Thank you for standing by. This is the conference operator. Welcome to the lululemon athletica inc. Fourth Quarter and Year-end 2017 Conference Call. [Operator Instructions] I would now like to turn the conference over to Howard Tubin, Vice President, Investor Relations for lululemon athletica inc. Please go ahead.

Thank you, and good afternoon. Welcome to lululemon's fourth quarter earnings conference call. Joining me today to talk about our results are Glenn Murphy, Executive Chairman; Stuart Haselden, COO; Celeste Burgoyne; EVP, Americas; and Sun Choe, SVP, Merchandising. Before we get started, I'd like to take this opportunity to remind you that our remarks today will include forward-looking statements reflecting management's current forecast of certain aspects of lululemon's future. These statements are based on current information, which we have assessed but which, by its nature, is dynamic and subject to rapid and even abrupt changes. Actual results may differ materially from those contained in or implied by these forward-looking statements due to risks and uncertainties associated with our business, including those we have disclosed in our most recent filings with the SEC, including our Annual Report on Form 10-K and our quarterly reports on Form 10-Q. Any forward-looking statements that we make on this call are based on assumptions as of today, and we expressly disclaim any obligation or undertaking to update or revise any of these statements as a result of new information or future events. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our Annual Report on Form 10-K and in today's earnings press release. The press release and accompanying Annual Report on Form 10-K are available under the Investors section of our website at www.lululemon.com. Before we begin the call, I'd like to remind our investors to visit our investor site where you'll find a summary of our key financial and operating statistics for the fourth quarter as well as our quarterly infographic. Today's call is scheduled for 1 hour [Operator Instructions] And now I'd like to turn the call over to Glenn.

Thank you, Howard. Good afternoon, everybody. It's been a while since I've been on an analyst call but I plan on being brief today because we have a full slate of speakers. What I can say to you is, overall, the board was very pleased with our performance in 2017 clearly was a market share gaining year across categories, across channels, across all geographies. What was really gratifying for I know the management team but also for the board is how we actually recovered after a tough Q1. We diagnosed what went wrong, and we took quick action. And when you look at the year, we actually improved sequentially. I mean, you've been through the P&L. This is not the first call in 2017, it's actually the Q4 call. When you look at it sequentially, the business improved from Q2 to Q3 and Q4 across pretty much every KPI, which Stuart will take you through in a second. What that tells us as a board, and I'm sure the management team -- not that I'm just sure, I know the management team feels that this was a real testament to the character of the people of the SSC, our people who work in our stores, all our educators, that the business was able to recover very quickly from a disappointing Q1 to produce the overall 2017 results that we're showing you today. I was actually in Vancouver last week. I was kind of joking with the management team that this is the kind of quarter that you take, you laminate, you frame and, ultimately, you replicate. Now last week, we had a board meeting in Vancouver, and the management team presented to us, in actually pretty good specific detail, their 2018 strategic initiatives, where they're going to focus their time and where we're going to invest our capital. So you're going to hear, not just on today's call and in the Q&A but in subsequent calls in 2018 like you have for the last couple of years, you're going to hear today from Celeste and Stuart and Sun about how we're going to continue to focus on product innovation, category extensions, our digital business, our international expansion and much more. So our top strategic priorities that you've been hearing about for a while, obviously, are intended to drive long-term shareholder value. What I can tell you from last week's meeting while we spend a lot of time on those strategic initiatives and the levers to create value, what I would say is that the board really was engaged. The management team took us through not only those strategic levers but they took us through how they plan to actually build on our competitive advantages of people, community and guest experiences. Every company, they will change every year but when you have a 5-year vision like we do to 2020, everybody has key strategic initiatives they work on, they refine them, and they tighten up, they make them better every single year, and that's what lululemon is doing in 2018. But foundationally, this business, which will celebrate, by the way, its 20th anniversary in 2018, sits on a very clear set of competitive advantages: our people, our focus on community and our guest experiences. So one thing I will add from the board meeting last week is that we acknowledge as a management team, Stuart, Celeste and Sun and everybody who came and presented to the board, we acknowledge we're a little behind on data analytics and embracing the power of data. So we have a number of company veterans as well as some new execs we met last week in Vancouver who joined the business from outside lulu who are already working hard to turn this into a strength of the company. You add data to the competitive advantages I took you through and the strategic initiatives in 2018 and beyond, and that's going to be really something that's going to ignite the performance of the business. Lastly, I'm pretty sure there's going to be a number of questions on the CEO search. Why don't I just get ahead of that. It's been less than 2 months. We've met a number of actually great candidates and people who put their hand up to be considered for this incredible role amidst a very unique brand in retail and look at our performance in Q4 and our intent to maintain that kind of performance as we go forward. So the board's very confident in our ability to attract a top, proven, global consumer executive. So right now, with the time it's going to take as we're going to take our time, we're going to meet as many people as we can, we're going to make the right decision. We're very fortunate as a company to have the 3 leaders you're going to hear from today. They're working well together. They're not waiting around. They're pushing ahead aggressively to take lululemon to new heights. With all that said, let me pass the call over to Stuart to take you through the financial results for 2017 and to talk about 2018. Stuart?

