Thank you for standing by. This is the conference operator. Welcome to the Lululemon Athletica Inc. First Quarter 2022 conference call. As a reminder, all participants are in listen only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. Analysts who wish to join the question queue may press Star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing Star and zero. I would now like to turn the conference over to Howard Tubin, Vice President, Investor Relations for Lululemon Athletica. Please go ahead. Thank you and good afternoon. Welcome to Lululemon's first quarter earnings conference call. Joining me today to talk about our results are Calvin McDonald, CEO, and Meghan Frank, 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 forecast of certain aspects of Lululemon's future. These statements are based on current information which we have assessed, but by which 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 our business, including those we have disclosed in our most recent filings with the SEC, including our annual report on Form 10-K and our quarterly reports on Form 10-Q. Any forward-looking statements that we make on this call are based on assumptions as of today, and we expressly disclaim any obligation or undertaking to update or revise any of these statements as a result of new information or future events. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our quarterly report on Form 10-Q and in today's earnings press release. In addition, the comparable sales metrics given on today's call are on a constant dollar basis. The press release and accompanying quarterly report on Form 10-Q are available under the investor section of our website at www.lululemon.com. Before we begin the call, I'd like to remind our investors to visit our investor site, where you'll find a summary of our key financial and operating statistics for the first quarter, as well as our quarterly infographic. Today's call is scheduled for one hour, so please limit yourself to one question at a time to give others the opportunity to have their questions addressed. Now I would like to turn the call over to Calvin. Thank you, Howard. I am pleased to be here today and share with you the highlights of our quarter one performance. It's been just over a month since I saw many of you in person at our recent Analyst Day presentation in New York. These are exciting times for Lululemon as we embark upon our next five-year growth plan, the Power of Three x2. Our teams are energized and deep in the work of the plan we shared. I look forward to providing you with updates on future earnings calls as we make progress on the key initiatives we laid out. However, I'd like to spend our time today discussing the macro environment and the unique aspects of Lululemon, which continue to contribute to our strong performance. As you saw in our press release, the momentum in our business continues, and 2022 is off to an impressive start. Revenue in the first quarter increased 32% versus last year, and 27% on a three-year CAGR basis, and adjusted earnings per share grew 28% and 26% on the same basis. There are several notable metrics that underscore our performance this quarter. Starting with product, the guest response to our core and new merchandise remains very strong. Our product continues to drive demand, and we experience robust traffic growth in both channels, with stores and e-commerce up approximately 40%. Finally, we're in a strong inventory position relative to last year. While our levels are higher than our historical norms, we are comfortable with the quality and composition of our inventory. This allows us to balance the momentum we're seeing in the business with the challenges that remain within the global supply chain. With that in mind, I'd like to spend a few minutes on China, given the current conditions related to COVID-19 and its impact on both our operations and supply chain. Consistent with many retailers in the region, we are seeing modest impacts of the COVID-19 related lockdowns on our stores and with some of our vendors. Throughout the first quarter and into the second quarter, we have seen up to 1/3 of our 71 stores close for a period of time. As I'm sure you've seen, this week stores are reopening in Beijing, and we are starting to see restrictions ease in Shanghai. Even with the closures, our business remains solid in the first quarter, with revenue growing in double digits versus last year and growing over 60% on a three-year CAGR basis. In addition, our growth plans remain on track as the majority of our 40 international new store openings this year are planned for mainland China. From a sourcing perspective, when looking at finished goods for the upcoming fall season, mainland China represents only 4%-6% of our total unit volume. When we include trims and other components, the volume increases. Although the majority of our vendors are now up and running, we have experienced delays and expect some level of impact on future receipts. Our teams are closely monitoring the situation, staying in regular contact with our vendors and working to mitigate the current risks. Having said all of this, we remain excited about our business in China, and we view the current situation as short term in nature. Our brand momentum remains strong, and we will continue to invest in the region, and we're excited about what the future holds for Lululemon in this important market. When looking at the global supply chain, overall, the environment remains challenging. Ocean lead times are not improving and air freight costs remain high. To address these issues, our team is carefully balancing our business momentum with timeline uncertainties to help ensure we meet guest demand. This comes with a commensurate investment in air freight, which is important given we see satisfying guest demand as a priority. Our timelines allow us to pivot when we see trends change from air to ocean, and all costs are included in our guidance. We will continue to carefully assess and manage. Switching now to inflation. As we mentioned last quarter, we are seeing increased input costs on raw materials, labor, and as I just spoke about, air freight. We continue to monitor the situation closely and are taking actions to mitigate the impact on our P&L. These include ongoing cost management, working with our vendor partners to identify additional efficiencies and pricing opportunities. As I've shared previously, we are implementing some select price increases and have not seen any negative impact to our sales volume as a result. However, unlike many in the industry, we do not use promotional pricing as a lever to drive top-line