Thank you for standing by. This is the conference operator. Welcome to the lululemon Second Quarter 2016 Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Chris Tham, Senior Vice President, Finance for lululemon. Please go ahead.

Thank you, and good afternoon. Welcome to lululemon's Second Quarter 2016 Earnings Conference Call. Joining me today to talk about our results are Laurent Potdevin, CEO; and Stuart Haselden, 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 the company's future. These statements are based on current information, which we have assessed but which, by its nature, is dynamic and subject to rapid and even abrupt changes. Actual results may differ materially from those contained in or implied by these forward-looking statements due to risks and uncertainties associated with 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 are 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 to turn the call over to Laurent.

Thank you, Chris, and good afternoon, everyone. Q2 was a strong quarter with revenue of $515 million, earnings up $0.38 per share and most importantly, the return to earnings growth we had predicted. The level of execution across our 4 key strategies: product innovation, building a digital ecosystem, North American growth and international expansion, combined with our focus on operational excellence, drove our continued performance. What pleases me most, with regards to our performance, is the quality of our results, which were driven by the ongoing top line momentum, as our investments in innovation continued to drive the business. Our SG&A came in a bit higher, in part due to accelerating some investments, which Stuart will speak to later. Gross margin improvement accelerated substantially and the inflection in product margins we've been building towards exceeded expectations as we posted a 260 basis point increase over last year. This is the result of the initiative that started a couple of years ago to build a scalable supply-chain and create a world-class sourcing structure to support our global expansion plan. I could not be more proud of the team's accomplishments in delivering this return to earnings growth. We are planning for this growth to accelerate into the second half of this year and beyond. Reflecting on our global opportunity. We are leading and supporting one of the most significant movements taking place, a continued trend towards a more active and mindful lifestyle. At the same time, retail is evolving at an increasingly rapid pace. We're observing a shift in the way consumers engage with brands, how they connect with each other, and how they value focus-driven brands. Each choice is increasingly built around experiences rather than transactions. This evolution creates a tremendous opportunity for lululemon. Our highly productive physical footprint, augmented by our digital capabilities, combined with a deep understanding of the communities we're active in, gives us the unique advantage and flexibility to adapt quickly to consumer behavior. Despite a challenging macro environment, our educator, our products and our focus on operational excellence have driven another healthy mid-single-digit comp in the second quarter. We saw continued performance in our store as well as an e-commerce comp of 16% after normalizing for the online warehouse sales that occurred last year. Looking more broadly at results across all categories in Q2, we saw our design vision powerfully come to life and resonate with our guests. Within the women's category, guest embraced unique design details, such as mesh, braiding, bonding and engineered prints. Our Minimalist collection, designed for studio, and our Goal Crusher collection, designed for high sweat and run, incorporated some of these details and are a favorite with our guests. Our tops assortment continues to evolve, and we saw sequential improvement in our bra and tank categories, up 13% and 3%, respectively, year-over-year, driven by a powerful color assortment and growth in shirtless tanks. The combination of function and fashion is beautifully expressed through prints, patterns [ph] and textures, with the deutrider [ph] print that launched in July being a perfect illustration of this combination. Other future product highlights included continued strength in men with midteens comp, driven by new product and continued strong performance in iconic styles, such as the ABC pants and Metal Vent seamless tops. Finally, our focus on operational excellence is the main driver of gross margin and earnings improvement. Benefits from sourcing, logistics and more disciplined supply chain processes drove these results. Next, let me detail the progress we've made across of the 4 strategies that are driving our long-term goals. First with product innovation. I am truly inspired by the continued evolution of the product assortment as it comes to life. Our return to being a design-led organization is coming through clearly, with an overarching vision translating across categories and genders. Nowhere was that better exemplified than with the 2016 Olympics and our partnerships with the Canadian women's and men's beach volleyball team. Hanging out with the athletes in July at our Cumberland store in Toronto was such a thrill, second only to watching them wear our product in Rio last month. This collaboration demonstrates the unique asset relationships that are at the core of what we do and how we work. Within our women's tops category, our design focus has been in newer materials, fit, layering and outfitting. Within tanks specifically, you can expect to see more natural feel fabrics, lightweight layering option and the expansion of silhouette to complement our outfitting with more fitted bottoms. In the back half of this year, we will also introduce a new fleece aesthetic collection for men and women. Fabric innovation is front and center with the introduction of a new fabric within our bottoms assortment in September. Providing gentle compression and crafted to minimize disruptions, Nulu has it all. It offers quick drying, sweat-wicking and lightweight coverage. Nulu looks -- will make its debut with the like-nothing pants, and will also be available in core [ph] styles, including the wunder under and high times. This is lululemon's first Naked Sensation cardio pants specifically developed for sweaty indoor workouts such as spin. As we continue to raise the bar on craftmanship, we're also dialing up the visual impact of print, utilizing highly technical processes that allow us to achieve a richer level of color and detail without sacrificing function. You can expect to see this new digitally-engineered print on the Nulu's fabric we're launching, and in a variety of different style, including the new speed tight. Later in the year, we will also introduce a gorgeous Black Friday collaboration with Janina Nilero [ph], also known as Feather Girl [ph], a textile designer from Paris who works regularly with couture houses. We combined the artistry of her feather designs with technical silhouettes and