Thank you for standing by. This is the conference operator. Welcome to the lululemon athletica First Quarter 2018 Conference Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Howard Tubin, Vice President, Investor Relations for lululemon athletica. Please go ahead, sir.

Thank you, and good afternoon. Welcome to lululemon's First Quarter Earnings Conference Call. Joining me to talk about our results are Glenn Murphy, Executive Chairman, who's joining us via telephone; and Stuart Haselden, COO. We are also joined today by PJ Guido, our new CFO. 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 forecasts 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 or implied by these forward-looking statements due to the 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 quarterly report on Form 10-Q and in today's earnings press release. The press release and accompanying quarterly report on Form 10-Q 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 operating statistics for the first 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, and good afternoon, everybody. I was thinking today as I was preparing for this call, I went on to our website where you can find an infographic of our Q1 results. And the comment I made on the last conference call of laminating Q4's performance was clearly premature. If you read that on our website, you'll see that our revenue was up 25%. I mean, that really speaks to the deepening engagement with existing guests, but equally important, as we invest in digital marketing, how much we've grown our customer acquisition, whether that's in our e-mail file or bringing people in through our app or through the website organically. I mean, our gross margin expansion was greater than 250 basis points. We're a premium brand, but that is still a phenomenal performance. And that really is our -- that's all about product. That's the design team, the merchant team and the supply team working together in a coordinated fashion to produce that kind of result on the gross margin line. We were able to achieve SG&A leverage of 130 basis points. And the business and the leadership team understands we have a growth business here, 25% in the first quarter, growth that is. So we know we have to make investments to drive growth and improve our business. But at the same time, we're committed to looking for efficiencies, and that's where that performance comes through on the SG&A line. When you put that together, first quarter performance on earnings per share was an improvement of greater than 70% versus last year. Now our management team is keenly aware that last year's first quarter results were below the standard we set for ourselves and what this brand can actually deliver quarter in, quarter out. But if you combine it together and look at it, whether it's 2-year way or more whether you look at it stacked, or when you put the 2 quarters together, I mean, all key indicators were very positive, whether that's categories, channels or geographies. Now we've been looking at this year, a general look at the first quarter and our performance to date, which Stuart will talk about, in the second quarter, we know we're operating inside of a good global consumer economy, and the athletic sector continues to benefit from really strong macro trends. This is not the athleisure trend, which is a trend inside of the larger macro trend, but which is benefiting our performance and really the entire sector, which is health and wellness. Even that aside, when you look -- with that as a backdrop, I mean, the last 3 quarters have been a stepped-up performance for lululemon when it comes to market share gains, and that's market share gains in our stores and in e-commerce. So for me, as I spend time with the team as an interim appointment as Executive Chairman, the board wants to make sure that the management team just continues to push the business forward. And if you look at Q1 -- if you look at Q4, clearly, the data points are that this is indeed happening. And the 3 leaders we have and the people who work alongside of them are definitely pushing the company and challenging everybody inside the business to move forward. And the other part that's important noting for our investors and shareholders and analysts on the phone today, I just came back from a week in Vancouver. And I was sort of looking for signs of possible complacency or overconfidence, and I can tell you nobody in Vancouver or in our stores, our distribution centers or our offices around the world, nobody's doing a victory lap. I mean, there's a senior management team who are heads down, executing on the 2018 strategic initiatives to take our business to a whole other level. I thought I'd just pause for a second and give you an update on the CEO search. I mean, it's progressing well. We've met with a number of candidates who are both qualified and interested. The whole board is together next week, and at that time, we will be discussing the candidates who have come forward and really getting agreement on how do we take this to the next level and to a whole another phase of the search, which is more getting closer to completion than trying to find who are the right candidates. I think we can now take this search to the next step. Let me close off by saying on behalf of the Board of Directors, I really want to thank Celeste, Stuart and Sun for their stellar leadership over the past 4 months. I mean, personally, I've thoroughly enjoyed working with them and mostly watching them lead our over 13,000 employees and educators who each in their own way have contributed to this latest surge in guest engagement and to the company's overall performance. With that said, let me pass the call over to Stuart, who will take you through more detail on our Q1 2018 performance. Stuart?