sales. Therefore, we are very intentional with our pricing strategies and we monitor guest response accordingly. That said, I remain cautious around increasing prices in this period of uncertainty, and we will continue to monitor and maintain a measured approach toward this strategy. Given the times in which we are operating, I wanted to highlight for you the unique strengths of Lululemon, which drive our performance quarter after quarter. We have many attributes that make our brand unique, create competitive advantages, and lead to the ongoing momentum in our business. As I have shared before, the pandemic has contributed to a fundamental change in guest behaviors that provide us with compelling opportunities to grow. These include our guests wanting to live an active and healthy lifestyle and looking for additional support related to wellbeing and recovery, and as normalcy returns, their desire for versatile apparel has increased. Plus, our D2C model provides a strong and direct connection to our guests with incredible insights across every touch point, and we have a very balanced approach to growth across channels, geographies, merchandise categories, gender, and activities. Finally, our primary focus on technical athletic apparel creates demand for our product across seasons and mitigates the need to bring new technical features into our merchandise assortment. Our foundational principle is when you feel your best, you perform your best. We utilize the science of feel to bring a consistent flow of innovation to our assortment across a variety of activities. Our product pipeline remains very strong, and it's the bedrock of the business. In quarter one, we launched footwear, golf, and tennis, all meeting with great guest response. With footwear, we leveraged 20+ years of experience designing and developing technical apparel to bring a unique solve to the women's footwear space. Many in the industry design footwear for men and then adapt for women. We designed our shoe for women first. We introduced our first shoe, Blissfeel, in March, and we were proud that it was named the best women's specific shoe in 2022 by Runner's World. The response has been enthusiastic and since we were prudent with our inventory buys, we have seen out of stocks. Although we expect to be in a better inventory position in the coming weeks, demand has far exceeded our sales forecast. As a result, we do anticipate that we will be chasing into additional inventory for the remainder of the year. Turning to our play activities, golf and tennis both performed well this quarter. These collections are comprised of pieces from our core assortment as well as styles designed specifically for these activities. This strategy allows us to manage our assortment, grow share of wallet while also leveraging our core and driving sales. We are pleased with these results and will continue to lean into these strategies. Looking ahead into quarter two, we have several exciting product stories to tell. First is SenseKnit. To continue expanding our running apparel assortment, this week we launched our newest fabric innovation. After four years of research and development, we have brought to market SenseKnit, a proprietary fabric that seamlessly engineers zones of support, breathability, and mobility directly into the fabric. Based upon collaborative work with our ambassadors and athletes, we determine the sensation runners are looking for with unrestricted, lightweight support while also delivering the technical performance and endurance they expect from Lululemon. Our SenseKnit collection provides this sensation in nine styles for men and women. Second is Hike. To leverage the versatility of our core, as we've done with golf and tennis, we're on track to launch Hike in the coming weeks. This assortment will combine elements of our core assortment with new styles designed specifically for hiking. This is an unmet need we heard from our guests, specifically as hiking has gained popularity during the pandemic. Next is Throwbacks. Our product team has been spending time in our archives to find the best of the best and re-release limited editions of some of our guests' favorite styles, including revamped versions of our Astro Pant, Shape Jacket, and Inspire Crop. Finally, footwear. As I mentioned, we're excited with the initial response. We just launched our second style, the Restfeel Slide this week, and we remain on track to roll out our next two styles later this year, Chargefeel and Strongfeel. This is just the beginning for us within this category, which has considerable opportunity. In summary, our results and our guidance demonstrate the strength of our business and the momentum of our brand. This is enabled by our omni operating model, our product innovation, and our balanced approach to growth. We have shown our ability to successfully manage through what's happening around us, and I am continually inspired by how our teams around the globe consistently deliver for our guests, for each other, and for our stakeholders. With that, I'll now turn it over to Meghan. Thanks, Calvin. I'll begin by saying how excited I was to host our recent Analyst Day and get to meet and speak with many of you in person. As we delivered early on our total 2023 revenue goals, we used Analyst Day to launch our growth plan for the next five years. Our new plan builds upon our proven Power of Three formula and calls for a doubling of total revenue from $6.25 billion in 2021 to $12.5 billion in 2026. Hence, we've appropriately named the new plan Power of Three x2. Our teams are already executing against our new plan, and we're off to a solid start, despite the ongoing headwinds in the macro environment. Let me now share with you the details on our Q1 performance. I will also discuss specifics on our balance sheet, including our inventory and cash position. Please note that when comparing the financial metrics for Q1 2022 with Q1 2021, the adjusted operating results for Q1 2021 exclude approximately $8 million of Mirror acquisition-related costs and their associated tax effect. You can refer to our earnings release for more information and reconciliations to our GAAP metrics. For Q1, total net revenue increased 32% to $1.613 billion, ahead of our guidance, driven by outperformance in North America. Comparable sales increased 29%, with a 24% increase in stores and a 33% increase in digital. On a three-year CAGR basis, total revenue increased 27%, an acceleration from Q4. In our store channel, sales increased 36% on a one-year basis and 13% on a three-year CAGR basis. Productivity was above 2019 levels and continues to trend that way to date in Q2. On average, we