What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-03-29 compared with 2021-03-30 · 246 added, 299 removed, 855 unchanged (39% of the section changed)

2 unchanged sentences

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID 271 )

Consolidated Balance Sheets

3 unchanged sentences

Index for Notes to the Consolidated Financial Statements

Table o f Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

2 unchanged sentences

We have audited the consolidated balance sheets of lululemon athletica inc.

and its subsidiaries (together, the Company) as of January 31, 2021 and February 2, 2020, and the related consolidated statements of operations and comprehensive income, stockholders’ equity and cash flows for the 52-week period ended January 31, 2021, the 52-week period ended February 2, 2020, and the 53-week period ended February 3, 2019, including the related notes, listed in the index appearing under item 15(a)(1) and the financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the consolidated financial statements).

and its subsidiaries (together, the Company) as of January 30, 2022 and January 31, 2021, and the related consolidated statements of operations and comprehensive income, of stockholders' equity and of cash flows for the 52-week years ended January 30, 2022, January 31, 2021, and February 2, 2020, including the related notes, appearing under Item 8 and the financial statement schedule appearing under Item15(a)(2) of the Company’s 2021 Annual Report on Form 10-K (collectively referred to as the consolidated financial statements).

We also have audited the Company's internal control over financial reporting as of January 30, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of January 31, 2021 and February 2, 2020, and the results of its operations and its cash flows for the 52-week period ended January 31, 2021, the 52-week period ended February 2, 2020, and the 53-week period ended February 3, 2019 in conformity with accounting principles generally accepted in the United States of America.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of January 30, 2022 and January 31, 2021, and the results of its operations and its cash flows for the 52-week years ended January 30, 2022, January 31, 2021 and February 2, 2020 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 30, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases as of February 4, 2019.

Basis for Opinions

14 unchanged sentences

A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(ii) provide reasonable assurance that transactions are recorded as

Table o f Contents

necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

5 unchanged sentences

Inventory provision

As described in Notes 2 and 3 to the consolidated financial statements, inventory is valued at the lower of cost and net realizable value, and management records a provision as necessary to appropriately value inventories that are obsolete, have quality issues, or are damaged.

As described in N otes 2 and 3 to t he consolidated financial statements, inventories are valued at the lower of cost and net realizable value, and management records a provision as necessary to appropriately value inventories that are obsolete, have quality issues, or are damaged.

Provision expense is recorded in cost of goods sold.

1 unchanged sentence

The amount of the inventory provision is equal to the difference between the cost of the inventory and its estimated net realizable value based on assumptions about product quality, damages, future demand, selling prices, and market conditions.

The principal considerations for our determination that performing procedures relating to the inventory provision is a critical audit matter are (i) management identified the matter as a critical accounting estimate;

and (ii) significant judgment was required by management in determining the estimated net realizable value of inventories that are obsolete, have quality issues, or are damaged, which in turn led to significant audit effort and a high degree of subjectivity in evaluating audit evidence relating to the estimate.

The principal considerations for our determination that performing procedures relating to the inventory provision is a critical audit matter are the significant judgment by management in determining the estimated net realizable value of inventories that are obsolete, have quality issues, or are damaged, which in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence relating to the estimate.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to the review of the provision including the assumptions used.

These procedures also included, among others, (i) observing the physical condition of inventories during inventory counts;

These procedures also included, among others:

(i) observing the physical condition of inventories during inventory counts;

(ii) evaluating the appropriateness of management’s process for developing the estimates of net realizable value;

1 unchanged sentence

(iv) testing the reasonableness of the assumptions about quality, damages, future demand, selling prices and market conditions by considering historical trends and consistency with evidence obtained in other areas of the audit;

and corroborating the assumptions with individuals within the product team.

Acquisition of MIRROR – valuation of intangible assets

As described in Notes 1, 2 and 6 to the consolidated financial statements, the Company completed the acquisition of Curiouser Products Inc., dba MIRROR, ("MIRROR") for net consideration of $452.6 million in 2020 which resulted in $85.0 million of intangible assets being recorded.

The fair values of intangible assets were based upon valuation techniques including discounted cash flows, relief from royalty, and replacement cost methods.

Management applied judgment in estimating the fair values of intangible assets acquired, which involved the use of significant estimates and assumptions with respect to future revenue growth rates, royalty rates, and the discount rate.

The principal considerations for our determination that performing procedures relating to the valuation of intangible assets in the acquisition of MIRROR – is a critical audit matter are (i) the high degree of auditor judgment and subjectivity in applying procedures relating to the fair value measurements of intangible assets acquired due to the judgment by management when estimating the fair values of the intangible assets;

(ii) significant audit effort in evaluating the significant assumptions relating to the intangible assets, such as the future revenue growth rates, royalty rates, and the discount rate;

and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Table o f Contents

and (v) corroborating the assumptions with individuals within the product team.

Goodwill Impairment Assessment – MIRROR Reporting Unit

As described in Notes 2 and 7 to th e consolidated financial statements, the Company’s goodwill balance allocated to the MIRROR reporting unit was $362.5 million as of January 30, 2022.

Goodwill is tested annually for impairment on the first day of the fourth quarter, or more frequently when an event or circumstance indicates that goodwill might be impaired.

Generally, management first performs a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value.

If factors indicate that this is the case, management then estimates the fair value of the related reporting unit.

As of November 1, 2021, management performed a quantitative impairment analysis of the MIRROR reporting unit and concluded that the fair value of the MIRROR reporting unit exceeded its carrying value, and no impairment was recognized.

The fair value of the MIRROR reporting unit was estimated by management by using a discounted cash flow model.

The key assumptions used in the discounted cash flow model are the revenue growth rates, operating profit margins, and the discount rate.

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the MIRROR reporting unit is a critical audit matter are (i) the significant judgment by management when developing the fair value of the reporting unit;

(ii) the high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s discounted cash flow model including the key assumptions related to the revenue growth rates, operating profit margins, and the discount rate;

and (iii) the audit effort which involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to the valuation of intangible assets, including controls over management’s development of the future revenue growth rates, royalty rates, and discount rate assumptions utilized in the valuation of the intangible assets.

These procedures also included, among others, (i) reading the purchase agreement and (ii) testing management’s process for estimating the fair values of intangible assets.

Testing management’s process included evaluating the appropriateness of the valuation methods, testing the completeness and accuracy of data provided by management, and evaluating the reasonableness of significant assumptions related to the future revenue growth rates, royalty rates and discount rate assumptions for the intangible assets.

Evaluating the reasonableness of the future revenue growth rates involved considering the past performance of the acquired business, as well as economic and industry forecasts.

Professionals with specialized skill and knowledge were used to assist in the evaluation of the royalty rates and discount rate assumptions.

These procedures included testing the effectiveness of controls relating to management's annual goodwill impairment assessment, including controls over the fair value estimate of the MIRROR reporting unit.

These procedures also included, among others:

(i) testing management's process for developing the

fair value estimate;

(ii) testing the completeness and accuracy of the underlying data used in the discounted cash flow model;

(iii) and evaluating the reasonableness of the key assumptions used by management related to the revenue growth rates, operating profit margins, and the discount rate.

Evaluating the reasonableness of the revenue growth rates and operating profit margins involved considering (i) the current and past performance of the reporting unit;

(ii) the performance of peer companies;

(iii) the consistency with economic and industry forecasts;

and (iv) whether these assumptions were consistent with evidence obtained in other areas of the audit.

Professionals with specialized skill and knowledge were used to assist in the evaluation of the appropriateness of the Company’s discounted cash flow model and the reasonableness of the discount rate assumption.

/s/ PricewaterhouseCoopers LLP

3 unchanged sentences

We have served as the Company's auditor since 2006.

Table o f Contents

lululemon athletica inc.