fabrics to create digitally-engineered print. Our next area of focus is reaching our full potential in North America, where we continue to expand our footprint strategically while also exploring new formats. In May, we reopened our Mall of America store as a co-located men's and women's space, totaling 5,080 square feet. A dedicated and larger men's space provide for an unparalleled guest experience. And since the reopening, men's sales have increased 80% over last year to roughly 26% of total sale, while total sales are up 35%. We recently renovated our summer fit collection store in Detroit, one of the highest volume stores in the country. The men's business there is also one of the strongest across our portfolio. It's tremendously satisfying to see our momentum in this market, which is home to 4 professional sports team. In a rapidly evolving landscape, we don't take a one-size-fits-all approach to store format. This year, you'll see us open the doors to new, smaller format store that we're calling, local. These innovative hyper-local community stores allow us to come to life in front of -- influence communities that we wouldn't otherwise reach, offering events and programmings that are relevant to the local community. These locals will be anywhere between 1,000 to 2,000 square feet with similar productivity per square foot as our standard stores. The Fort Collins, Colorado local, which opened on August 20, is the first and the response has been overwhelmingly positive. More locals will follow in select markets across the U.S. and Canada. With smaller retail footprint, we are more innovative about the way we connect with and service our guest, and we are able to reach the full potential of the smaller store format with air cover from our digital environment. Digital is our next key strategic priority. And since the launch of our new site, we've been focused on continually enhancing the guest experience with schemes and technology that are agile and nimble. This improvement extends to payment security. At the most recent Apple's Worldwide Developers Conference in June, we were excited to be among the first retailers to implement Apple Pay across web, mobile and stores. This will ensure secure payment authentication across our digital access points. Our investment in CRM is already informing and enhancing the way we communicate with our guest, both in store and online. With a robust database that now includes over half of our guests, we are developing a unified, multichannel view that allows us to analyze and understand guest behavior and create greater engagement. As an example, I'm excited about the ship-from-store pilot. Online orders can currently be fulfilled some available inventory in 11 location. This is yet another capability that further improves our ability to service our guest, optimize our inventory sell-through at full retail. Earlier results have been positive, and we are extending this to 65 stores for the upcoming holiday season. Last, but not least, we are expanding our collection globally. As I have shared, building new and vibrant communities in key Asian and European cities is essential to our 5-year plan. On our last call, I mentioned several development, which have since come to life. In August, we opened our first ever lululemon shop-in-shop concept at Harrods, one of the world's most iconic retailers. This venture brings lululemon within the walls of one of London's most famous destinations. Our team on the ground is excited to introduce the SWEATLIFE to the 14 million guests that visit the store each year. This past July in London, we had a one-day SWEATLIFE festival and dance party for 1,500 old and new friends. Our guests joined local and global yoga ambassadors, including Chris Chavez and Gloria Latham, and sweated with the best studios in London, finishing the day off in typical lululemon fashion with a dance party led by Grandmaster Flash. On August 19, we opened our first Maven [ph] store in Europe, within the historic Spitalfield market, one of London's oldest and most iconic shopping districts. And in Q4, we will open an 8,200 square foot store on Regent Street. With 7.5 million annual visitors to this area, it is one of the best shopping streets in the world. This store will be a key part of our capital city strategy and building the brand in Europe. To celebrate the store opening, we are partnering with Central Saint Martins fashion students to create a limited edition collection that will be sold exclusively at the Regent Street store. Turning to Asia. Our existing stores continue to perform well, and we are seeding key cities in new markets. In July, we celebrated the opening of our first showroom in Osaka, our second in Japan following Tokyo. Located in popular shinsaibash area, the showroom is a great space that houses its own studio where the community team can host daily activities and classes. We continued to build momentum in Asia last month with Unroll China, a signature online to off-line community program in partnership with Alibaba. Registration for a series of iconic experience or events sold out overnight with guests attending the first ever yoga party in the Forbidden City with some of the world's most celebrated yoga teacher. Unroll China was a significant moment in building brand awareness for lululemon in Asia. Finally, we also have 2 additional store openings planned later this year. Following the successful opening of our first store in Seoul, Korea, which just opened our second store in Seoul, located at Parnas mall, the largest underground mall in Asia. And finally, we plan to open our first store in Beijing later this year, located in Sanlitun, a key shopping and entertainment destination. We've been seeding China with 3 high-performing showroom, community events, such as Unroll China, and our presence on Tmall, which collectively are building awareness for the brand. We're only getting started here, and this will be a significant part of the global growth story going forward. In summary, our accomplishments and successful result in Q2 are being driven by our relentless focus on function, innovation and design; our authentic connections with our growing collective, which includes our educators, guest and ambassador; the amazing guest experience that we deliver at every touch point in-store and digitally, always adapting to where the market is going; and lastly, our high performance culture and focus on operational excellence, which drove our return to earnings growth. We're very well positioned to deliver on our plan to double revenue and more than double earnings by 2020, and I could not be more proud of the way our entire team is working together to deliver this result. I want to close by thanking our educators, who interact with our guest every day, are the face of lululemon around the world and remain, in so many ways, the key to our success. With that, I will now turn the call over to Stuart, who will review our financial results for the second quarter and provide guidance on the full fiscal year. Stuart?

