Good day, ladies and gentlemen, and welcome to the lululemon athletica Q2 2015 Results Conference Call. [Operator Instructions] I would now like to introduce your host for this conference call, Mr. Chris Tham. You may begin.

Thank you, and good morning. Welcome to lululemon's second quarter 2015 earnings conference call. Joining me today to talk about our results are Laurent Potdevin, CEO; Stuart Haselden, CFO; along with Tara Poseley, our Chief Product Officer, who will be available during the Q&A portion of the call. 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 the company's future. These statements are based on current information, which we've 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 the company's business. Factors that could cause these results to differ materially are set forth in the company's 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 undertake no obligation to update 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 today's earnings press release. The press release and accompanying quarterly report on Form 10-Q will be available under the Investors section of our website at www.lululemon.com. Today's call is scheduled for 1 hour. [Operator Instructions] And now, I would like turn the call over to Laurent.

Thank you, Chris, and good morning, everyone. Today, I will provide an overview of our second quarter performance as well as give you an update on our progress surrounding our key strategic initiatives planned for the remainder of the year. Stuart will then walk you through our financials and guidance in more detail. As we enter the second half of the year, our team has made significant progress to grow our global collective by relentlessly innovating our products and continuing to create transformational experiences for our guests. We have many exciting milestones to cover today: the redesign of our women's pant wall launched last week, our fourth annual SeaWheeze marathon was another exceptional success here in Vancouver, and we supported new market seeding by hosting locally relevant events in our vibrant communities around the world, including in South Korea, Scotland and Germany. On the people front, we recently welcomed Miguel Almeida to lead our global digital transformation. Miguel is a global citizen with a great background, and as an avid endurance runner, is a superb fit for our culture. Miguel is a passionate champion of using the digital platform to deepen our connection with our guests through personalized experiences while also extending and amplifying brand resonance globally. I am thrilled to welcome Miguel to lululemon and truly start to leverage our digital opportunity. From a business standpoint, our momentum continues to build and our fundamentals are strong. As you will recall, we entered Q2 with a robust in-stock position, and we are confident that our guests would respond favorably to our product performance. This translated into a positive impact on our top line results with $453 million in net revenue for the quarter, up 16% over the second quarter of 2014 and up 21% in constant currency. We delivered an 11% global combined comp, with strong performances both in our store and e-commerce channels. The trends that we called out during our last quarter continue. In Q2, store comps across all our regions around the world were positive, and we delivered a global e-commerce comp of 35%. Our women's business continued to build momentum with a particularly strong performance in pants and bras, where both categories delivered double-digit comp for the quarter. Our men's business was up 31% on a combined comp basis, driven by our sweat category. And ivivva also posted double-digit comp growth with a 27% combined comp this quarter. As we build a global iconic brand, we are expanding our footprint globally. International expansion is a key growth driver, and we continued to increase our brand presence in major cities both in Europe and Asia. Later this month, I will be heading to Dubai for our first opening in the Middle East, which will be followed by a second store before year-end. Within Asia, we've seen all of our new stores exceed initial plans. Our first store in Hong Kong, which opened this past quarter at ifc mall, is in contention to be the most productive store in the company on a per-square foot basis. We are opening our second store in Hong Kong later this quarter, with a larger format in an exceptional location at Hysan Place. This early performance, combined with our Singapore performance and the success of our store in Seoul, validates the demand for our products and brand in Asia and leaves us confident with our development plan and its trajectory. Looking to Europe. Our first store in Hamburg, Germany opened late last week and another store in the London area will open tomorrow. Our Covent Garden store, which was our first store to open in the London region, and our newer King's Road store both continued to perform well. In addition, we see these stores driving incremental traffic and sales to our U.K. e-commerce site. Outside of the U.K, we continued to drive brand awareness in key European markets. We have opened showrooms in Germany, the Netherlands, Sweden, Switzerland and France. All showrooms are performing on target and will trigger store rollout in the next 12 to 18 months. Turning to products. We met another key milestone with the successful launch of our women's pant wall last week. This is such a powerful illustration of our people working together to innovate, educate and reinvent the category that we created back in 1998. We had evolved the technical design of our women's pants to focus on engineered sensation. Our innovation combines design, sports psychology and training compression science to create a carefully considered spectrum of sensations, allowing our guests to choose the right pants for her workout and unlock her performance potential. The engineered sensation spectrum within the new pant wall includes 5 categories ranging from relaxed to tight. Both new and classic styles are incorporated into these 5 categories, consisting of relaxed, naked, held-in, hugged and tight. We launched 4 brand-new styles with innovations including new constructions and engineering, seamless technologies and new fabrics such as our lulu fabric, which is engineered to be lightweight and have a soft second skin feel. While it's too early to analyze and quantify guests' feedback, I