings of these new stores, again very early days for some of these because they've only been opened a few weeks.

Our next question comes from Jennifer Black from Jennifer Black & Associates.

I have a few questions. I wondered -- it seems like you're offering more product that can be worn for multiple purposes and that you have an offering of dresses. I wondered how big of an opportunity you feel this is? Christine M. Day: We always and you see this in the spring, it's kind of a cover-up piece and kind of from that to-and-fro yoga collection that's part of our like fun element that we always have in there in the spring. So you see us do that then. But we don't see us driving what's more of what we call kind of a culture or a casual-wear piece as a main category for us. But have an element of fun and surprise and delight, that's why we do things like that, but not as what we see a major growth driver.

Okay, great. And then as far as your product categories, what do you see as being the largest opportunity for fall? And can you speak a little bit to outerwear as well?

So the largest opportunity is actually being in stock in what the guest wants. So, good idea, right? If you look at our tops category, that's one that just sticks out of my mind. Our technical tops is something that our guests cannot get enough of and we've significantly increased our penetration there. In terms of outerwear, we have -- I think, what you'll see is some new styling and we're really pushing the boundaries more there, and we're really excited about that. So I think you'll see more variety in that category. Christine M. Day: Yes, and I think that we didn't do spring outerwear this year. Normally we'll do a light jacket, et cetera, but you will see that drop in August for back-to-school. So there'll be not only the traditional that we do for October, the winter, you'll also see a bit of a fall jacket assortment.

Great. And then lastly, I wondered what percent of your business is accessories? And do you have a goal -- a longer-term goal, in mind? Or are you happy with where it is?

Our penetration varies between 12% and 15%. And I really feel that, that's probably the right penetration. There is definitely opportunities to be in business in certain categories with an uninterrupted flow and so on and so forth. But the overall penetration, I don't know that we'd want to see it too much higher. Christine M. Day: No, I think keep it growing at pace is the right strategy.

Our next question comes from Dana Telsey from Telsey Advisory Group.

Can you give us any more color just on the comp store sales number or the transactions traffic, what the complexion was? I thought what was really outstanding was the gross margin, the mix of the gross margin and how you see those components going forward through the balance of the year. John E. Currie: Okay, well, the first one, the comp, and again this is similar to what we've been seeing, about 3/4 of the comp came from increased traffic and most of the balance came from increased conversion, Very little came from the basket that the guest was buying. In terms of your question on gross margin, not quite sure how much I can say other than what I said on the call. I mean, gross margin in Q1 was extremely high. Of course, a lot of what was driving that was very, very few markdowns. That's not even a healthy markdown level, as we're back to normal inventory levels. You'll just naturally see some more normalized markdowns and that will bring gross margin down. The balance of the year, we'll continue to incur air freight because we are still working hard to stay in an inventory position and that's higher than what you'd see in, if you could call anything a normal year. And the main thing offsetting those -- sorry and of course, in addition I talked about inflationary pressure on sourcing labor and materials. And then, offsetting that primarily is leverage on higher volumes on occupancy, depreciation and other fixed costs.

And then, Christine, could you just comment on, as you see the product assortment go -- and as you move international, opening that first warehouse showroom in London, any adjustments to the categories, the penetration or the mix as you move forward? Christine M. Day: Sorry, what did you say about London? I was -- I missed that part.

As you open your first warehouse showroom in London, as you grow in other regions, does the mix at all need to be adjusted? Christine M. Day: Yes, we haven't officially planned to open the London showroom yet. We've kind of held back on that, so we're really penetrating more with strategic sales and some trunk shows, et cetera, in that market, which we found is the right strategy for where we're at right now rather than a physical store. But I think we always start with technical products, which is our highest margin product, because that's what we want to seed with the guest first. So in terms of margin impact, it would be a healthier margin because it's in our core technical products.

I would now like to turn it back to the speakers for any additional remarks that they might have. Christine M. Day: So I apologize that we run out of time and I know there were more people with questions in the queue, so we'll try to handle those off-line in callbacks. So thank you everybody for joining us today, and we look forward to seeing you out there and we look forward to Q2. Thank you.

Ladies and gentlemen, that does conclude today's conference. You may now disconnect and have a wonderful day.