Thanks, Glenn. Let me reiterate how pleased we are with the performance in Q1. We are successfully executing on our strategies and seeing consistent results across several key parts of the business that are now extending into Q2 and further setting the stage for us to achieve our 2020 goals. While much work remains to be done, we are finding success in driving traffic and conversion increases at both stores and online across diverse geographies. Importantly, the supply chain and technology infrastructure investments we've made over the last few years offer us a stable platform to grow and scale the business globally. And what I'd like our investors to hear is that the success we are seeing now is not merely the lapping of weak prior year comparisons. What we are seeing is important momentum across the core areas of our business in channel, product and guest engagement. This momentum reflects the structural long-term investments that we've made and continue to make to drive the comp and noncomp revenue increases that are enabling us to deliver on our multiyear plans. We would further offer that our current results are a validation of these strategies, and we now have even more opportunity to accelerate these investments in the areas that hold the greatest potential. Let me offer a few highlights from Q1 that illustrate what I'm talking about. First, in channel, we saw our investments in our website and mobile capabilities deliver e-commerce conversion increases of 20%. This was further amplified by traffic increases of 30% that were driven by our improved product assortments and digital marketing efforts. Within our stores, this was the second quarter in a row of positive store traffic, which increased in the mid-single-digit range and drove the overall comp results. And we continue to expand our international footprint with store openings in key markets, including Berlin and Seoul. Next, within product, we posted double-digit positive comp increases in our core businesses for both men and women. Bras and accessories achieved double-digit comp growth as well while also accelerating meaningfully versus Q4. And finally, in guest engagement, we saw continued success in our community and digital strategies, which contributed to a 28% increase in guest acquisition in the quarter, fueling traffic gains across both stores and e-commerce. These efforts combine to deliver a strong financial result for the first quarter with total revenue growing 25% to $650 million, our combined comps and dollar comp increasing 19%, with stores rising 6% and e-commerce up 60%, gross margin increasing 270 basis points versus adjusted gross margin last year as we saw both product margin expansion and leverage on our occupancy costs. And we are able to leverage SG&A by 130 basis points. These results contributed to a 16% operating margin and EPS of $0.55 or 72% growth versus the same period last year. Given this continued progress, we are confident in our plans for Q2 and the remainder of the year, which is reflected in our updated guidance. Looking to the future, we remain firmly on track to achieve our ambition of $4 billion in revenue in 2020. As previously mentioned, the path we're taking to achieve this goal includes product innovation across categories with significant opportunity remaining in men's in particular, expanding the lululemon footprint in both North America and our international markets and continuing to accelerate our digital business. Let me now offer some color on our progress within each of these growth pillars in Q1 and looking forward. We're excited about our product pipeline as we continue to drive category-defining innovation and solve problems for athletes. Some examples include our recently developed Out of Mind short liner in men's made from a lightweight, breathable mesh. This improved liner construction is now offered in our 3 core short styles: Surge, Pace Breaker and the T.H.E. short, which are all performing extremely well now into Q2. We launched our City Sweat franchise for men, which includes a collection of hoodies and joggers made from our technical French Terry fabric. Guests responded well to this collection in Q1, and this paves the way for further opportunities in our office travel commute category for men's. For women, building on the success of Enlite, we see a compelling opportunity in the bra category. We're developing new styles with varying levels of support to broaden our overall assortment. In Q1, we launched the Speed Up Bra featuring a new molded technology, and we have additional styles ready to introduce later this year. We're also excited about our upcoming Embrace Movement collection. This will be a technically driven line of bottoms for women and men offering zone compression, fully leveraging our ongoing work as part of the science of feel. Expect to hear more about this in the fall when we launch the line. Shifting now to our North American stores. We posted another strong quarter with comps