had 98% of our stores open throughout Q1. We currently have 97% open, with current closures related predominantly to the impact of COVID-19 in China. Square footage increased 16% versus last year, driven by the addition of 56 net new stores since Q1 of 2021. During the quarter, we opened five net new stores and completed four co-located optimizations. In our digital channel, revenues increased 51% on a three-year CAGR basis and contributed $721 million of top line, or 45% of total revenue. Within North America, revenue increased 26%, and within international, we saw a 37% increase, both on a three-year CAGR basis. By category, men's revenue increased 30% on a three-year CAGR basis, women's increased 24%, and accessories grew 43% on the same basis. I'm also excited with what we're seeing in traffic across both channels. In stores, traffic increased over 40%, while at the same time, traffic to our e-commerce sites and apps globally increased nearly 40%. On a three-year CAGR basis, traffic is up over 10% in stores and nearly 40% in e-commerce. This speaks to the strength of our omni operating model as we engage with our guests in ways most convenient to them. Gross profit for the first quarter was $870 million, or 53.9% of net revenue, compared to 57.1% of net revenue in Q1 2021. Our gross margin decrease of 320 basis points relative to last year was driven by a 370 basis point decrease in product margin. Q1 product margin included an increase of approximately 340 basis points in air freight related to macro supply chain challenges, which was higher than our guidance of 300 basis points due to increased usage relative to our initial plans. Markdowns were approximately flat with last year. Relative to 2019, markdowns decreased by 40 basis points. We also experienced 10 basis points of deleverage from foreign exchange. This was partially offset by 60 basis points of leverage on fixed costs driven by occupancy and depreciation. Moving to SG&A. Our approach continues to be grounded in prudently managing our expenses while also continuing to strategically invest in our long-term growth opportunities. SG&A expenses were $608 million or 37.7% of net revenue, compared to 40.5% of net revenue in Q1 2021. Leverage in the quarter versus Q1 2021 resulted from leverage in our store and digital channels, somewhat offset by increased investments in corporate SG&A and depreciation. Operating income for the quarter was $260 million or 16.1% of net revenue, compared to adjusted operating margin of 16.4% in Q1 2021 and inclusive of approximately 340 basis points of additional air freight expense. Tax expense for the quarter was $70 million or 27% of pre-tax earnings compared to an adjusted effective tax rate of 24.5% a year ago. The increase relative to last year is due primarily to a decrease in tax deductions related to stock-based compensation and an accrual for withholding taxes on a portion of our fiscal 2022 Canadian earnings. Net income for the quarter was $190 million or $1.48 per diluted share compared to adjusted earnings per diluted share of $1.16 in Q1 of 2021. Capital expenditures were $111 million for the quarter, compared to $64 million in the first quarter last year. Q1 spend relates primarily to investments to support business growth, store capital for new locations, relocations and renovations, and technology investments. Turning to our balance sheet highlights. We ended the quarter with $649 million in cash and cash equivalents, and nearly $400 million of available capacity under our revolving credit facility. Inventory grew 74% versus last year and was $1.3 billion at the end of Q1. We continue to strategically use air freight to help mitigate industry-wide supply chain issues and support our top line momentum. With these higher costs having an impact on inventory when looked at on a dollar basis. We also believe that 2019 is the most relevant comparison point given supply chain challenges since the beginning of the pandemic. On a three-year CAGR basis, unit inventory increased 36% relative to 2019 at the end of Q1, and is well positioned relative to our Q2 2022 top line guidance of a 26% increase on a three year CAGR basis. Again, comparing to 2019. It's important to mention that due to ocean transit times, our in-transit inventory is up relative to 2019 and is contributing approximately five percentage points to the three-year unit CAGR of 36%. I'd also mention that we likely left guest demand on the table last year as we were under inventory due to supply chain issues. Hence, our product teams have taken this into account as they've planned receipts for this year. We also continue to leverage our core assortment, which comprises approximately 45% of our inventory. Looking forward, we expect to see the highest one-year inventory growth rate of the year in Q2 on both a dollar and unit basis before levels begin to moderate in Q3. In Q2, inventory dollar growth relative to last year will be modestly above levels at the end of Q1. On a three-year CAGR basis, unit growth will remain up approximately 36%. In Q1, we repurchased approximately 700,000 shares at an average price of approximately $328. At the end of the quarter, we had approximately $955 million remaining on our recently authorized $1 billion repurchase program. Let me shift now to our outlook for Q2 and the full year 2022. For Q2, we expect revenue in the range of $1.75 billion-$1.775 billion, representing one-year growth of 21%-22% and a three-year CAGR of approximately 26%. We expect to open 20 net new company-operated stores in Q2. We expect gross margin in Q2 to be down approximately 200 basis points relative to Q2 of 2021. Our Q2 guidance includes an impact of approximately 150 basis points of pressure from air freight costs due to port congestion and capacity constraints. In Q2, we expect our SG&A rate to be relatively flat with Q2 2021. Turning to EPS, we expect adjusted earnings per share in the second quarter to be in the range of $1.82-$1.87 versus adjusted EPS of $1.65 a year ago. Our range of $1.82-$1.87 excludes a $0.07 gain on a real estate sale we expect to realize in Q2. For the full year 2022, we now expect revenues to be in the range of $7.61 billion-$7.71 billion. This range assumes our e-commerce business grows in the high teens ``to low 20s relative to 2021. When looking at total revenue, our guidance implies a three-year CAGR of 24%-25%, which continues to be higher than our three-year revenue CAGR of 19% leading up to 2020, and higher than the target of approximately 15% growth we set forth in our new Power of Three x2 growth plan. We continue to expect to open approximately 70 net new company operated