1 unchanged sentence

(Amounts in thousands, except per share amounts)

January 31, 2021 February 2, 2020

January 30, 2022 January 31, 2021

Current assets

15 unchanged sentences

Accounts payable $ 289,728 $ 172,246

Accrued inventory liabilities 14,956 6,344

Other accrued liabilities 211,911 112,641

Accrued liabilities and other 330,800 226,867

Accrued compensation and related expenses 204,921 130,171

29 unchanged sentences

See accompanying notes to the consolidated financial statements

Table o f Contents

lululemon athletica inc.

2 unchanged sentences

Fiscal Year Ended

2021 February 2,

2022 January 31,

2021 February 2,

12 unchanged sentences

Foreign currency translation adjustment $ ( 28,494 ) $ 72,731 $ ( 9,995 )

Net investment hedge gains (losses) 9,732 ( 25,305 ) 2,222

Other comprehensive income (loss), net of tax ( 18,762 ) 47,426 ( 7,773 )

Comprehensive income $ 956,560 $ 636,339 $ 637,823

4 unchanged sentences

See accompanying notes to the consolidated financial statements

Table o f Contents

lululemon athletica inc.

3 unchanged sentences

Shares Shares Par Value Shares Par Value

Balance as of January 28, 2018 9,781 9,781 $ — 125,650 $ 628 $ 284,253 $ 1,455,002 $ ( 142,923 ) $ 1,596,960

Balance as of February 3, 2019 9,332 9,332 $ — 121,600 $ 608 $ 315,285 $ 1,346,890 $ ( 216,808 ) $ 1,445,975

Net income 645,596 645,596

Foreign currency translation adjustment ( 73,885 ) ( 73,885 )

Other comprehensive income (loss), net of tax ( 7,773 ) ( 7,773 )

Common stock issued upon exchange of exchangeable shares ( 3,105 ) ( 3,105 ) — 3,105 16 ( 16 ) —

5 unchanged sentences

Net income 588,913 588,913

Foreign currency translation adjustment ( 7,773 ) ( 7,773 )

Other comprehensive income (loss), net of tax 47,426 47,426

Common stock issued upon exchange of exchangeable shares ( 1,024 ) ( 1,024 ) — 1,024 5 ( 5 ) —

3 unchanged sentences

Repurchase of common stock ( 369 ) ( 2 ) ( 539 ) ( 63,122 ) ( 63,663 )

Balance as of February 2, 2020 6,227 6,227 $ — 124,122 $ 621 $ 355,541 $ 1,820,637 $ ( 224,581 ) $ 1,952,218

Table o f Contents

Balance as of January 31, 2021 5,203 5,203 $ — 125,150 $ 626 $ 388,667 $ 2,346,428 $ ( 177,155 ) $ 2,558,566

Exchangeable Stock Special Voting Stock Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Total

1 unchanged sentence

Net income 975,322 975,322

Foreign currency translation adjustment 47,426 47,426

Common stock issued upon exchange of exchangeable shares ( 1,024 ) ( 1,024 ) — 1,024 5 ( 5 ) —

Other comprehensive income (loss), net of tax ( 18,762 ) ( 18,762 )

Stock-based compensation expense 69,137 69,137

4 unchanged sentences

See accompanying notes to the consolidated financial statements

Table o f Contents

lululemon athletica inc.

2 unchanged sentences

Fiscal Year Ended

2021 February 2,

2022 January 31,

2021 February 2,

13 unchanged sentences

Accounts payable 117,655 82,663 ( 14,810 )

Accrued inventory liabilities 8,046 ( 9,598 ) 4,312

Other accrued liabilities 91,115 14,276 9,416

Accrued liabilities and other 103,878 99,161 4,678

Accrued compensation and related expenses 75,273 ( 6,692 ) 25,326

16 unchanged sentences

Net cash used in financing activities ( 844,987 ) ( 80,788 ) ( 177,173 )

Effect of exchange rate changes on cash 29,996 ( 1,550 ) ( 18,952 )

Increase (decrease) in cash and cash equivalents 57,012 212,185 ( 109,181 )

Effect of foreign currency exchange rate changes on cash and cash equivalents ( 6,876 ) 29,996 ( 1,550 )

Increase in cash and cash equivalents 109,354 57,012 212,185

Cash and cash equivalents, beginning of period $ 1,150,517 $ 1,093,505 $ 881,320

1 unchanged sentence

See accompanying notes to the consolidated financial statements

Table o f Contents

lululemon athletica inc.

INDEX FOR NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1 Nature of Operations and Basis of Presentation

Note 2 Summary of Significant Accounting Policies

Note 3 Inventories

Note 4 Prepaid Expenses and Other Current Assets

Note 5 Property and Equipment

Note 6 Acquisition

Note 7 Goodwill

Note 8 Intangible Assets

Note 9 Other Non-Current Assets

Note 10 Other Accrued Liabilities

Note 11 Revolving Credit Facilities

Note 12 Stockholders' Equity

Note 13 Stock-Based Compensation and Benefit Plans

Note 14 Fair Value Measurement

Note 15 Derivative Financial Instruments

Note 16 Leases

Note 17 Income Taxes

Note 18 Earnings Per Share

Note 19 Commitments and Contingencies

Note 20 Supplemental Cash Flow Information

Note 21 Segmented Information

Note 22 Net Revenue by Category and Geography

Table o f Contents

Nature of Operations and Basis of Presentation

Summary of Significant Accounting Policies

Prepaid Expenses and Other Current Assets

Property and Equipment

Intangible Assets

Other Non-Current Assets

Accrued Liabilities and Other

Revolving Credit Facilities

Stockholders' Equity

Stock-Based Compensation and Benefit Plans

Fair Value Measurement

Derivative Financial Instruments

Earnings Per Share

Commitments and Contingencies

Supplemental Cash Flow Information

Segmented Information

Net Revenue by Category and Geography

lululemon athletica inc.

2 unchanged sentences

Nature of operations

lululemon athletica inc., a Delaware corporation, ("lululemon" and, together with its subsidiaries unless the context otherwise requires, the "Company") is engaged in the design, distribution, and retail of healthy lifestyle inspired athletic apparel and accessories, which are sold through a chain of company-operated stores, direct to consumer through e-commerce, outlets, sales from temporary locations, sales to wholesale accounts, license and supply arrangements, and warehouse sales.

The Company operates stores in the United States, Canada, the People's Republic of China ("PRC"), Australia, the United Kingdom, Germany, New Zealand, South Korea, Japan, Singapore, France, Malaysia, Sweden, Ireland, the Netherlands, Norway, and Switzerland.

There were 521 , 491 , and 440 company-operated stores in operation as of January 31, 2021, February 2, 2020, and February 3, 2019, respectively.

lululemon athletica inc., a Delaware corporation, ("lululemon" and, together with its subsidiaries unless the context otherwise requires, the "Company") is engaged in the design, distribution, and retail of healthy lifestyle inspired athletic apparel and accessories, which are sold through a chain of company-operated stores, direct to consumer through e-commerce, outlets, sales from pop up locations, sales to wholesale accounts, license and supply arrangements, and warehouse sales.

The Company operates stores in the United States, the People's Republic of China ("PRC"), Canada, Australia, the United Kingdom, South Korea, Germany, New Zealand, Japan, Singapore, France, Ireland, Malaysia, Sweden, the Netherlands, Norway, and Switzerland.

There were 574 , 521 , and 491 company-operated stores in operation as of January 30, 2022, January 31, 2021, and February 2, 2020, respectively.

On July 7, 2020, the Company acquired Curiouser Products Inc., dba MIRROR, ("MIRROR") which has been consolidated from the date of acquisition.

3 unchanged sentences

COVID-19 Pandemic

The outbreak of a novel strain of coronavirus ("COVID-19") was declared a global pandemic by the World Health Organization in March 2020 and it has caused governments and public health officials to impose restrictions and to recommend precautions to mitigate the spread of the virus.

In February 2020, the Company temporarily closed all of its retail locations in Mainland China, and in March 2020, the Company temporarily closed all of its retail locations in North America, Europe, and certain countries in Asia Pacific.

The stores in Mainland China reopened during the first quarter of fiscal 2020, and stores in other markets began reopening in accordance with local government and public health authority guidelines during the second quarter of fiscal 2020.