am absolutely thrilled to see our educators and ambassadors respond to the product. They are and have always been the best indicator of a future product success. Women's bottoms are the core of our success, and with the category performing strongly, we are looking ahead and have turned our attention to tanks with new offerings that hit the stores late in Q2 and more being expected in Q3. Our innovation is focused on varying levels of support, coverage and fit options. The solid 31% comp in our men's business was driven by strong sales in the sweat category, which is the anchor of our men's business. Along with further improvements to our Metal Vent franchise, we continue to introduce new fabrics such as Intrinsic [ph] and Pima tech [ph] to support our male guests' training pursuits. That said, all men's categories, including our no-sweat and post-sweat offerings, performed well. And this result continues to validate our goal of building a $1 billion men's business globally. With ivivva, our strong comp was supported by ongoing brand-building activities. Our stores and showrooms held complementary community events to connect girls to movement, such as soccer clinics held with the Ottawa Fury and increased engagement online through our #campivivva campaign. Turning now to our investments within guest experience. Our RFID rollout continued in the second quarter and is expected to be completed by the end of Q3. The successful implementation of this project will not only enable seamless inventory management and labor savings in the store, but most importantly, will also unlock the potential for unique guest experience across channels. Another key strategic investment is the redesign of our website to aesthetically showcase our brand. With Miguel coming onboard and as we prioritize our digital initiative for the remainder of the year, we have decided to launch our new website in Q1 of 2016. This shift in timing allows us to free up some bandwidth to focus on optimizing traffic and conversion on our current platform at a critical time of the year. It also creates more runway to fully leverage the new site design when we launch early next year. Last, but not least, we would not unlock the full potential of our product and guest initiative if it wasn't for the amazing work that our brand and community team is doing growing our collective around the world. Over the summer, we completed our Get Quiet Live Loud 16-city tour and connected with thousands of our educators and ambassadors around the globe. In Hong Kong, the tour stop occurred just after the weekend opening of our ifc store, which was a great way to inspire and honestly be inspired by the amazing educators and ambassadors in Hong Kong. Each city experience was unique, and it was an opportunity to share our long-term vision with an engaged and passionate audience at every stop along the tour. I personally attended 7 of those stops from Vancouver to Chicago and Shanghai. I connected with over 2,500 of our educators and ambassadors and came back energized and impressed by the collective I get to work with. Last month, over 10,000 runners from around the world joined us in Vancouver for our annual Half Marathon SeaWheeze, an experience like no other. SeaWheeze showcases the heart, mind and body of lululemon and provides us with an opportunity to drive hometown brand love and build global brand awareness. In 4 years, the race has started to become a popular destination experience with 70% of runners hailing from outside of British Columbia, including the United States, Australia, Europe, South America and Asia. SeaWheeze weekend offered something for everyone, including the ultimate after-party, our Sunset Festival in Stanley Park. This year's race sold out in 35 minutes. So those of you with a half marathon on your bucket list should know that online registration for SeaWheeze 2016 is next Wednesday. Some other highlights. We have partnered with O2X, a company started by former Navy SEALs with the goal of maximizing human performance. As the exclusive apparel partner of the O2X Summit series, we have created unique outdoor experiences that present more than just a physical challenge. The people at O2X are just as passionate about mindfulness as we are, making this a great fit for our partnership. The O2X Summit series races take place in 3 months in locations in British Columbia, Colorado and New Hampshire. Over the next couple of months, we will launch our own [ph] Canada campaign through both our stores and online channels to celebrate our Canadian roots during the month of October and Canadian Thanksgiving. And we just launched Unroll Europe [ph], a lululemon-sponsored yoga tour across key cities in Europe and the U.K. including London, Paris, Zurich, Munich and Stockholm. We continue to build brand awareness in these cities to support our store and showroom activities already underway. Finally, this year's investments in our product engine and supply chain are creating the solid foundation to support our long-term growth plans. The complexity of building a global, scalable infrastructure while expanding product offering and geographic footprint has created near-term pressure to gross margin. We have enhanced our current teams with additional resources and are laser-focused on this short-term issue. We are confident in our long-term outlook and ability to deliver on the improvements we've committed to in 2016 and beyond. Stuart will provide more color within his comments on our strategic investments and goal for gross margin expansion, in addition to more details about our outlook around inventory levels. In conclusion. Our team has accomplished some great work in the first half of the year, and with a culture grounded in innovation, we are relentlessly striving to create a better experience for our guests. We are amplifying our voice and we are building our collective around the world. We have a robust pipeline of new products and the right team in place to execute on our strategic goals with key initiatives that cut across product, brand and guest experience. To all of our educators, store managers and ambassadors, and our entire collective: I'm so grateful for your energy and I'm proud to work alongside you as we grow this bold, audacious, innovative global brand. I'll now turn things over to Stuart to review our financial results and provide guidance for the upcoming quarter and full fiscal year. Stuart?

