Mar 30, 2021
Operator
Thank you for standing by. This is the conference operator.
Welcome to the lululemon athletica Inc. Fourth Quarter and Year-End 2020 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.
I would now like to turn the conference over to Howard Tubin, Vice President-Investor Relations for lululemon athletica. Please go ahead.
Howard Tubin
Thank you, and good afternoon. Welcome to lululemon’s fourth quarter earnings conference call.
Joining me today to talk about our results are Calvin McDonald, CEO; Sun Choe, Chief Product Officer; Meghan Frank, CFO; and Alex Grieve, VP and Controller.
Calvin McDonald
Thanks, Howard. I'm excited to be with you today.
I'm proud of how lululemon navigated this past year and delivered for our employees, guests and shareholders. I believe 2020 has been a pinnacle moment for lululemon as we developed and delivered exciting new innovations that create even more opportunities for us into the future.
Our continued growth demonstrates our ability to win, both before, during and after COVID-19. Our business has many strengths and growth opportunities.
We are just in the early innings of our potential. In fact, the pandemic has accelerated our progress and the opportunities we have within each of our Power of Three growth initiatives.
Over the course of today's call, we'll discuss our strong performance in the fourth quarter and the full-year, and we'll also share our road map for 2021.
Sun Choe
Thanks Calvin. I'm happy to be here to share details regarding our product innovation road map for the year ahead.
2020 was a great year for us from an innovation standpoint, but it wasn't perfect as we were forced to navigate the COVID-19 environment. We have significant opportunity in 2021 to increase our cadence of innovation.
Our product team will continue to bring to market merchandise that is technical, while also offering the versatility that our guests demand as they add new dimensions to the way they live the sweatlife. We continue to leverage our Science of Feel innovation platform to solve guests' unmet needs and drive expansion in our four major product areas across Run, Train, Yoga and On The Move.
Last year, while guests adapted to the new normal of working and sweating from home, the desire for technical athletic apparel that seamlessly transitions with them from activity to activity remains strong, and we delivered. Highlights include a re-launch of our proprietary Everlux fabric in new styles, expanding our Align franchise into tops with the launch of the Align Tank and for the first time, we offer some of our best-performing styles in a more inclusive size range.
In men's, we saw particular strength in shorts with our three core styles, the THE Surge and Pace Breaker all performing well throughout the year. Also exciting is our recent launch of the License To Train Short.
This short expands our train offering for men is made from abrasion-resistant fabric and is suitable for many types of sweaty pursuits, including weight training and trail running. Guest response has been strong, and the License To Train Short is helping grow our big three core shorts for men into the helping grow our big four.
In Q4, our guests responded well to our holiday merchandise offering, which included special edition products across our highly coveted wonder -- under an Align franchises in women's and our City Sweat and in-line franchises for men. We saw broad-based trends across all of our major merchandise categories with high-teens revenue growth in women's, men's and accessories.
Drilling down a bit, outerwear, shorts, bras, underwear and equipment were particularly strong classification, all experiencing revenue growth in excess of the high-teens. Our men's business continued to strengthen with Q4 being our strongest quarter of the year.
The resurgence we saw in our fixed waistband bottoms towards the end of Q3 continued and as men generally prefer to shop our brick-and-mortar channel, we look for further strengthening as our stores remain open and capacity constraints subside. Let me shift gears and share some highlights on our product outlook for 2021.
We firmly believe that the desire to live an active and healthy lifestyle has only strengthened over the last year. Our apparel, developed under the Science of Feel innovation lens, is designed to offer technical solve, while also providing versatility and comfort.
These positions, us extremely well as our only strengthened over the last year. Our guests continue to find new ways to sweat now and in the future.
Looking forward, we have plenty of innovation on the way for 2021, and we have hit the ground running. In Q1, we made some major moves in men's tops with two very exciting franchises, Fundamental and DrySense.
The Fundamental top, which comes in long sleeve, short sleeve and sleeveless, offers a perfect combination of technicality and comfort. The fabric offers stretch, abrasion resistance, anti-stink and quick dry, all while having a cottony soft feel on the skin.