Almost all of the Company's retail locations were open during the third quarter of fiscal 2020, and while most retail locations have remained open, certain locations have temporarily closed based on government and health authority guidance in those markets.

The Company's distribution centers and most of its open retail locations are operating with restrictive and precautionary measures in place such as reduced operating hours, physical distancing, enhanced cleaning and sanitation, and limited occupancy levels.

In response to the COVID-19 pandemic, various government programs have been announced which provide financial relief for affected businesses.

The outbreak of a novel strain of coronavirus ("COVID-19") caused governments and public health officials to impose restrictions and recommend precautions to mitigate the spread of the virus.

The Company temporarily closed almost all of its retail locations for a significant portion of the first two quarters of fiscal 2020.

While most of the Company's retail locations have been open since then, certain locations were temporarily closed based on government and health authority guidance.

In response to the COVID-19 pandemic, various government programs were announced which provide financial relief for affected businesses.

The most significant relief measures which the Company qualified for are the Employee Retention Credit under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") in the United States, and the Canada Emergency Wage Subsidy ("CEWS") under the COVID-19 Economic Response Plan in Canada.

1 unchanged sentence

These subsidies were recorded as a reduction in the associated wage costs which the Company incurred, and were recognized in selling, general and administrative expenses.

The Financial Accounting Standards Board ("FASB") issued guidance in April 2020 in relation to accounting for lease concessions made in connection with the effects of COVID-19.

In accordance with this guidance, the Company has elected to treat COVID-19-related lease concessions as variable lease payments.

The Company is actively negotiating commercially reasonable lease concessions.

Lease concessions of $ 9.1 million were recognized during fiscal 2020.

Temporary closures as a result of COVID-19 and associated reduction in operating income during the first two quarters of fiscal 2020 were considered to be an indicator of impairment and the Company performed an assessment of recoverability for the long-lived assets and right-of-use assets associated with closed retail locations.

In the first quarter of fiscal 2020, the Company recognized an insignificant impairment charge as a result of this analysis.

Revenue is presented net of an allowance for expected returns.

The increase in the sales return allowance reflects the higher proportion of direct to consumer net revenue, and the longer period of time taken for returns to be made as a result of restricted capacity at retail locations.

Table o f Contents

These subsidies partially offset the wages paid to employees while its retail locations were temporarily closed due to COVID-19.

The Company did not recognize any payroll subsidies in fiscal 2021.

The COVID-19 pandemic has materially impacted the Company's operations.

The extent to which COVID-19 continues to impact the Company's operations, and in turn, its operating results and financial position will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19 and the actions taken to contain it or treat its impact.

Continued proliferation of the virus, or resurgence, may result in further or prolonged closures of the Company's retail locations and distribution centers, reduce operating hours, interrupt the Company's supply chain, cause changes in guest behavior, and reduce discretionary spending.

A resurgence of the pandemic may result in further or prolonged closures of the Company's retail locations and distribution centers, reduce operating hours, interrupt the Company's supply chain, cause changes in guest behavior, and reduce discretionary spending.

Such factors could result in the impairment of long-lived assets and right-of-use assets and the need for an increased provision against the carrying value of the Company's inventories.

3 unchanged sentences

The Company's fiscal year ends on the Sunday closest to January 31 of the following year, typically resulting in a 52-week year, but occasionally giving rise to an additional week, resulting in a 53-week year.

Fiscal 2020 and fiscal 2019 were each 52-week years.

Fiscal 2018 was a 53-week year.

Fiscal 2020, 2019, and 2018 ended on January 31, 2021, February 2, 2020, and February 3, 2019, respectively, and are referred to as "2020," "2019," and "2018," respectively.

Fiscal 2021, fiscal 2020, and fiscal 2019 were each 52-week years.

Fiscal 2021, 2020, and 2019 ended on January 30, 2022, January 31, 2021, and February 2, 2020, respectively, and are referred to as "2021," "2020," and "2019," respectively.

The Company's business is affected by the pattern of seasonality common to most retail apparel businesses.

12 unchanged sentences

Receivables are written off against the allowance when management believes that the amount receivable will not be recovered.

As of January 31, 2021, February 2, 2020, and February 3, 2019, the Company recorded an insignificant allowance for doubtful accounts.

As of January 30, 2022, January 31, 2021, and February 2, 2020, the Company recorded an insignificant allowance for doubtful accounts.

Inventories, consisting of finished goods, inventories in transit, and raw materials, are stated at the lower of cost and net realizable value.

7 unchanged sentences

Business combinations

Table o f Contents

The purchase price of an acquisition is measured as the aggregate of the fair value of the consideration transferred including the acquisition-date fair value of the Company's previously held equity interests.

20 unchanged sentences

Buildings are depreciated on a straight-line basis over the expected useful life of the asset, which is individually assessed, and estimated to be up to 20 years.

Leasehold improvements are depreciated on a straight-line basis over the lesser of the length of the lease and the estimated useful life of the improvement, to a maximum of 10 years for stores and 15 years for corporate offices and distribution centers.

Leasehold improvements are depreciated on a straight-line basis over the lesser of the expected lease term and the estimated useful life of the improvement, to a maximum of 10 years for stores and 15 years for corporate offices and distribution centers.

All other property and equipment are depreciated using the declining balance method as follows:

11 unchanged sentences

Reductions in asset values resulting from impairment valuations are recognized in income in the period that the impairment is determined.

Table o f Contents

Leased property and equipment

29 unchanged sentences

The transaction price, net of discounts, is allocated to each performance obligation based on its standalone selling price.

Revenue is recognized when performance obligations are satisfied through the transfer of control of promised goods to the Company's customers.

Revenue is recognized when performance obligations are satisfied through the transfer of control of promised goods or services to the Company's customers.

Control transfers once a customer has the ability to direct the use of, and obtain substantially all of the benefits from, the product.

1 unchanged sentence

Revenue from company-operated stores and other retail locations is recognized at the point of sale.

Direct to consumer revenue, sales to wholesale accounts and in-home fitness hardware sales are recognized

Table o f Contents

upon receipt by the customer.

Direct to consumer revenue, sales to wholesale accounts and in-home fitness hardware sales are recognized upon receipt by the customer.

In certain arrangements the Company receives payment before the customer receives the promised good.

18 unchanged sentences

Selling, general and administrative expenses consist of all operating costs not otherwise included in cost of goods sold, intangible asset amortization, or acquisition-related expenses.

The Company's selling, general and administrative expenses include the costs of corporate and retail employee wages and benefits, costs to transport the Company's products from the distribution facilities to the Company's retail locations and e-commerce guests, professional fees, marketing, information technology, human resources, accounting, legal, corporate facility and occupancy costs, and depreciation and amortization expense other than in cost of goods sold.

The Company's selling, general and administrative expenses include the costs of corporate and retail employee wages and benefits, costs to transport the Company's products from the distribution facilities to the Company's retail locations and e-commerce guests, professional fees, marketing, technology, human resources, accounting, legal, corporate facility and occupancy costs, and depreciation and amortization expense other than in cost of goods sold.

For 2021, 2020, and 2019, the Company incurred costs to transport its products from its distribution facilities to its retail locations and e-commerce guests of $ 270.8 million, $ 232.4 million, and $ 106.7 million, respectively.

3 unchanged sentences

Deferred income tax assets and liabilities are determined based on the temporary differences between the carrying amounts and the tax basis of assets and liabilities, and for tax losses, tax credit carryforwards, and other tax attributes.

Deferred income tax assets and liabilities are

Table o f Contents

measured using enacted tax rates, for the appropriate tax jurisdiction, that are expected to be in effect when these differences are anticipated to reverse.

Deferred income tax assets and liabilities are measured using enacted tax rates, for the appropriate tax jurisdiction, that are expected to be in effect when these differences are anticipated to reverse.

The Company has not recognized U.S.

6 unchanged sentences

Income tax expense is adjusted in the period in which an uncertain tax position is effectively settled, the statute of limitations expires, facts or circumstances change, tax laws change, or new information becomes available.