up 6%, driven by an accelerating traffic trend versus Q4. And we're happy to see this trend continuing now into Q2, reflecting our momentum in guest acquisition and in-store conversions. Our stores remain among the most productive in apparel retail, which is the direct result of the passion of our educators, our innovative product assortments, agile store formats and connection to our communities. In a moment, I'll discuss our digital business in more detail, but first, I want to say that a big part of our recent success has been our omnichannel focus on serving our guests and our ability to leverage this across channels. We continue to expand in this regard, with ship from store now available in nearly 300 locations. And we remain on track to begin the rollout of buy online, pick up in-store during the second half of the year. Switching now to our business outside of North America where we are still in the early innings of one of our most important growth strategies. Asia continues to lead the way for us, and in Q1, we saw combined comps over 50%, which results in China particularly strong. We successfully opened our third and fourth stores in Seoul, Korea with the most recent opening in the iconic Lotte World Mall. We continue to expect to open 15 to 20 stores in Asia in 2018 and also plan to launch a local e-commerce site in Korea later this year. In Europe, we saw strong growth as well with double-digit comps exceeding our plans. And in addition to the recent store openings in Berlin and Frankfurt, we added to our presence in the U.K. with a new store in Guildford outside of London. And finally, I'd like to speak to the exciting progress we're seeing in our digital and e-commerce business. We posted e-commerce comps of 60% on a constant-dollar basis in Q1, driven by strong increases in traffic and conversion. While our comparisons get more difficult in each subsequent quarter in 2018, we are pleased to see strong momentum extending into Q2. Looking at traffic, our digital teams are driving high-quality web and mobile traffic leveraging our e-mail file growth, improving our targeting capabilities and seeing more returned guests. A few stats I'd like to highlight here. Our e-mail file nearly doubled in the quarter. Direct marketing-related traffic to our site increased by more than 60%. And we saw an increase of over 50% in transactions made by existing guests. And as we are finding success in driving higher traffic levels, we're also delivering a better online experience for our guests. We've elevated the overall guest experience with better landing pages, enhanced content and improved navigation and merchandising. We see additional opportunities in this area in the near term. For example, we began streamlining the checkout process in Q1 with further progress planned into Q2 and Q3. And as I said on the last call, we are starting to bring data-driven insights into our core decision-making across the business, but particularly within the digital channel. We're currently developing and rolling out more sophisticated and automated tools, which will allow us to take mobile, search, browse, e-mail and the post-purchase experience to new levels. So overall, we're pleased with our e-commerce results and see progress building towards our strategic goals for this part of the business. A key enabler of our growth and continued guest engagement are the brand activations and events we host in our markets around the world. Building on our strong brand momentum, in Q1, we celebrated International Women's Day through events in key cities around the globe, including Washington, D.C., Melbourne and London. In Q2, to further engage with our run-focused guests, we are sponsoring 10-K races in Toronto and Edmonton, which sold out in less than 24 hours after registration opened. And earlier this month, I'm excited to announce that we launched our 360-degree run-focused campaign, Let Your Mind Run Free. And as you know, one of the hallmarks of our company is our investment in people. We have a long-standing commitment to leadership development, and we continue to roll out programs and experiences for all employees that bring to life the unique aspects of the lululemon culture. Last year, we made a commitment to achieve pay equity for women and men across our organization by the end of 2018. Nearly 80% of our workforce is comprised of women, and we knew this was simply the right thing to do. I'm proud to report that last month, 9 months ahead of schedule, we delivered on this commitment and will maintain this standard moving forward. This puts us in a leadership position among companies across industries. Now before I share the specific details of our financial performance, it's my pleasure to introduce our new Chief Financial Officer, PJ Guido. Some of you may be familiar with PJ given his 15 years of prior experience leading various finance functions at Fortune 500 retail organizations. I'll ask him to say a few words now. PJ, welcome.