stores in 2022. Our new store openings in 2022 will include approximately 40 stores in our international markets and represents a square footage increase in the low 20% range in total. For the full year, we are forecasting gross margin to decrease between 100-150 basis points versus 2021. The reduction relative to last year is driven by increased investment in our DC network and a strategic increase in content development costs for Lululemon Studio Mirror. The increased costs and gross margin will be offset by a reduction in digital marketing, which flows through SG&A. In addition, we now expect air freight to have a modest negative impact of approximately 30 basis points versus our prior expectation of flat. Turning to SG&A for the full year, we are forecasting leverage of 50-100 basis points versus 2021, driven by increased sales and the shift in Lululemon Studio Mirror investments I just mentioned. When looking at operating margin for the full year 2022, we now expect it to be approximately flat with last year, inclusive of the 30 basis points of incremental air freight expense I just mentioned. For the full year 2022, we now expect our effective tax rate to be 28%-28.5%. For Q2, we expect our effective tax rate to be approximately 28.5%. For the fiscal year 2022, we expect adjusted diluted earnings per share in the range of $9.35-$9.50, versus adjusted EPS of $7.79 in 2021. Our EPS guidance excludes the impact of any future share repurchases and the gain on a real estate sale we expect to realize in Q2. We continue to expect capital expenditures to be approximately $600 million-$625 million for 2022. The increase versus 2021 reflects increased investment in our supply chain, digital capabilities, new store openings and renovations, as well as other technology and general corporate infrastructure projects. Our range of $600 million-$625 million is approximately 8% of revenue, in line with our current Power of Three x2 target of 7%-9%. Thank you. With that, I'll turn it back over to Calvin for some closing remarks. Thank you, Meghan. As you can see from our results, Lululemon continues to deliver the kind of performance that sets us apart within the retail industry. Two weeks ago, we held our annual leadership summit and brought together virtually about 2,000 of our leaders from around the globe. We detailed our Power of Three x2 growth plans and spoke to our culture at Lululemon and to our purpose, which is to elevate human potential by helping people feel their best. The passion from every participant, the enthusiasm during every breakout was simply incredible. It reinforces my confidence in all that lies ahead for Lululemon as we both navigate what uncertainty emerges and work toward delivering on our goals to double our business within the next five years. It's an honor to lead this incredible organization. Now we'll take your questions. Operator? Thank you. We will now begin the question-and-answer session. Analysts who wish to join the question queue may press star then one on their telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We will pause for a moment as callers join the queue. The first question comes from Matthew Boss with JPMorgan. Please go ahead. Great, thanks, and congrats on another really nice quarter. Calvin, what I thought was striking about this quarter was the consistency, meaning across the 27% top line CAGR, you delivered strength across men's, women's, international, and North America. Maybe could you help speak to the momentum of the brand versus maybe the expansion of the overall TAM, what you think is really driving it? Any comments on May to start the second quarter? Then just how best to think about your ability to chase upside demand relative to the inventory that you have. Thanks, Matthew. Well, I think as you know, and you've heard me say before, you know, we're in early innings of growth, and we continue to experience balanced growth across all of our levers, gender, activity, category, channel, and markets. Q1 was no different. It plays to our product innovation, plays to where we are in the opportunity and penetration across all of those levers and how we still have room to grow women's, while we're working to double our men's business, similar in our physical retail store footprint as we double digital and internationally with our momentum and growth in North America. It's the narrative that we've been, you know, sharing and working towards continues to play out. As we look forward to future quarters into the future years in doubling our business, it's where we gain the confidence in our ability knowing what we can continue to create and see that balance across all levers inside the organization. When I do look forward in the product pipeline, feel very good that we continue to bring innovation into our own categories of run, train, and yoga. We saw a lot of success. We just launched SenseKnit, as you might have seen in the last few days, which is a wonderful new innovation and fabric to help further our strength and run, and the launch of our play activities in the last quarter with golf and tennis. One achieved the goal of driving credibility in those activities as well as lifting the core. Very excited about how product is resonating in the pipeline for new innovation and have a lot of confidence that we'll continue to see those growth opportunities as we move forward. Matt, I'd just add to that in terms of May. You know, I think we're pleased with the continued momentum in our business as reflected in our 26% three-year CAGR guide for Q2. Then in terms of inventory relationships to sales as the year progresses, we feel really comfortable with our inventory position. As we move into Q2, the team's done a nice job pulling forward inventory to meet our demand. We're guiding to 24%-25% for the full year, a little bit more conservative in the second half, given we have more of a line of sight clearly to Q2 and some of the macro uncertainty in front of us, but feel well positioned overall. That's great. Best of luck. Congrats again. Thank you. The next question comes from Mark Altschwager with Baird. Please go ahead. Good afternoon. Thank you for taking my question. I guess just first, with respect to the updated guidance, you know, great to see, you know, the momentum. You raised the high end of the guidance, you know, both on sales and earnings, kinda more than flowing through the Q1 upside, even with some of the incremental macro headwinds that you and others are facing out there. I was hoping you could just unpack that a bit more. I guess, what has changed regarding, you know, the plan for the remainder of the year relative to a