Lululemon Athletica Inc.
Q2 2014 Earnings Call Transcript

Published: 11 Sep 2014

[Operator:]

Good day, ladies and gentlemen, and welcome to the Lululemon Athletica Second Quarter 2014 Results conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will follow at that time. If you should require any assistance during the call, please press star and zero on your touchtone telephone. As a reminder, today’s conference call is being recorded. I would now like to turn the conference over to Chris Tham, Senior Vice President of Finance. Sir, you may begin.

[Chris Tham:]

Good morning everybody and thank you for joining us on our second quarter 2014 conference call. A copy of today’s press release is available on the Investors section of Lululemon’s website at www.lululemon.com or furnished on Form 8-K with the SEC and available on the Commission’s website at SEC.gov. Shortly after we end this morning, a recording of today’s call will be available as a replay for 30 days on the Investors section of the website. Hosting our call today is Laurent Potdevin, the company’s CEO; John Currie, the company’s CFO, and Tara Poseley, our Chief Product Officer will also be available during the Q&A portion of the call. I would like to remind everybody that statements contained on this call which are not historical fact may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may 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. For today’s call, we have a limit of one hour, so please limit yourself to one question at a time to give others the opportunity to ask a question. With that, I’ll turn it over to Laurent.

[Laurent Potdevin:]

Good morning everyone. The results we are sharing with you today are beginning to reflect ongoing work that is being done across our entire organization, and our sales and bottom line for the quarter finished slightly ahead of plan. We are early in the process of (indiscernible) by consistently delivering amazing and innovative product to our guests along with unmatched guest experience. We obviously don’t aspire to flat same store sales and earnings that are down year-over-year, and yet are confident that the work and investments we’re making are building the foundation that will fully unlock Lululemon’s long-term global potential. On our last call, I laid out four key priorities

[John Currie:]

Thank you, Laurent. I’ll begin by reviewing the details of our second quarter of 2014 and then I’ll update you on our outlook for the third quarter and the full year 2014. For Q2, total net revenue rose 13.4% to $390.7 million from $344.5 million in the second quarter of 2013. The increase in revenue was driven by total comparable store sales on a combined basis, including ecommerce, of zero percent comprised of 30% growth online and a bricks-and-mortar store sales decline of 5%, all on a constant dollar basis. The addition of 44 net new corporate owned stores since Q2 of 2013

[Operator:]

[Operator instructions] Our first question is from Adrienne Tennant of Janney Capital Markets. You may begin.

[Adrienne Tennant:]

Good morning. Can you hear me?

[Chris Tham:]

Yes.

[Adrienne Tennant:]

Okay, great. Congratulations on the improvement in the product. Laurent, can you talk about what percentage of the July flows go forward are in the seasonal versus the core category? And then John, if you can talk about the inventory – you had to pull some of it forward because demand was good, so where does that put you in terms of inventory flows going into the early part of fall season? If you can talk a little bit about that, and really quickly, the Canadian comp versus U.S., if you can talk to that. Thank you so much.

[Laurent Potdevin:]

As far as the breakdown, we had this strategy of launching the traditional line that was a bridge between summer and fall that was received really well and the sell through was higher than anticipated, so we had a plan on filling about three weeks of those in July as well as the first two weeks of August, and we pretty much moved all of that product in July. So that probably created a void in the first two weeks in the August – what is the breakdown, exactly?

[Tara Poseley:]

So I should say, a question also is about the balance of seasonal over the core, and as we talked about in the last call in Q1, the balance as we move into the back half of the year is going to be about 40% in core, which is similar to what it had trended in 2012. John, did you want to--?

[John Currie:]

Yeah, on your question on pulling inventory from Q3 into July, moving the transition line up into July helped July sales relative to what we’d expected when we gave guidance. That did leave us a little bit lighter in that product for August but still had some remaining that has helped us through August, but a little bit lighter than what we’d expected. So when you look at our revenue guidance from last quarter for the full year, it’s really just been a shift from Q3 into Q2. Your other question on comps, on a combined basis U.S. was up slightly low single digits, and Canada was down mid-single digits.