Thanks, Stuart, and a warm hello to all those on the call today. I cannot express how energized I am to be joining such a powerful brand and talented team here at lululemon. I look forward to engaging with our investors and many of you on the phone as well in the coming months. So far, I've spent the last few weeks immersed in the business and getting to know the teams across the company. I have even pulled several store shifts, and I can tell you they are absolutely pulsing with energy and excitement. I look forward to working with Stuart, the entire leadership team with those of you in the analyst and investor community. And now I will turn it back to Stuart.

Thanks, PJ. Before I speak to our financials, I'd also like to thank Glenn for his guidance and strategic counsel, and in particular, Celeste and Sun for their partnership during this important time at the company. And speaking for the 4 of us, we want to thank our educators around the world for everything they do to bring lululemon to their guests every day. I'll now offer some highlights on Q1, but please see the financial supplement posted on our investor site for additional details. As I mentioned earlier, total net revenue rose 25% to $650 million with the increase in revenue resulting from strong performance across all parts of the business. Our store channel delivered a 6% comp store sales increase on top of a 1% decline in Q1 last year. And in e-commerce, we posted a 60% comp increase. lululemon branded store square footage increased 14% versus last year, driven by the addition of 48 net new lululemon stores since Q1 of 2017. And the impact of foreign exchange increased revenues by $9 million in the quarter. Gross profit for the first quarter is $344.7 million or 53.1% of net revenue compared to an adjusted 50.4% of net revenue in Q1 2017. The gross profit rate in Q1 increased 270 basis points versus adjusted gross margin last year. This exceeded our expectations for the quarter, with the primary driver being a 120 basis point increase in overall product margin resulting from favorability in product mix, lower product costs and lower markdowns versus last year. I'm particularly pleased that this increase comes on top of a 380 basis point improvement in product margin last year. We continue to see opportunities to gain cost efficiencies within our supply chain, enabled by several ongoing strategies across sourcing and distribution. In addition, we realized 120 basis points of leverage on occupancy and depreciation and product and supply chain SG&A as a result of the strong top line results. We also saw 30 basis points favorable impact related to foreign exchange in the quarter. SG&A expenses were just over $240 million or 37% of net revenue compared to 38.3% of net revenue for the same period last year. We're pleased that we are able to deliver leverage above the high end of our expectations. More efficient spend in both our SSC and store channel, coupled with leverage from higher-than-planned sales, generated approximately 290 basis points of leverage. This was partially offset by 160 basis points related to foreign exchange, with the majority of deleverage due to the lapping of FX gains in the prior period last year. Operating income for the quarter was approximately $104 million or 16.1% of net revenue compared to an adjusted 12.1% of net revenue in Q1 2017. Tax expense for the quarter was approximately $32 million or 29.9% of pretax earnings compared to an effective tax rate of 32.6% a year ago. Our tax rate came in 90 basis points higher than we initially expected due to refinements in our estimates under the recent U.S. tax reforms. Normalized for charges related to last year's ivivva restructuring, the adjusted effective tax rate for Q1 2017 was 30.8%. Net income for the quarter was approximately $75.2 million or $0.55 per diluted share compared to earnings per diluted share of $0.23 for the first quarter of 2017. Excluding charges related to the ivivva restructuring, adjusted EPS in Q1 2017 was $0.32. Capital expenditures were approximately $34 million for the quarter compared to approximately $20 million in the first quarter last year. The increase relates primarily to new store renovations and relocation capital. Turning to our balance sheet highlights. We ended the quarter with $967 million in cash and cash equivalents. Inventory at the end of the first quarter was $373 million or 23% higher than at the end of Q1 2017. Now turning to our updated outlook for the fiscal year 2018 and our outlook for the second quarter. And as a reminder, 2018 is a 53-week year for us. For the full year 2018, we now expect revenue to be in the range of $3.04 billion to $3.075 billion. This is based on a comparable sales percentage increase in the high single-digit range on a constant dollar basis. We continue to expect to open 40 to 50 company-operated lululemon stores in 2018. 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 continue to expect gross margin to expand modestly, primarily driven by product margin improvement and leverage on occupancy and other fixed costs. We continue to expect SG&A for the full year to leverage modestly as we realize efficiencies within our cost structure. As you think about SG&A for the full year, please recall my comments from the Q4 call regarding our expectation for SG&A pressure in Q3. We plan to make certain discrete investments that will create some SG&A headwind in the quarter. We now expect our fiscal year 2018 diluted earnings per share to be in the range of $3.10 to $3.18. Our EPS guidance is based on 136.3 million diluted weighted average shares outstanding. We also expect our effective tax rate to be approximately 30% in 2018. This is slightly higher than our previous guidance of 29% and is a result of the previously mentioned refinements under the U.S. tax reforms. We are continuing to analyze the impact of the changes to the U.S. tax code, including how this affects our overall strategies for capital deployment. We have assumed the Canadian dollar at $0.765 to the U.S. dollar for 2018 as well as Q2. We continue to 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 Q2, we expect revenues to be in the range of $660 million to $665 million. This is based on a comparable sales percentage increase in the high single-digit range on a constant-dollar basis compared to the second quarter of 2017. This also assumes 3 new store openings in the quarter. We anticipate gross margin to increase by approximately 50 basis points versus Q2 of last year. Despite the strong increases in product margin last year that we're now anniversary-ing, we continue to see AUC opportunities, driven by our ongoing supply chain initiatives. We expect to leverage SG&A in Q2 by approximately 50 basis points as we continue to gain efficiencies in our cost structure. Assuming a tax rate of 30% and 136.3 million diluted weighted average shares outstanding, we expect diluted earnings per share in the second quarter to be in the range of $0.46 to $0.48 versus adjusted EPS of $0.39 a year ago. And with that, let's open the call for questions. Operator?

[Operator Instructions] Our first question is from Matt McClintock with Barclays.

Yes, everyone, and welcome, PJ. Doing a bang-up job so far. So I guess, Stuart, my first question, just high-level, trying to understand the doubling in the e-mail file. That seems to be a pretty monumental accomplishment this quarter, given that your e-mail file was pretty large to begin with. Can you give us a sense for how much of that was international versus how much of that is North America?