Thanks, Glenn. Let me start by offering some highlights on the quarter. Q4 was an important period for us with several key moments of truth. First, we began to see powerful benefits from our new website. Second, we lapsed tough comparisons in both comps and product margins. Third, we cleared the expense pressure from the digital recovery earlier in the year. And finally, we accomplished all of this while scaling product innovation, expanding internationally and introducing new store formats. I'm pleased to report that the results our teams delivered exceeded expectations across the board. Our website relaunch enabled important new capabilities and helped us achieve a 42% constant dollar increase in e-commerce in Q4. Our combined constant dollar comp for the quarter was 11% on top of strong business in 2016. We saw normalized gross margin expand 200 basis points, and we leveraged SG&A by 90 basis points. This produced adjusted operating margin expansion of 290 basis points for Q4 and 100 basis points for the year, moving us toward our 2020 goal of EBIT margins above 20%. All of this connected to normalized EPS growth of 33% for the quarter, which comes on top of the 18% growth we delivered in the same quarter last year. Reflecting on 2017. While we continue to see exciting innovation in our product assortments and store channels, the more remarkable part of the story has been our digital business. Transformation may be too strong of a word but we certainly now have new capabilities in this area that are accelerating our growth. Celeste will share additional details but we are thrilled not only with the numbers we are seeing but also with how well the teams across technology, merchandising, marketing and e-commerce operations are collaborating. Looking ahead, we're excited for 2018 with steady improvements in our product assortments and key innovation launches, setting us up well for this year. As we are now in the early days of 2018, we are seeing the hard work over the last year continuing to pay off. Store traffic is accelerating into Q1 and fueling sequential increases in store comps. Product innovation launches in Everlux, Enlite and ABC in men's are providing powerful tailwinds in our assortments. Online conversion, benefiting from the new website, continues to exceed expectations. Our digital business continues to have much low-hanging fruit with additional opportunities in the near term to fuel further conversion increases with website improvements planned this year and checkout search and personalization. And finally, international continues to be an exciting part of the story with accelerating store growth in Asia and Europe. Looking beyond this year to 2020 and thereafter, we see a truly global business, dual gender, digitally enabled, with store and online communities driving authentic guest connections in new and innovative ways. We continue to shape the industry through our product innovation strategies and new category expansions that solve problems for our guests. This vision supports the financial and operational goals we have previously offered for 2020: $4 billion in total revenue, a $1 billion men's business, 25% e-commerce penetration and $1 billion international business. We are on track to achieve our goals, and we're excited by the momentum we're currently seeing across the business. Let me now hand it over to Celeste to provide additional details.

Thanks, Stuart. I am happy to report strong Q4 results in North America where both store comps and store traffic increased by low single-digit percentage. As Stuart mentioned, we now see store traffic trends accelerating into Q1. And while the retail environment has somewhat improved, we believe much of our momentum is the result of our omnichannel initiative as well as our investments in digital and brand marketing. In 2017, our square footage growth was 14%, excluding the ivivva closures, and our plan calls for low double-digit growth in 2018. Our multiple store format enable us to reach guests where they live, delivering localized tailored experiences. We continue to be happy with the performance of our colocated stores. In 2017, we completed 12 colocated projects in which we expand the size of some of our most productive stores to allow for a more complete expression of our men's collection and create space for potential future category extension. In 2018, we plan to accelerate this program with approximately 20 to 25 stores in this powerful format. I'd also like to highlight our successful seasonal store strategy. For the holiday season this year, we opened 24 pop-up locations. Not only did these stores allow us to fulfill holiday demand but they were also a way to attract new guests. And in fact, 40% of the gap in these seasonal pop-ups were new to lululemon. As Stuart mentioned, our digital and e-commerce business saw structural changes with transformative investments across people, process and technology. In short, it's working. Our Q4 performance reflected this with total constant dollar e-com comps up 42%, which is on top of the 12% increase last year. Traffic was up in the double digits, and we saw our best quarterly conversion results of the year. The sequential comp acceleration in Q4 was enabled by the release of our new website at the end of Q3. This release offered improved functionality, more compelling content and storytelling and improved product imagery. A few KPIs I'd like to share since the relaunch include: a 20% increase in site traffic; a 19% increase in conversion with mobile conversion increasing 21%; a 19% increase in direct visits; and a 32% increase in e-mail visits. And as a complement to our digital strategy, our omnichannel capabilities continue to expand. Our endless aisle functionality allows us to fulfill in-store demand with our e-commerce inventory. We have the ability to ship from store in 186 locations, and we'll further expand this capability in 2018. We will also roll out buy online, pick up in-store functionality during the second half of the year. Switching now to international. We continue to see a strong guest response as we expand our footprint and drive awareness. In Asia, for instance, our combined comps were 52% in Q4. In particular, we saw strength in digital where comps grew in the triple digits. We continue to go after local e-commerce and experiences which, in China, will soon include a WeChat store to augment our very successful Tmall e-commerce business in the region. We ended the year with 23 stores in Asia with our comping stores generating higher sales per foot than our overall corporate average. Looking toward 2018, we plan to open 15 to 20 new locations in this region. In Europe, our total market growth was 42% in Q4. In 2018, we plan to open 5 to 10 stores in the U.K., Germany and France, with 4 planned for Q1. We are encouraged by recent trends in Europe and continue to see this as a major opportunity for us, although likely a slower build versus Asia. Turning now to digital and brand marketing. This past holiday was our most successful to date in terms of reach, engagement and collective growth. We acquired approximately 1 million new guests with the largest growth coming from 18- to 35-year-olds. And by the end of the year, we doubled our e-mail file versus last year, expanding an important vehicle for us to directly engage our guests and drive traffic across both stores and online. And finally, I want to share gratitude for our educators and employees around the world. Our people are our competitive advantage. We know that when our people grow, our business grows, and these results are a testament to our amazing collective. Now to you, Sun.