Thank you, Laurent. As you mentioned, I will offer additional details on the results of our second quarter, I'll then discuss our current outlook for the third quarter as well as the full year 2016. Q2 marks not only the achievement of critical performance milestones, but also represents an important turning point for lululemon. The product margin inflection in the quarter reflects the culmination of our ongoing efforts over the last 2 years and sets the stage for successive quarterly improvements as we restore the company's profitability. The rebalancing of our inventories removes the prior overhang on our assortments and positions us to optimize our product offerings. And finally, the double-digit earnings growth in Q2 reflects our improving flowthrough on a continued strong top line. And this is just the beginning. As our SG&A investments are now moderating into Q3 and beyond, we expect to see accelerating earnings growth and expanding operating margins. Turning now to the details of Q2. Total net revenue rose 13.6% to $514.5 million or 14.7% on a constant currency basis. The increase in revenue was driven by several factors. First, a total constant-dollar comparable sales growth of 5%, comprised of a bricks-and-mortar comp store sales increase of 4% and an e-commerce comp of 7%. Keep in mind, we held an online warehouse sale last year in Q2 that accounted for $6.6 million in volume. Normalized for this event, our e-commerce comp would have been 10 comp points higher this quarter and consistent with our Q1 trend, and our overall comp would have been approximately 2 comp points higher. Secondly, an increase in square footage of 14% versus last year, driven by the addition of 43 net new company-operated stores since Q2 of 2015, 17 net new stores in the United States, 1 store in Canada, 1 in Australia, 4 in Europe, 3 in Asia and 17 ivivva stores. And finally, these factors were offset by the foreign currency exchange impact of a stronger U.S. dollar, which had the effect of decreasing reported revenues by $5.3 million or 1%. During the second quarter, we opened 6 net new company-operated stores, 1 in Canada, 1 in Asia, 1 in Europe and 3 ivivva. We ended the quarter with 379 total stores versus 336 a year ago. There are now 309 stores in our comp base, 42 of those in Canada, 201 in the United States, 28 in Australia and New Zealand, 3 in Europe, 3 in Asia and 32 ivivva. At the end of Q2, we also had a total of 68 showrooms in operation: 25 lululemon showrooms in North America, 20 internationally, along with 23 ivivva showrooms. Revenues from company-operated stores totaled $381.4 million or 74.1% of total revenue, compared to $339.8 million in the second quarter of 2015 or 75% of total revenue. Revenues from our digital channel totaled $87.4 million or 17% of total revenue compared to 18.2% of total revenue in the second quarter of last year. Our e-commerce penetration increased by 10 basis points when normalized for the prior year online warehouse sale. Other revenue, which includes outlets, showrooms, strategic sales, franchises, pop-up stores and warehouse sales totaled $45.7 million versus $31 million in the second quarter of last year. This increase in other revenue relates primarily to new outlets and growth in existing outlets since the second quarter of 2015. We expect that growth rates in our other channel to normalize in the back half of this year as we anniversary these openings. Gross profit for the second quarter was $254.2 million or 49.4% of net revenue, compared to $212 million or 46.8% of net revenue in Q2 of 2015, an increase of 260 basis points. This marks the first quarter of year-over-year gross margin improvement since Q1 of 2014. The factors that contributed to this outcome include 360 basis points of increased product margin. This was driven principally by lower overall product costs that increased merchandise margins and reductions in raw material liability expenses, along with lower markdowns compared to Q2 2015. These improvements resulted from our coordinated efforts across the supply chain. Offsetting this improvement in product margin were 20 basis points of decline due to the foreign exchange impact of a stronger U.S. dollar, 40 basis points of deleverage from occupancy and depreciation and 40 basis points from investments in our design, merchandising and supply chain functions that are included in our cost of goods sold. SG&A expenses were $180.2 million or 35% of net revenue, compared to $145.4 million or 32.1% of net revenue for the same period last year. The 290 basis point increase in SG&A rate was driven by increases in Store and Support Centre employee costs, including annual incentive and stock-based compensation expenses; investments in our Store Support Centre overhead, which include our digital, IT, brand and retail operations functions; investments to drive top line, such as digital marketing, product campaigns and related brand marketing costs and a slight decrease in net foreign exchange gains compared to Q2 2015. The deleverage in the quarter was higher than initially expected primarily due to the acceleration of key investments in our merchandising operations, CRM capabilities and brand strategy. Specifically, these investments will enable us to sustain and extend the margin recovery that's now building and also accelerate efforts in customer analytics and brand marketing. As a result, operating income for the quarter was $74 million or 14.4% of net revenue, compared with $66.6 million or 14.7% of net revenue in Q2 2015. Tax expense for the quarter was $20.9 million or 28.1% of pretax earnings compared to 29.3% a year ago. The decrease in the tax rate is primarily due to a $1.9 million reduction in tax expense, which we recognized in Q2 2016. Similar to last quarter, this is connected