The Company's policy is to recognize interest expense and penalties related to income tax matters as part of other income (expense), net.

The Company's policy is to recognize interest expense and penalties related to income

tax matters as part of other income (expense), net.

Accrued interest and penalties are included within the related tax liability on the Company's consolidated balance sheets.

Tax Cuts and Jobs Act ("U.S.

tax reform") was enacted on December 22, 2017 and introduced significant changes to U.S.

income tax law.

The Company completed the accounting for the income tax effects of U.S.

tax reform during 2018.

tax reform changes and their impact to the Company are outlined in Note 17.

Income Taxes.

The Company treats the global intangible low-taxed income ("GILTI") tax as an in period tax.

The Company treats the global intangible low-taxed income ("GILTI") tax as a current period expense.

Fair value of financial instruments

15 unchanged sentences

Net revenue and expenses are translated at the average rate in effect during the period.

Unrealized translation gains and losses are recorded as a foreign currency translation adjustment, which is included in other comprehensive income or loss, which is a component of accumulated other comprehensive income or loss included in stockholders' equity.

Foreign currency transactions denominated in a currency other than an entity's functional currency are remeasured into the functional currency with any resulting gains and losses recognized in selling, general and administrative expenses, except for gains and losses arising on intercompany foreign currency transactions that are of a long-term investment nature, which are recorded as a foreign currency translation adjustment in other comprehensive income or loss.

Unrealized translation gains and losses are recorded as a foreign currency translation adjustment, which is included in other comprehensive income (loss), net of tax, which is a component of accumulated other comprehensive income or loss included in stockholders' equity.

Foreign currency transactions denominated in a currency other than an entity's functional currency are remeasured into the functional currency with any resulting gains and losses recognized in selling, general and administrative expenses, except for gains and losses arising on intercompany foreign currency transactions that are of a long-term investment nature, which are recorded as a net investment hedge gains (losses) in other comprehensive income (loss), net of tax.

Derivative financial instruments

The Company uses derivative financial instruments to manage its exposure to certain foreign currency exchange rate risks.

Table o f Contents

Net investment hedges .

34 unchanged sentences

For awards with service and/or performance conditions, the amount of compensation expense recognized is based on the number of awards expected to vest, reflecting estimated expected forfeitures, and is adjusted to reflect those awards that do ultimately vest.

The forfeiture rate is based on management's best estimate of expected forfeitures, taking into consideration historical trends and expected future behavior.

For awards with performance conditions, the Company recognizes the compensation expense if and when the Company concludes that it is probable that the performance condition will be achieved.

1 unchanged sentence

The grant date fair value of each stock option granted is estimated on the award date using the Black-Scholes model, and the grant date fair value of restricted shares, performance-based restricted stock units, and restricted stock units is based on the closing price of the Company's common stock on the award date.

Restricted stock units that are settled in cash or common stock at the election of the employee are remeasured to fair value at the end of each reporting period until

Table o f Contents

Restricted stock units that are settled in cash or common stock at the election of the employee are remeasured to fair value at the end of each reporting period until settlement.

This fair value is based on the closing price of the Company's common stock on the last business day before each period end.

13 unchanged sentences

The Company considers the applicability and impact of all Accounting Standard Updates ("ASUs").

ASUs adopted during 2020 were assessed, and determined to be either not applicable or are expected to have minimal impact on its consolidated financial position or results of operations.

In February 2016, the Financial Accounting Standards Board ("FASB") issued ASC 842, Leases ("ASC 842") to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.

ASUs adopted during 2021 not listed below were assessed, and determined to be either not applicable or are expected to have minimal impact on its consolidated financial position or results of operations.

In December 2019, the FASB issued guidance on ASC 740, Income Taxes.

The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles in ASC 740.

The amendments also improve consistent application and make simplifications in other areas of this topic by clarifying and amending existing guidance.

The Company adopted this update during the first quarter of 2021 and it did not have a material impact on the Company's consolidated financial statements.

In February 2016, the FASB issued ASC 842, Leases ("ASC 842") to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.

Under the new guidance, lessees are required to recognize a lease liability, which represents the discounted obligation to make future minimum lease payments, and a corresponding right-of-use asset on the balance sheet.

8 unchanged sentences

ASUs recently issued not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on its consolidated financial position or results of operations.

In December 2019, the FASB issued guidance on ASC 740, Income Taxes.

The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles in ASC 740.

The amendments also improve consistent application and simplify GAAP for other areas of this topic by clarifying and amending existing guidance.

This Company is evaluating the impact of this update.

Table o f Contents

January 31, 2021 February 2, 2020

In November 2021, the FASB issued ASC 832, Government Assistance to require annual disclosures about the nature of certain government assistance received, the accounting policy used to account for the transactions, the location in the financial statements where such transactions were recorded and significant terms and conditions associated with such transactions.

The guidance is effective for annual periods beginning after December 15, 2021, with early adoption permitted.

The Company does not expect the adoption to have a material impact to its consolidated financial statements.

January 30, 2022 January 31, 2021

(In thousands)

2 unchanged sentences

Inventories $ 966,481 $ 647,230

The Company had net write-offs of $ 20.5 million, $ 28.6 million, and $ 25.3 million of inventory in 2020, 2019, and 2018, respectively for goods that were obsolete, had quality issues, or were damaged.

The Company had write-offs of $ 27.5 million, $ 20.5 million, and $ 28.6 million of inventory in 2021, 2020, and 2019, respectively for goods that were obsolete, had quality issues, or were damaged.

PREPAID EXPENSES AND OTHER CURRENT ASSETS

January 31, 2021 February 2, 2020

January 30, 2022 January 31, 2021

(In thousands)

Prepaid expenses $ 82,164 $ 64,568

Prepaid inventories $ 42,691 $ 3,759

Other prepaid expenses 98,254 78,405

Forward currency contract assets 19,077 17,364

Government payroll subsidy receivables 13,309 —

Other current assets 32,550 25,579

1 unchanged sentence

PROPERTY AND EQUIPMENT

January 31, 2021 February 2, 2020

January 30, 2022 January 31, 2021

(In thousands)

10 unchanged sentences

Property and equipment, net $ 927,710 $ 745,687

Included in the cost of computer software are capitalized costs of $ 23.5 million and $ 20.7 million as of January 31, 2021 and February 2, 2020, respectively, associated with internally developed software.

There were capitalized computer software costs of $ 35.8 million, $ 23.5 million, and $ 20.7 million in 2021, 2020, and 2019, respectively, associated with internally developed software.

Depreciation expense related to property and equipment was $ 215.3 million, $ 180.1 million, and $ 161.8 million for 2021, 2020, and 2019, respectively.

1 unchanged sentence

The results of operations, financial position, and cash flows of MIRROR have been included in the Company's consolidated financial statements since the date of acquisition.

The following table summarizes the fair value of the consideration transferred at the date of acquisition, as well as the calculation of goodwill based on the excess of consideration over the provisional fair value of net assets acquired.

As part of the transaction, the Company assumed $ 30.1 million of MIRROR's outstanding debt.

This included $ 15.1 million of external debt that was settled as part of the transaction and $ 15.0 million of debt previously owed by MIRROR to the Company, which

Table o f Contents

represents the effective settlement of a preexisting relationship.

21 unchanged sentences

Goodwill relates to benefits expected as a result of the acquisition to MIRROR's business and has been allocated to the MIRROR reporting unit which is included within Other in the Company's segment disclosures.

None of the goodwill is expected to be deductible for income tax purposes.

None of the goodwill is deductible for income tax purposes.

The Company assigned a fair value to and estimated useful lives for the intangible assets acquired as part of the MIRROR business combination.