Thanks, Celeste. I'm excited to speak to you about our Q4 merchandise strategies, which continue to gain momentum and set us up well for 2018. First, in women's, guest response to our holiday assortment was fantastic, as demonstrated by the strength we saw across categories. Outerwear and accessories are key for the fourth quarter, and our assortments clearly resonated. Jackets and outerwear comped up in the low double digits, led by puffer and parka shape, and our new collection of seasonal bags or standout giftables. Women's tops were also strong, which comped up 8%, driven by our seamless program. Our core business and women's pants was up 19% with continued growth driven by our engineered Naked Sensation. In Q1, we've injected newness into our #1 women's pants style, the Align, expanding the print and pattern offering on top of a new length introduced in Q4. We've also leveraged our Nulu fabrication in the launch of the Flow Y bra. In January, we excited our guests with new product flows that previewed our spring color palette, and we are encouraged by the response thus far to a greatly improved balance of color, print and pattern, now in-store and online, relative to our offering this time last year. Looking forward, I'm thrilled by our product pipeline, which delivers a unique blend of function and fashion that speaks to our guests and continues to scale our recent technical innovations. Turning to men's. Trends remained robust, posting double-digit comps in Q4. This was driven in part by ongoing strength in bottoms where comps increased 21%, and we're happy to share that this overall momentum in men's has accelerated into Q1. Our guests continue to love our expanded ABC offering. The jogger is now our #1 pant style in men's, and as of Q1, available in a broader color range. We are further scaling our ABC technology with all of our men's fixed waist bottoms now featuring this construction. Our men's outerwear business was also strong in Q4 comping up 20%. We're building on this trend this spring with the new collection of lightweight jackets. In addition, we are executing targeted strategies to drive guest awareness for men's. One recent example is a new collection in partnership with Roden Gray, a leading Vancouver-based menswear boutique, which was successful and sets the stage for larger product collaborations over the course of the year. We're proud of the guest response to our products, and we're determined to build upon this success going forward. I now hand it back over to Stuart.

