Lululemon Athletica Inc (LULU) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to your lululemon athletica Q4 2009 results.

At this time, all participants are in a listen-only mode.

Later we will conduct a question-and-answer session, and instructions will be given at that time.

(Operator Instructions).

As a reminder, this program is being recorded.

I would now like to introduce Ms.

Jean Fontana from ICR.

Please go ahead.

Good morning.

Thank you for joining lululemon athletica's conference call to discuss fourth quarter and full year 2009 results.

A copy of today's press release is available on the Investor Relations section of the Company's website at www.lululemon.com or furnished on Form 8-K with the SEC, available on the commission's website at www.SEC.gov.

Today's call is being recorded and will be available for replay for 30 days shortly after the call in the Investor Relations section of the Company's website.

Hosting today's call is Christine Day, the Company's President and Chief Executive Officer, and John Currie, the Company's Chief Financial Officer.

Before we get started, I would like to remind you of the Company's Safe Harbor language.

Statements contained in this conference call which are not historical facts may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Actual future results might differ materially from those projected in such statements due to a number of risks and uncertainties, all of which are described in the Company's filings with the SEC.

Now I would like to turn the call over to Christine Day, lululemon athletica's Chief Executive Officer.

Thank you, Jean.

Good morning, everyone and thank you for joining us to discuss our fourth quarter results.

With me today are Chip Wilson, our Chairman, John Currie, our CFO and Sheree Waterson, our EVP General Merchandise Manager.

Following my opening remarks, I'll turn the call over to John, who will go through the financial details of the quarter.

We are very pleased with our fourth quarter results and the strong finish to fiscal year 2009, as well as the momentum in the business as we start 2010.

Our constant dollar comparable store sales swung from down 8% in the first quarter of 2009 to up to 29% in the fourth quarter, and earnings per share did a similar turnaround with a 25% drop in Q1 and 150% increase in Q4 compared to the same quarter in 2008.

We deployed several strategies during the year that drove the rebound in our business.

We reacted quickly to the macro environment at the end of 2008, which put us solidly in the position to focus on the opportunities in 2009.

We have already discussed our decision to add more value to our products such as our technical functionality and other key features, as well as new fabrics, in order to offer additional value to our guests without increasing prices.

This, along with the great success of our running line, helped to turn our sales momentum positive, and an improving economy shifted the head winds to tail winds and added strength in the back half of the year.

We also turned up our community-oriented efforts, such as supporting marathons and launching an ambassador program for our running line in every store to match our yoga program.

There were other drivers as well, including the launch of our eCommerce site in April which added incremental revenue and even more importantly, created heightened brand awareness.

We were also able to leverage our systems that were implemented to improve our site supply chain capacity and inventory control.

And finally, our team throughout the organization really came together and stepped up to capitalize on our opportunities.

And now as we move into 2010, our eCommerce site, exposure from the Olympics, community, and our showroom expansion strategies are all coming together to give our brand awareness around North America another meaningful incremental boost.

This not only drives our comparable store sales, but will also benefit our new store productivity going forward.

Our Canadian growth continues to deliver strong sales and our US business has reached a point where we are seeing a strong lift across all markets and age classes, as well as strong openings in the '09 class stores.

Our Q1 comparable store sales are now running above the 20% comp range in both the US and Canada, with our class of 2008 which opened in a soft economy leading the way.

The growth trajectory of our US stores is now well on track to achieve our long-term objective of being in line with the Company average productivity.

Obviously we are very pleased with the management team we have in place at the store and district manager level and here at the support center, giving us the capacity to expand, as well as to flow through incremental sales to the bottom line.

Looking ahead into 2010, we plan on capitalizing on our unique showroom strategy.

We've opened one so far in 2010 and will have 25 more opening before the end of June.

These show rooms are located in our top potential markets and trade areas from our 300 target store list and include cities such as Malibu, California, Boca Raton, Florida, and Fort Worth, Texas.

We now also have a plan to open a minimum of an additional 20 show rooms in August.

This important investment will dramatically impact the future store openings by seeding new markets and further stimulating existing markets, while allowing us to still deliver earnings in 2010 that are in line with our long-term goals of at least 25%.