The fair value of the separately identifiable intangible assets, and their estimated useful lives as of the acquisition date were as follows:

Estimated Fair Value Estimated Useful Life

Estimated Fair Value Estimated Useful Life (Years)

(In thousands)

Intangible assets:

Brand $ 26,500 20.0 years

Customer relationships 28,000 10.0 years

Technology 25,500 7.5 years

Content 5,000 5.0 years

Table o f Contents

Brand $ 26,500 20.0

Customer relationships 28,000 10.0

Technology 25,500 7.5

Content 5,000 5.0

$ 85,000 12.1

Accounting for business combinations requires estimates and assumptions to derive the fair value of acquired assets and liabilities, and in the case of MIRROR, this is with specific reference to acquired intangible assets.

6 unchanged sentences

These expenses are recognized within acquisition-related expenses in the consolidated statements of operations include the following amounts:

• acquisition-related compensation, including the partial acceleration of vesting of certain stock options, and amounts due to selling shareholders and MIRROR employees that are contingent upon continuing employment;

• transaction and integration costs, including fees for advisory and professional services incurred as part of the acquisition and integration costs subsequent to the acquisition;

• acquisition-related compensation, including the partial acceleration of vesting of certain stock options, and amounts due to selling shareholders that are contingent upon continuing employment;

• gain recognized on the Company's existing investment in the acquiree as of the acquisition date.

The following table summarizes the acquisition-related expenses recognized during 2020:

The following table summarizes the acquisition-related expenses recognized during 2021 and 2020:

(in thousands)

3 unchanged sentences

Acquisition-related compensation 38,405 20,076

$ 41,394 $ 29,842

Income tax effects of acquisition-related expenses $ ( 1,417 ) $ ( 3,133 )

In 2020, the Company recognized $ 17.2 million related to deferred consideration, and recognized an expense of $ 2.9 million for the partial acceleration of vesting of certain stock options held by MIRROR employees.

The Company will recognize a total expense of $ 57.1 million for deferred consideration which is due to certain continuing MIRROR employees, subject to the continued employment of those individuals through various vesting dates up to three years from the acquisition date.

This acquisition-related compensation is expensed over the vesting periods as service is provided, and consists of cash payments, which are included within accrued compensation and related expenses until payments are made, and stock-based compensation awards that have been granted under the Company's 2014 Equity Incentive Plan to replace certain unvested options as of the acquisition date.

In connection with the acquisition, $ 2.9 million was recognized on the acquisition date for the partial acceleration of vesting of certain stock options held by MIRROR employees, and $ 57.1 million of consideration was deferred up to three years from the acquisition date, subject to the continued employment of the recipients through various vesting dates.

The acquisition-related compensation was expensed over the vesting periods as service was provided, and consisted of cash payments, which are included within accrued compensation and related expenses until payments are made, and stock-based compensation awards that have been granted under the Company's 2014 Equity Incentive Plan to replace certain unvested options as of the acquisition date.

In September 2021, MIRROR's Chief Executive Officer transitioned into an advisory role with the Company.

The remaining deferred consideration payable to this individual will be paid in July 2022.

Due to the reduction in this individual's responsibilities, the compensation expense was accelerated and recognized in full during the third quarter of 2021.

The changes in the carrying amounts of goodwill were as follows:

4 unchanged sentences

Balance as of January 31, 2021

Table o f Contents

Of the Company's goodwill, $ 362.5 million relates to the MIRROR reporting unit that is included within Other in the Company's segment disclosures.

Effect of foreign currency translation 3

Balance as of January 30, 2022

Of the Company's goodwill as of January 30, 2022, $ 362.5 million relates to the MIRROR reporting unit that is included within Other in the Company's segment disclosures.

The remaining $ 24.4 million relates to the company-operated stores segment.

The Company performed its annual goodwill impairment analysis for the MIRROR and company-operated stores reporting units, using an income approach to estimate fair value, and determined there was no impairment loss for the year as of January 30, 2022.

INTANGIBLE ASSETS

The carrying value of intangible assets, and their estimated remaining useful lives as of January 31, 2021 were as follows:

January 31, 2021 February 02, 2020 Remaining Useful Life

(In thousands)

Intangible assets, net:

Brand $ 25,727 $ — 19.4 years

Customer relationships 26,308 — 9.4 years

Technology 23,478 — 6.9 years

Content 4,417 — 4.4 years

Other 150 241 1.7 years

A summary of the balances of the Company's intangible assets as of January 30, 2022, January 31, 2021, is presented below:

January 30, 2022 January 31, 2021

Gross Carrying Amount Accumulated Amortization Net Carrying Amount Remaining Useful Life (Years) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Remaining Useful Life (Years)

(In thousands, except in years)

Intangible assets:

Brand $ 26,500 $ ( 2,098 ) $ 24,402 18.4 $ 26,500 $ ( 773 ) $ 25,727 19.4

Customer relationships 28,000 ( 4,592 ) 23,408 8.4 28,000 ( 1,692 ) 26,308 9.4

Technology 25,500 ( 5,489 ) 20,011 5.9 25,500 ( 2,022 ) 23,478 6.9

Content 5,000 ( 1,583 ) 3,417 3.4 5,000 ( 583 ) 4,417 4.4

Other 270 ( 209 ) 61 0.7 270 ( 120 ) 150 1.7

$ 85,270 $ ( 13,971 ) $ 71,299 10.9 $ 85,270 $ ( 5,190 ) $ 80,080 11.6

Amortization of intangible assets was $ 8.8 million, $ 5.2 million, and $ 29.0 thousand in 2021, 2020, and 2019, respectively.

There were no impairment charges in 2021, 2020, and 2019.

The following table presents the future expected amortization expense as of January 30, 2022:

January 30, 2022

(In thousands)

Thereafter 29,363

Total estimated future amortization expense $ 71,299

OTHER NON-CURRENT ASSETS

January 31, 2021 February 02, 2020

January 30, 2022 January 31, 2021

(In thousands)

3 unchanged sentences

Other non-current assets $ 132,102 $ 106,626

OTHER ACCRUED LIABILITIES

January 31, 2021 February 02, 2020

As of January 30, 2022 and January 31, 2021, cloud computing arrangement implementation costs consisted of deferred costs of $ 138.4 million and $ 92.1 million, respectively, and associated accumulated amortization of $ 49.0 million and $ 17.5 million, respectively.

ACCRUED LIABILITIES AND OTHER

January 30, 2022 January 31, 2021

(In thousands)

Accrued freight and other operating expenses $ 97,335 $ 43,225

Accrued operating expenses $ 116,822 $ 71,648

Accrued freight 71,390 25,687

Sales return allowances 41,690 32,560

Accrued duty 27,182 17,404

Forward currency contract liabilities 18,985 18,766

Sales tax collected 13,540 15,246

Sales return allowances 32,560 12,897

Accrued rent 11,254 8,559

Accrued capital expenditures 9,616 8,653

Forward currency contract liabilities 18,766 1,920

Accrued inventory liabilities 4,005 14,956

Other 16,316 13,388

Other accrued liabilities $ 211,911 $ 112,641

Accrued liabilities and other $ 330,800 $ 226,867

REVOLVING CREDIT FACILITIES

North America revolving credit facility

During 2016, the Company obtained a $ 150.0 million committed and unsecured five-year revolving credit facility with major financial institutions.

During 2018, the Company amended the credit agreement to provide for:

an increase in the aggregate commitments under the revolving credit facility to $ 400.0 million, with an increase of the sub-limits for the issuance of letters of credit and extensions of swing line loans to $ 50.0 million for each;

an increase in the option, subject to certain conditions, to request increases in commitments from $ 400.0 million to $ 600.0 million;

Table o f Contents

an extension in the maturity of the facility from December 15, 2021 to June 6, 2023.

Borrowings under the facility may be made in U.S.

Dollars, Euros, Canadian Dollars, and in other currencies, subject to the lenders' approval.

As of January 31, 2021, aside from letters of credit of $ 2.4 million, there were no other borrowings outstanding under this facility.

Borrowings under the facility bear interest at a rate equal to, at the Company's option, either (a) based on the rates applicable for deposits on the interbank market for U.S.