Yes, Matt. The e-mail file trajectory has really been exciting and important. The mix of that is largely weighted towards North America. And the reason we've seen an inflection in it is we implemented new applications within our POS system in the third quarter of last year with new training for our store educators to be able to be armed in a better way with technology and training to capture guest e-mails at point-of-sale. And so that has been a big part of the inflection in how we have increased the e-mail capture rate. That has then been complemented by the improvements in the website that were a part of the relaunch at the end of the third quarter last year. So the combination of the improvements in the website and the improvements in the point-of-sale execution in-store has really been what's been driving that inflection and acceleration in the e-mail capture rate. So we'll lap that, some of those changes really as we get into the fourth quarter of this year, and we have initiatives beyond that to continue to fuel increases in how we're capturing e-mails with our guests.

Perfect. And then if I could, just a follow-up question. You talked about new markets, Berlin, or new stores, Berlin and Seoul. If I recall, you probably have a couple of stores in the comp base in South Korea and also in Germany by now. And you talk about Asia comping up 50%. Can you kind of give us a sense of how stores perform as they roll over in those 2 specific markets? Because I assume the up 50% comp in Asia is primarily China.

Well, the performance across Asia has been really strong. We have some really strong store locations in other markets, including Hong Kong and Singapore, Tokyo. But certainly, we have the greatest number of stores now in China with the greatest amount of new store openings happening in China. So we're seeing strong comp performance across all those regions in Asia. The store locations in Seoul that we opened, we're very excited to reach additional guests in that particular market. We think it's an important market across Asia and important for us to show up strong in Seoul. Similarly, as we look at Europe, Berlin is an important city in Germany. As we think about the countries where we're focused in Europe, certainly, Germany, France and the U.K. are on top of the list, and so it's important for us to have a good foot forward and have some locations there that represent the brand and help build brand awareness. So I'm pleased with how all those stores have opened and the trajectory that they're on. And as we've mentioned, the Asia stores have been off to a faster start in general, but we're pleased with the progress we're making in Europe.

The next question is from Matthew Boss with JPMorgan.

So as we think about lulu as a dual-gender global brand, I guess, versus the $4 billion 2020 revenue target, maybe Stuart, is there any way to just kind of speak to where you're tracking maybe versus plan on some of the key pieces, online, men's, international? That would be helpful.

Absolutely. We are very excited at the progress we're making against those 2020 goals that we had laid out. I would say that overall, we're on track, if not a little bit ahead, versus those plans. And you might recall, we set those goals over 2 years ago. And as you might expect, we're farther ahead in certain areas than others. Right now, what I would say is in our -- within our men's business and within e-commerce, we are running ahead of schedule, and I think that's reflected in the most recent performance that we just announced. International, I would say it's taking a little longer than planned. Asia specifically is accelerating ahead of plan and ahead of schedule, but Europe is taking a little bit longer. And we are assuming a very deliberate approach in Europe, but we're pleased with the double-digit comps that exceeded our budget in the first quarter for Europe. So we're pleased with the trajectory overall, and that we're confident that we're going achieve that $4 billion number as we had set it out. But the pieces and parts of how we get there might be a little different than we had originally envisioned.

Great. And then just a follow-up. On the store front, so clearly, material runway on the international side. I guess, could you touch on remaining opportunity that you see in North America, maybe both in terms of sales productivity catalysts as well as store saturation versus some of the legacy management targets that you've laid out? I think it's been a couple of years now.

Yes, we see a lot of opportunity in North America. And in 2018, we'll actually execute more real estate projects than in any other prior year. We mentioned in the prepared remarks, we're going to see a 14% increase in global square footage. We're going to see a healthy number of new store projects in North America. What's more exciting is some of the innovation that we've seen from our North American store team. Specifically, the co-located strategy has been very important success, not only for extending the square footage runway that we have in North America, but also creating an important expansion of the retail guest experience that makes space for us to grow our men's business, to add new categories potentially such as shoes. So those new categories, we couldn't fit into a 3,000-square-foot box. And so that co-located strategy becomes really important more than just growing square footage, but creating that opportunity to expand the vision of our -- of what product categories we're able to execute in a physical environment. Beyond that, the seasonal store strategy has been a very strong success story for us. We did 24 of those in 2017. Nine of those locations we kept into this year and are pursuing for permanent -- as permanent locations, and we're seeing really strong performance out of those locations. So we continue to find ways to innovate our store model in North America. We really can't think of the business in that regard. It's just a static store count number off of a sort of a uniformed store layout. It's very dynamic, and we're exploring even now and into next year new experiential strategies as part of that physical experience for our guests. So we're really excited at what's -- what the team has been able to bring to the table. And in many ways, we feel like we're just getting started.