Our goal is to be able to report this level of earnings growth consistently for many years to come and investing back any potential upside to this target will aid our ability to deliver over the long-term.

Finally, many of you have noticed that we've been out of stock on our eCommerce site and in our stores, especially in key sizes.

As you can imagine with comps we are running, we are continuing to execute our rapid inventory replenishment program.

We will be chasing right through the summer and are now placing orders for winter 2010.

And on the product front, our goal for 2010 is to sell more of the same merchandise that worked in the second half of 2010, being in stock in sizes 2, 4 and 6 continues to be our biggest productivity expansion opportunity, along with the growth in the yoga and running categories, and our new eCommerce channel.

While we won't focus on launching new lines, the product in the stores has never looked better and guest demand is growing for our current line.

So in summary, we put a multifaceted plan in motion and it is already paying dividends and we expect to turn the same effort up a notch in 2010, while investing for the future to keep our current momentum strong.

It is now my pleasure to turn the call over to John to go through the details of our financial results and give your outlook for 2010.

John?

Thanks, Christine.

I'll begin by reviewing the details of our fourth quarter 2009 results and then I'll provide our outlook for fiscal 2010.

For the fourth quarter of fiscal 2009, total net revenue was $160.6 million, up 54.5%.

Net revenue of $103.9 million in the fourth quarter of 2008.

The increase in revenue was driven by comparable store sales growth of 29% on a constant dollar basis, the addition of seven net new corporate-owned stores opened since Q4 of 2008, the addition of eCommerce operations, which contributed revenues of $9.3 million, and a stronger Canadian dollar, which had the effect of increasing reported revenues by $13.7 million or 13%.

During the quarter, we opened one corporate-owned lululemon store and one store in our Australian joint venture and three Aviva stores, two of those conversions of our old [Ococo] concept stores.

We ended the quarter with 124 total stores versus 113 a year ago, 110, which are corporate-owned and 14 which are franchises, including the 9 now operating in Australia.

There are now 97 stores in our cost base, 38 of those in Canada and 59 in the United States.

The corporate-owned stores represented 86% of total revenue, or $137.4 million versus 87%, or $90.3 million in the fourth quarter of last year.

Franchise and other revenues which includes wholesale, show rooms, outlets, warehouse sales, and now eCommerce sales totaled $23.2 million, or the remaining 14% of revenue for the fourth quarter.

Gross profit for the fourth quarter was $86.6 million, or 53.9% of net revenue compared to $51.6 million, or 49.7% of net revenue in Q4 2008.

The primary factors contributing to this 420-basis point increase in gross margin were merchandise margin improvement of 180 basis points, which was driven by improved product costing on our winter merchandise and reduced store discounts and markdowns.

These cost reductions were partially offset by air freight costs incurred throughout the quarter to keep pace with stronger than expected sales demand.

Leverage on non-merchandise costs, such as occupancy, depreciation, and product and supply chain team costs contributed 160 basis points of improvement, and foreign exchange improvement of 80 basis points due to a stronger Canadian dollar.

SG&A expenses were $44.9 million, or 28% of net revenue compared with $31.2 million, or 30% of net revenue for the same period last year.

The higher SG&A was due to a natural increase in store labor and operating expenses associated with new stores and net revenue growth at existing stores, an increase in administrative costs and service provider fees associated with our new eCommerce website in 2009, higher professional fees and legal fees, primarily associated with ongoing litigation, an increase in IT and other corporate head office costs as we begin reinvesting into our support functions and response to increase in demand, higher management incentive-based compensation that was annualized against bonus reversals in Q4 last year, and finally, the higher Canadian dollar, which increased SG&A by $2.5 million.

Nonetheless, we were able to achieve a 200-basis point reduction in SG&A as a percentage of revenue, largely due to efficiencies in store labor, prudent expense management, and leverage associated with improved store productivity.

As a result, operating income for the fourth quarter was $41.4 million, or 25.8% of net revenue compared with $16 million, or 15.4% of net revenue a year ago.

Tax expense was $13 million for the fourth quarter, or a rate of 31.4% versus 32.7% last year.