Thank you, Laurent. I'll begin today by reviewing the details of our second quarter in 2015, and then I'll update you on our outlook for the third quarter and the full fiscal year 2015. For Q2, total net revenue rose 16% to $453 million from $390.7 million in the second quarter of 2014. The increase in revenue was driven by total constant-dollar comparable sales growth of 11%, comprised of a bricks-and-mortar comp store sales increase of 6% and a 35% growth online; also, square footage growth of 24% versus last year, driven by the addition of 66 net new company-operated stores since Q2 of 2014: 39 net new stores in the United States, 3 stores in Canada, 1 store in Australia, 3 in Europe, 3 in Asia and 17 ivivva stores; and offset by the foreign exchange impact of a weaker Canadian and Australian dollar, which had the effect of decreasing reported revenues by $20.3 million or 4.5%. During the second quarter, we opened 20 net new company-operated stores: 9 in the U.S., 1 in Canada, 2 in Europe, 2 in Asia and 6 ivivva. We ended the quarter with 336 total stores versus 270 a year ago. There are now 250 stores in our comp base: 40 of those in Canada, 163 in the United States, 28 in Australia and New Zealand, 1 in Europe and 18 ivivva. At the end of Q2, we also have a total of 82 showrooms in operation: 28 lululemon showrooms in North America, 17 internationally and 37 ivivva. Company-operated stores represented 75% of total revenue or $339.8 million versus 75.3% or $294 million in the second quarter of last year. Revenues from our direct-to-consumer channel totaled $82.2 million or 18.2% of total revenue versus $63.5 million or 16.2% of total revenue in the second quarter of last year. Other revenue, which includes strategic sales, showrooms, pop-ups and outlets, totaled $31 million or 6.8% of revenue for the second quarter versus $33.2 million or 8.5% of revenue in the second quarter of last year. Gross profit for the second quarter was $212 million or 46.8% of net revenue compared to $197.3 million or 50.5% of net revenue in Q2 2014. The factors which contributed to this 370 basis point decline in gross margin were: a 110 basis points of product margin decline, of which half was attributable to the cost variances primarily related to the port slowdown, and the balance resulting from selling mix and raw material liabilities actions taken in the quarter; 30 basis points attributable to higher markdowns, primarily due to the online warehouse sale we held this quarter; 50 basis points deleverage due to higher airfreight costs; 70 basis points deleverage due to the foreign exchange impact of a weaker Canadian and Australian dollar; and 110 basis points of deleverage from occupancy and depreciation, which was related to our international expansion, renewals of existing stores and higher lease costs associated with an increase in major renovations and relocations. SG&A expenses were $145.4 million or 32.1% of net revenue compared with $129.4 million or 33.1% of net revenue for the same period last year. This 12% SG&A dollar increase is due to the following: an increase in operating expenses associated with new and existing stores, showrooms and outlets, including costs related to our international expansion; increased variable operating costs associated with the growth in our e-commerce business; and increased head office costs associated with strategic investments and growth in the business. These were partially offset with net foreign exchange gains driven from the revaluation of monetary assets in our foreign subsidiaries. In addition, the weaker Canadian and Australian dollar, which, on translation, also decreased reported SG&A by $10.2 million or 2%. As a result, operating income for the quarter was $66.6 million or 14.7% of net revenue compared with $67.9 million or 17.4% of net revenue in Q2 2014. Tax expense for the quarter was $19.8 million or a tax rate of 29.3% compared to $21 million or a tax rate of 30.1% in the second quarter of 2014. Net income for the quarter was $47.7 million or $0.34 per diluted share compared to net income of $48.7 million or $0.33 per diluted share for the second quarter of 2014. There was effectively a nominal impact to earnings from foreign currency this quarter. Our weighted average diluted shares outstanding for the quarter were 141.644 million versus 145.544 million a year ago, which takes into account the weighted impact of 987,616 shares repurchased during the quarter at an average price of $63.96 per share. Capital expenditures were $37.2 million for the quarter compared to $26.7 million in the second quarter last year. Turning to our balance sheet highlights. We ended the quarter with $541.3 million in cash and cash equivalents. Inventory at the end of the second quarter was $280.6 million or 55% higher than at the end of the second quarter of 2014. As a reminder, compounding the year-over-year comparison for Q2 is the fact that we were significantly under-inventoried for Q2 last year, with effectively no sequential build in our stock position from Q1 to Q2. So there are timing differences