[Adrienne Tennant:]

Okay, thanks very much, and best of luck.

[Operator:]

Thank you. Our next question is from Ed Yruma of Keybanc Capital Markets. You may begin.

[Jessica Schmidt:]

Hi, this is Jessica Schmidt on for Ed. Thanks for taking my question. Laurent, you’ve been in the position for a while now, so where do you think you still need to invest to get systems and processes to where you really want them to be, and do you think you have the necessary tools to manage the business?

[Laurent Potdevin:]

I really do feel that we’ve got the necessary tools. As I mentioned on the call and actually on the prior call, we are on this journey of building the foundation, and I’m really excited to see the team hitting all of the milestones so far. It’s a really deep project that will see all of its results pay off by the first quarter of 2016, but one of the first milestones being to free up a lot of our designers’ time and giving them a lot more room to create has been achieved, and we’ve rebalanced the whole calendar so that first milestone is incredibly critical in our process of really building the most technical, innovative product. So we have the investments, we are still building the team, but we’ve made a lot of progress in getting a lot of amazing talent on board, so I’m really excited. It’s by no means a finished project and there is still much work to be done, but we are very much on track, both from a human capital standpoint, from a financial standpoint, and from a technology and process standpoint.

[Operator:]

Thank you. Our next question is from Brian Tunick of JP Morgan. You may begin.

[Brian Tunick:]

Thanks, good morning guys. I guess two questions. I’m sorry if we missed any comments you made about the second quarter comp drivers, whether it was traffic or conversion. We’re curious in terms of traffic if there’s any sense of loyalists versus new customers, what you’re seeing there. And then on the SG&A, John, just some more color on the timing shift. Can you give us some idea of how much spending is shifting into the second half? It looked a little like you may have reduced your fourth quarter implied earnings guidance, so we were just wondering was it comp or anything else in Q4 that might be taking a more conservative view. Thanks very much.

[John Currie:]

Okay, on your first question, for the past couple of quarter traffic has been down, and that’s what’s negatively impacted our comp; but in Q2, actually traffic turned slightly positive, so that’s encouraging. But the comp was adversely impacted by lower conversion and average basket, which is consistent with the fact that our product assortment wasn’t ideal, but again encouraging in terms of trend. In terms of the shift in SG&A, it was really referring to some of the paid search and other traffic-driving initiatives that we’d planned for the three quarters when we gave guidance last quarter. With sales trending a little bit higher at the back half of Q2, we didn’t spend as much of that as we’d originally anticipated. It’s a shift of maybe $2 million to $3 million from Q2 forward. And then your last question regarding Q4, of course I haven’t broken out Q4 in the past, so really the guidance I’m giving today doesn’t indicate a drop in Q4. It’s consistent with what we’d included in my guidance when I gave it last quarter.

[Operator:]

Thank you. Our next question is from Oliver Chen of Citigroup. You may begin.

[Oliver Chen:]

Hi, congrats on the momentum here. I had a bigger picture question for Tara and Laurent. What are your longer term ideas in terms of how we prioritize the factors that will keep you ahead of the competition with respect to product? And then a financial question is on the gross margin side – is our expectation for merchandise margins to continue to show the positive traction and product mix to continue to be a headwind? Thank you.

[Laurent Potdevin:]

You know, before I let Tara maybe get more into the product, there is—the bigger strategic moves are really in ramping up everything we do with our Whitespace workshop and combining that with our ambassadors. I mean, as I’ve said since Day 1, our ambassadors are truly our most under-leveraged asset. They are the voice, the authentic voice of this brand, and we’ve done a lot of work in having the Whitespace and the ambassadors collaborate in looking at new activities, looking at problems they want to solve doing the activities, and we have a lot in the pipeline both from a (indiscernible) standpoint, from a raw material standpoint and from a category standpoint, and we’ll be sharing that when we’re ready. Obviously not to forget all the work that we’re doing to boost our international expansion, and that we’re getting really strong demand internationally and we’ve started to really accelerate the pace of our rollout with the Singapore store opening, the final addition soon of the Hong Kong location and the second location in London.