While we made the short to expand our on-the-move assortment, the versatility of the design also makes it perfect for hikes, runs, cross-training and other sweaty pursuits. Our DrySense franchise expands our train assortment and offers unique solutions for our guests through exceptional moisture working and additional technical features, including underarm for increased mobility, a locker loop for easy hanging and the polyester component of the fabric is completely recycled.
In women, we'll continue to bring technical solve across our major category of run, train, yoga and on the move. In Q1, we further leveraged our Align franchise and we franchise and we short styles.
Guests love this added feature to our number one pant franchise and response in the launch has been fantastic. I'm also excited with the recent launch of our Swiss-Speed running type.
It's made from a proprietary luxtreme fabric, which low friction, is breathable, wick sweat and is cool to the touch. In addition, there are no inseams which provide for a distraction-free run.
Later this year, support bras, solving from movement management during runs and beyond. The air support bra is made with our proprietary ultra-loose fabric for a barely-there feel and was developed with insights from your signature movement experience that measured guest unique movement profiles.
We're also excited to reveal our special accessories capital featuring Mylo, an infinitely renewable mycelium that highlights the role sustainable innovation can play in the future of fashion and retail. In closing, I'm thrilled that our Science of Feel innovation platform, which has fueled our momentum for the past several years, has only gotten stronger.
Our brand is perfectly positioned to help our guests live into the sweat life any way they choose as our product not only offers technicality, but also comfort, versatility and beauty. Our pipeline of innovation for the coming year is robust, and we're already off to a strong start.
I'd like to thank our product teams across the globe for their unwavering dedication to finding new technical solve for our guests and their invaluable contribution to our strong financial results. And now, over to Meghan to take you through our financials, Meghan?
Meghan Frank
Thanks, Sun. We are proud of our 2020 results in a challenging environment and are entering 2021 in a strong financial position.
We pivoted our investments in 2020 to ensure we were prepare for multiple operational scenarios over our peak holiday period. The fourth quarter was impacted by more COVID-19-related store closures and capacity constraints than we originally anticipated.
And we were pleased to deliver revenue growth of 24%, ahead of our expectations. In looking at 2021 we're excited about our momentum headed into the year and the opportunities in front of us.
And we expect our top line growth to exceed the exceed the annual target as laid out in our apparel free growth plan. Also, as Calvin mentioned, we're very pleased with the performance of MIRROR, which has exceeded our initial expectations.
And we have made the strategic decision to continue investing in innovation and building brand awareness to drive the long-term value of the MIRROR business. This will have near-term implications for SG&A that I will touch on it further in a moment.
Let me share with you the details of our Q4 performance. I will also discuss specifics on our balance sheet, including our cash position, liquidity and inventories.
Please note that the adjusted Q4 financial metrics I will share include the operating results of MIRROR but excludes $7.8 million of acquisition-related costs and our associated tax effect. You can refer to our earnings release for more information and reconciliations to our GAAP metrics.
For Q4, total net revenue increased 24% to $1.7 billion, above our expectations for a mid-to-high-teens increase. This included a 21% increase in North America and a 47% increase in our international business.
In our digital channel, we posted a 92% comp increase on top of a 41% increase last year. E-comm contributed approximately $900 million of top line or 52% of total revenue.
We continue to see notable strength in traffic and conversion. Traffic was driven by channel shift, coupled with investments in digital marketing, and conversion continues to benefit from guest response to our product and the investments we've made in our global digital platform to improve guest experience.
In our store channel, we had 88% of our stores open on average and saw productivity of 71% of last year's volume, in line with our expectations. Square footage increased 11% versus last year, driven by the addition of 30 net new stores since Q4 of 2019.
During the quarter, we opened six net new stores and completed nine planned optimizations. Gross profit for the fourth quarter was approximately $1 billion or 58.6% of net revenue compared to 58% of net revenue in Q4 2019.
Our gross margin increase of 60 basis points was driven by 190 basis points of leverage on occupancy, depreciation and product team costs and 20 basis points of favorability in foreign exchange. This was partially offset by an 80 basis point decrease in product margin primarily due to higher airfreight costs related to COVID-19 and higher markdowns, and 70 basis points of deleverage on DC costs, predominantly related to COVID-19.