this year. Also, during our last call, we indicated inventory levels would remain elevated as we manage through the impact of the port delays and implement our exit strategies. The good news here is that our supply chain has normalized and we are now flowing inventory on schedule. However, our reported inventories will continue to look elevated as late product from the first half of the year now combines with on-time flows, and in some cases, early flows for the second half. In Q2, we saw some early receipts of Q3 product as well as higher in-transit. It is important to note that our outlook on inventory levels remains the same, and we are on track with the strategy outlined during our last call. As a reminder, we identified opportunities to reflow approximately 2/3 of the late-arriving inventory into our second half assortments at full price with little incremental markdown risk. The remaining 1/3 will be sold down through our normal exit channels, which includes our outlet stores, online warehouse sales and physical warehouse sales. As you know, we conducted the first of these exit actions through our Q2 online warehouse sale that delivered good results and keeps us on track. We expect inventory to be better aligned with our forward sales trends by the end of the year. This now leads me to our outlook for the third quarter and full year 2015. We expect the momentum seen in our Q2 results to carry into the third quarter and now expect Q3 revenue to be in the range of $477 million to $482 million. This is based on a comparable sales percentage increase in the high single digits on a constant-dollar basis compared to the third quarter of 2014 and assumes the Canadian dollar at $0.76 to the U.S. dollar compared to our prior assumption of $0.80 and 17 new store openings: 11 lululemon stores and 6 ivivva. In fact, through the first 5 weeks of Q3, we have seen positive store comps across all regions, reflecting the continued momentum of our business. We anticipate our gross margin in the third quarter to be approximately 47%. We will see product margin pressures in Q3 with certain of the trends that influenced Q2 extending into the current quarter. Airfreight will remain a headwind, but will improve sequentially. Occupancy and depreciation deleverage as well as foreign exchange will continue to weigh on gross margin in Q3. We expect SG&A in the third quarter to delever slightly from Q3 2014 due to strategic investments as well as the anniversary-ing of incentive compensation reversals last year. You may recall that SG&A in Q3 of last year included a nonrecurring benefit of $3.5 million related to incentive compensation accrual reversals. Assuming a tax rate of 30.2% and a 141.6 million diluted weighted average shares outstanding, we expect diluted earnings per share in the third quarter to be in the range of $0.35 to $0.37 per share. For the full year 2015, we now expect revenue to be in the range of $2,025,000,000 to $2,055,000,000. We remain on plan to open 60 company-operated stores, which includes up to 8 new stores in Asia and Europe and also 20 ivivva stores. We expect gross margin for the year to delever from 2014, impacted by the factors we mentioned earlier. Quarterly gross margin will be sequentially better in Q4 and benefit from improved airfreight levels, coupled with stabilized merchandise margins and less deleverage of fixed costs due to the high sales volumes generated during Q4. We expect slight deleverage in full year SG&A versus 2014, driven by continued strategic investments in guest experience, our website, brand and IT systems. We now expect a net impact to earnings from foreign exchange for the year to increase from approximately $0.06 to $0.07 per share when compared to fiscal year 2014. As a result, we expect operating margin to delever from 2014 and our fiscal year 2015 diluted earnings per share to be in the range of $1.87 to $1.92. This is based off of a 141.8 million diluted weighted average shares outstanding, which does not reflect an estimate of shares repurchased after Q2 of 2015 and also assumes an effective tax rate of 30.2%. We expect capital expenditures to range between $135 million to $140 million for the fiscal year 2015, reflecting new store openings including outlets, renovations, relocation capital and also strategic IT and supply chain capital investments. In closing, we are excited to see momentum building in our business. We are pleased with the progress we are making across all of our strategic initiatives, including our supply chain improvements, which are the underpinnings of how we will deliver recovery in our product margins into next year. Specifically, the investments we have made in our go-to-market process, combined with identified logistics and distribution efficiencies, position us to deliver on our margin expansion goals into next year. And while our inventory levels now are higher than we'd like, the product is very current and we are on track to work down excess levels and rebalance in the second half of the year. With that, I will open up the call for questions. Operator?