[Tara Poseley:]

Hi Oliver, how are you? I think Laurent stated it well as I’m going through with the team over the last six months of the huge process of building a three to five-year product and raw material strategy, innovation strategy, so obviously as Laurent stated, we’re not going to share those because it’s proprietary, but that work is in motion and the teams are executing against it, really tight project plans against all of those areas are in place, so we look forward to sharing those as we go into the future.

[Operator:]

Thank you. Our next question is from Camilo Lyon of Canaccord Genuity. You may begin.

[Camilo Lyon:]

Thanks, good morning guys. I was hoping you could give some color on the new DC opening, how that is expected or if its expected to help product flows this year, or is that a 2015 benefit? And then if you could just update us on the two new mills that you’ve added this year and their contribution to improving product flows.

[Laurent Potdevin:]

On the DC, the facility we just opened in Columbus, Ohio, the biggest improvement right now is the service level to our guests. With the opening of that facility, we have no additional costs. We are reaching over 85% of our guests in two days, so as we head into Q3 and Q4, we are really excited to see that level of service improved, and then starting in January we will be delivering to stores from the facility. What was the second part of the question?

[Tara Poseley:]

About the mills.

[Operator:]

Thank you. Our next question is from Lorraine Hutchinson of Bank of America. You may begin.

[Lorraine Hutchinson:]

Thank you, good morning. John, as we think about the gross margin trajectory going forward, is your expectation that you’ll be able to get back into the mid-50s, or is the focus on fashion and seasonal product going to keep the margin down in the low 50s going forward?

[John Currie:]

As we’ve said, in the near term you’re likely to see gross margin in a similar range to what you’ve seen in Q2. The work underway that Tara’s team and Jennifer’s team are doing on the go-to-market calendar over the next couple years, we see significant improvement in gross margin coming from those initiatives – I think I’ve said in the past maybe 300 or more basis points. Then in terms of pricing architecture, we’re really not at a point of talking about whether there will be significant changes that would impact product margin, so for the time being I assume that that would not be a factor. But bottom-bottom line, just with the improvements on the process side, we see getting closer to that mid-50s level.

[Lorraine Hutchinson:]

And what’s the time frame on that?

[John Currie:]

Well, not until we get into 2016 and these initiatives have really taken hold and have impacted the seasons that we’ll be delivering in 2016.

[Lorraine Hutchinson:]

Great, thank you.

[Operator:]

Thank you. Our next question is from Kimberly Greenberger of Morgan Stanley. You may begin.

[Kimberly Greenberger:]

Great, thank you. I just have a follow-up question on Lorraine’s gross margin question. Obviously understanding you don’t want to reveal any trade secrets about the work you’re doing on the supply chain, we’re just trying to understand the move from the low-50s to the mid-50s in gross margin. Is that being driven by an ability to take price in the assortment? Are you looking at trying to save on average unit cost? Maybe if you can just help us understand what the levers are that could get you there. Thanks.

[John Currie:]

Yeah, it’s really not based on taking pricing. That’s the last lever that we want to be pulling. It’s primarily based on efficiencies, the obvious ones being reduction in air freight and some of the other cost efficiencies coming from the new DC, but also just a much smoother and more efficient process from design all the way through to delivering to the stores.

[Operator:]

Thank you. Our next question is from Omar Saad of ISI Group. You may begin.

[Omar Saad:]

Thanks, good morning. Two questions. First one is on the success you’re seeing in the transitional merchandise and assortment. What’s really going on there? What are you learning? What’s so good about the assortment that’s really driving that business, and how can you kind of carry forward that momentum or even build upon it going forward? Any insights, especially around the product and styling that’s driving that. The second question I have is on Ivivva – you mentioned a really good comp number there. I know it’s really small. Maybe you could talk about the long-term vision for that concept and brand and how it’s going to fit versus the Lululemon brand, complement it, and where you see it going long term. Thanks.