Net income was $28.5 million, or $0.40 per diluted share.

This compares with net income of $10.9 million, or $0.16 per diluted share for the fourth quarter of 2008.

Keep in mind that fourth quarter 2008 results included a $4.4 million, or $0.04 per share asset impairment charge.

Our weighted average diluted shares outstanding for the quarter were 71.3 million versus 68.5 million a year ago.

Turning to the key balance sheet highlights, again, this quarter we generated strong positive cash flow and ended the quarter with cash and cash equivalents totaling $159.6 million.

We continue to have a healthy working capital position and no debt.

Inventory at the end of the fourth quarter was $41.4 million, $8 million, or 15% lower than at the end of the fourth quarter in 2008.

You'll remember that on the last earnings call, we actually forecasted a 20% to 25% increase in inventory levels.

Much of the variance was due to the receipt of spring merchandise initially expected to be in transit at year end, which did not actually hand over from the factories until early in fiscal 2010.

This lower inventory balance also resulted from our efforts throughout the year to move aged and obsolete inventory, higher than expected demand and sell-through in the fourth quarter, and generally lower product costs due to improved sourcing.

Capital expenditures were $6.5 million in the fourth quarter, resulting from new store buildouts, existing store renovations, and IT capital expenditures.

Turning to highlights for our full fiscal year performance for fiscal year 2009, total net revenue increased by 28.1% to $452.9 million from $353.5 million in fiscal 2008.

The increase was driven by a combination of adding seven net new stores to our store base, annualizing revenues from 2008 store openings, constant dollar comparable store sales increase of 9%, and the addition of our eCommerce channel.

Gross margin was $223.1 million, or 49.3% of net revenue compared to $179.1 million, or 50.7% of revenue for fiscal 2008.

Operating income for the year was $86.5 million, or 19.1% of net revenue compared with fiscal 2008 at $56.6 million, or 16%.

We finished the year with diluted earnings per share of $0.82 compared with diluted earnings per share of $0.55 in fiscal 2008.

Again, prior year numbers included a $4.4 million, or $0.04 per share asset impairment charge.

For the year, capital expenditures came in at $15.5 million.

Now I'll turn to our outlook for the first quarter of 2010.

This outlook assumes a Canadian dollar at $0.95 US compared to an average exchange rate of $0.80 in Q1 of 2009.

For the first quarter of 2010, we anticipate net revenue to be in the range of $125 million to $130 million.

We expect comparable store sales percentage increase in the upper 20s on a constant dollar basis compared to the first quarter of 2009.

This comparable store sales momentum is particularly strong in the 2008 age class US stores.

Many of these stores opened in new markets and in the worst part of the financial crisis and recession, and have reached a tipping point and are now comping well above our overall average, as we gain brand recognition and traction in all regions.

We'll open four stores in the first quarter and we've already opened one.

That one in Wayne, Pennsylvania.

We expect gross margin as a percentage of sales to improve over Q1 2009, due to improved product costing, a favorable impact from foreign exchange and leverage on occupancy and depreciation.

For the first quarter of 2010, we expect SG&A as a percentage of sales to increase above Q1 2009, due largely to the stronger Canadian dollar which will increase reported Canadian SG&A costs as compared to first quarter 2009.

In addition, due to the expansion of our showroom strategy, in many new showroom openings in the latter part of the quarter, we expect to incur preopening costs, including salary, training costs, and rent.

First quarter 2010 results will also include administrative costs and service fee -- service provider fees associated with our eCommerce channel, which opened in the latter part of the first quarter of 2009.

Assuming a tax rate of 35% and 71.7 million diluted weighted average shares outstanding, we expect earnings per share in the range of $0.18 to $0.20 per share for the quarter.

For the full fiscal 2010, we have 12 new stores confirmed and may open up to 15 if we're able to secure the right locations.

We expect comparable store sales growth in the first part of the year to remain strong, as we annualize against periods where we were impacted by the economic downturn in 2009.

However, in the latter half of 2010, as we're annualizing against periods where store productivity began to rebound and sales demand was strong in 2009, we expect much more modest comparable store sales growth rate.