[Operator Instructions] Our first question comes from Brian Tunick with Royal Bank of Canada.

I guess, two questions. I guess, Stuart first. Just looking at your current gross margin guidance now for 2015, has your view changed on the opportunity? I think we've talked about 300 basis points, I think, of merchandise margin recovery for next year. Or what buckets maybe that's going to come from? So just curious there on has your view changed for next year's opportunity. And then on the comments that all regions are comping positive, so just think about your most mature stores in Canada, what would you point to as being the biggest changes you have made there in restimulating that oldest class of stores?

Brian, this is Laurent. Before I let Stuart dig into the gross margin question, I think that what you're seeing in Canada is really the result of the work that we've done across product innovation, guest experience and brand and community and the quality of the assortments. So we are very, very pleased about, after 12 quarters of declining comps in Canada, we're actually seeing positive comps and we are seeing the same results in Australia. So I think it's really -- we've been speaking for quite some time now about the triangle of guest experience, brand and community and product coming together, and when you think about the recent launch of our new pant wall, I mean, that was a prime example of the power of our teams collaborating and coming together and really delivering what we are known for. So -- and it's certainly paying off in our most mature market, being Canada. And before we get into the details of gross margin, I mean, I think it's -- and I'm sure we'll have a lot of questions on gross margin. I mean, it's really, really important for everybody to understand that the short-term gross margin pressure that we are experiencing is not the result of higher markdowns or quality issues. We're building a very scalable, complex platform at a time when we're growing internationally. And we've added resources to the team, and we've validated that not only we will see the margin expansion that we've committed to, but we'll see it in 2016 and beyond, as we have stated before.

And Brian, we remain confident in the product margin opportunities that we have identified for 2016. We continue to build out the details of our implementation plans this year. As a reminder, that opportunity we identified was a 300 basis point improvement in product margins in 2016 versus 2014. The full year amounts for those annual comparisons, that's on a pre-FX basis. And it's the same things that we've been talking about. We'll capture this through primarily the improvements in our go-to-market calendar process, improvements that will deliver lower airfreight, improved raw material management and better costing. And additionally, as you look at gross margin, the other buckets that -- and there are other things weighing heavily on gross margins this year. We'll begin to leverage our infrastructure investments that we've been making this year, but we should also see markdowns normalize. And occupancy and depreciation costs should moderate into next year. We expect it'll still be a headwind, but not to the same degree as it has been this year. It'll be more in line with what our historical experience has been. As you then think about that -- those goals and connecting that to the results we just announced for Q2, the guidance for Q3 and Q4, I think the issues that are weighing on product margins this quarter and in Q -- and that we see extending into Q3 are not structural, that we'll be able to clear the port-related items that we've seen weighing on our margins and the other factors that I just mentioned as we get into next year. In Q4 specifically, we'll clear those port-related issues. That will not be -- that will not weigh on our margins. We'll see some modest product margin recovery in Q4. That will combine with better leverage on our fixed costs in the fourth quarter just from the higher sales levels in the fourth quarter. So hopefully, that's addressing your question.

Our next question comes from Paul Alexander with BB&T Capital Markets.

Just a little clarification on current trends in the comp guidance. There has been some comments that sales trends continue to build and accelerate sequentially, but the comp guidance for third quarter of high single digits, while only a small moderation, does imply a moderation from 2Q. So is there something we should be thinking about? Or did you maybe see a deceleration in August related to the Labor Day -- later Labor Day or something else that we should be thinking about?

So on the comps, we continue to see strong trends in traffic and conversion, sequential improvements in both of those, and that's across all our regions. So I would not want you to take away anything from the guidance that our comp momentum is slowing down in any way.

Our next question comes from Jim Duffy with Stifel.