[Tara Poseley:]

I’ll answer the question about the success of the transition line. I think it really underscores what I have been talking about over the last two quarters about our opportunity to be really consistent in bringing the technical back to our product, and I think that line definitely illustrated that. I also think the work that the team did with print and also some of the print that we chased into in the quarter also, we saw a great response there; so again, it’s just that newness and beauty, but always underscored by great technical product. Laurent, did you want to talk about Ivivva?

[Laurent Potdevin:]

Yeah, with Ivivva, and especially having a 12-year-old daughter, I’m very, very excited about the work that we are doing with Ivivva. There is so much correlation with what we’re doing at Lululemon, and when you see the Dreams and Goals program that we rolled out for little girls, it’s been incredibly well embraced by our young guests, and with sales getting close to $1,000 per square foot, we’re very happy with the results. We are creating the next generation of Lululemon guests, so a very exciting prospect, and in the meantime we’re doing great work in our communities with little girls. So yeah, we see a bright future with Ivivva.

[Operator:]

Thank you. Our next question is from Bob Drbul of Nomura Securities. You may begin.

[Bob Drbul:]

Hi, good morning. John, I was wondering if you could give us some commentary around new store productivity trends U.S.-Canada, men’s productivity, Ivivva productivity.

[John Currie:]

Okay, just making sure I don’t miss any part of the question. New store productivity again in Q2, new store productivity was coming in around $1,100 to $1,200 a square foot – that’s similar to where we’ve been coming in for the last year or more. In terms of men’s, we don’t really break out productivity by men’s. I mean, in terms of comp, men’s comped up 5%, but again I don’t have the productivity broken out. As Laurent mentioned, Ivivva, it’s on track in the year somewhere a little over $1,000 per square foot productivity.

[Bob Drbul:]

Got it – okay. I’m not sure if I missed it, but did you guys give a full-year e-comm sales estimate that’s included in the guidance today?

[John Currie:]

We didn’t break out full-year ecommerce estimate. Ecommerce, in Q2 it was running about 16%. Typically it goes up a little bit in the fourth quarter, but we haven’t specified an ecommerce number for the year.

[Operator:]

Thank you. Our next question is from Betty Chen of Mizuho Securities. You may begin.

[Betty Chen:]

Thank you. Good morning. Congrats on the progress. I was wondering, John, if you can talk a little bit more to the SG&A deleverage. Should we expect the magnitude to be similar to what we saw in the first half, or given the shift in timing should it be a little bit greater, and whether we should expect that growth rate to continue in 2015. And then my second question is related to earlier – what were the women’s comps during the second quarter and how did that measure against Q1, if we saw any sequential improvement? Thanks.

[John Currie:]

Okay. SG&A, the guidance I’ve given for Q3, I think you’ll see a margin profile pretty similar to Q2. The thing to watch for as you look at our second half, I mentioned Q2 is skewed a little bit by sort of non-recurring foreign exchange gains last year versus losses this year, and that simply comes from the balance sheet date revaluing the U.S. dollars held in the Canadian company, so it’s really not an indication of the health of the business. But if you look at last year, the Canadian dollar dropped significantly so for the full year last year, as I said in my prepared remarks, the foreign exchange gain that was offsetting our SG&A was about $17 million, and most of that was in the back half, so we wouldn’t expect to have that benefit again this year. Also, last year because we missed our budget and plans, our bonus accruals were reduced primarily in the back half, and that was sort of a high-single digit millions benefit to SG&A last year that we won’t enjoy this year. It seems strange to say enjoy a lack of a bonus, but anyway. Women’s comp, as I said, men’s was plus-5. I believe women’s was just slightly negative.