Thanks, Sun. Before taking you through our Q4 financial results, I'd like to update you on certain nonrecurring charges and expenses incurred during the quarter. First, we realized the final charges and costs associated with the evolution of our ivivva business. These totaled $1.9 million in Q4 and $47.2 million for the full year and were in line with our most recent estimate of $45 million to $50 million. Second, we recognized a onetime income tax expense of $59.3 million related to the recent U.S. tax reforms. I'll now provide some further highlights on our Q4 results. Please see the Q4 financial supplement posted on our investor site for additional details. Total net revenue rose approximately 18% to $929 million, with the increase in revenue resulting from strong performance across all parts of the business. In our store channel, we delivered a 1% comp store sales increase on top of a 6% store comp in Q4 of 2016. We're also pleased with the 42% comp we posted in e-commerce that reflected the enhancements to our website mentioned earlier. Normalized for ivivva, square footage increased 14% versus last year, driven by the addition of 46 net new company operated stores since Q4 of 2016, 24 in the U.S., 12 in Asia, 6 stores in Canada, 2 in Europe and 2 in Australia and New Zealand. The impact of the foreign exchange increased revenues by $11 million. Gross profit for the fourth quarter was $523 million or 56.3% of net revenue compared to 54.2% of net revenue in Q4 2016. The gross profit rate in Q4 was positively impacted by 10 basis points related to the ivivva restructuring. Excluding this benefit, adjusted gross margin increased 200 basis points versus last year. This exceeded our expectations for the quarter with the primary driver being a 130 basis point increase in overall product margin resulting from favorability and product mix, lower product costs and lower markdowns versus last year. I'm particularly pleased that this increase comes on top of a 410 basis point improvement in product margin last year. We continue to see opportunity to gain cost efficiencies within our supply chain. For example, this year, as we further improved our planning processes, we're able to ramp down a portion of our air freight usage and increase ocean freight. This shift will help us continue to expand product margin into 2018. We saw 30 basis points of favorable impact related to the foreign exchange impact in the quarter and also realized 40 basis points of leverage on occupancy and depreciation. SG&A expenses were just over $264 million or 28.4% of net revenue compared to 29.3% of net revenue for the same period last year. We're pleased that we were able to deliver expense leverage in Q4 at the high end of our expectations. Approximately 60 basis points of the decrease relates to more efficient spend in both our home office and store channel, while foreign exchange, including both translation and revaluation exposures, contributed an additional 30 basis points of leverage. Operating income for the quarter was approximately $256 million or 27.6% of net revenue compared to 24.9% of net revenue in Q4 2016. Excluding the pretax charges of $1.9 million related to the planned closures of the ivivva stores, adjusted operating income for the quarter increased to approximately $258 million or 27.8% of net revenue. Tax expense for the quarter was approximately $138 million or 53.5% of pretax earnings compared to an effective tax rate of 31.1% a year ago. Tax expense included a onetime income tax expense of $59.3 million related to the recent U.S. tax reforms. The adjusted effective tax rate for the quarter was 30.6% versus 30.6% last year. Net income for the quarter was approximately $120 million or $0.88 per diluted share compared to earnings per diluted share of $0.99 for the fourth quarter of 2016. Net income in Q4 2017 included $59.3 million or $0.44 per share for the aforementioned U.S. Tax Reform and $1 million or $0.01 per share in after-tax ivivva-related charges. Excluding these charges, adjusted EPS was $1.33 per share compared to adjusted EPS of $1 last year. Capital expenditures were approximately $51 million for the quarter compared to approximately $43 million in the fourth quarter of last year. The increase relates primarily to higher investments in IT relative to last year. Turning to our balance sheet highlights. We ended the quarter with $991 million in cash and cash equivalents. Inventory at the end of the fourth quarter was $330 million or 10% higher than at the end of Q4 2016 and below our forward sales outlook. Based on improved efficiencies in our supply chain and the better planning capabilities that I mentioned earlier, we expect to use less airfreight in 2018 versus 2017. This will benefit product margin as our all-in, per-unit freight costs are expected to be lower due to the shift. As a result, we will be taking delivery earlier in the cycle relative to last year and we'll likely see inventories grow modestly in excess of sales in the first half of the year before moderating into the second half. To be clear, we have not altered our practices in managing inventory levels, and we are comfortable with how we are positioned for the year. Turning now to our outlook for the fiscal year 2018 and the first quarter. We're pleased with the start we're seeing to the year and the momentum building across the business. As a reminder, our guidance includes the 53rd week and reflects a modest benefit to sales and earnings for the year. For the full year 2018, we expect revenue to be in the range of $2,985,000,000 to $3,022,000,000. This is based on a comparable sales percentage increase in the mid- to high single-digit range on a constant-dollar basis. We expect to open 40 to 50 company-operated lululemon stores in 2017. This includes 20 to 30 stores in our international markets and represents a square footage increase in the low double digits. For the year, we expect gross margin to expand modesty, primarily driven by product margin improvement. We expect SG&A for the full year to also leverage modestly as we will not anniversary the onetime digital acceleration cost from 2017, and we realize efficiencies within our cost structure. We expect our fiscal year 2018 diluted earnings per share to be in the range of $3 to $3.08. Our EPS guidance is based on 136.3 million diluted weighted average shares outstanding. Our effective tax rate will decrease from 31% in 2017 to approximately 29% in 2018, reflecting our estimate of the impact of U.S. Tax Reform. Our estimate can change as we finalize our review of the additional interpretations and guidance. We've historically benefited from a relatively low tax rate due to the transfer pricing arrangements we have in place. And as such, we'll see only a modest reduction in our ECR this year. Furthermore, we will continue to analyze the impact of the U.S. tax reforms on our overall strategies for capital deployment. We have assumed the Canadian dollar at $0.78 to the U.S. dollar for 2018 as well as the first quarter. We expect capital expenditures to be approximately $240 million to $250 million for the fiscal year 2018. The increase relative to 2017 reflects a ramp-up of our renovation and relocation program, increased store openings in international markets, technology investments and other general corporate infrastructure projects. For Q1, we expect revenues to be in the range of $612 million to $617 million. This is based on a comparable sales percentage increase in the low double-digit range on a constant-dollar basis compared to the first quarter of 2017. This also assumes 8 new store openings in the quarter. We anticipate gross margin to increase by approximately 50 to 100 basis points versus Q1 of last year. Despite the strong increases in product margin last year that we are now anniversarying, we continue to see AUC opportunities, driven by our ongoing supply chain initiatives. We also expect to leverage SG&A in Q1 by 50 to 100 basis points as we gain efficiencies in our cost structure. Assuming a tax rate of 29% and 136.3 million diluted weighted average shares outstanding, we expect diluted earnings per share in the first quarter to be in the range of $0.44 to $0.46 versus $0.32 a year ago. And with that, let's open the call for questions. Operator?