to the company's transfer pricing arrangements and estimated taxes related to the associated plan to repatriate foreign earnings. The effective tax rate for the second quarter, excluding the above tax adjustments and associated interest costs, was 30.5%. Net income for the quarter was $53.6 million or $0.39 per diluted share. This is compared to net income of $47.7 million or $0.34 per diluted share for the second quarter of 2015. Excluding the tax and related interest adjustments, the diluted earnings per share would have been $0.38. There was a nominal impact to earnings from foreign currency this quarter versus the prior year. Our weighted average diluted shares outstanding for the quarter were 137.2 million versus 141.6 million a year ago, which takes into account the weighted impact of 201,000 shares repurchased during the quarter at an average price of $63.65 per share. By the end of the quarter, we had completed a total of $450 million in total share repurchases with the total authorization now having been completed. Capital expenditures were $44.6 million for the quarter compared to $37.2 million in the second quarter last year. This includes the purchase of a land parcel in Vancouver for corporate purposes for $19.7 million. Turning to our balance sheet highlights. We ended the quarter with $535.3 million in cash and cash equivalents. Inventory at the end of the second quarter was $277.3 million or 1.2% lower than at the end of the second quarter of 2015, reflecting a 15% decrease in inventory per square foot. Our inventory levels and composition remained healthy, particularly when looking at the 2-year comparison. We are well-positioned from an inventory standpoint to achieve our back half sales expectations. We expect our inventory growth at the end of the third quarter to continue to sit beneath our forward sales trend as we anniversary our elevated inventory levels from last year. Turning now to the details of our Q3 and fiscal year 2016 updated outlook. We expect revenues in Q3 to be in the range of $535 million to $545 million. This is based on a comparable sales percentage increase in the mid-single-digits on a constant dollar basis compared to the third quarter of 2015 and assumes a Canadian dollar at CAD 0.77 to the U.S. dollar. This also assumes 9 net new store openings in the quarter. We are pleased to see the gross margin inflection that began in Q2 now extending into the initial weeks of Q3, and we expect this recovery to continue taking shape through the second half of this year and beyond. For the third quarter specifically, we anticipate gross margin to increase in the range of 200 to 250 basis points over Q3 of last year. This increase is attributable to the following: higher product margins through lower overall product costs, which is the most significant component; duty, trade and logistics efficiencies and continued reductions in raw materials liability costs through our improved buying and sourcing processes. These will be offset by slight occupancy and depreciation deleverage and a modest deleverage in product and supply-chain SG&A. And based on the underlying foreign exchange rates, we expect foreign exchange to have a minimal impact to gross margin in Q3. We expect SG&A in the second half to delever, but to a much lesser degree than the first half. For Q3 and Q4 combined, we anticipate approximately 100 basis points of deleverage with Q3 slightly higher and Q4 slightly lower. This SG&A outlook reflects incremental spend associated with merchandising and brand strategic investments as well as digital and IT cost associated with our omni-channel strategies. Assuming a tax rate of 30.5% and 137.5 million diluted weighted average shares outstanding, we expect diluted earnings per share in the third quarter to be in the range of $0.42 to $0.44 per share versus normalized diluted earnings per share of $0.35 a year ago. For the full year 2016, we expect revenue to be in the range of $2.325 billion to $2.350 billion. This is based on a comparable sales percentage increase in the mid-single digits on a constant-dollar basis. We expect to open up to 42 company operated stores, which include the local that Laurent talked about earlier, 11 new stores internationally and 12 ivivva stores and represents a square footage increase of approximately 12%. We expect gross margin for the year to increase from 2015, driven by the improvements delivered in Q2 and carrying forward for the remainder of the year. We expect deleverage in full year SG&A versus 2015, driven by the strategic investments that were mentioned earlier, principally in supply chain, brand, digital and IT systems, along with the net FX revaluation losses incurred so far this year. We expect our fiscal year 2016 diluted earnings per share to be in the range of $2.11 to $2.19 or $2.07 to $2.15 normalized for the tax and related interest adjustments incurred this year. This is based off of 137.5 million diluted weighted average shares outstanding. It also assumes an effective tax rate of 28.7% or 30.5% on a normalized basis. We expect capital expenditures to range between $165 million to $170 million for the fiscal year 2016, reflecting new store openings, renovations, relocation capital and also strategic IT and supply chain capital investments. In closing, we are heading into the second half of the year in a position of strength, continued top line momentum, fueled by product innovation and the underlying strength of our brand and guest experience. This, together with a much improved operational foundation that has now begun to deliver on the anticipated gross margin recovery, well-positions us for the accelerating earnings and the inflection in operating margin that we now see materializing. With that, I will open up the call for questions. Operator?