Can you talk to the -- can you please speak to the tactical strategies to bring inventory more in line with expectations? And then related to that, from our checks, the response to the new pants offering has been exceptional, but we have seen some instances of out-of-stocks. Is the product flow for the new pants offering in line with your expectations?

Yes, so I'll tackle the inventory clearance question first. So we're on track to what we had talked about last quarter. So we had described, and I think we've reiterated in our prepared remarks, that we had about 1/3 of the excess identified to be pushed through our normal exit channels and about 2/3 will be the reflow into our assortments in the second half. We had a successful online warehouse sale in the second quarter that enabled us to clear a little less than half of the excess overhang that we had from Q1. We have 2 physical warehouse sales planned for the balance of the year: one in Q3, one in Q4. And we're -- we also are opening 8 additional factory outlet stores this year. So the combination of those factors gives us the bandwidth or the capability to easily work through that excess, on plan with what we had previously outlined.

And then this is Tara and I can answer about out-of-stock. We've had really good initial reads on the pant wall, but we absolutely have inventory that we are in the process of allocating to stores. So those out-of-stocks that you may have perhaps seen, we did a big push of inventory prior to Labor Day weekend and you should see those level out as we get into the coming weeks.

Our next question comes from Matt McClintock with Barclays.

Laurent, first question, bigger picture. I have seen the new pant wall, looks great. As we think about you reintroducing product, launching new innovation, new product going forward, how are you thinking about pricing? Can you just talk higher level your thoughts on updating pricing strategies overall?

Well, I mean, I think I'll go back to our products used always to be at the top end of the pyramid of the market that we've created. And as we look at new categories or at innovation of our current categories, I mean, we are very much pushing our teams both from a design standpoint and from a functional standpoint with white space and in collaboration with our ambassadors to really create products that are going to drive function and design at the top end. So I mean, we're not seeing ourselves being limited by pricing at all, as long as we deliver the value for our guests both from a function and from a design standpoint.

And Stuart, if I -- just a housekeeping question. The relaunch of the website, now that that's, I believe, in the first quarter of next year, is that having any impact at all on your comp guidance for the full year?

Matt, not really. I think it was more a decision to allow a little more runway to get the website exactly where we wanted it. We also had the benefit now of having Miguel on the team, and his leadership is critical in that area. And it helps the team remain focused on optimizing business in the critical fourth quarter as well, versus trying to manage also a major website implementation. So just felt like the right decision given those circumstances, and it really isn't -- it's not weighing on the comp guidance in any way.

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

You've had acceleration in the men's business, wondering any more detail there. On the pant wall, I believe you're introducing the tank wall in the second -- in the fourth quarter. Pricing on the tank wall versus pricing of tanks now and how do you expect that to be different than the introduction of the pant wall? And just lastly, you mentioned a bit about occupancy. How is renegotiating of existing leases changing your overall occupancy costs?

Dana, it's Tara. So we're really pleased with the men's business, as you heard from Laurent's prepared remarks, a 31% comp in the men's business, and we're really seeing acceleration across all categories within men's. But a real highlight that we're excited about is the sweat category and continue to see strength in that area, which is really the foundation of our men's athletic business. And we've been introducing new fabrics this year that are reinforcing our sweat platform. We had a new fabric, Intrinsic [ph], in Q1. We have Pima tech [ph] coming in Q3, very pleased with that. As for the tank wall, just to remind everybody, we had focused on the tank wall for Q2. Due to the port strike slowdown, we didn't get our tanks styled in until the very end of Q2. We saw nice response and comp trend change when we finally got our full range of support and tanks out in the stores. You'll continue to see new styles throughout Q3 and Q4 being added to the tank wall. And we're taking all of the great learnings that we're getting right now and incorporating that into our assortment for next year in 2016. And as for pricing, as Laurent said, where it warrants, where we're adding innovation, where we feel that we have that balance of really driving something new and different to our guests, we'll be pricing it appropriately within our tank pricing structure.

And Dana, on your question on occupancy. I think the remodels -- or the renewals are an element of the pressure we've seen. We have great landlords, great relationships and are driving, I think, good terms there. As you look at the pressure, particularly in Q2, the new store opening cadence is really a bigger factor. We opened 20 stores in the second quarter compared to 7 last year. So just the year-over-year increase in new store openings is a bigger factor. Also the international stores we're opening, we've mentioned this before, come at a little higher occupancy costs and oftentimes include key money, which gets factored into that occupancy amortization. So those are probably bigger factors for us. We've also -- we're excited about the major renovations and relocations that we've also been pursuing and that also weighs into it, but it's smaller than just the new store opening cadence.