Moving to SG&A, OUR approach in the current environment has been to prudently manage our expenses while also ensuring we continue to invest in our long-term growth opportunities. SG&A expenses were $545 million or 31.5% of net revenue compared to 28.2% of net revenue in Q4 2019.
The deleverage in the quarter resulted predominantly from marketing investment associated with MIRROR, coupled with the impact of store closures, capacity constraints and COVID-19-related costs, partially offset by leverage on corporate overhead due to our 2020 expense reduction initiatives and strength of our top line. Foreign exchange also had a negative impact on SG&A in the quarter.
Adjusted operating income for the quarter was $466 line or 26.9% of net revenue compared to 29.8% of net revenue in Q4 2019. Adjusted tax expense for the quarter was $127 million or 27.4% of pre-tax earnings compared to an effective tax rate of 28.8% a year ago.
The reduction in tax rate relative to last year was primarily due to additional deductions obtained in select international jurisdictions. Adjusted net income for the quarter was $337 million or $2.58 per diluted share compared to earnings per diluted share of $2.28 in Q4 of 2019.
The capital expenditures were $58 million for the quarter compared to $69 million in the fourth quarter last year. Q4 spend relates primarily to digital channel and analytics capabilities, supply chain investment, technology spend to support our business growth and store capital for new locations, relocations and renovations.
Turning to our balance sheet highlights, we ended the quarter with over $1.5 billion of total liquidity. We had approximately $1.2 billion in cash and cash equivalents and nearly $400 million of available capacity under our revolving credit facility.
Inventory grew 25% versus last year and was $647 million at the end of Q4. We expect levels at the end of Q1 to increase approximately 15% relative to Q1, 2020.
While we are seeing some delayed inventory receipts due to the issues at the ports, we are comfortable with the level and composition of our inventory and we are positioned well as we enter the spring season. I'll provide additional detail on this when I offer our gross margin guidance.
We have $500 million of availability on our current share repurchase authorization. We've repurchased nearly $1.4 billion of our stock over the last six years and we continue to believe share purchases are an effective method of returning cash to shareholders.
Let me shift now to our outlook for Q1 and the full-year 2021. We're excited with our sales trend as we enter the New Year.
We have more stores opened now than we did in Q4 and our guests are responding well to our new innovations as well as support styles in our spring assortment. We remain focused on continuing to leverage our omni model and digital strength.
And we're planning for multiple operational scenarios as we navigate the continued uncertainties stemming from COVID-19. As we anniversary store closures, we are focused on two-year topline CAGRs to normalize for the disruption of business trends last year.
I’ll also offer some color on gross margin and SG&A relative to 2019 for Q1, given the significant impact from store closures we experienced during the first half of 2020. For Q1, we expect revenue in the range of $1.1 billion to $1.13 billion, representing a two-year CAGR of 19% at the midpoint.
In terms of stores, we currently have approximately 96% of our stores open across the globe, an improvement relative to Q4. However, we continue to experience the effects of COVID-19 in several markets.
On a two-year CAGR basis, we expect stores to be flat to slightly negative, with e-comm growing at approximately 50%. We expect gross margin in Q1 to increase significantly from last year's COVID-impacted quarter and also be 50 to 100 basis points higher than Q1 of 2019.
Relative to 2019, our gross margin is benefiting from a higher e-comm penetration and leverage on occupancy and depreciation due to pulling back somewhat on new store openings in 2020, as well as a level of rent reductions. Our Q1 guidance reflects pressure from air freight costs due to port congestion and capacity constraints.
We are strategically using airfreight to ensure we are able to meet guest demand, and we'll continue to closely monitor as we move throughout 2021. In Q1, we expect SG&A leverage versus 2020, but deleverage of approximately 400 basis points relative to 2019.
Drivers of the deleverage versus 2019 include, COVID-related costs, including labor and PPE; higher depreciation due to accelerated investments to support our e-comm business in 2020 and 2021; consolidation of MIRROR's results this year but not in the prior year; and our strategic decision to increase investment in MIRROR in 2021. While the business is still in its early stages and represents less than 5% of our total revenue, MIRROR sales exceeded our initial expectations in 2020.
Given the current momentum in the at-home fitness category, we now see an even greater opportunity than we did at the time of acquisition. The value and the MIRROR business volume is the lifetime value of their guests, and we're going to invest into the current category strength to maximize the long term value of this asset.