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

This is Kate Fitzsimons on for Brian. I guess, first is on the gross margin. Stuart, can you just speak to your expectations for markdowns into the back half now that inventory is so lean? And then, secondly, I guess, just product costs in particular appear to be coming in much faster than we anticipated. You'd previously spoken to that 300 basis point merch margin opportunity. I guess, just how is what you're seeing from a product cost perspective making you maybe reevaluate that opportunity, more bullish, just how should we think about that there?

Sure, Kate. On the -- on your questions on gross margin, let me just cast some or offer some clarity rather on the results in the second quarter and how we were able to exceed our expectations and our prior guidance. So there were really 3 factors that enabled us to exceed expectations in the second quarter. First, it was a favorable selling mix. We sold a higher proportion of our products from the higher-margin categories. The second factor was less markdowns. To -- more to your point, we saw a higher full price sell-through result in the quarter. We had less markdowns that were needed in order to stay on top of our inventory movement. And the third factor was a favorable duty cost outcome. We saw better-than-expected savings from our first sale programs. Specifically on markdowns, as I mentioned, the results that we saw in the second quarter were better than expected. I would -- looking forward into the second half of the year, I wouldn't necessarily expect that, that same outcome would continue just given the healthy position that we have in our inventory now. So I would expect markdowns to normalize to some degree into the second half of the year and perhaps not be quite as favorable as we saw in the second quarter. In terms of the product costs benefits that we are achieving, we are in fact on track to achieve the order of magnitude of the 300 basis point improvement as we look back to 2014 levels over the next few quarters. And so that is -- that program to recover that level of profitability is materializing. We're pleased with the progress we're making. And by the -- I would say, by 2017, certainly, the middle of 2017, we will have achieved the majority of that cost or that product cost improvement.

The next question comes from Matthew Boss of JPMorgan.

So on the SG&A front, can you just expand a little bit on the commentary regarding the moderating investments? And specifically, how should we think about the comp needed to leverage SG&A as we get into next year and into 2018?

Yes, I would say the SG&A takeaway from the guidance and the results we just announced is that we expect SG&A to moderate into the second half of the year and into 2017 as well. Over the long term, I would expect us to be able to leverage SG&A at a high single-digit comp level. So -- but in the near term, we've just completed a number of critical strategic investments in relation to the infrastructure of our supply chain and merchandising. The bulk of those activities are wrapping up in the second quarter, and that is what's giving rise to the moderation in SG&A into the second half and then further into 2017.

Great. And then just a follow-up. Can you speak to the cadence of comp you saw this quarter as we kind of move from the start to the finish? And then just what did you see in tops versus bottoms? And was performance in August versus your mid-single-digit guide pretty consistent or anything to think about as we think about the progression from here?