Dollars or the applicable currency in which the borrowings are made ("LIBOR") or (b) an alternate base rate, plus, an applicable margin determined by reference to a pricing grid, based on the ratio of indebtedness to earnings before interest, tax, depreciation, amortization, and rent ("EBITDAR") and ranges between 1.00 %- 1.50 % for LIBOR loans and 0.00 %- 0.50 % for alternate base rate loans.

Additionally, a commitment fee of between 0.10 %- 0.20 % is payable on the average unused amounts under the revolving credit facility, and fees of 1.00 %- 1.50 % are payable on unused letters of credit.

On December 14, 2021, the Company entered into an amended and restated credit agreement extending its existing credit facility, which provides for $ 400.0 million in commitments under an unsecured five-year revolving credit facility.

The credit facility has a maturity date of December 14, 2026, subject to extension under certain circumstances.

Borrowings under the credit facility may be prepaid and commitments may be reduced or terminated without premium or penalty (other than customary breakage costs).

As of January 30, 2022, aside from letters of credit of $ 3.0 million, the Company had no other borrowings outstanding under this credit facility.

Borrowings made under the credit facility bear interest at a rate per annum equal to, at the Company's option, either (a) a rate based on the Secured Overnight Financing Rate as administered by the Federal Reserve Bank of New York ("SOFR"), or (b) an alternate base rate, plus, in each case, an applicable margin.

The applicable margin is determined by reference to a pricing grid, based on the ratio of indebtedness to earnings before interest, tax, depreciation, amortization, and rent ("EBITDAR") and ranges between 1.000 %- 1.375 % for SOFR loans and 0.000 %- 0.375 % for alternate base rate or Canadian prime rate loans.

Additionally, a commitment fee of between 0.100 %- 0.200 %, also determined by reference to the pricing grid, is payable on the average daily unused amounts under the credit facility.

The applicable interest rates and commitment fees are subject to adjustment based on certain sustainability key performance indicators ("KPIs").

The two KPIs are based on greenhouse gas emissions intensity reduction and gender pay equity, and its performance against certain targets measured on an annual basis could result in positive or negative

sustainability rate adjustments of 2.50 basis points to its drawn pricing and positive or negative sustainability fee adjustments of 0.50 basis points to its undrawn pricing.

The credit agreement contains negative covenants that, among other things and subject to certain exceptions, limit the ability of the Company's subsidiaries to incur indebtedness, incur liens, undergo fundamental changes, make dispositions of all or substantially all of their assets, alter their businesses and enter into agreements limiting subsidiary dividends and distributions.

The Company is also required to maintain a consolidated rent-adjusted leverage ratio of not greater than 3.5 :1 and to maintain the ratio of consolidated EBITDAR to consolidated interest charges (plus rent) below 2 :1.

The Company's financial covenants include maintaining an operating lease adjusted leverage ratio of not greater than 3.25 :1.00 and the ratio of consolidated EBITDAR to consolidated interest charges (plus rent) of not less than 2.00 :1.00.

The credit agreement also contains certain customary representations, warranties, affirmative covenants, and events of default (including, among others, an event of default upon the occurrence of a change of control).

If an event of default occurs, the credit agreement may be terminated, and the maturity of any outstanding amounts may be accelerated.

As of January 30, 2022, the Company was in compliance with the covenants of the credit facility.

Mainland China revolving credit facility

In December 2019, the Company entered into an uncommitted and unsecured 130.0 million Chinese Yuan revolving credit facility with terms that are reviewed on an annual basis.

The credit facility was increased to 230.0 million Chinese Yuan during 2020.

It comprises of a revolving loan of up to 200.0 million Chinese Yuan and a financial guarantee facility of up to 30.0 million Chinese Yuan, or its equivalent in another currency.

In December 2019, the Company entered into an uncommitted and unsecured 130.0 million Chinese Yuan ($ 20.4 million) revolving credit facility with terms that are reviewed on an annual basis.

The credit facility was increased to 230.0 million Chinese Yuan ($ 36.2 million) during 2020.

It comprises a revolving loan of up to 200.0 million Chinese Yuan ($ 31.4 million) and a financial guarantee facility of up to 30.0 million Chinese Yuan ($ 4.7 million), or its equivalent in another currency.

Loans are available for a period not to exceed 12 months, at an interest rate equal to the loan prime rate plus a spread of 0.5175 %.

The Company is required to follow certain covenants.

As of January 31, 2021, the Company was in compliance with the covenant and there were no borrowings or guarantees outstanding under this credit facility.

As of January 30, 2022, the Company was in compliance with the covenant and, aside from letters of credit of 6.1 million Chinese Yuan ($ 1.0 million), there were no other borrowings or guarantees outstanding under this credit facility.

364-Day revolving credit facility

11 unchanged sentences

The Company has the right to convert the exchangeable shares into common shares of the Company at any time after the earliest of July 26, 2047, the date on which fewer than 4.2 million exchangeable shares are outstanding, or in the event of certain events such as a change in control.

Table o f Contents

STOCK-BASED COMPENSATION AND BENEFIT PLANS

4 unchanged sentences

The 2014 Plan provides for awards in the form of stock options, stock appreciation rights, restricted stock purchase rights, restricted share bonuses, restricted stock units, performance shares, performance-based restricted stock units, cash-based awards, other stock-based awards, and deferred compensation awards to employees (including officers and directors who are also employees), consultants, and directors of the Company.

The awards granted under the 2007 Equity Incentive Plan ("2007 Plan") remain outstanding and continue to vest under their original conditions.

No further awards will be granted under the 2007 Plan.

The Company has granted stock options, performance-based restricted stock units, restricted stock units, and restricted shares.

5 unchanged sentences

Stock-based compensation expense charged to income for the plans was $ 66.4 million, $ 56.6 million, and $ 46.1 million for 2021, 2020, and 2019, respectively.

Total unrecognized compensation cost for all stock-based compensation plans was $ 75.7 million as of January 31, 2021, which is expected to be recognized over a weighted-average period of 1.9 years, and was $ 63.4 million as of February 2, 2020 over a weighted-average period of 2.0 years.

Table o f Contents

A summary of the balances of the Company's stock-based compensation plans as of January 31, 2021, February 2, 2020, and February 3, 2019, and changes during the fiscal years then ended is presented below:

Total unrecognized compensation cost for all stock-based compensation plans was $ 96.7 million as of January 30, 2022, which is expected to be recognized over a weighted-average period of 2.0 years, and was $ 75.7 million as of January 31, 2021 over a weighted-average period of 1.9 years.

A summary of the balances of the Company's stock-based compensation plans as of January 30, 2022, January 31, 2021, and February 2, 2020, and changes during the fiscal years then ended is presented below:

Stock Options Performance-Based Restricted Stock Units Restricted Shares Restricted Stock Units Restricted Stock Units

2 unchanged sentences

(In thousands, except per share amounts)

Balance as of January 28, 2018 1,117 $ 56.44 329 $ 60.42 21 $ 52.45 427 $ 57.54 — $ —

Balance as of February 3, 2019 870 $ 73.34 280 $ 78.01 6 $ 124.19 440 $ 73.73 44 $ 146.12

Granted 325 168.14 93 142.33 7 175.82 124 170.15 — —

5 unchanged sentences

Forfeited/expired 31 155.33 8 155.08 — — 13 162.60 — —

Balance as of February 2, 2020 776 $ 113.41 238 $ 103.52 7 $ 175.82 333 $ 108.44 29 $ 239.39

Balance as of January 31, 2021 804 $ 139.27 199 $ 149.20 4 $ 299.09 275 $ 166.50 15 $ 328.68

Granted 194 310.29 139 185.37 4 326.70 129 331.42 — —

4 unchanged sentences

The Company's performance-based restricted stock units are awarded to eligible employees and entitle the grantee to receive a maximum of two shares of common stock per performance-based restricted stock unit if the Company achieves specified performance goals and the grantee remains employed during the vesting period.

The fair value of performance-based restricted stock units is based on the closing price of the Company's common stock on the award date.

The fair value of performance-based restricted stock units is based on the closing price of the Company's common stock on the grant date.