Our next question is from Brian Tunick with RBC Capital Markets.

I guess, you mentioned footwear before, but it's obviously a much bigger idea for your athletic peers versus lululemon. So curious how footwear is doing. And could footwear be one of the pillars for the company beyond 2020? And then the second question, in the shorter term, maybe Stuart, talk about the second half gross margin outlook. What are some of the puts and takes that we should be thinking about in your guidance?

Sure. On the footwear, Brian, it's, I guess, premature to call that as the major growth opportunity for us. We've been pleased with the tests that we've done with APL, and I think we've learned a lot from it. We learned that our guest is interested in buying shoes from us. That's one of the things we learned. We've also been able to develop an understanding of how to sell shoes in our stores, and in particular, where we don't carry inventory, how to execute the showrooming model. So we feel like that's a learning we can take into other categories that will make -- that will open the door for us to accomplish different things from an inventory management standpoint across a number of categories. So we've learned a lot from footwear. We're pleased with how it's performing. We're looking for opportunities to expand it even with our relationship with APL. And it's an open strategy for us to explore as we step into the future. And then on your second question with regard to the gross margin outlook for the second half, we're really pleased with the results that we've seen. The beat that we saw in the first quarter really came from the outperformance in mix and the lower markdowns. So we feel confident with the gross margin and product margin outlook that we offered. To the extent that mix and markdowns come in more favorably, there is an opportunity for us to do better. But we believe that the guidance that we provided is appropriate based on what we know at this point. And more broadly, I'm really pleased with just the journey we've seen with product margins. Much of the low-hanging fruit that we had talked about back in 2015 has been captured. We now focus on driving our segment and supply chain strategy, which will continue to help us capture AUC improvements. And we're now also shifting our attention from a supply chain standpoint to speed and to how do we reduce -- how we can reduce lead times and create new strategic flexibility in our business from a supply chain standpoint. And we're also exploring new exciting efforts to capture cost efficiencies in our distribution network, specifically how we fulfill e-com orders in North America. So we're really looking at our supply chain end-to-end and finding opportunities. And the combination of all this really connects to a multi-year road map for gross margin improvement that we see extending at least until 2020 and is contemplated in our long-range guidance that we shared previously.

Our next question is from Adrienne Yih with Wolfe Research. Adrienne Yih-Tennant: So I guess, Stuart, my first question is when you're doing sort of market research on international pieces of business, what do you do in terms of marketing, laying the groundwork? And then do you do any changes to the product? And then, Glenn, for you, it's been a year since you joined, and the business is completely different today. I was wondering if you can just look back on the past year, the biggest opportunity, the biggest change that you think has been made to the business. And then go forward in the next 2 years, to that 2020 target, what the next biggest leg of opportunity still remains.

Adrienne, it's Stuart. Why don't I address the first 2 questions that you directed my way? Then what we can -- we can have Glenn join us for the next part of it. But the international market entry, we certainly do research for each trade area, for each market. And the showroom model that we execute follows that market research. One of the key indicators that we look at is the e-commerce penetration that we see, that gives us an indication of the overall brand awareness and latent demand within each market. And so that's an important data point for us. But certainly, there are other factors that we consider, not only in international markets, but any market we enter. And so the showrooming model gives us an opportunity to feed demand, to build awareness, to develop those communities in a proven way that has proved -- that has, in fact, proven very resilient and a good indicator of where we are ready to open a store. So that model, we continue to execute. And from a product standpoint, tailoring products for the international markets, for the most part, it is a global assortment. Our regional merchants help tailor just the shape of the buy, if you will, for regional taste. We are exploring a limited number of Asia-only fits, that's a very small initial step. But as I said, for the most part, it's a global assortment. Let me pause there and see if Glenn would like to respond to your second question.