[Operator Instructions] The first question comes from Oliver Chen of Cowen and Company.

The traffic was very impressive. What are your thoughts on what has driven traffic? And also, as we look at the year ahead, what's kind of incorporated for your view on traffic? Would you expect it to be volatile? And just another question was on Big Data. Glenn, you mentioned in the beginning, I was just curious about how that will manifest with customer engagement, supply chain and how we should think about that opportunity as it applies to gross margins to over a longer time horizon.

Thanks, Oliver. This is Stuart. So let me first address your question on traffic. So really pleased with the momentum that we've seen not only in Q4 but now into Q1. It's hard to overstate also the impact of the product assortment improvements that we've seen. Improved color palette, improved newness and style across the assortment has been really strong. It's also important that -- to note that guest acquisition strategies that we have been pursuing are driving traffic across both stores and e-commerce. As you look at it by channel, it's certainly -- in the store business, the traffic story is really what's driving the comps, and certainly, in e-commerce, it's a conversion story. So as we look at store traffic specifically, we saw total store traffic in Q4 was slightly positive across all regions. We saw sequential improvements across all regions as well in the fourth quarter and now, into the early part of the first quarter. So we're pleased with that traffic picture in general. And the things that I would point to that are driving that, certainly, the macro environment has improved to a degree but more importantly, we see the efforts in our digital marketing or omnichannel capabilities and the improvements that we've seen in driving increases in our e-mail file. These are driving, as I mentioned, traffic across both channels and continuing to see momentum in each of these into the first quarter. And from an e-commerce standpoint, the traffic story is important also but the conversion story is more pronounced. So just to mention briefly, the drivers there related to our website, improvements in load times, better navigation and more flexibility in how we can make changes to the website. So the traffic story is important across both channels and will continue, as I mentioned, into the first quarter as we continue to pursue those strategies. On your second question related to data analytics. As Glen mentioned, this is something that we're focused on. When we met with the board last week, it was one of the few priorities that we have been looking to build new capabilities and to complement our existing competitive advantages. Our approach is to bring data-driven insights into core decision-making across 3 areas: guest engagement, merchandising, general operations. So each of those 3 areas are where we're focusing leveraging data. So we're not as far along as we'd like to be in these areas. We're building a talented team. We've committed some significant resources this year to pursue this strategy. And we're seeing some nice early wins in our e-mail and digital marketing efforts. So this is something we look forward to sharing more with investors later in the year as our programs develop here.

The next question comes from Brian Tunick of Royal Bank of Canada.

Two questions. I guess, Sun, maybe excited to hear about the women's tops and outerwear businesses turning the corner in Q4. Can you maybe talk about what's changed specifically in those 2 categories and how you're planning introductions in 2018 maybe versus 2017? And then, Stuart, maybe you can help us bridge the Q1 guidance on gross margin and SG&A, thanks for the help, to what we're coming up with for the full year? Where in the rest of the year maybe are you giving some of the margin expansion back?

Great. Thanks. This is Sun. I'll hit on your questions around tops and outerwear. In the case of tops, we really saw a nice turnaround based on our balance of color and pattern, which we spoke to earlier in the call. And I also think that from a portfolio standpoint, we have a really nice balance of core franchises and a variety of silhouettes that's really driving the turnaround in tops, and that is something that we continue to invest in go forward for Q1 and beyond for 2018. In outerwear specifically, we really doubled down on new innovation and waterproofed down for Q4, which really resonated well and created a nice halo for the overall category. And as we look into -- and I would also say that color showed up really well in outerwear, too. The year prior, I'd say, we probably mostly invested in really dark neutrals, and this year, we did offer lighter neutrals, which has been resonating well. It's also a trend that we continue to see going into Q1 in 2018 and beyond. And I would say, really can emphasize the innovation piece to both tops and outerwear as being a really nice halo for us in product.