For the fiscal year 2010, we expect net revenue to be in the range of $570 million to $585 million.

For gross margin, we expect gross margin to be favorably impacted by a stronger Canadian dollar, and leverage on occupancy and depreciation gained through higher store productivity.

We expect increased SG&A spend in 2010, given the current strength and momentum of the business.

We will reinvest in certain support functions that we cut back in 2009 and will increase our investment in other key areas to build our platform to support our long-term growth trajectory.

As Christine mentioned, we'll be opening a large number of show rooms in 2010.

Typically these show rooms on average will generate revenue of $350,000 to $400,000.

Since these show rooms are primarily aimed at driving brand awareness and seeding new markets, they are expected to break even or produce at most a small profit.

They therefore carry a high SG&A component relative to sales.

We expect capital expenditures to be between $27 million and $30 million for fiscal 2010, reflecting new store buildouts, renovation capital for existing store, IT, and other head office capital.

Overall, we expect 2010 fiscal year earnings per share to be approximately $1.00 to $1.05, representing approximately 25% growth over 2009 and therefore, consistent with our long-term growth targets.

This is based on 72.5 million diluted weighted average shares outstanding and it assumes our effective tax rate continues at 35%.

Having said that, we're currently reviewing our long-term tax rate assumptions.

Our stronger operating performance is resulting in the continued accumulation of significant undistributed earnings in our Canadian (inaudible) subsidiary.

Tax accounting rules require that where excess undistributed earnings are accumulating in the subsidiary beyond the reasonable requirements of that subsidiary, an additional tax expense needs to be accrued to account for the future tax that would be incurred if and when the excess funds are repatriated to the parent company by way of dividends.

We are currently analyzing this complex area, including expected future funding requirements by tax jurisdiction and we believe that we have planning strategies that could defer, reduce, or fully eliminate the impact.

Depending on the final outcome of this review, the potential exists that an additional tax charge would need to be recorded on any existing excess undistributed earnings.

And going forward, our effective reported tax rate could increase above 35% to as high as approximately 40%, including for the 2010 fiscal year.

We'll update -- we'll provide updates during the year as we finalize this research.

With that, I'll turn it back to Christine -- for questions.

Actually, Chip wanted to make a few closing remarks, so I'm going to turn it over to you.

Oh, me.

Yes, you.

I would just like to thank our team for their personal growth and their business maturity.

I think our ability to work as a cross-functioning team is second to none.

I would like to thank our investors and our team for staying with our [vision of elevating the growth in the business] -- thank you so much.

Thanks, Chip.

With that, we're going to turn it over to the operator to begin the questions.

(Operator Instructions).

Our first question comes from Lorraine Hutchinson from Banc of America.

Hi, this is Paul Alexander for Lorraine.

Could you guys give us a little more color or help to quantify some of the elements in SG&A growth in 2010, between eCom and the show rooms and perhaps currency?

And is there anything of note to call out for the sequential growth over the quarters in SG&A?

Will it drop off at the end of the year because there will be fewer show rooms opening?

Thank you.

Okay.

Again, as I said, the show rooms -- I gave you an indication of the average revenue for those show rooms.

They have a very high gross margin because we don't do markdowns, et cetera in those show rooms.

But again, they are really designed to just do a little bit better than breakeven and so you're going to have a high SG&A relative to revenue in those show rooms.

And I think you can extrapolate the math based on the number of show rooms we're opening.

ECommerce, the margin profile is somewhat different than our store-based channel because we have no bricks and mortar, so we don't have occupancy and depreciation costs which are optimum gross margins.

The eCommerce channel has a very high gross margin, but because the fee we paid as a third party provider is in SG&A, they tend to have a very high SG&A.

Roughly speaking, the gross margin on the eCommerce channel was probably in the upper 60s and SG&A in the upper 30%.

Again, that skews the overall margin profile.

Again, all of our other SG&A, other than store-based SG&A is here in Vancouver (inaudible) million.

Therefore if the Canadian dollar is higher, then that translates back in the US dollar to the higher amount.

Regarding your question on sequential SG&A levels, I think, in the first part of the year, there is the impact of the showroom openings.

Against the scheme of things, that's not a huge amount.