couple of months ago? How do you feel about, you know, the various levers you have in the business? You know, should there be, you know, perhaps some incremental choppiness with, kinda broader consumer demand? Yep. Thanks, Mark. In terms of our guide for the second quarter, you know, we obviously have line of sight to the second quarter at this point in time, 26% three-year CAGR. As I said, a little more conservative for the second half of the year. Feeling like our Q1 momentum is flowing into Q2, comfortable flowing through some upside there. As I mentioned, we do have a little bit of incremental air freight pressure for the year, which we've reflected in our guidance. Overall, EPS raise also reflects some benefit from tax rate. In terms of levers as we move throughout the year, as we've been employing over the last couple years, we're running multiple scenarios to ensure we're able to meet guest demand as it comes and remaining flexible, pushing in on air freight, but also being flexible there and matching that with demand as well. Certainly using that muscle that we developed throughout the last couple of years in terms of how agile we are in meeting our guest demands. Thank you for that. I apologize if I missed this, but could you give us just a little bit more perspective on kind of China, what you're seeing quarter to date? I know it's just kind of a mid-ish single-digit percentage of your sales, but with the store closures you mentioned, I guess where is that tracking and what is incorporated in your guidance in terms of having getting those trends back to full productivity? Thanks. Yep. In terms of China, we have approximately 20% of our stores closed currently. 15 out of 71, primarily in Shanghai and Beijing. We've taken that into account in our guidance. We did have eight of our 10 stores in Beijing reopen this week, and we're also seeing restrictions begin to ease in Shanghai. The overall impact of that revenue in Q1 was more than made up by strengths in other regions. We're seeing, I would say overall, the situation improve there. Also keeping a close eye, I would say, on sourcing. A small percentage of our total unit volume comes out of China, but continue to monitor closely there. Thank you, and best of luck. Thank you. The next question comes from Ike Boruchow with Wells Fargo. Please go ahead. Hey. Thank you. Good afternoon. Just on the inventory, Calvin or Meghan, could you maybe just talk a little bit more on, you know, are there pockets where you're, you know, or of categories where you feel like you have a little bit too much? Is it broad based? Like, you know, I'm looking at men's, women's, some of the ancillary newer categories. Just is there any area where there's a little bit more than others? And then does this change any of your thought on potential markdown cadence into 2Q and the rest of the year? I know you. I think, Meghan, you said markdowns were flat in Q1, but kinda curious what your thinking is, rest of the year. Thanks. Yep. Thanks, Ike. So in terms of inventory, I'd say we feel well positioned. If anything, there might be some pockets of inventory where we wish we had a little bit more just given the dynamic nature of an environment, and certainly have been where possible pushing into core inventory, which is about 45% of our assortment and doesn't come with attached markdown liability. As I mentioned, Q1, so markdowns were relatively flat year-over-year, and then 40 basis points down to 2019. We feel, you know, confident in our top line trend going into Q2, at a 26% three-year CAGR and well aligned with our inventory growth, when adjusting for the in-transit piece on a unit basis, and have no plans to change the markdown cadence of our business as we look throughout the year. Got it. Thanks. Thank you. The next question comes from Kimberly Greenberger with Morgan Stanley. Please go ahead. Great. Thank you. This is Alex Straton on for Kimberly Greenberger. I just wanted to ask a quick question. There's all this chatter in the market and some signs we're seeing a slowdown, at least on the lower end consumer. But your results don't suggest there's any weakness across your customer base. So maybe could you talk to if you see any signs of weakness across in certain regions or in certain customer demographics? And can you also just remind us of what the average kinda household income is of a Lulu customer? Hi, Alex. It's Calvin. We, Pardon the interruption. This is the conference call operator. Please stand by as we reconnect the speakers. Pardon the interruption. We do have the speakers back on the line with us. Okay. Sorry about that everyone. Our Wi-Fi here at the office went out, so we are dialed in from a cell phone. I'm gonna answer, Alex, your question, and then we'll continue with the call. We do apologize for the interruption. In terms of the question on health of guest and how we're seeing their spending behavior, I think I got part of my answer out, so I'm gonna take it from the beginning. We feel very good about the health of our guests. New guest acquisition has been very strong. Current guest spending has been strong, both contributing to the momentum and the growth of the company. We shared with you our traffic numbers both in store and online, very healthy. Again, another good indicator of a very engaged guest. We did not experience any real benefit from the stimulus checks last year, and hence, we did not see any material impact as we cycled over that earlier this spring. As we look forward, we continue to monitor the macroeconomic conditions. Q1, beginning Q2, see very healthy guest metrics, and remain optimistic how our guest is engaging in this category, the versatility of this product and where it prioritizes in their spend and their needs for every day. The next question comes from Lorraine Hutchinson with Bank of America. Please go ahead. Thanks. Good afternoon. I wanted to focus on gross margin for a minute. It looks like the 2Q guidance is a little better and full year a little worse, so maybe you could go through some of the moving parts there. Then we were hoping you could offer some insight on how much of these airfreight pressures you expect to recoup in both the fourth quarter and then throughout 2023. Hey, Lorraine. In terms of gross margin, we're guiding to 200 basis points of pressure in Q2, and then approximately 100 - 150 basis point decline for the full year. The second quarter does include 150 basis points of airfreight pressure year-over-year. We also have increased our outlook for the year in terms of airfreight pressure to 30 basis points. We previously had that as flat. When we look at just, I would note the operating