Our next question comes from Bob Drbul with Nomura Securities.

I'd just like to ask about the international expansion a little bit. I think you're pretty happy with some of the stores that you're seeing, Asia exceeding initial plans. Can you talk a little bit about the profitability ramp that you see? And do you believe we'll be able to get to current or peak prior operating margins? And how the store opening expenses are trending from that perspective?

Bob, on international, some very exciting new store openings. I think Laurent mentioned the ifc Centre in Hong Kong. That store is contending for the highest sales per square foot in our company. And on a four-wall basis, very attractive operating four-wall profit. And so in general, we're happy with the new stores we're opening internationally. Pleased with the results in Europe. Asia has been really off the charts, that's on a four-wall basis. We are making significant investments in terms of the management teams to drive these regional businesses, marketing to support the store openings and building the supply chain to support these businesses. So it'll take us a while to get a critical mass to be able to leverage those investments. I think what we've said earlier in the year in regards to just the operating profit profile, we believe international will weigh on the company's operating margins, at least in the near to medium term. We're expecting to, over the next few years, to return to that low to mid-20s EBIT margin range, with the North American business being more in the mid-range of that -- of the 20%, 20% to 25% range, and international averaging it down, if that makes sense. So it'll continue to weigh on it. We're excited in terms of just the four-wall profit. We're excited about that as a long-term growth strategy for the company, and we're confident that we'll be able to drive operating profit improvements into the near term.

And Bob, maybe to add to that a little bit. I mean, we're very -- when it comes to our international strategy, I mean, we're very, very focused on capital cities, where we know we've got a lot of demand and we're generating a lot of traffic and transactions. And as we deal with the same topics that we're on [ph] with digital and Miguel, we're coming up with some very exciting and nimble ways to really build brand resonance and brand awareness beyond those major cities, without necessarily spreading stores very rapidly throughout many countries. So I think we've been very strategic in focusing on the major cities and leveraging digital to grow brand resonance and awareness beyond those cities.

Our next question comes from Dorothy Lakner with Topeka Capital.

Just a question on the store renovations and relocations. Just wondered how many -- just remind us how many you're doing this year, how many you might do next year and how those -- the new formats are performing. Santa Monica looks great, by the way.

Yes. So we're going to do 10 of those major renovations, remodels this year. That's on top of the 3 from last year that we had mentioned. Some of the 10 that we'll do this year include the expansion of our Park Royal store here in Vancouver, the opening -- the relocation of our Union Square store in New York to a location on Fifth Avenue in the Flatiron area, expansion of our Chinook Center, and expansion of our West Edmonton stores. So those are all major remodels, expansions, where the square footage is growing by at least 50% or in that range or higher, in some cases. And the majority of those are still teed up for the second half of the year, so I can't really give a good indication on how those particular projects are performing. But I will say the ones that we've mentioned from last year, Robson, Santa Monica, Lincoln Road, all continue to exceed expectations. In fact, Robson Street is on track to become the highest grossing sales-producing store in the chain at over $20 million this year. And I might remind you that before we relocated that store, it was an $11 million store. So a pretty strong outcome in that relocation that gives us a lot of enthusiasm to continue to look for opportunities similar to that throughout the chain. We think this will be an important part of the square footage growth story of the company in a very profitable manner in the years to come, but we're excited for that. We'll be able to speak with more details around how the openings this year and the projects this year are performing on our next call.

Our next question comes from Thomas Filandro with Susquehanna.

Two questions. One is on the direct-to-consumer front, nice growth again. You got expansion in the margins there. I'd be curious if you can give us some insight on what drove the acceleration in expansion. And with the OPM and DTC now at 40% plus, is that a sustainable rate? And then a question, I think, for Tara. I believe there's been some pricing adjustments on pants, some up and some down, if that's correct. Can you just give us an understanding of what's happening, frame for us the adjustments and how should we think about averaging of retail in the second half of the year?