Thanks, Stuart. Yes, my view is that -- not to give you a history lesson because you all know the business well, but a year ago, the management team was just finishing some of the blocking and tackling work that they needed to get done as the new team and new talent got injected into the business and complemented the talent we had already inside the company. So you know all the work that was done, whether it's on the inventory side or the supply chain side. And I think that was work that needed to be done because trying to build something off a weak foundation is just not smart. So I give the management and the board credit for trying to sequence them properly. And in the last 12 months, as that work's been -- it's never completed. There's always, as Stuart said earlier, there's more we can do on some of those line items that the management team was focused on for about 24 months. Here come new category initiatives, which have been helpful, focused on digital and part of new categories expansion of men's, which has been a big win for the business, starting to open up our thought process on what could this brand become internationally. We can't just take our North American business and think we can transplant it into Asia, into Europe. You certainly take a culture and what the company stands for and the heartbeat of lululemon. That is nonnegotiable. That has to go around the world. But how we show up in parts of Asia, as you've heard Stuart reference some countries earlier, what are we going to do in Europe? It's opening up international. So those 3 fronts are part of this 2020 plan. I really give the management team and the board credit for how it was sequenced. And then looking forward, not to get too, ambitious, I think we're now committed to the 2020 plan, I think, what Stuart opened up a little bit in some of his commentary. What I really like about the management team, and especially the 3 leaders I've been working with, is we do spend time in Vancouver beyond looking at this quarter 2018 and the 2020 plan. There has been some time invested. Where to from here? What else can the brand become? That's not for today. Adrienne, that will be for another day. That won't be me, but it will be somebody else who articulated to shareholders and investors once we figure out what that is. But we do know we've got a special brand that can do a lot more than just its current gross margin success of the products in which we sell and the guest engagement that we developed. We know there's something more the business can do, but that's -- again, that's not for today but we've had some preliminary conversations about what that next step and act could be for lululemon. And I'm sure the management team will fill in the people on the phone at the appropriate time once we have that figure out.

Our next question is from Oliver Chen with Cowen and Company.

The lower markdowns were also impressive. What are your thoughts on how that can be sustained? And also the other -- the related topic is your thoughts on the state of inventory and supply chain planning and allocation as there could be some opportunities to make sure that the assortments are right, in the right stores. The other follow-up I have is just about product innovation and what we should think about for the back half in your pants business. The zone compression sounds like a big idea, too. How would you prioritize the innovation factors around product?

Oliver, thank you. It's -- the lower markdown part of the story in Q1 was really great to see. The level of full-priced markdowns, I think, reflects the health of the business and the success that we're having executing, not only on the product side, but just in our channel execution as well. So that is putting us in a great place where we can continue to drive a very healthy full-priced business. We see that continuing into Q2 and to the balance of the year, and that's reflected in the guidance that we offered. From an inventory standpoint, very comfortable with the inventory position, the composition of it. It's very current. As we had mentioned on the Q4 call, we do expect to see some higher inventory balances in the first half of the year and in Q1 and Q2 before seeing it moderate into the second half of the year. Even with that, we're very comfortable with the inventory balances that we currently are seeing. And from a product innovation standpoint and the product innovation pipeline, that is a critical part of our broader strategy. That is something that we remain focused on as an organization, our Whitespace team, our design team, bringing newness and innovation to market that matters to our guests. And so you've seen some of that innovation from several key programs last year that we have yet to lap into this year with the ABC pant new style introductions in Q3, with the Everlux fabric introduction in the second half of last year. The ever -- and the Enlite Bra success that we've seen and continue to ramp that opportunity into 2018 and complement it with additional styles. The bra category in particular is one where we see a lot of opportunity. You're going to see new styles into the second half of the year as well as new in-store execution that -- and we view bras as a strategic part of our women's business and how we'll grow the penetration of our tops -- women's tops business. So that's certainly a focus for us. And the other things that we mentioned in the prepared remarks in terms of the zone compression is another product area that we see a lot of potential, and we're excited to introduce that later in the fall.

Our next question is from Paul Lejuez with Citi.

A couple of questions on men's. Can you maybe talk about the men's business and the growth that you're seeing by region? Also, penetration by region, I'd be curious about. And also, what percent of the new customers that you talk about are men versus women?

Yes. We're really happy with how the men's business is performing, Paul. I think that's reflected in a number of the stats that we quoted. We're seeing, on a regional basis, the men's and women's business are kind of accelerating proportionately in the same manner. We're not seeing regional differences by gender or within genders. What I would say is we saw a really strong performance in Q1 in the Southeast in particular. And that's probably related to weather, but that was a standout region across North America. Otherwise, there was -- there weren't noteworthy regional differences. We still have seen somewhat of a headwind in Alberta, in Canada versus B.C. and Ontario. But that's a continuation of a prior trend. In terms of the percentage of new guests, we did see -- the new guests that we have acquired in the first quarter, about 30% of them were men. So that was higher than the overall level of increase, a little bit higher than the number of women that we're attracting. So again, we're really pleased with our men's trajectory. And as I mentioned earlier, we feel like we're in probably a little ahead of schedule with men's in terms of our 2020 goals.