margin for the full year, it's modestly under 2019, even inclusive of a 300 basis point impact from airfreight pressure. As you say, you know, I think we see that moderating over the long term and certainly see opportunity to recoup that. At this point in time, I think the supply chain pressures will be with us for the balance of 2022. We'll continue to keep you updated and obviously closely monitoring the environment, and the team continues to balance those decisions, as Calvin mentioned, with our revenue momentum. Thank you. The next question comes from Brooke Roach with Goldman Sachs. Please go ahead. Good afternoon, and thank you so much for taking our question. Calvin, I'd like to get your perspective on how you're thinking about consumer wallet share shifts between categories and how consumers are dressing now versus they may have dressed last year. How are you looking to ensure that the brand remains agile as these consumer preferences shift, into a potentially living with COVID world? Thank you. Thanks, Brooke. I think the most important factor is core to our product assortment is versatile performance apparel. You know, although used at times for versatility around the house, our gear is designed for activity-based use. You know that we saw an uptick through the pandemic. It has continued as that behavior of activity, outdoor sweats, lifestyle has continued. That is the essence of the brand and what drives our innovation through our key categories of yoga, run and train, as well as our play activities. That continues as strong now as it was through the pandemic. With the innovation we have in the pipeline and what I shared and what we've seen through Q1 into Q2, we feel very confident in our ability to continue to grow the assortment in our sales as a result of that. In men's, we have a very strong OTM business which starts to factor into that lifestyle, you know, between to and from the studio. We're excited about the opportunity to grow that within our women's assortment. We're seeing strong performance in those categories as well as they do play to trends that have happened in general of how people are choosing versatile functional apparel for every day. I think the core is we are a performance-based athletic brand. We are supporting our guests in their sweat activities, and that is driving the momentum and growth of the business during the pandemic and post, and continues to be the biggest fuel of our momentum. The next question comes from Paul Lejuez with Citigroup. Please go ahead. Thanks. Guys, can you give us an update on what you're seeing on your average unit costs for the second half and also into the first half of 2023? I'm curious, you know, Calvin, I think you mentioned some cautiousness about, you know, passing through higher prices. Curious how much you're willing to absorb versus what you might look to pass through to customers. Second question, I think you mentioned 60 basis points of leverage on occupancy this quarter. Just curious what your comp leverage point is on the occupancy line at this point. Thanks. Hey, Paul. In terms of AUC, if I put air freight aside, we're seeing modest increases in raw material prices, so no material change in our underlying AUC, and continue to closely monitor those impacts, closely working with our suppliers, as we look into 2023. In terms of pricing, we're taking modest price increases on about 10% of our assortment. You know, as we've said before, we strategically look at prices in terms of quality and make of our goods in the competitive landscape, and we'll continue to use that as a strategy as we move forward. In terms of occupancy, you know, I think overall our top line trend, obviously very strong at the 27%, three-year sales CAGR, and leveraging occupancy to a large degree given our outperformance on top line as well as the strength of our e-commerce business. We haven't broken out the leverage points, but continue to see opportunity on that line item as we move throughout 2022. Thanks, Meghan. Just one quick follow-up. Could you just remind me what percent of your raw materials are, you know, petroleum-based, somehow tied to the price of oil? We haven't broken that out, but can follow up with some additional information. Okay. Thanks. Good luck, guys. The next question comes from Michael Binetti with Credit Suisse. Please go ahead. Hey, guys. Thanks for taking all our questions here. Just one quick housekeeping. Meghan, I think you said to Lorraine's question earlier, I think air freight in first quarter was 340 basis points of pressure, 150 basis points of pressure in 2Q. To get to the 30 basis points of pressure for the year, you're baking in positive leverage in the second half. I know the comparison as you started paying for air freight last year helps. I just wanna make sure I heard that 'cause it sounded like, Lorraine, you were saying maybe it would take quite some time to get back some of the air costs, air freight costs. Calvin, I guess bigger picture, one thing that jumps out here is the e-commerce business, actually accelerating versus the prior quarter on a three-year basis. I can't say we've seen that dynamic with other brands. There's been a pretty pronounced trend of e-commerce slowing as consumers go back to stores. You know, aside from just good old-fashioned execution, anything to point out specific in that channel that you think is helping you guys kinda go the other direction of the industry? Hey, Michael. I'll take the first part of that question. In terms of air freight, we are up against some increases last year as we move into the second half of the year. Expect the air freight impact to be a leverage point in Q4 when we look on a one-year basis. I would say in terms of how we're looking at the future, I think coming off of the full year air freight, I think too early to say on 2023 how we see that moderating. Do expect to have a leverage point as we lap the high water line in Q4 of last year. Okay. On our online performance, I think it's a number of factors. As you said, the growth continues to be very strong, cycling over some very large numbers. I'll start by just talking about our store performance and the productivity in our stores were above 2019 levels. You know, the benefit is the success in e-commerce is incremental and not coming at the expense of our store productivity numbers. We are seeing our stores perform back to and above where they were in 2019 as guests continue to come in. As I mentioned, traffic in both stores and online were very healthy and continue to be very strong moving forward. Specifically online, I think there are a couple of factors. One, as you know, we