Turning to EPS, we expect adjusted earnings per share in the first quarter to be in the range of $0.86 to $0.90 versus EPS of $0.22 a year ago. This includes operating results from MIRROR, but excludes acquisition and integration-related costs.
As a reminder, we reported EPS of $0.74 in Q1 of 2019. For the full-year 2021, we expect revenue to be in the range of $5.55 billion to $5.65 billion.
This range includes $250 million to $275 million from MIRROR and assumes our e-comm business grows modestly relative to the outsized strength we experienced in 2020 as we expect the majority of stores to be opened in 2021. By quarter, we expect the most robust e-comm growth in Q1, a decline in Q2 as we anniversary the height of COVID-related channel shift in our online warehouse sale and then modest growth in Q3 and Q4.
When looking at total revenue, our guidance range implies a two-year CAGR of 19% at the midpoint, which is in line with our three-year revenue CAGR of 19%, leading up to 2020 and is ahead of the low-teens CAGR contemplated in our Power of Three growth plan. We expect to open 40 to 50 net new company-operated stores in 2021.
This includes approximately 30 to 35 stores in our international markets and represents a square footage percentage increase in the low double-digits. We expect gross margin for the year to expand between 100 basis points and 150 basis points compared to the modest increase we saw in 2020.
We expect gross margin increases relative to 2020 in each quarter of the year, with the largest increase expected in Q1. For the year, the anticipated margin expansion includes approximately 50 basis points of negative impact from additional freight costs, but is still in excess of our Power of Three growth plan, which assumes modest gross margin expansion annually.
The outperformance is expected to be driven primarily by a shift relative to our initial plans and investment from new store openings and remodels towards digital capabilities, which impacts SG&A. When looking at SG&A for the year, we expect deleverage of 50 basis points to 100 basis points versus 2020, which is in excess of what was contemplated within our Power of Three plan.
Drivers of the deleverage, include consolidation of MIRROR for the full-year and increased investment in MIRROR brand building. Relative to 2020, we expect predominantly all the deleverage to impact the second and third quarters.
We expect our effective tax rate for the year to be similar to 2020, with the Q1 rate being lower than the other quarters. We expect our fiscal year 2021 adjusted diluted earnings per share to be in the range of $6.30 to $6.45.
Our EPS guidance assumes modest dilution from MIRROR in the range of 3% to 5%, excluding acquisition and integration-related costs. We're excited with the momentum we're seeing in this business, particularly the growing community of people sweating with MIRROR, which contributes to increased brand awareness and strong long-term financial returns.
But as I mentioned earlier, MIRROR remains early in its life cycle and we've made the strategic decision to invest more than initially anticipated to build long-term value in this business. Capital expenditures are expected to be approximately $335 million to $345 million for 2021.
The increase versus 2020 reflects increased investment in our supply chain, digital capabilities, new store openings and renovations, including MIRROR shop-in-shops as well as other technology and general corporate infrastructure projects. I've already provided our guidance on Q1, but let me share some additional details to keep in mind as we model out rest of the year.
Taking in account my prior remarks on gross margin, SG&A and tax, you will see that we expect adjusted EPS growth in each quarter of year relative to 2020, but the rate of growth likely below that currently implied by FactSet consensus in Q2 and Q3 and relatively in line with consensus in Q4. As I mentioned earlier, we're pleased with our momentum at the start of the year and we are excited with the opportunities in front of us in 2021.
Before handing it back to Calvin, I want to thank our teams across the globe for their agility and commitment to our brand every day, which drives our financial strength and now back to Calvin for some closing remarks.
Calvin McDonald
Thanks Meghan. In closing, I would like to reiterate how pleased we are with how lululemon performed over the quarter and the full-year.
We see many opportunities to build upon this year's performance by leaning into our strengths, Innovative product, expanding our omni capabilities and continuing to grow around the world. As I mentioned, when we look back at 2020, I believe we will see this as a pinnacle moment for lululemon when we were able to pull forward many future innovations that will create upside for the brand, well into the future.