And Brian, it's Stuart. Let me address your question on gross margin and SG&A for the year relative to our guidance. So we're pleased with the trends that we're seeing in the first quarter in both of these areas, but what I would call out is that the comparisons get generally tougher as we get into the balance of the year. And there are a couple of anomalies by quarter that are worth mentioning. In the second quarter, we will see some gross margin pressure related to occupancy where we have some specific real estate initiatives in the second quarter that will weigh on our gross margin leverage. And then, in the third quarter, there will be also SG&A pressure as we lap FX benefits from 2017. And we also have some timing related to certain strategic initiative, investments in the third quarter that will also pressure SG&A. So those account for some of the differences that we see by quarter. As we look past the first quarter into the balance of the year, these will effectively dampen the overall gross margin and SG&A rate improvements for the year. So those are the headlines I'd offer in terms of how the Q1 guidance connects to the full year guidance of gross margin and SG&A.

The next question comes from Matthew Boss of JPMorgan.

If you broke down your 1Q and full year guide, I guess, what's the embedded growth for digital versus stores that you have within the comp guidance? And then, on the profitability side, how best to think about margins between these 2 channels, both today and also over time, given the growth of digital that you're seeing from a size and scale perspective?

Sure, Matt. Thanks for your question. So on the comp guidance, we're -- we obviously have more visibility on the first quarter, and we're excited on the momentum we're seeing there that we've talked about. And it's really across all parts of the business. We have the easiest comparisons, certainly, in the first quarter. The comparisons will get tougher into the balance of the year, especially given what we just reported for the fourth quarter. And as we think about how we will drive those comp results, certainly, we start with the product assortments and the improvements earlier in the year with regard to product -- I'm sorry, with regard to color and newness that we mentioned. But there's also strong channel tailwinds that we're seeing. We mentioned the traffic drivers and the conversion drivers. Those are both part of the story. And so we're -- so we feel good for the first quarter. And as you look at -- it's probably good to look at the comp picture on a 2-year basis. And you can see that there is some acceleration into the second half of the year with regards to the comp trajectory. And it's really -- I would point to the runway that we have between now and the second half of the year to develop some of the initiatives that we have more completely, whether it's just getting farther along in some of the product strategies, the community strategies, and just there's a number of colocated openings that will begin to ramp up into the second half of the year. So there's a number of things within just the channel strategies and the product strategies that will have a more full expression into the second half of the year that will benefit the comp trajectory. So those are the things I would point to in terms of trying to offer some dimensions by quarter. And then, as we look at your second question with regard to gross margins or margins by channel, overall, we feel great about the continued improvement that we see in product margins. We'll see some benefit in the first quarter with regard to leveraging occupancy and depreciation. That'll be muted into the later quarters of the year, and that's reflected in the guidance that we gave. As you think about margins by channel, certainly, e-commerce carries a higher operating profit margin that'll benefit and flow through to our EBIT margins. And certainly, as we over-index or drive faster growth in e-commerce, that'll be a good thing in terms of helping to leverage operating margins. And we really take an omnichannel approach to the business looking to engage guests where they choose to shop with us. Certainly, there's a lot of investments and effort around digital and e-commerce that is fueling the outsize growth trajectory that we have. That'll continue. So I think those are the comments I'd offer there. And we're pleased with how gross margins are shaping up, and we're pleased with our progress towards an EBIT margin that starts with the 2.

The next question comes from Paul Lejuez of Citi.

A couple of quick ones. Just curious if you could maybe break out in which regions was store traffic positive. Was it in every region? Second, on CapEx number for this year, is that the new run rate that we should be thinking about in future years beyond '18? And then, last, I wonder if you could talk about the level of newness in the bottoms business this year versus last year? How much will you be relying on updates to your proven winners versus new launches on the bottom side of the business?

Thanks, Paul. Let me try to tackle your first 2 questions first, and then I'll invite Sun to speak to the bottoms trend. Store comps by region were generally strong across the board. I would say, we saw particularly strong store trends in the Southeast in the fourth quarter, a little weaker comps in the Northeast. I think, weather was certainly a part of that. And in general, the trends in the U.S. were stronger than the trends in Canada. And within Canada, the Alberta region continues to be a softer area for us from a comp trend standpoint. And from a CapEx standpoint, we did see a significant increase in our plans for CapEx for the year, and that's really reflective of our growth strategy. So the store investments, not only in new stores but in our colocated projects, our international expansion, investments in technology to fuel our e-commerce and digital strategies and supply chain, we continue to evaluate investments in our distribution network to make sure that we are positioned in a very competitive manner with regard to how we're servicing our guests. So all those things are connecting to increased levels of investment that we believe will help us achieve our growth plans.

Thanks, Stuart. Paul, this is Sun. In response to your question on newness in bottoms, overall, we really like to look at our total portfolio of bottoms to make sure that we have enough in the idea of seating, which is really where newness comes in. And so while I don't really want to give a number that says we try to target x percentage, we do just want to make sure, from a portfolio standpoint, that we do have enough seating that drives newness to the assortment.