pulled forward some investments. That was a combination of foundational as well as guest experience initiatives, both in how we merchandise some of our shops. The team has done a lot of good work around just basic efficiency on checkout, reducing friction, a lot of the guest facing initiatives, like the online concierge and educator. It boils down to also product. We saw a very strong engagement on our footwear category through our online channel. Newness around golf and tennis traditionally performs very well in the channel. You know, we've spent a lot of time in building an omni guest relationship, and I think they are shopping both store and online. When online, they're really diving into the newness early, quickly to ensure they secure it, yet still engaging in our store channel. It's a combination of a lot of initiatives that we've been building, the team's been utilizing, and product is definitely the primary or one of the key drivers of it. It's boiling down to that behavior and that omni guest relationship that we've been nurturing and building for the last few years. Okay, thanks for the thoughts. The next question comes from Adrienne Yih with Barclays. Please go ahead. Good afternoon. Let me add my congratulations. Product looks fantastic. Calvin, I was wondering if you could share your insights on what have you learned from the capsule launches in tennis, golf and footwear. They were obviously stocked out very early. You're waiting for some replenishment there. How have these launches informed you about the next iterations for footwear and other new categories like hike? Thanks. Great. Thanks, Adrienne. A couple of things, and I'll start with footwear, and then I'll move into some of the play capsules that we launched. With footwear, as we've shared, it's a test and learn category for us. We're excited about it. We think it's an exciting opportunity for the brand moving forward, and we're going to take a test and learn approach, which meant, you know, we sort of went in knowing that demand would be an excess of supply, and it far exceeded our expectations. You know, we definitely had a lot more demand than we anticipated. Encouraging, but definitely impacted supply quicker than we would have wanted in an ideal scenario. It all points to, you know, an incredible product that was well received both in the industry and with the guest. The team is focused on learning and adapting. You know, what's challenged that a little bit is the global supply chain challenges, and we're not gonna pay to fly in footwear. We're gonna build the category and we're gonna, you know, learn as we go. You know, we'll be back in stock on Blissfeel this month. We expect that we'll be going through these periods because we said we have some incredible colors coming that we expect the guests will resonate with. We have our slides in both men's and women's that drop this week, and we've already seen a very positive response to that. Chargefeel and Strongfeel launch later this summer and fall. We're excited about how the guest is responding and the teams are learning. I think it's a very positive indication of our ability and the elasticity of our brand to extend into categories, really offer a head to toe solution and when we deliver on unmet needs. Golf and tennis really fit into that, where we design a small percentage of products that are designed specifically for those activities. We also leverage our core assortment to drive versatile opportunity and solutions as well as activities. Both performed incredibly well, as you indicated. I mean, having Leylah Fernandez as our ambassador on our tennis has been fantastic. Leveraging golf during both the Masters and the PGA Championships and Futures, a wonderful opportunity to put a spotlight on our product and our assortment, and in hike. Teams learning. It's one of those occasions where I think Meghan said we wish we had more, but it's delivering both sales in those products and lifting our core, which is the strategy, and it's resonating, and it's working well in both guest acquisition and expanding share of wallet with our existing guests. We're excited about how the guests responded and with newness happening in this quarter and the rest of the year. Oh, great, thanks. Good luck. Thank you. The next question comes from John Kernan with Cowen. Please go ahead. Excellent. Congrats on a great quarter and momentum. Maybe wanted to go back to the supply chain and Paul's average unit cost question. I guess, where are there offsets for you in what's a rising supply chain cost environment? Obviously, some of the air freight will come down in the back half. Your markdown rates are very low and you've got pricing power, but Where are there areas to offset within the supply chain in what looks like an inflationary environment into 2023? Yeah. I'd say there, you know, it's to date, we've seen modest increases in terms of raw materials prices. We have started taking some price increases in Q1, as I said, modest, and we'll be on less than 10% of our assortment. We haven't seen any price resistance to date. We'll continue to have a few actions as we roll throughout the year there. We'll continue to look at that as a lever. You know, I think when we look at our operating margin overall, you know, we are modestly for the year under 2019, even with that 300 basis points pressure of air freight. As that environment moderates, we should have some opportunity in front of us in terms of recouping the air freight pressure. We continue to look across, you know, our business in terms of opportunities to deliver on our five-year average target of modest operating margin expansion, obviously navigating those near-term challenges with air freight and ensuring, importantly, that we continue to drive the momentum in our business through key investments as well. Understood. Maybe one quick follow-up on inventory. As we all look at inventory balances across the sector, some of your peers in the competitive set inventory dollars and units are up pretty you know, meaningfully at this point. I guess just the confidence in the ability to maintain full price sell through, confidence in the competitive sets ability to maintain full price sell through as we go into Q3, Q4, and what's gonna be, you know, much higher inventory levels throughout the sector into the holiday. Yeah. I think when we look at our inventory on a one-year basis, the growth rate includes air freight impacts and then also higher in-transits with those longer ocean durations. We're comparing to periods of being under-inventoried last year. That would've been relevant for Q1 of 2021. We feel the most relevant way to look