All of us on the leadership team are grateful for the continued support and loyalty of our employees, our ambassadors and our guests, who continue to be there for one another and make these results possible. And with that, Sun, Meghan, Alex and I would be happy to take your questions, Operator?
Operator
We will now begin the question-and-answer session. The first question comes from Lorraine Hutchinson with Bank of America.
Please go ahead.
Lorraine Hutchinson
Hi, thanks. Good afternoon.
I want to just focus on the investments in MIRROR for a minute. The 3% to 5% dilution, you're obviously above what you had initially expected and I think what we were all expecting.
So in light of that, can you just maybe frame out your expectations for the long-term opportunities of the business that are getting you so excited about this the ability to invest now in the content.
Meghan Frank
Yeah. Hi, Lorraine, it's Meghan.
So as we mentioned, MIRROR sales in 2020 exceeded our initial expectations at approximately $170 million. And we did guide to $250 million to $275 million for 2021.
They are still very early in their life cycle and the path to profitability there is very much within our control. That said, looking at the business, the value is really in the long-term and the long-term value of the subscription revenue.
So we've learned a lot since we purchased the business and COVID created an even greater opportunity than we saw at that time. And we're going to invest behind the momentum we see in that business to really drive that long-term value.
And you heard Calvin talk a little bit about some of the key investment areas that include adding production studios, adding an instructor – instructors to the base, launching new features and then expansion of the Canada as well as importantly, over 200 shop-in-shops in our North America lululemon stores. In terms of the long-term opportunity for the business, I think, we'll continue to learn a lot in 2021.
We're not going to put a time point on it right now, but we'll continue to share more as we create our plans for 2022 and beyond.
Lorraine Hutchinson
Thank you.
Operator
The next question comes from Mark Altschwager with Baird. Please go ahead.
Mark Altschwager
Hi. Good afternoon.
Thanks for taking my question. So with respect to the 2021 guide, I think it implies kind of EBIT margins that are a couple hundred basis points below 2019.
Maybe just break that down for us a little bit more. I guess, yeah, how much of that compression is the MIRROR investments versus your outlook for the core?
And then, just bigger picture with respect to the Power of Three and the longer-term goals. Obviously, well ahead when it comes to digital, but just maybe give us a sense of what if anything has changed in terms of the longer-term ambitions and how that might flow through the P&L over the next couple of years?
Thank you.
Meghan Frank
Yes. Hi, Mark, it's Meghan.
So if you take into consideration the color I offered on guidance, lululemon operating margin is slightly above 2019. So on track, essentially for our Power of Three growth plans.
And that dilution really is driven by the MIRROR investments that I just outlined and really geared towards investing into that business to drive the long-term value. In terms of Power of Three, you're right.
We're further along, as Calvin mentioned, than we anticipated in terms of digital strength. We aren’t revising our plan right now.
But as you can see, we're in good shape to meet that plan.
Mark Altschwager
A quick follow-up there. Can you talk about your progress towards scaling the business in China?
And just from a -- maybe from a margin perspective where that sits relative to the company average, and how you're planning that progression?
Calvin McDonald
Hey, Mark, it's Calvin. Just quickly on the Power of Three initiatives, doubling men's, doubling digital, quadrupling international, and then I'll quickly jump into certain markets.
We're on pace on men's, on pace on international and arriving early ahead on our digital, as we said. So, as Meghan alluded to, we're in a very good position at this point in our commitments and excited about the momentum in the business and opportunities to keep investing in innovation, investing in growth.
MIRROR is one of those areas that because the business is doing well, we're choosing to invest in a business that we know will add value through further guest relationships, building out that community and the value of the subscription model. So, excited about those.
And China is equal to those opportunities for us to invest in. We are very happy with our business and growth.
We've shared multiple times last year, the growth in both our store-based business and international. As well, I mentioned that heading into 2021, our plan is to open more stores in the market than we've ever opened in the 15 to 20 range.
That would put us well over 50 stores at this point in time. And we're very pleased with both the top line, bottom line performance in that market, and we keep investing in that market, local head office to empower the teams to drive relevancy.
So, I'm excited about our international business in all markets.
Mark Altschwager
That’s great. Thanks for all the detail and best of luck.
Operator
The next question comes from Erinn Murphy with Piper Sandler. Please go ahead.