And Stuart, on that CapEx, is that -- is it a one-time increase this year? Or is that a right number you'll be using in future years?

Yes, Paul. I think it's a good number to use. I wouldn't -- I'm reluctant to say that's the right number to use for subsequent years. There were some particular technology investments that we had this year that we won't necessarily repeat into following years, but it's not a bad number.

The next question comes from Adrienne Yih of Wolfe Research. Adrienne Yih-Tennant: Stuart, my question is on e-com. In the prior year, you had reported an e-com EBIT margin that was about 1,700 basis points higher, kind of in that 40% range. And then, the stores are already really productive, from an EBIT perspective, mid-20s. Can you talk about that differential there? Where that extra, call it, 1,700 basis points is coming from? And then, as you grow that e-com channel, do you get gross margin pressure at that top line or at the gross margin line offset then in the EBIT line?

Thanks, Adrienne. So I mean, the simple answer on the e-com is that we don't have rent or store payroll, which is the big items in the cost structure that distinguish the 2 channels. We have seen pressure on a year-over-year basis with the e-com P&L contribution related to increases in digital marketing, and we're comfortable with that. We're viewing it or we're seeing that as an important vehicle to acquire new guests. So we're investing aggressively in digital marketing. And as I mentioned in my opening -- in the opening question, that's an important part of how we are driving traffic across the company broadly. The gross margin profiles are largely the same. We do -- as you're aware, we have been leveraging the website as a clearance vehicle. And we -- and by virtue of having the ship from store ability to connect the store clearance to the website is a very efficient and profitable way for us to clear excess inventory. So that does flow through the e-com P&L as well. But in general, the gross margin profiles are comparable between the channels. It's really the cost structures that are different. And the year-over-year pressure that I mentioned on digital marketing is notable as well. We expect that, that structure, that sort of margin structure, P&L structure, will continue. There's no reason not to expect that. And as we increase the percentage or penetration of our e-commerce business, it's a benefit to the overall company EBIT. So I hope that offers some color on your question there. Adrienne Yih-Tennant: Yes. Definitely. Can you -- just 2 housekeeping question. 53rd week, how should we think about that for fourth quarter of this coming year? And then, on the transfer pricing, is there an opportunity to do, I guess, the reverse inversion and bring back the EBIT back to the States now that the attach rate here is lower?

Yes. On the 53rd week, there's about just over a $40 million revenue impact in the fourth quarter, and that connects to about a $0.01 to $0.02 impact in earnings. And really, that's a result of this falling -- that week falling into a markdown -- a higher markdown period for the fourth quarter. So that's really the impact of the 53rd week. And on the tax rate question, there is more flexibility now, obviously, with the repatriation. We'll be evaluating the current structure into the future and taking this as an opportunity to take a look at it. Right now, the tax rate, the new tax rate in the U.S. versus Canada is essentially on par, so there's really no reason to make any changes to the transfer pricing agreements, but we'll certainly be taking a look at, going forward, what makes most sense in terms of our cash disposition.

Our next question comes from Omar Saad of Evercore ISI.

[indiscernible] quarter, Glenn [indiscernible] ask you guys about e-commerce business [indiscernible] it's a pretty miraculous turnaround from where you were a year ago. Maybe the improved functionality and investments you've made. Maybe elaborate what's going on over there, without giving away your secret sauce? It's obviously having a huge material impact on the overall business and trying to figure out how much more there is to go for the business from that standpoint?

Yes. Thanks, Omar. On the -- on our e-com business, it's been quite a journey from the first quarter, as Glenn had mentioned. There was a very quick response, and we're able to begin making improvements throughout 2017. And really, the improvements that we made in the second quarter and the third quarter were more process-related and things that were less technology-dependent. We certainly began immediately improving photography and some of the digital merchandising elements of the website in the second and third quarters. But I would say, more importantly, how the teams were working together was the most important factor. We broke down the silos, if you will, between merchandising, brand, e-com operations and technology and created a very cross-functional team that worked in a different manner. And so that led to better decision-making, faster decision-making. And we also identified early in the year the technology impediments that we had with the existing website, and we commissioned work with Deloitte, and we talked about last year as well where we essentially had the front end of the website rewritten with Deloitte's help. We then integrated that in the third quarter and launched the new website at the end of the third quarter. And so you saw those process and sort of low-hanging fruit steps in second and third quarter, and then in the fourth quarter, the inflection that we just reported was related to the new website. And we're pleased with all the hard work that our teams put into making that happen. We launched that website just shortly before peak season into the fourth quarter and really had no interruptions in the business. So it's a pretty remarkable achievement. But as you look at the website and the improvements that we had in the fourth quarter, I mentioned a few of those in that opening question, but it was really related to performance, faster load times, better navigation, visual merch that I just mentioned. There's a more intuitive interface in how the site shops. There were some checkout optimization, not a lot. And now -- but the most important factor that we fixed in the current version of the website was just creating a more flexible format where we can make changes to the website in hours or days where it used to take us weeks or months even. So there are some big issues that we're able to address with that update to the website. And as we look forward into 2018, we have some important projects teed up that will continue to drive conversion. And all the things I just mentioned have really been focused on driving improvements in conversion on the site. But this year, later this year, we will have a big effort around checkout as well as search and personalization. And so those enhancements will benefit and fuel further improvements in conversion and performance on the site into 2018. Then you combine that with the big investments that we made in digital marketing to drive traffic, you get a pretty powerful outcome from an e-commerce standpoint. So we would agree, it's been a remarkable turnaround, and there's a lot more in front of us in terms of how we're going to drive that business into 2018.