Expense for performance-based restricted stock units is recognized when it is probable that the performance goal will be achieved.

3 unchanged sentences

The grant date fair value of each stock option granted is estimated on the date of grant using the Black-Scholes model.

The closing price of the Company's common stock on the award date is used in the model.

The assumptions used to calculate the fair value of the options granted are evaluated and revised, as necessary, to reflect market conditions and the Company's historical experience.

9 unchanged sentences

Dividend yield — % — % — %

Table o f Contents

The following table summarizes information about stock options outstanding and exercisable as of January 30, 2022:

Outstanding Exercisable

Range of Exercise Prices Number of Options Weighted-Average Exercise Price Weighted-Average Remaining Life (Years) Number of Options Weighted-Average Exercise Price Weighted-Average Remaining Life (Years)

Range of Exercise Prices

Number of Options

Weighted-Average Exercise Price

Weighted-Average Remaining Life (Years)

Number of Options

Weighted-Average Exercise Price

Weighted-Average Remaining Life (Years)

(In thousands, except per share amounts and years)

11 unchanged sentences

Intrinsic value

$ 103,119 $ 48,530

As of January 30, 2022, the unrecognized compensation cost related to these options was $ 24.0 million, which is expected to be recognized over a weighted-average period of 2.4 years.

20 unchanged sentences

The Company's net expense for the defined contribution plans was $ 11.8 million, $ 9.2 million, and $ 8.5 million during 2021, 2020, and 2019, respectively.

Table o f Contents

FAIR VALUE MEASUREMENT

Assets and liabilities measured at fair value on a recurring basis

As of January 31, 2021 and February 2, 2020, the Company held certain assets and liabilities that are required to be measured at fair value on a recurring basis:

As of January 30, 2022 and January 31, 2021, the Company held certain assets and liabilities that are required to be measured at fair value on a recurring basis:

January 30, 2022 Level 1 Level 2 Level 3 Balance Sheet Classification

4 unchanged sentences

Forward currency contract liabilities 18,985 — 18,985 — Other current liabilities

February 2, 2020 Level 1 Level 2 Level 3 Balance Sheet Classification

January 31, 2021 Level 1 Level 2 Level 3 Balance Sheet Classification

(In thousands)

3 unchanged sentences

Forward currency contract liabilities 18,767 — 18,767 — Other current liabilities

The Company has short-term, highly liquid investments classified as cash equivalents, which are invested in money market funds, Treasury bills, and term deposits.

The Company has short-term, highly liquid investments classified as cash equivalents, which are invested in money market funds and term deposits.

The Company records cash equivalents at their original purchase prices plus interest that has accrued at the stated rate.

6 unchanged sentences

DERIVATIVE FINANCIAL INSTRUMENTS

The Company currently hedges against changes in the Canadian dollar to U.S.

dollar exchange rate and changes in the Chinese Yuan to U.S.

dollar exchange rate using forward currency contracts.

The Company currently hedges against changes in the Canadian dollar and Chinese Yuan to the U.S.

dollar exchange rate and changes in the Euro and Australian dollar to the Canadian dollar exchange rate using forward currency contracts.

Net investment hedges

The Company is exposed to foreign exchange gains and losses which arise on translation of its foreign subsidiaries' balance sheets into U.S.

These gains and losses are recorded as a foreign currency translation adjustment in accumulated other comprehensive income or loss within stockholders' equity.

The Company holds a significant portion of its assets in Canada and during 2020, it entered into forward currency contracts designed to hedge a portion of the foreign currency exposure that arises on translation of a Canadian subsidiary into U.S.

The Company is exposed to foreign currency exchange gains and losses which arise on translation of its international subsidiaries' balance sheets into U.S.

These gains and losses are recorded as other comprehensive income (loss), net of tax in accumulated other comprehensive income or loss within stockholders' equity.

The Company holds a significant portion of its assets in Canada and enters into forward currency contracts designed to hedge a portion of the foreign currency exposure that arises on translation of a Canadian subsidiary into U.S.

These forward currency contracts are designated as net investment hedges.

1 unchanged sentence

The Company recorded no ineffectiveness from net investment hedges during 2021.

Table o f Contents

Derivatives not designated as hedging instruments

During 2020, the Company entered into certain forward currency contracts designed to economically hedge the foreign exchange revaluation gains and losses that are recognized by its Canadian and Chinese subsidiaries on U.S.

dollar denominated monetary assets and liabilities.

During 2021, the Company entered into certain forward currency contracts designed to economically hedge the foreign currency exchange revaluation gains and losses that are recognized by its Canadian and Chinese subsidiaries on specific monetary assets and liabilities denominated in currencies other than the functional currency of the entity.

The Company has not applied hedge accounting to these instruments and the change in fair value of these derivatives is recorded within selling, general and administrative expenses.

Quantitative disclosures about derivative financial instruments

The notional amounts and fair values of forward currency contracts were as follows:

January 31, 2021 February 2, 2020

January 30, 2022 January 31, 2021

Gross Notional Assets Liabilities Gross Notional Assets Liabilities

7 unchanged sentences

As of January 30, 2022, there were derivative assets of $ 19.1 million and derivative liabilities of $ 19.0 million subject to enforceable netting arrangements.

The forward currency contracts designated as net investment hedges mature on different dates between February 2021 and September 2021.

The forward currency contracts not designated in a hedging relationship mature on different dates between February 2021 and September 2021.

The pre-tax gains and losses on foreign exchange forward contracts recorded in accumulated other comprehensive income are as follows:

The forward currency contracts designated as net investment hedges outstanding as of January 30, 2022 mature on different dates between February 2022 and August 2022.

The forward currency contracts not designated in a hedging relationship outstanding as of January 30, 2022 mature on different dates between February 2022 and July 2022.

The pre-tax gains and losses on foreign currency exchange forward contracts recorded in accumulated other comprehensive income or loss were as follows:

2021 2020 2019

(In thousands)

Gains (losses) recognized in foreign currency translation adjustment:

Gains (losses) recognized in net investment hedge gains (losses):

Derivatives designated as net investment hedges $ 13,177 $ ( 34,289 ) $ 2,972

No gains or losses have been reclassified from accumulated other comprehensive income into net income for derivative financial instruments in a net investment hedging relationship, as the Company has not sold or liquidated (or substantially liquidated) its hedged subsidiary.

The pre-tax net foreign exchange and derivative gains and losses recorded in the consolidated statement of operations are as follows:

No gains or losses have been reclassified from accumulated other comprehensive income or loss into net income for derivative financial instruments in a net investment hedging relationship, as the Company has not sold or liquidated (or substantially liquidated) its hedged subsidiary.

The pre-tax net foreign currency exchange and derivative gains and losses recorded in the consolidated statement of operations were as follows:

2021 2020 2019

3 unchanged sentences

Derivatives not designated in a hedging relationship ( 19,874 ) 22,949 ( 4,209 )

Net foreign exchange and derivative gains (losses) $ ( 3,104 ) $ ( 1,508 ) $ 1,393

Net foreign exchange and derivative losses $ ( 8,363 ) $ ( 3,104 ) $ ( 1,508 )

The Company has obligations under operating leases for its store and other retail locations, distribution centers, offices, and equipment.

1 unchanged sentence

The majority of the Company's leases include renewal options at the sole discretion of the Company.

In general, it is not reasonably certain

Table o f Contents

that lease renewals will be exercised at lease commencement and therefore lease renewals are not included in the lease term.

In general, it is not reasonably certain that lease renewals will be exercised at lease commencement and therefore lease renewals are not included in the lease term.

The following table details the Company's net lease expense.

2 unchanged sentences

The variable lease expenses disclosed below include contingent rent payments and other non-fixed lease related costs, including common area maintenance, property taxes, and landlord's insurance.

2021 2020 2019

(In thousands)

4 unchanged sentences

$ 318,767 $ 266,210 $ 256,682

The following table presents future minimum lease payments and the impact of discounting.