Erinn Murphy
Great. Thanks.
Good afternoon. Calvin, for you, you talked about gaining a point of share in 2020.
I'm curious to how you think about your ability to continue to gain market share in 2021, particularly as several large global brands are doubling down on their women's business? And then, maybe just a clarification on MIRROR.
What have you seen in terms of the consumer appetite on some of the pricing that you've played around with? I think during the holiday season, if you were to buy it in store, there were different promotional opportunities to get it slightly cheaper.
Are you pleased with the current price position of the MIRROR just before you scale it out to more doors this year? Thank you.
Calvin McDonald
Okay. Thanks, Erinn.
First, on market share, very optimistic with the product that Sun indicated that we will continue to grow share across both men's and women’s. We did so in 2020.
I believe we were the only of the major brands to do -- to achieve that goal and we have a very strong business in women's. And I understand that others are identifying and seeing that as a growth potential.
But we have a very strong commitment with our guests, very strong franchises, but equally, it’s not even more important, a very significant pipeline of newness that we're going to continue to build out and delight that guest with in terms of activities into yoga, further into train and run and introducing some new activities. So, I'm very confident in our ability through innovation and knowing what we're bringing, that we're going to see growth and success both with men and women and then the men, the opportunity, as we've shared in the past, is really driving that awareness.
And we have some exciting initiatives that we'll share further plan this year to continue to engage, drive awareness and consideration for our male guests as we continue to build out and drive that relationship and success with our women's. Yoga and our female guests, we know are critical parts.
And as we look to grow into other areas and opportunity, just know that the team is 100% focused on maintaining and growing that relationship in those segments as well. And in terms of MIRROR, we did do some interesting testing, and we continue to.
The benefit of the business being new is that we're doing a lot with Brent and team on test and learn on both how to acquire and drive the awareness, which remains a big opportunity and price elasticity behind the product. And right now positioned at the retail price point with a free shipping offering resonates very well.
The guest prefers that sort of combination. And then we pulse in a variety of promotional opportunities when it's either competitively appropriate to do so or we see an opportunity.
We've tried a number from a discount of $200 to $300 being the peak, so the net price being $1,200 as well as bundling opportunities. And feedback from the guest is very encouraging that a number of levers -- registers with them.
So, it gives us the ability to not just sort of play one promotional lever in order to drive that that opportunity to invest into the MIRROR. So, we have a number of levers that we've tested and validated that we'll continue to do.
We have a good price position in and around the $1,200 to $1,500 that they respond well to. And we'll continue to operate with that as well as we look to expansion in the Canadian market price accordingly.
Erinn Murphy
Great. Thank you.
Operator
The next question comes from Paul Trussell with Deutsche Bank. Please go ahead.
Paul Trussell
Good afternoon. Thanks for taking our question.
Just wanted to ask about what you're seeing today in terms of store traffic and productivity? And how are you thinking about the cadence of store productivity over the course of the year?
And then second, you did mention that air freight, higher markdowns and distribution expenses were headwinds in this current period, offsetting some of the occupancy leverage and other savings. Just speak to the extent that when these headwinds may continue.
Meghan Frank
Hi, Paul, it's Meghan. So in terms of productivity, we saw productivity in stores of 71% in Q4, which was in line with our expectations.
We do now, in Q1, have more stores open at 96% and we are not in our peak traffic period. So, the constrained impact is lessening.
We do expect that to improve as move throughout the year, but we are planning as we did in 2021 -- or in 2020 for multiple scenarios so that we're able to meet our omni-guest demand. So, we'll continue to iterate on that as we move throughout 2021.
In terms of margin range, we offered that we see expansion on a year over 100 to 150 basis points included in that, its 50 basis points pressure related to air freight. We don't see that as a barrier to revenue upside, we will continue to strategically leverage airfreight to drive revenue and continue to closely monitor that throughout the year.
Operator
The next question comes from Matthew Boss with JPMorgan. Please go ahead.
Matthew Boss
Great. Thanks, and congrats again on the nice quarter.
Calvin, as we think about recovery post pandemic, so do you anticipate or maybe are you seeing signs of pent-up demand for technical innovation on the sweat side of the business as in-person or maybe people begin to think about in-person fitness again? And then I'm curious how you see lulu's lifestyle assortment positioned to take market share if casualization is, in fact, greater post pandemic?