Stuart, how about penetration in Europe and Asia in the men's business?

It's -- we're a little higher in Asia and a little lower in Europe. And there's nothing that we would feel is alarming about that. I think it is -- I wouldn't necessarily draw any big conclusions from that strategically. That's how the business is trending now. But we still see both areas having deep opportunities for our men's business as we are able to gain success in driving awareness for it.

The next question is from Omar Saad with Evercore ISI.

I actually wanted to ask you a follow-up to your conversation about the CEO search. With everything clearly hitting on all cylinders, the management team working so well together, has the urgency level at the board level changed around the CEO search? Do you feel like you have more time and maybe even you're not necessarily wanting to disrupt the current equilibrium?

The short answer is no. And with that said, look, the performance of the business and the leadership of Celeste, Stuart and Sun, and this is a number of the understatements you've heard on the call today, is a great comfort to the Board of Directors. So we don't have to feel that we're -- I've seen other companies go through a full-fledged panic when situations like this arise. So I think that the fact that the business is performing even better than our expectations and that the leadership and the steady hands of the 3 people we've asked to step up to take on more responsibility has been incredible. I mean, I've witnessed it in Vancouver. So that certainly gives us comfort and allows us, as I said, I think, on the first call when this came up, I said that we're not in a hurry, but we have a sense of urgency. We do know that internally -- and mostly internally at the end of the day. I notice a lot of the people on the call who represent our external audiences. But if you think of our internal audience first, getting clarity about the new leadership going forward is super important. But it's nice to have -- to be in this place where I think we'd all rather have somebody in place when the time is right. But I think it's really nice to be able to be in this place. The business is performing, and we have great leadership at the top.

Got it. And then if I could ask just a quick follow-up. I think it was Paul's question around the new -- the huge number of new guests, 28%, I think, you said. Is that a big inflection from previous quarters? And if it is, what's the catalyst for the sudden kind of inflection of new customers kind of discovering the brand?

Omar, it's Stuart. So there's a couple of things we would point to. The first is the success we're finding with our digital marketing strategy. So we have -- we had just a more robust approach across a number of different elements of that digital strategy, which includes the e-mail, the success we're finding with e-mail. And I mentioned -- I described some of the factors that are giving rise to the acceleration in the e-mail capture, which is a part of the broader guest acquisition strategy. But I think it's a combination of success in digital marketing and the success broadly of the business. As we're attracting -- as we're presenting more compelling product assortments, we're attracting more guests to the brand, and we're being more efficient in how we're engaging with them once we have attracted them either to our stores or to our website. And that's a function of some of the improvements that we've made, both on the website, through the relaunch as well as what I described in terms of the POS improvements in capturing e-mail. So it's the combination of a few things. I do think it's just one thing in particular. And it just reflects the broad momentum that we're seeing across the business.

Our last question is from Sharon Zackfia with William Blair.

Just under the bell. So a follow-up to that question on the 28% increase. Is there any difference in the demographics you're seeing of the new customers? Is it skewing more male than female? Or any difference there? And then secondarily, on kind of the office travel collection that you've done so well within men's. It seems like there is more of that now occurring in the women's line. Can you talk about what the opportunity is there?

Sure, Sharon. And as I mentioned, the mix of gender, it's about 30% of the new guests are men or male. And so that's a little more than what is in the base business. So we're pleased to see a little higher percentage of guys being attracted to the brand. And otherwise, it's not a remarkable distinction versus our existing shareholder -- existing customer base or guest base, I should say, in terms of their demographic profile. And then to your other question regarding the office travel products that we've been exploring, the first thing I'd say there is we remain focused on solving problems for athletes. And we are a performance-oriented apparel business. So the opportunity that we have identified to leverage the technical functionality, fabrics and construction that we see in our performance products into more multi-use products, and there's a few good examples. The ABC pant in men's is probably one of the best. It's clear that our guests have an appetite for this. We're being pulled into these categories versus pushing our way into them, if you will. And it's not really new. This has been a part of our assortments, both in men's and women's, for quite some time. But we are identifying places where we can expand this. And again, it's where we're being pulled into. Our guests are asking for these types of products. And it's been, I think, an interesting or a good part of how we're evolving our product assortments. But suffice it to say, we remain focused on extending our position as a performance apparel business, and the multi-use products that we're exploring are a nice extension of those core technical capabilities that we have.

This concludes the question-and-answer session. I will turn the conference back over to the presenters for any closing remarks.

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

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