I see our SG&A increases higher in the second half of the year, as we implement some of the additional foundation initiatives that we're talking about.

Hopefully that answers your question.

Our next question comes from Michelle Tan from Goldman Sachs.

Thanks.

I was wondering if you could talk a little bit more about the inventory side of things.

I know you guys made a lot of progress last year in terms of replenishment.

I was wondering if there is further opportunity in really taking up that safety stock in basic items where you don't carry a lot of markdown risk and whether you guys could quantify at all the missed sales opportunity this year from being out of those twos, fours, and sixes.

Then I have a quick follow-up as well.

Okay.

I'm going to let Sheree answer -- make some comment on the rest of those questions because her team did the lion's share of the work.

We have [four falls].

We have been upping our inventory by -- given that we're on an eight-month cycle, we've been placing buys to what we think is more aggressive in safety stock, but have then seen the sales even surpass that demand.

And I think if anybody told, --we would be planning in the neighborhood with safety stock of a 30% comp growth, we would have told you, you're crazy.

That puts us in a little bit of a chase mode and so our focus has really been on a high execution of that with the factories.

And then I'll let Sheree make any additional comments.

Christine, you did a great job.

I think we are clearly reexamining our core and quick response strategies and in core, you're absolutely right.

There is little or no risk in taking up our supply.

We are in the process of doing that right now with our vendors.

We're also looking at taking on more raw materials, both locally and overseas so that, again, we can respond to any unplanned demand in both sizes and/or styling in our core.

What we're doing is further leveraging the speed-to-market modules that the production team and planning team did such a great job putting together for '09.

Great, thanks.

And then just on the show rooms, I was wondering if there's -- any color you can give us on how significant the strategy is for the productivity of your upcoming class of stores, relative to how the stores opened in 2008?

Any additional qualitative or quantitative color you could give there?

Thanks.

We think that they are critically important.

As we really started reimplementing the showroom strategy and getting it ahead of our real estate strategy, which was originally the vision, but that failed really to be executed in the 2008 class.

For 2009, every store we opened had an incredibly strong opening because we deployed the showroom strategy against those markets.

We know this is a winning formula and it takes the risk out of the real estate strategy because -- and especially by harvesting the best of the show rooms into our stores and having the patience to do that, make sure that we have the right people.

We've built the community awareness.

We can capture and monitor the sales on eCommerce through our wholesale partners in the marketplace and the showroom itself.

We know the market's ready and it improves the ROI on the new stores dramatically.

As we've done the deep work with mapping on the real estate, we know where we want to be.

Now we're adding that development with the show rooms and having the patience to do that, so that every store opens well.

The one thing I really want to say is that what we've learned about the guest is that how she discovers the brand creates an emotional attachment and loyalty.

And what we've been able to do with the show rooms is recreate that special sense of discovery and attachment for every new guest.

And we also think that has a lot to do with being that beloved brand and resonating with that woman and guest shopper.

But I also think we have to [leading points] of our head of operations with us today, and her and her team have done an incredible job hiring additional (inaudible) and training them and delivering the results that we have this year.

Our next question comes from Janet Kloppenburg from JJK Research.

Congratulations.

I was wondering if you could spend a few minutes on the internet business, which I believe has blossomed into a larger volume business than you had originally projected.

Perhaps you could talk about the purchasing metrics versus what you're seeing in the stores.

If you could talk a little bit about what I would expect to be a change in your projections for the size of this business.

And I was also wondering if you could talk about your strategies for international store growth, perhaps into newer markets in Asia or in -- I believe there's growth going on in Australia.

And if you could let us know if you are thinking that square footage growth in fiscal 2011 could increase given the success that you are experiencing currently.

Thanks.

Okay.

Yes, we have seen our eCommerce business really take off.

I think we've seen it slow a little bit because of product availability over the last few weeks, and that's been something that we've really been working on and driving the units to that because we don't want to obviously frustrate our guest there.

I think that's also -- we do see a pretty collar pattern.

We do know that the guest shops between the channels, so about 40% of the guests are unique to the site and new guests coming in, and about 60% are loyal guests.