at inventory, as we navigate these supply chain disruptions, and the comparisons to the pandemic period is to look at the three-year unit CAGR, and that is really consistent with how we're looking at planning our business. That three-year unit CAGR for us at the end of Q1 was up 36%, five points impact included in that for longer in-transit time. Adjusting for that 31% unit increase, you know, we think is well aligned with our top line momentum. When we look at that three-year revenue CAGR, it's 27% in Q1 and then 26% in terms of our Q2 guide. I'd say, you know, still really pleased with full price momentum. Our markdowns in Q1 were relatively flat year-over-year, still 40 basis points below 2019. Really looking at leveraging also the core and, you know, non-seasonal nature of our business, which is about 45% of our assortment as well. We tend to have low markdowns overall and don't see a change to that posture as we move throughout the year. All right. Excellent. Thank you. The next question comes from Omar Saad with Evercore ISI. Please go ahead. Thanks. Good afternoon. I wanted to dive in a little bit deeper in China. I know it's still a relatively small piece of the pie for you guys, but it's a huge part of the long-term growth algorithm. Putting aside the current kinda COVID lockdowns and things going on there, maybe talk about what's changed for the brand in China that's been there, you know, I think well over 10 years in the Greater China market at least. There seems to be some sort of inflection going on. Maybe dive in deeper what's going on with that brand and that consumer and that market too, the premium and leisure athletic wear market. Thanks. Thanks, Omar. I think we shared that even with the challenges that you alluded to, our year-over-year growth was still double-digit in China, and our three-year CAGR is 60%. So there's definitely strong momentum behind the brand, and very excited about you know, the rest of this year and moving forward. You know, these are short-term operational challenges. We've lived this in North America and other markets. We continue to support our teams as we did around the globe in these markets through pay protection, investing in the culture. And that's important because that to me is one of the big pillars that's driving the success of the brand. We have incredibly you know, engaged educators and talent at our SSC in Shanghai. We're investing in people and talent. We're investing in relationships with the community and our ambassador community within that market. The product, like it is in other regions, is resonating. It's uniquely positioned. It's differentiated as a premium product. When you get a chance to go to the market, you'll see we're positioned differently in malls. We're positioned differently in terms of how the guest is interacting with the product. Similar to other markets, the same activity strategy is working, the innovation is working, the dual gender is working. We definitely are excited about. Do agree there's been an inflection in the brand that's been building for the last few years. This is just a short-term operational challenge that many of us are faced with. The health of the brand is very strong and, you know, bodes well for our future growth plans. Thanks, Calvin. Operator, we'll take one more question. The next question comes from Tom Nikic with Wedbush Securities. Please go ahead. Hey, everybody. Thanks for squeezing me in here. So it sounds like you're, you know, pretty happy with, you know, some of the new categories you've entered, you know, footwear, the golf and tennis capsules, et cetera, and, you know, you got kinda more coming down the pipe. Is there any concern on your part about kind of throwing too much stuff at your customer, you know, in a short period of time? You know, adding, you know, footwear and some of these new categories and hike and, you know, a new fabrication, you know, et cetera. You know, how do you kind of, you know, make sure that the storytelling is there and, you know, the experience is there to, you know, help the customer, you know, kind of navigate through all these new product offerings that you're giving them? Great. Thanks, Tom. Focusing on storytelling and bringing the guest along with our product innovation journey is definitely a key focus of Nikki and the team, both the merchants, how we tell the story online, and how we tell it through the brand, through our relationships that we build with our ambassadors. It is absolutely a key focus. I'm not worried for a few reasons. One, it is minimal in SKU proliferation, which is designed and deliberate because we know we have, you know, highly productive stores, versatile product, and we wanna continue that. It is a big differentiator of our brand versus most others in this space. We selectively target a small number of innovative product designs for these activities as a means to grow the overall core. In many cases, it's how our guests are already sweating and using our product. We are just putting a brand story on it with a small number of design for product that validates, brings credibility already to the product, and lifts it. Second, we focused on categories because we know it's how our guests sweat in our product, and it is their primary and secondary, go-to activities. We are delivering them innovative products that's, you know, through our approach, science of feel and unmet needs in the activities that they are sweating. We're just extending the relationship for a brand that they have affinity and trust and confidence in delivering product that satisfies how they're choosing to sweat. We're not stepping outside of the relationship we already have with guests. We are not stepping outside of how they're already sweating in our product, and we're designing specifically into that and leveraging our overall core. Finally, what I'd say is, the immediate response to all this, incremental, key activities or categories or items, be it footwear, tennis and golf, were incredibly strong, which to me just validates, you know, the need, the immediate response and reaction. I'm excited and encouraged with hiking. We know when we bring innovative product that delivers on an unmet need, that's focused on these core activities that are the strength of the relationship that he and she has with the brand, it resonates. I think the results. Well, I know the results validated that. It's a strategy we're gonna continue to roll out in the coming quarters. Sounds good. I love seeing J.R. Smith as one of your golf ambassadors. Thank you. That's all the time that we have for questions today. Thank you for joining the call, and have a nice day.