Our next question comes from Mark Altschwager of Baird Capital.

I guess, this dovetails a bit into the discussion you just had in there. But on the data analytics and CRM project, I think you characterized the efforts that's catching up. And early last year, when you realized you fell behind in digital, you caught up quickly, you filled SG&A higher but really paid off on the top line. So I guess, is there an opportunity to take similarly aggressive action to catch up quickly on the CRM and omnichannel capability fronts? Just curious how you're thinking about that? And whether that might need some acceleration in spending plans as -- in CRM as you build that team out this year?

Yes, Mark, thanks for the question. So it is a big focus. We are seeing benefits in the guest aspect of how we're applying data to drive the business. We're getting smarter in how we're being able to engage our guest via e-mail and other social media. And so I would say, we're going to see that benefit the business from a guest acquisition and retention standpoint. We think we can scale that. We can amplify it as we get smarter and have stronger capabilities in data analytics. There are some foundational investments that we need to make in technology that will help us be able to amplify that to a greater degree. Those investments are underway and part of the plans that we talked about, certainly, in the CapEx and the expense plans that we've outlined. We feel like we can drive this new capability with the financial resources that are reflected in the guidance. So we're not expecting. There's some new one-time project that we have to commit the company to that we'll need to share outside of the expense guidance we just offered. So we feel good about the amount of resources we have to drive that particular initiative. And the focus has initially been around our guest and our CRM capabilities. We will then extend that effort into merchandising and channel optimization, as I mentioned. And it's a big focus, and we're recruiting here. We've recruited some key leaders that'll help us build that strategy internally and bring new expertise that we didn't have before. And as I mentioned, we're going to make important investments in the infrastructure to support it. So look forward to sharing more with you guys as we go through the year and we make progress against those goals.

The next question comes from Ike Boruchow of Wells Fargo.

Just 2 questions. Just the performance of the seasonal pop-ups you guys had this holiday, just kind of curious, can you let us know what kind of revenue that generated, what your plans are maybe this year in terms of pop-ups during the holiday? Do you to plan to accelerate the 24 that you did in Q4? And then, Stuart, just a quick one, can you maybe quantify the benefits on the gross margin line that you hope to see from the strategy that you laid out to improve the freight costs this year just kind of like -- just look at that one piece of the gross margin? Just curious.

Yes, Ike. On the seasonal pop-ups, really happy with how those performed. I think, we did 20...

24.

24 in fourth quarter, and we had -- we'll more than double that into 2018. And there was a number of those that we've actually kept open into the first quarter based on the strong performance that we saw. Of the 24 that we did, I think, all but 4 or 5 actually beat plan and were very successful. We are not going to quantify the sales impact, but you could probably get to a good estimate, just given the number that we have and using some of the averages that you might expect from a typical Lulu store. And the -- so the other thing I would say about the seasonal is that it's as much a guest acquisition vehicle for us as it is a sales driver. And Celeste mentioned in the prepared remarks, we had about 40% of our guests that shopped with us in the seasonal stores were new to the brand. So that was an important element for us as well. And the general philosophy is there are a lot of locations where we may not want to have a store year-round, but in the holiday season, it's still a relevant place to operate and to capture demand. So it's a good addition to the array of store formats that we have to employ. And then, on your gross margin question, the benefit is going to be sort of reflected in what we said in the gross margin guidance broadly. That is going to be one of a few factors that will benefit product margin and help us deliver that modest improvement for the overall year. We're not going to break it out specifically, but it's meaningful. It's related to reductions in the airfreight that I mentioned. We had previously offered a target for airfreight around 25% of our total mode, and we think we can do better than that in certain periods in a year. So I think that's as much that we're going to be able to say on that specific item, but we appreciate your question.

This concludes time allocated for questions on today's call. I would now like to hand the call back over to Howard Tubin for any closing remarks.

Thanks for joining, everybody. We appreciate your time, and we look forward to speaking with you in about 3 months when we report our first quarter results. Thanks.

This concludes today's conference call. You may disconnect your lines. Thank you for participating. Have a pleasant day.