[Operator:]

Thank you. Our next question is from Lindsay Drucker Mann of Goldman Sachs. You may begin.

[Lindsay Drucker Mann:]

Thanks. Good morning everyone. I wanted to ask another gross margin question. In the last couple quarters, we’ve seen some pretty nice sequential improvement in the rate of decline in your product margins. You called out last quarter 110 basis points of discounts that hurt, and you didn’t call it out this quarter, and then also some of the negative mix impact got better. I was actually curious how do we think about what’s embedded in your gross margin guidance for the back half of the year. Could you actually get a bit of a tailwind from discounts that you put into place in the fourth quarter, or are we looking at the Q2 kind of run rate of product margin compression being pretty similar?

[John Currie:]

Looking at the back half and your question on discounts, I don’t think I called it out but markdowns and discounts were a little bit lighter in Q2 this year than last year. The back half, there might be a little bit of a tailwind because we had on online warehouse sale last year; we may not duplicate that this year. But other than that, the items in our gross margin guidance, there continues to be some tailwind from product mix, FX – again, the Canadian dollar continuing lower will impact us 30 to 50 basis points, and with lower year-over-year revenue there’s deleverage on our fixed cost – occupancy and depreciation, and the cost of the product team. So those continue to be the main pieces of the gross margin guidance.

[Operator:]

Thank you. Our next question is from Tom Filandro of Susquehanna International Group. You may begin.

[Tom Filandro:]

Thanks for taking my question, and nice execution. I had a question on the DTC channel – I was hoping you could give us a sense of what’s driving the acceleration. Is it transaction, average dollar growth? Anticipation of what we should see for the balance of the year? And can you also address what the contraction was in that channel – I think it was down 220 or so for the period. And then Laurent, just very quickly, I think you mentioned this earlier about the omni-channel initiative in store driving some performance there. Can you expand on exactly what it is you guys are doing in store to offer that customer the full assortment? Thank you very much.

[Laurent Potdevin:]

Yeah, we’ve rolled out—it was a pilot earlier this year, maybe even at the end of last year actually, and we rolled out to all stores now this bag backroom app, so it’s an iPod device that’s rolled out in all of our stores that gives access to the entire online inventory (indiscernible) to service our guests. So when you’re in store, you not only obviously have access to the in-store inventory but now you have access to the whole online inventory, and we’ve seen great momentum in growing this business last quarter to about 1% of our retail sales. So much better service for our guests and much better use of our online inventory. We’ve also rolled out a new guest order management system that allows us to flow the orders better through the different DCs, so that was the bag backroom app, and obviously we’ve set up a full group in-house to really look at the guest experience, and as we build further technology we’re obviously going to enhance—we’re going to continue to play with technology and enhance the service that we’re providing and maximizing the inventory between the channels.

[John Currie:]

Your question on DTC, as I said in the prepared remarks, ecommerce comped up 30%. That was driven pretty much entirely by increased traffic, so strong traffic growth continues, not much of a change in terms of conversion or average order value. Your other question, I think you said down 220 basis points. You might be looking at the margin, the DTC margin that’s contained in the Q, but if that’s what you’re getting at, it’s really just a flow-through of a lower gross margin. Most of the costs related to DTC are variable, other than the product margin.

[Operator:]

Thank you. Our next question is from Faye Landes of Cowen & Company. You may begin.

[Faye Landes:]

Hi. I’m just hoping that you can elaborate a little bit more on inventory. Pretty consistently, the products that sell really well sell out earlier than you’ve expected, which is in some ways a high class problem, obviously, but you’re also leaving money on the table. I don’t remember the last quarter where that didn’t happen, so can you talk about how you plan to adjust things so that you can fully capitalize on the opportunities that you have?