So I'll speak to the comp progression and just the underlying drivers of the comp, and then maybe Laurent will speak to the product category performance. We did see traffic continue to be a headwind for us in the second quarter. We were able to offset that with improvements in AUR and UPTs that enabled us to deliver the positive comp that we reported. The traffic headwinds have extended into the third quarter, but similarly we're seeing upside in AUR and UPTs that are offsetting it. The trend has been choppy, and I think we're not immune to what's happening from a macro standpoint. We're not going to be able to break down the specific periods within the quarter, but the trends, we didn't see a huge divergence sort of beginning to end of the quarter, safe to say.

I think that when you look at the product category, I mean, we continue to see a lot of strengths in the bottoms, women's bottoms. I mean, it's double-digit comping. And every time we've introduced new silhouettes, new functionalities, some of the details that came in the past couple of months and new fabrics, I mean, we see a fantastic response from our guests. So I really do feel that as we continue to -- we had the loss of the pant wall last year, and that was a moment in time where we introduced a couple of fabrics and a few silhouettes. And since then, we've been continuing to introduce silhouettes, if you think about the Align Pant or the Align Crop and every time we've done that, we've actually seen great response. And actually, where we've actually delivered more value to the guests and taken price increases, we've seen no price resistance. So really pleased with that. And the work that we're doing in tops is really starting to -- paying off, especially with tanks and bras.

The next question comes from Kimberly Greenberger of Morgan Stanley.

Laurent, I'm wondering if you can look into the back half of the year and talk to us about the product initiatives. I'm not sure if the tank wall full relaunch has yet been executed in the stores. And then how do you think about the opportunities and challenges as you begin to anniversary that women's pant wall relaunch from early September last year?

I think -- I don't think we should think about necessarily anniversarying the pant wall. I mean, the pant wall was a new way of presenting the product assortment with fabrics and silhouette, but it was really sort of a matter of starting to educate on sensation. And so I would really think about, for every product category, but specifically with pant, as a continued flow of innovation. So you're going to see, we're going to introduce new looks with new fabric in September. And so you're going to see, the way we educate on sensation, you're going to see that continue. But within that education, you're going to see new fabric, new silhouette. So I feel like we've got the right pipeline of innovation, both from a fabric, a silhouette and as well from a print and texture standpoint, we've got the right pipeline of innovation to continue to perform in the category. So I feel really good about that. When I think about the back half of the year, what I'm really excited about is if you think about the first half, what we've done from a digital standpoint, we really put a great foundation in place. So we launched a website. For the first few weeks of the launch, I mean, we actually did better than we expected as user get a new user experience. But we invested less in digital marketing as users got familiar with the environment. And in the second half, I mean, now we've got CRM fully implemented. We've got capabilities to do A/B testing on everything we do. And we're going to see continual improvement with -- if you think about the whole experience, we are really relentlessly focused on reducing all the frictions with our guests. So from the way you're browsing to the way you're looking at the product pages, to the check-out, you're going to see a lot of improvements. So the foundation was put in place in Q1. We were able to achieve some great performance. And now we can really accelerate with tools that we're putting on top of that foundation. So I'm really excited about not only the impact that it will have online, but I mean, we benefit greatly from that work in stores as well. And so when you think about ship-from-store program or the continued success of our BBR apps that access online inventory in the stores, I mean, all of that coming together, I'm really, really excited about that.

The next question comes from Oliver Chen of Cowen and Company.

On the topic on the online business and what's happening there, what would you isolate as the biggest year-over-year changes we should look to as we look to the back half? I'm just curious about thinking about inventory management across both online and offline and what opportunities you have there. And as you did elaborate on CRM, is that going to help traffic both online and in stores, like what's the linkage between CRM and the big opportunity to drive revenues?

I wish we had more time to answer that question because there is so much going on in the back half. But I mean, if you look at -- simply look at what happened with the mobile app. Like since we relaunched the website, I mean, we went from a 2.5, 3 star rating in the app store to a 4.6 star rating, which really speaks to the new user experience. So you had a couple of questions. I mean, if you think about CRM and analytics, I mean, one, the ability to test everything we're doing is something that we didn't have and something that's paying off instantly. So we can put different product pages up and know within hours what works, what doesn't work or what works better. From a men's standpoint, I mean, lately, we've been able to send like a men's personalized homepage to the guest that we know, and that had over a couple of weeks an improvement of 7.5% in conversion for that segment, which was fantastic. I mean, if you think about in-store reengagement with sharing all of that CRM data so that the store can actually create events that are catered to very qualified guests. And we can actually switch from a weekly e-mail that was really product-based to opportunities that are more event-based. So maybe you're a lapsed guest and we're getting you back or maybe you're a first time guest and we can really talk to you in a more personalized way, and all of that's coming to life in the back half of the year. So to your question, it's -- you're going to see continually and it's very agile and nimble, the environment that we build with the team that we have. So you're going to seek continual change through the entire experience and it will benefit the stores as well. And we're linking inventory. So when you think about ship from store, I mean, it's really going to allow us to use potential like broken sites curve to move them much faster at full retail. So avoiding those onesies and twosies markdown in the stores, then we'll have access to those items much faster. So there's a lot going on in the back end of the year that will bring the entire ecosystem together.