And the purchasing patterns are fairly similar to the retail stores with the exception of the men's business, which is still stronger in the stores than online.

For international, we're really right now doing the due diligence of the business model and the market strategy, et cetera.

While we do have the showroom in Hong Kong, that's really just attached to our liaison office there for the factories.

At this point in time, we don't have any plans to expand in 2010.

I think we have to get the model built and understand our strategy before we commit to anything for 2011.

I think that was -- any other questions here?

Our next question comes from Liz Dunn from Thomas Weisel.

Hi, this is Christina for Liz.

Congratulations on a great quarter.

Our question relates to the outlets.

During recent outlet store checks, we noticed a lot of product that's currently in your retail stores being sold at full prices.

Can you discuss your outlet pricing strategy and how you see that evolving over time?

Thank you.

The reality is we only put excess inventory in there, except where we had guests absolutely screaming that that's the only place they shop and they couldn't buy the groove pants and the hoodies, our most popular items.

Most of the outlets don't have a retail store near so in response to that guest demand, we did put the full price items in so that they could get those items because they were the most popular.

We don't send regular assortments to them other than those two key items.

Our next question comes from Paul Lejuez from Credit Suisse.

Hey, guys.

Thanks.

With all the show rooms opening this year, just wondering as you look to 2011, is that 12 to 15 store openings per year, the right number, or do you anticipate going above and beyond that as a result of all these showroom openings?

And also, John, just wondering what the assumption is for the Canadian dollar that you incorporated to your full year guidance.

Thanks.

Okay.

Starting with the last one, my guidance assumes the Canadian dollar stays at about a $0.95 level.

It's running a little bit higher than that today.

Regarding your question on the show rooms, a large part of the showroom strategy is in fact to seed new markets, to give us better clarity on when we move ahead on new stores.

I'd say clearly with the expansion of the showroom strategy, it puts us in a position to accelerate that store growth well above the number that we're posting in 2010.

Your next question comes from [Ty Lee] from Morgan Stanley.

Good morning, guys.

Just a follow-up question on inventory.

Are you finding it more challenging to book additional capacity out there with the factories, just given that we've seen a strengthening demand environment?

Just in terms of revenue guidance, how much of the factory capacity have you already booked to achieve that sales level?

Thank you.

I will go back to planning.

Our production team has done a phenomenal job of not only planning out for the next several years, but we have a strategic plan for our growth, but also have outstanding relationships with our current factory partners.

The additional demand that we're seeing is -- we are easily able to meet based on both of those things, both planning and relationships.

There was a second part to your question, but I don't remember it.

Our next question comes from Sharon Zackfia from William Blair.

Good morning.

Can you give us the economics of the showrooms once they are open and how long are you willing to keep a showroom open?

Think it used to be about a year before you opened the market with the real stores.

Is that still the case?

Okay.

Sharon, in my prepared comments, I gave an outline of the showroom economics.

As I said, full year on average is about $350,000 to $400,000 in revenue.

But again, they are not designed -- they are not a distribution channel, so there's very little operating margin contribution from them.

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

Congratulations on great numbers.

I wanted to know what percentage of your business in the quarter came from new guests versus returning guests, and this is in your stores and how many times you believe your average returning guest frequents the store.

Thank you.

Looking at the numbers, it says about 40%.

He's laughing.

Sorry.

We don't know that number specifically.

We only know it through our design feedback sessions and talking to regular guests.

And so we don't have yet the customer intelligence systems to track that level of transactional detail.

The reality is we know there's a tremendous amount of loyalty based on our feedback sessions where our guests shop our stores frequently.

And we hear that and see that on the online blogs and the social media that we do monitor.

We do know we have a very frequent guest that shops often, but we also note that eCommerce numbers and through our transcripts, a high number of new and first time and unique guests, which there -- I think was about 40%.

Our next question comes from Edward Yruma from KeyBanc.

Thanks very much and congratulations on a great quarter.

Can you give us an update on the product introductions that you did in 2009 and the performance, specifically running?

And second, you introduced a lower cost yoga mat and some lower price point items in 2009.

Will you continue those through 2010?

Thanks.