Thomas, I'll tackle your direct question first. So we continue to see strength in traffic and conversion in our e-commerce business. It's really the continuation of the story that we saw from Q1. And we think a big piece of this is simply the improved inventory position that we're now in. We're able to better meet demands, and I think in the second quarter, we had some interesting product flows that supported just the conversion. As we talked about, we have a major website remodel or relaunch, I should say, teed up for next year. So we feel good about where our website is today. We think we can be better. So we're very excited to see the continued momentum in the direct business and we, by no means, think we've topped out there. We believe there's still opportunity to be had as we continue to enhance and improve not only the website capabilities, but just how we engage with our customers via digital marketing and otherwise.

And then this is Tara and I'll take on the pricing. With -- we had an opportunity recently to just really clean up our pricing architecture within the pant classification. So you are right, there are some prices that came down and some prices that came up as we really just cleaned up the architecture to make it easier for our educators to educate against our different styles. And then obviously, you could see the innovation that we launched in the pant wall and we're very excited about that and very excited our guest response and continues to reinforce as we deliver innovation to our guest. She's excited about it and sees the value in it. As for the average unit retail for the remainder of the year, probably slight increase, but really that was not the reason for this. It was really just cleaning up our pricing architecture and really continuing to make way for us to bring in more innovation into all of our assortments.

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

Stuart, in terms of the supply chain and the next chapters here, could you just brief us on catalysts as you think about the sourcing partners, the go-to-market timing and when that may be, which classifications or timing may that be implemented? And then as you think about omni-channel in your supply chain, I was just curious. And Tara and Laurent, I was just curious about the pant wall and the men's. As a percentage of mix, do you expect those classifications to change over time? And then Tara, on core versus basics, were there any thoughts about how you're feeling about that mix at the moment and going forward?

Oliver, so yes, on the supply chain catalysts, it's the things we've been talking about in terms of how the go-to-market calendar will synchronize. Our design and sourcing activities enable us to be a better partner to our vendors, more predictable demand management and a better synchronized process, where we can ring [ph] efficiencies and reduce waste in fabric and expedited shipping costs. So those all remain the focus. Our planning continues to ramp this year and the team's -- and the capabilities to support that are the investments that we're making this year. The timing remains the 300 basis points, as I had described it earlier, over the course of 2016 in comparison to 2014.

Oliver, so the pant wall as a percent to the mix, I don't see that changing dramatically over time. Pant wall is our first place that we really tackled and launch with new innovation, but you'll continue to see that in other categories within both men's and women's. So I'm expecting our mix to relatively stay the same between tops and bottoms and jackets, et cetera. And then the balance of, I think, you said core versus basic. Really, the balance, how we think about it is seasonal and core. I think we've struck a very nice balance that we have in the stores right now. We know with seasonal how important newness is to our guests, how important delivering new products every week and the excitement that, that drives both online and guests coming into the store. So we feel really confident that we've got a nice balance as we go forward.

And Oliver, to Tara's point, I mean, I think that we started with -- we focused initially on the pant category and that's really the anchor of our women's business. That's what drives traffic and what ultimately drives sort of multiple purchases in the stores. So I mean, that's why we really don't see the mix changing, but actually driving higher sales in all of our categories.

Our last question comes from Matthew Boss with JPMorgan.

So as we think about SG&A, beyond this year, what's the best way to think about the total expense dollar growth in relation to sales growth? Just any color around remaining investments. And do we need to consider the timing of the website shift into next year as maybe an additional build?

Matt, so yes, I think as we look at the near to medium term, we expect to be able to see modest SG&A leverage into next year. I'm going to balance that with just the ongoing strategic investments that we're going to continue to make in the business. It will have priority to enable us to continue to drive our growth initiatives. So that -- we'll balance those two objectives for sure. But ensuring we have the resources and the capabilities to deliver on our growth goals is the primary factor to consider there. In looking at Q2 and Q3, the leverage that we saw in Q2 was affected by the FX translation. For the P&L overall, FX was neutral, as we mentioned, but there was a benefit in the second quarter there. In Q3, the slight deleverage that we're calling out is related to, again, those strategic investments. And specifically, in the third quarter, we are anniversary-ing that comp -- that incentive comp reversal from last year. So that creates some comparative pressure this year. But again, I think we'll remain focused on making the investments we need and -- as well as working to deliver modest SG&A improvements.

Thank you. This includes the question-and-answer portion of today's conference. I'd like to turn the call back over to Chris for closing remarks.

Thank you, everyone, for joining us today. We'll talk to you again in the quarter. Goodbye.

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