And Laurent, the shop in shop at Harrods sounds awesome. And I know there's so much demand for both the brand and really wholesalers just kind of replicating a lot of what you do. What's your long-term vision for how wholesale should play a role as you think about your global strategy and as you grow your business and think about speed and awareness versus direct to consumer from lulu? Because there are potentially a lot of great brand partners out there, but there's pros and cons to using the wholesale channel?

Yes, I mean, I think it -- well, first of all, when you mention a wholesale, I mean, I think it's really important for people to know that at Harrods, I mean, it is our employees and our inventories. So what we're known for is the experience, I mean, we actually create and control that experience, which is really, really important. I mean, I've said before, I mean, it's -- the structure that we have being vertical, really allows us to not only create amazing experience but also gives us the margin structure to work with the best fabrics and the best textures. And what you're going to see in the second half some incredible prints. So I think you're right. There are opportunities around the world to evolve the model. Harrods is one of them. What we're doing in China with Tmall is -- Tmall is growing incredibly fast in China, and it's putting a lot of eyeballs on the brand. So we've got opportunity strategically to work with partners. And I certainly wouldn't say that it's going to a wholesale model. I mean, we're very happy with the structure that we have and the extent [ph] that it allows us to create for our guests.

The next question is from Paul Lejuez of Citi.

Just curious. Where is the tops business right now relative to where you want it to be? And assuming that we're not all the way there, at what point can we expect to see the majority of that improvement complete? And then, second, I just want to clarify something. Stuart, I thought on the last call, you had mentioned that May maybe started off a bit slow. So I just wanted to clarify if, in fact, the monthly performance was actually consistent across the quarter or if May was the weaker month and you finished stronger.

Paul, it's Stuart. I'll ask that -- I'll answer that question on the comp first. So the -- we did see the quarter start out slow from a traffic standpoint. We did not really see a meaningful improvement in the traffic trend throughout the quarter. So that remained a headwind for us for the second quarter. As I mentioned, there are other KPIs, specifically AUR and UPTs that were able to have help offset that. As we drill closer into AUR, it's a combination of favorable mix as well as price. So that trend has largely extended into the first few weeks of Q3 in terms of those store KPIs. And then on tops?

And as far as the tops business, I mean, I think you're going to see improvement. I mean, I think you're seeing a lot more looser silhouette. I spoke to the tank, the shirtless tank that are performing really well. We've got double-digit comp there. I think we still have some work to do on the jackets, but we've got a great fleece program coming in the fall both for men's and women's. So I don't -- I mean, your question was how far are we along. I think you're going to continue to see there's a lot of fabric innovation. There's a lot of silhouette innovation. So I mean, it's -- I don't think it's ever a finished project. It's a little bit like the pant wall. We're going to continue to innovate, and you're seeing a lot of it on the floor coming in the second half. But there is -- I mean, when I think about the new fabrics and the silhouettes and the textures and the print coming in spring of '17, I mean, I'm -- I think we've got a lot of room to continue to grow. I mean, if you think about the ratio to pants, I mean, we're starting to grow that ratio again. And fully reaching the ratio of tops to pants, I mean, really creates a lot of room for growth.

And Laurent, can you just remind us what that ratio is?

Right now, it's about 1.2 or 1.3.

Yes, then we could easily see that expanding to over 1.5.

Yes, yes.

The next question comes from Adrienne Yih of Wolfe Research.

It's actually Cody Ross on for Adrienne this afternoon. Just a quick question. There recently was a large bankruptcy of a shipper. Do you guys think that this will have a big impact in your business in the rest of the year? And has your guidance contemplated this at all?

Cody, it's Stuart. So we don't have any concerns about our supply chain or our suppliers or the shipping partners that we use. So we have close relationships with blue chip partners and really no concerns at all there and have seen no disruptions in our shipping partners or supply chain broadly. And our guidance reflects our confidence in our supply chain structure.