Yes, in regard to the running line, which was our largest introduction in 2009, we've had fantastic results.

And as we had said in our past calls, we more than doubled the penetration of the running line from prior years and quarters.

And we're seeing the sell-throughs on the core part of running, very similar to the core that we have in yoga.

There's a great foundation there.

And then we also see additional high sell-throughs in some of the more seasonal categories.

All in all, the running business is quite healthy and we're very pleased with the performance.

In terms of the yoga mat, the $28 mat, we are so pleased because clearly we are introducing more and more people to yoga, which was the entire intention of creating that opening price point.

We have seen an acceleration in the mat business, over 30% to prior year, year to date and I think that bodes well for the strategy.

Thank you.

Thanks.

Our next question comes from [Rob Simone from Cowen Group].

Hi, guys.

I'm in for Laura this morning.

She's on the road.

I was wondering if you could just quantify or give us some additional color on how the Vancouver Olympics affected or benefited sales in Q4.

Thanks.

Woo hoo!

Well, we had a lot of fun.

I think the nice thing for us was that there was a tremendous number of obviously international guests in the city during that period and we're very fortunate to have two stores that are very well placed, one up at Whistler, which was a new location for us.

We relocated the store to the (inaudible) facility and I think if you were working coverage, you probably saw us right behind the majority of the coverage because we're right behind the CCB booth, and right down on Robson Street, which is the heart of the shopping district downtown which was the closed street that led to many of the venues.

In those two stores, we certainly got a sales lift and a halo effect.

I don't think it was -- it's not certainly material in terms of the -- going to change the sales results for the quarter.

But I do think what happened for us was tremendous brand exposure, first time guests experience, and a lot of people being introduced -- internationally, which will certainly help the future plans we have.

And I think the buzz around the brand was also something we were very pleased with.

Okay, great.

Thanks.

Our next question comes from Christine (inaudible) from JPMorgan Securities.

Hi.

Can you talk about Aviva brand and what you're seeing out of the gate, and any tweaks to the model or strategy you may be thinking at this point?

Thanks.

For us, we opened the three; we really considered them a learning lab.

We're testing a different store design in each one of them.

We're testing product mix and really with the aim of taking our time to get the optimal model to get it right.

And we've learned a lot of things with the difference.

I think we're really pretty confident this is a mall space concept, so it was good to have the Calgary store.

We've had great guest response in the young girls, but we want to grow it as well and be right.

We're not in a hurry.

We really are working on the community model right now, making sure we know exactly what that looks like.

But we are operating as a team and making some small investments in G&A so that we can expand the concept in the future.

Right now, we want to keep it to the point where we really can still test a few things to make sure we've got the model 100% right before we roll out.

Our next question comes from Dana Telsey from Telsey Advisors.

Good morning, everyone, and congratulations.

As you think about your comps and the comps this quarter and as you plan to go forward, what are you seeing in the complexion, average unit retail, conversion, and also average unit cost trends?

Is there more merchandise margin opportunity and where does it come from?

Thank you.

We're seeing a healthy growth in transactions, is really where we're seeing it for the most part and then the buying profile seemed about the same.

It does adjust seasonally based on whether it's outerwear in the fall or running might be a few more pieces if people are buying the full outfits.

But other than that, it's stayed pretty consistent, with transactions being the leading indicator.

Thank you.

Our next question comes from Howard Tubin from RBC Capital.

Thanks, guys.

Great quarter.

Two quick questions.

First, I want to make sure I heard you right.

You're going to open 25 show rooms by June and open an additional 20 in August.

That's question number one.

Number two is, what are your plans, or how are you thinking about the warehouse sales going forward?

Are they a thing of the past, or are you going to revisit in July, maybe next winter as well?

Well, show rooms, yes, you heard us correctly.

Those were the right numbers.

And on warehouse sales, we actually didn't have one in January because we had no products to put in it.

I think we still view there's benefit, particularly in the Canadian market, as really a guest branding event for the loyal customers.

I don't see them ever going away, but we certainly don't view them as a necessity right now for something that we have to do.

We want to keep them special and do a good job when we do do them.

At this point in time, we'll call it as we need to, but our inventory is probably the cleanest it's ever been from an aged inventory perspective.