[Tara Poseley:]

Okay, I’ll take that one. Hi Faye. Yeah, so what we talked about in Q1 where we were seeing the (indiscernible) in the seasonal goods and we had over-planned our expectation for it, so what we did for Q3, obviously we weren’t able to affect Q2, but what we did for Q3 was really shift that core investment hoping to buy into the seasonal product. We went back and looked back on sell-throughs on all of our seasonal product in Q1, made sure we were planning our APS’ appropriately in Q3, and really did that diligence and making sure we were investing appropriately. But we will—I mean, we also do really value the scarcity model. We’ve got a very low markdown rate in the brand, which I love, so there’s always that find balance and that’s what we’re looking and perfecting towards. And then as part of what we had talked about—I think we had mentioned this earlier, we’re in the process of implementing a new planning and allocation tool that will be fully live for the planning of winter 2015, and we’re on time and on budget with the execution and implementation of that tool.

[Operator:]

Thank you. Our next question is from Howard Tubin of RBC Capital Markets. You may begin.

[Howard Tubin:]

Thanks guys. Can you just update us on where you stand on senior level hires and what senior level open positions are still there?

[Laurent Potdevin:]

Yeah, we’ve got both senior level positions open. We’re in the final stages of the HR and brand and community search, and we’re probably about halfway through the process with the CFO search and the managing director for Europe search.

[Howard Tubin:]

Okay, thank you.

[Operator:]

Thank you. Our next question is from Paul Lejuez of Wells Fargo. You may begin.

[Paul Lejuez:]

Hey, thanks guys. Sorry if I missed any comments about the showrooms, but can you maybe talk about how your showrooms are performing, what percent of them are you happy with, and which geographies do you feel most comfortable that the brand is resonating? Thanks.

[John Currie:]

Maybe I’ll take that. We had probably the most showrooms we’ve ever had open during the quarter – I think it was 90, 93. Thirty-three of those are Ivivva, which is a real expansion of the showroom program for Ivivva. The showrooms in North America for Lululemon continue to perform as they have, and they are our barometer for when a market is ready for a store. I think more interestingly, the international showrooms, speaking broadly, the ones in Asia are doing extremely well, much better than their counterparts that we had in the U.S. as we expanded into the U.S. So Singapore, Hong Kong, Shanghai, those showrooms are very strong, which is an indication that there had already been brand awareness in Asia. In Europe, with the London store opening well ahead of our expectations, the other showrooms in London are continuing to perform very well, again because there is growing brand awareness in London. The other European showrooms are really doing quite similar to how the U.S. showrooms did when we really expanded that program back in 2009, so they’re on track, they’re building brand awareness, and we’re building showroom sales, which is one of the indications of when we are ready to open stores. So I’d say overall, the European showrooms are on track.

[Operator:]

Thank you. Our next question comes from Dorothy Lakner of Topeka Capital Markets. You may begin.

[Dorothy Lakner:]

Thanks, good morning everyone, and congratulations on the progress. Just a question for, I guess, either Laurent or Tara. In terms of the milestones that we should be looking at into the back half of the year as to where you are in the calendar and getting to where you want to be from a product standpoint, what should we be looking for as that product comes into the stores? And in the second half of the year, you were obviously able to chase more in second quarter. What should we be looking for in the third and then into holiday?

[Tara Poseley:]

So for the back half, obviously the go-to-market calendar and all the work that we’re doing with that, we commenced that in Q1 of this year so obviously that did not affect Q3 and Q4 this year, since that was already bought and commercialized at that time. So really, just the back half of the year, it was rebalancing the core versus the seasonal, which I just talked about a few minutes ago, and just making sure we are investing appropriately in the seasonal. We continue to really focus with the design team on making sure we’re getting all of that beauty and technical – always technical – back into our products, because we are very proud that we were the originator for that in this space – a lot of focus there. So that’s really—that’s the focus this year, and then just using our (indiscernible) where we can to continue to chase into product. A good example of that is a (indiscernible) team to create a special capsule, little capsule product to arrive right before Black Friday (indiscernible) during that weekend.

[Operator:]

Thank you. Our next question is from Janet Kloppenburg of JJK Research. You may begin.