The next question comes from Jessica Schmidt of KeyBanc Capital Markets.

I guess, can you just elaborate a little bit on what the response has been from some of the new products that started coming out under -- I think it started coming out over the past few weeks and how that's sort of resonating with the customers so far?

Yes, I mean, it's been -- I mean, I think you see that actually in -- we talked about the traffic headwinds and when you see the UPT and the AUR and the level of conversion, I mean, I think that really speaks for the product. I mean, in August, actually, I think we ended up being really lean with some of our summer products. And I actually think it's a great position to be in. I mean, it speaks for how quickly the products flew off the shelf. And we probably left some business on the table in some of these new products that flow through the store and through online, so really, really pleased with not only the assortment, but how the assortment merchandises together. So I mentioned that on our last call, but we used to have really sort of different vision and design and print and colors for studio and cardio, and all of that now being an overarching vision that actually extends to the men's category, really allows our guests to put outfits together more easily and in a more powerful way. So very pleased with what we're seeing so far.

The next question comes from Matt McClintock of Barclays.

Laurent, it was really interesting what you said about locals. I really would like to talk a little bit more about that. Can you give us any more information? Where would it be appropriate to open these small stores? Are we talking places like Aspen, Colorado? Or are we talking about some -- an opportunity to really reach out and get meaningful distribution physically with this format?

Well, I mean, if you think about -- I mean, I think Aspen is a great example. You can think about mountain resorts. You can think about fish [ph] communities. You can think about influencing communities, where we don't have the need for a full store. And when you think about our international expansion and what we're doing globally, I mean, we have a "Local in Tokyo." So in Harajuku, we've got a 900 square foot location that's absolutely gorgeous and that's getting a lot of traffic. And it's really -- and I can see them -- I could see having a lot of locals in Tokyo where you have one that's dedicated to men, one that's dedicated to run. So I think it's influencing communities. It's resorts [ph], it's smaller market. But especially with everything we're building from a digital standpoint, I mean, we can really support -- having the ability of the product assortment in a more nimble and -- in a more nimble way and with a lighter footprint.

And Stuart, if I could just real fast. Could you remind us how many remodels that you've done overall for the fleet in the last year and how many we should expect on a normal basis?

Yes. I think we did 10 last year and we have 12 planned for 2016. And similar, I would say, similar amount that I would expect going forward annually.

The next question will come from Betty Chen of Mizuho Securities.

I was wondering if you can talk a little bit more about the traction you're seeing in Asia, especially in China? Are you seeing that customer purchase pattern any differently in terms of the mix or price points, or top to bottom? And then also, any change in terms of how quickly we could see those store rollout plan? I know you mentioned what we should expect in the back half, but how about 2017 or beyond?

Really, when you think about Asia, I mean, actually when we look at the product mix, I mean, we don't really see any significant difference in the assortment between the rest of the world and Asia, which is -- I mean, we really talk about building a globally inspired line which resonates with guests around the world. No significant deviation from what you're seeing in the rest of the world. I mean, what I'll say that on the Tmall, we see a very, very strong accessory business, and it's people that are [ph] engaging with the brand for the first time. And so we're pleased with that. As far as stores, I mean, the showrooms have been performing really, really well in China. Actually, when you think about Beijing and Shanghai, and so that's where we've being most focused. And the ambassador strategy is really working well. I mean, we had this amazing event a couple of days ago in the Forbidden City. We had 3,000 people doing yoga, and the event was done in partnership with Alibaba and sold overnight. So I mean, I really think that we've got momentum. We are focused on the right cities. And as far as the assortment, I mean, it's resonating. It's the same assortment that's resonating with the guests that we've seen in the rest of the world.

How about, Stuart, in terms of the 4-wall or ROI, how should we think about those stores performing? They are smaller, but is the rent typically a little bit higher? But with the higher productivity, is the 4-wall similar to North America?

Yes, we're pleased with the 4-wall economics. It is more expensive to do business in Asia and much of the world, and that translates into higher labor cost and higher rents. But we're still pleased at the 4-wall profits that we're seeing. It's probably 300 to 500 basis points lower than the North American -- the average for North America. But still, we're very happy with the level of profitably we're seeing.

One thing that we see with consumer behavior, and you know that, is that they're obviously a lot more engaged from a mobile standpoint. So all the work that we're doing from a digital standpoint will allow us to sort of get to the new guests a lot faster and more efficiently and profitably.

Thanks, again, everyone, for joining us today. We look forward to talking to you again next quarter. Goodbye.

Goodbye.

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