And certainly, we also have the eCommerce channel where we're putting up an occasional what we call loop page, almost doing our own private sale model when we're ready, but not having it all the time.

And that's also worked very well for us.

And just the reality of our sell-throughs right now, are very strong.

We view it as -- just like we do the outlet stores.

We don't have a strategy to have a lot of those, just the ones -- and if they are bare bones and we're not getting a lot of sales out of them, we're okay with that.

We don't intend to create either a discounting strategy or building that -- other than that, I think just the only sale that we've had has been the post-holiday traditional one that we do.

And that was very short in and out this year.

Thanks.

That's great.

Thanks.

Our next question comes from [Claire Gallacher from Capstone Investments].

Great.

Thank you.

Could you talk about your men's business, what's working there and where do you see additional opportunity to grow that side of the business?

Sure.

I'll take that.

Our men's business has seen really consistent growth over prior year.

We've made strides in our technical top business, as well as some of our bottoms business.

We are currently doing additional foundational work for fit.

I think once we get that done and nail that, we'll continue to see additional penetration in the sales for the men's business.

Great.

Thank you.

Our next question comes from Janet Kloppenburg from JJK Research.

Hi.

Christine, I just didn't get an answer to that one question about square footage expansion in the out years.

Could we -- could you be considering accelerating that rate from the level here in fiscal 2010?

Right now, the (inaudible) that roll we'll stay at around that 25 store mark, but that's certainly something we're looking at and we'll look at it with the showroom strategy.

The biggest thing, I always want to make sure we're ready is the community and the people, because opening a store without the right guest experience in a premium brand situation is not where you want to be.

It takes a lot more to clean something up than it does to get it right in the beginning.

And that's what we're really making sure we're building, is that people capacity and having the patience to wait for the right site is really what we're working on.

You'll open, what, 15th year and 25 next?

Yes, we've got 12 secured.

We're working on a few more.

But I'm waiting for the right location in a couple of them and so I'm not eager to hit a number called 15 -- 15 right ones and the right deal terms.

We're staying very firm in what we think great is.

If we're only going to have the 350 highly productive stores, they are going to be the best 350 productive stores.

That's what we're committed to.

Oka.

Can you comment on the success of the girls concepts up in Canada, please?

We've seen a very strong guest response.

I think what we're doing right now is really playing with that target age group and making sure we've got that absolutely right, that it resonates from the community and just really refining the model.

If you come to the analyst day, we will be doing a tour of that store, along with the original Westport store so you can be the concept.

I'll be there.

But are there any thoughts of expanding that concept further, accelerating openings in Canada or perhaps entering into the United States?

(inaudible) United States, but we're looking at a couple of stores maybe for the back half of the year, but I really want to do a couple more tests on some product runs and we'll make that decision as we get later into the year.

Great.

Many thanks.

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

Hi.

This year, you did a great job offering an elevated element of fashion that's very, very versatile, yet athletic.

Will we see more of that during the course of this next year?

Thank you.

Yes.

We are very pleased with our formula of foundational core basics, like our group pants, our defined jackets, our stride jacket, our [wonder under and fun], and so forth.

As we've said before, our biggest challenge there is our sizes, which Christine already addressed.

We're addressing that further with our speed-to-market response, as well as further leveraging our JDA size, scaling and so on.

And then in terms of the seasonal fashion piece of it, we've got some of the most talented designers in the world.

I am pleased to say that what you'll be seeing going forward looks just as great, if not greater than what you've seen in '09.

It's pretty fantastic.

And did you have a great response, like one of the best responses to the splatter that you just launched?

Yes, you called it, absolutely right.

The splatter print's been a real hit.

We found that there's a formula or a recipe of prints, textures, and solids that's been very successful for us.

Congrats, and good luck.

You guys have done a great job.

Thanks so much.

I think that concludes our questions.

I think that concludes our call.

Thank you, everyone, for joining us today, and for your participation and support and coverage of us over this last year.

We're looking forward to a great 2010.

Thank you.

Ladies and gentlemen, this does conclude today's program.

You may now disconnect and have a wonderful day.