[Janet Kloppenburg:]

Hi everybody. Congratulations on the progress being made. Tara, just had a question on the product mix. I think you’ve introduced a lot of new bottoms to try and reinvigorate that core category. I was wondering if you could talk about the performance there and your outlook as we go forward for that category. And Laurent, I think you had defined $10 million in incremental SG&A spending on traffic-driving initiatives for the stores and for the entire business, and I’m wondering if there was impact on the SG&A line from that in the second quarter or if most of that will be incurred in the back half, or if we potentially could see more investment there. Thanks so much.

[Tara Poseley:]

Yes Janet, you’re right – we had talked about that Q3 was going to be a focus on really reinvigorating our core product, starting with the bottoms, and early signs are that some has emerged—that there is some emerging core that is in store now that we’re excited about. As we move into—and I’m not going to call out (indiscernible) because that’s proprietary information, but we are seeing some good signs there. And then as we move into Q4, the other area that we have—or we’re very clear that we needed to continue to evolve and create newness within tops and the tanks, and we’re also—we’ll be testing some new emerging core in those areas as well. Then the (indiscernible) team will continue to also be testing and learning and getting that insight and information that we can chase in future quarters.

[Laurent Potdevin:]

And then to the second part of your question, we had allocated $7 million to drive traffic through increased space search, online campaigns, email segmentation, and redesigning our product (indiscernible) that are so relevant to our guests. Most of that spend will happen in the back half of the year. In Q2, I think we spent less than $1 million on it, and we looked at sell-through and inventory and set that investment for the second part of the year.

[Operator:]

Thank you. Our next question is from Sam Poser of Sterne Agee. You may begin.

[Ben Shamsian:]

Hi, it’s Ben Shamsian for Sam. Thanks for taking my call. I wanted to get a little bit more on the brick-and-mortar side of the business. Can you provide us with the traffic in the brick-and-mortar stores, and then if you could, the comps by month in the brick-and-mortar.

[John Currie:]

Traffic in brick-and-mortar was up sort of mid-single digits, but I don’t break out monthly comps. I will say, though, that July ended up a little stronger than our expectations because of, as we talked about, the pull forward of the transition line.

[Chris Tham:]

Operator, I know there’s many people still left in the queue, but we have time for one more question.

[Operator:]

Our next question is from Dana Telsey of Telsey Advisory Group. You may begin.

[Dana Telsey:]

Good morning everyone. Can you talk a little bit about on where do you stand on some of the improvements from the third party consultants, what you’re learning as they look at the organization and the processes. Then just lastly, Tara, on the new line where you’ve seen the big improvement, on the style, price, how are the learnings able to influence the other product flows in the short term, and is the margin on this product, do you see that developing early in the ability to have improved margin? Thank you.

[Tara Poseley:]

Okay, so the third party consultants that we brought in to help us with reengineering our go-to-market calendar, we’ve had really good insights. I think on the whole, it’s a lot around how we were sequencing events within the calendar, and we’re going through a process of re-sequencing how we bring product to market. Some things were happening too late in the process that needed to be moved forward. I’m not going to get into all that detail, but we’ve really, really honed in on what those pieces are and are going through the process of a redesign of every single quarter for each season, and we are on track by Q1 of 2016 to have a fully operational go-to-market calendar. Then I think—Dana, what was your second question? It was about style and price and what we can do in the short term. This is a very scrappy and entrepreneurial culture, which I deeply value, and we literally are learning minute-by-minute about our assortments as we see them getting in and using our (indiscernible) team when we can to react quickly to get those learnings in, and then also infusing that into—any of the learnings into the future seasons that are in process and being worked on.

[Operator:]

Thank you. I would now like to turn the conference back over to Laurent Potdevin for closing remarks.

[Laurent Potdevin:]

Well, we’d like to thank you all for joining us today, and we look forward to talking to you again in the quarter. Thank you so much.

[Operator:]

Ladies and gentlemen, this concludes today’s conference. Thanks for your participation and have a wonderful day.