Calvin McDonald
Great. Thanks, Matthew.
As I indicated, our technical performance of our product all through 2020 was the drivers of our growth predominantly. And I don't see that diminishing in any way.
I think people are finding ways to sweat, they’ve adopted new ways to sweat, I mean the world open ups, and they'll be able to go back to their gyms and their studios they'll just have a balance of ways in which they're engaging. And we have a lot more new guests or existing guests using a lot more of our technical product.
That is going to just drive an appreciation for and loyalty to the uniqueness of how it performs. So, from a recovery standpoint, I feel all the momentum in the business behind driving even more adoption and success of our technical performance as we saw in 2020, and I think it's only going to be more pronounced moving forward.
From an OTM perspective, we're early in our development of OTM in our women's category. The team has been building that for the last few years and adding assortment, and we test and launched a few product next year.
We will add more to the assortment this year and in the years to come. So, we are early that we’re well positioned through our technical apparel to build that business as guests look to shift, but when they shift back to more other casual wear, they're going to be looking for something that that I believe is unique and different in the technical apparel fashion, and some of the team are creating and building that.
And men's -- that's been one of our strengths in men's. Women's is going to catch up to our men's offering.
And we have full confidence in our success and strength in men's in that OTM business and the work and the products that following those, it's going to keep fueling the OTM. But at the heart and the core, the technical performance gear did perform, is performing, and I think it's only going to perform more moving forward.
Matthew Boss
Great. And then maybe just a follow-up on SG&A.
Meghan, so outside of MIRROR and the pull forward that you've cited of the DTC investments, I guess my question is on an underlying basis, is there any change to the annual plan, I think that you laid out at the Analyst Day for modest SG&A leverage on low teens revenues this year? And then as you see it today, is there any reason the model doesn't return to that plan on a reported basis after this year?
Meghan Frank
Yes. Thanks, Matt.
So as I mentioned, if you consider the color I provided, from an operating income perspective, lululemon is essentially in line with Analyst Day. And we have a bit more expansion in margin and a bit more pressure on SG&A, and that's because of the shift in investment profile between channels.
So, pulling back somewhat on store openings and investing behind digital, the store expenses show up in gross margin and the digital expenses to show up in SG&A. So I'd say a little bit of a near-term impact, and we continue to monitor that for the long-term, and we're really focused on optimizing the bottom line of our business.
Matthew Boss
Thanks. Great color.
Howard Tubin
Operator, we'll take one more question. Thanks.
Operator
Certainly. The next question comes from Ike Boruchow with Wells Fargo.
Please go ahead.
Ike Boruchow
Hi. Thanks so much for the question.
So I just wanted to talk about men's versus women's. Men's seem to be underperforming through the year, and just because your women's business was just so much stronger.
I think you kind of leveled out in 4Q. I'm just trying to look at the filing now, but can you kind of explain what was going on between the two genders in your business?
And is there anything that's changed as you come into 2021? And again, I don't know if that's just behavior or if it's just product or innovation.
Just anything you could elaborate on, Calvin would be great.
Calvin McDonald
Yes. No, for sure.
Thanks, Ike. We've -- I would tell you, our assessment is it – is a 100% behavior.
Looking at his behavior at the beginning of the pandemic and shifts of where he was purchasing, how he was purchasing drove a lot of the declines in apparel that the industry saw in the men's categories. And that started to pick up throughout the year.
Our impact was less in the industry at the beginning, and it picked up quicker at the tail end. In our fourth quarter, our men's business trailed our women's business, but it was the narrowest gap from the entire year that we saw.
And as Meghan indicated, the start of this year has been very, very strong for us, and the men's business continues that road to recovery. So, it -- in my opinion, was a 100% behavior and as stores come online and we're seeing that shift back into apparel that it will come back to where we were in terms of performance and growth driving.
Even with that, we are on pace to double our men's business per our commitment in our five-year and seeing very good results and strength back to the men's business already to start this year.
Ike Boruchow
Got it. Thanks.
Operator
That's all the time we have for questions today. Thank you for joining the call, and have a nice day.