The following table presents future minimum lease payments by fiscal year and the impact of discounting.

January 30, 2022

1 unchanged sentence

2022 $ 210,956

After 2026 155,619

Thereafter 166,543

Future minimum lease payments $ 944,809

4 unchanged sentences

Non-current lease liabilities 692,056

As of January 30, 2022, the Company's minimum lease commitment for distribution center operating leases signed but not yet commenced was $ 379.7 million, which is not reflected in the table above.

The weighted-average remaining lease term and weighted-average discount rate were as follows:

2 unchanged sentences

Weighted-average discount rate 2.8 %

Table o f Contents

Disclosures related to periods prior to adoption of ASC 842

The following table details the Company's total rent expense prior to the adoption of ASC 842 as well as the property taxes for leased locations.

(in thousands)

Total rent expense:

Minimum rent expense $ 161,847

Common area expenses 23,269

Rent contingent on sales 12,846

Property taxes for leased locations $ 17,826

The Company's domestic and foreign income before income tax expense and current and deferred income taxes from federal, state, and foreign sources are as follows:

2 unchanged sentences

Income before income tax expense

Domestic $ 122,573 $ 180,043 $ 132,563

Foreign 696,777 717,350 582,687

$ 204,350 $ 122,573 $ 180,043

1,129,519 696,777 717,350

$ 1,333,869 $ 819,350 $ 897,393

Current income tax expense

Federal $ 70 $ 45,765 $ 73,213

State 10,439 11,480 16,153

Foreign 185,803 170,158 123,129

$ 25,701 $ 70 $ 45,765

17,608 10,439 11,480

322,105 185,803 170,158

$ 365,414 $ 196,312 $ 227,403

Deferred income tax expense (recovery)

Federal $ 19,754 $ ( 5,683 ) $ ( 13,068 )

State 5,923 ( 150 ) ( 8,566 )

Foreign 8,448 30,227 40,588

$ 5,858 $ 19,754 $ ( 5,683 )

1,045 5,923 ( 150 )

( 13,770 ) 8,448 30,227

$ ( 6,867 ) $ 34,125 $ 24,394

Income tax expense

The Company's income tax expense for 2018 included certain discrete tax amounts, as follows:

(In thousands)

One-time transition tax $ 7,464

Tax on repatriation from foreign subsidiaries 23,714

Total discrete amounts $ 31,178

tax reforms enacted in December 2017 introduced significant changes to the U.S.

income tax laws, including reduction in the U.S.

federal income tax rate from 35% to 21%, a shift to a territorial tax system which changed how foreign earnings are subject to U.S.

tax, and the imposition of a mandatory one-time transition tax on the accumulated undistributed earnings of foreign subsidiaries.

Table o f Contents

One-time transition tax .

tax reform required the Company to pay U.S.

$ 358,547 $ 230,437 $ 251,797

tax reforms enacted in December 2017 required the Company to pay U.S.

income taxes on accumulated foreign subsidiary earnings not previously subject to U.S.

1 unchanged sentence

The one-time transition tax is payable over eight years.

As a result of completing its fiscal 2017 U.S.

tax returns and incorporating newly issued guidance into its calculations the Company recognized an additional current tax expense of $ 7.5 million during 2018 for the mandatory one-time transition tax.

The Company completed the accounting for the income tax effects of U.S.

tax reform in 2018.

Tax on repatriation from foreign subsidiaries

tax reform and the shift to a territorial tax system in fiscal 2017 eliminated U.S.

federal income taxes upon the repatriation of foreign earnings.

However, U.S.

tax reform did not eliminate foreign withholding taxes, or certain state income taxes.

During 2018, the Company completed its evaluation of the impact that U.S.

tax reform has upon repatriation taxes, its reinvestment plans, and the most efficient means of deploying its capital resources.

As a result of these evaluations, the Company repatriated $ 778.9 million from a Canadian subsidiary to the U.S.

parent entity in 2018.

A net current tax expense of $ 23.7 million was recognized in 2018 on this distribution.

As of January 30, 2022, the Company's net investment in its Canadian subsidiaries was $ 2.5 billion, of which $ 1.1 billion was determined to be indefinitely reinvested.

A deferred income tax liability of $ 3.0 million has been recognized in relation to the portion of the Company's net investment in its Canadian subsidiaries that is not indefinitely reinvested, principally representing the U.S.

A deferred income tax liability of $ 3.8 million has been recognized in relation to the portion of the Company's net investment in its Canadian subsidiaries that is not indefinitely reinvested, representing the U.S.

state income taxes which would be due upon repatriation.

This deferred tax liability has been recorded on the basis that the Company would choose to make the repatriation transactions in the most tax efficient manner.

Specifically, to the extent that the Canadian subsidiaries have sufficient paid-up-capital, any such distributions would be characterized as a return of capital for Canadian tax purposes, and therefore not subject to Canadian withholding tax.

Specifically, to the extent that the Canadian subsidiaries have sufficient paid-up-capital, any such distributions would be structured as a return of capital, and therefore not subject to Canadian withholding tax.

The unrecognized deferred tax liability on the indefinitely reinvested amount is approximately $ 3.2 million.

1 unchanged sentence

Excluding its Canadian subsidiaries, cumulative undistributed earnings of the Company's foreign subsidiaries as of January 30, 2022 were $ 168.8 million.

As of January 31, 2021, the Company had cash and cash equivalents of $ 508.7 million outside of the United States.

As of January 30, 2022, the Company had cash and cash equivalents of $ 1.1 billion outside of the United States.

A summary reconciliation of the effective tax rate is as follows:

5 unchanged sentences

Non-deductible compensation expense 0.7 2.1 0.6

Excess tax benefits from stock-based compensation ( 0.9 ) ( 0.8 ) ( 0.4 )

Permanent and other 0.3 0.4 1.3

tax reform — — 1.1

Tax on repatriation from foreign subsidiaries — — 3.3

Effective tax rate 26.9 % 28.1 % 28.1 %

Table o f Contents

The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and deferred income tax liabilities as of January 31, 2021 and February 2, 2020 are presented below:

January 31, 2021 February 2, 2020

The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and deferred income tax liabilities as of January 30, 2022 and January 31, 2021 are presented below:

January 30, 2022 January 31, 2021

(In thousands)

19 unchanged sentences

Deferred income tax liabilities ( 282,534 ) ( 266,781 )

Net deferred income tax (liabilities) assets $ ( 52,024 ) $ ( 11,997 )

Net deferred income tax liabilities $ ( 47,261 ) $ ( 52,024 )

Balance sheet classification:

1 unchanged sentence

Deferred income tax liabilities ( 53,352 ) ( 58,755 )

Net deferred income tax (liabilities) assets $ ( 52,024 ) $ ( 11,997 )

Net deferred income tax liabilities $ ( 47,261 ) $ ( 52,024 )

As of January 30, 2022, the Company had net operating loss carryforwards of $ 31.5 million.

6 unchanged sentences

The 2015 to 2020 tax years remain subject to examination by tax authorities in certain foreign jurisdictions.

The Company does not have any significant unrecognized tax benefits arising from uncertain tax positions taken, or expected to be taken, in the Company's tax returns.

Table o f Contents

does not have any significant unrecognized tax benefits arising from uncertain tax positions taken, or expected to be taken, in the Company's tax returns.

EARNINGS PER SHARE

15 unchanged sentences

On January 31, 2019, the Company's board of directors approved a stock repurchase program for up to $ 500.0 million of the Company's common shares on the open market or in privately negotiated transactions.

On December 1, 2020, the Company's board of directors approved an increase in the remaining authorization of the existing stock repurchase program from $ 263.6 million to $ 500.0 million.

The repurchase plan has no time limit and does not require the repurchase of any minimum number of shares.

On December 1, 2020, the Company's board of directors approved an increase in the remaining authorization of the existing stock repurchase program from $ 263.6 million to $ 500.0 million, and on October 1, 2021, it approved an increase in the remaining authorization from $ 141.2 million to $ 641.2 million.

The repurchase plan has no time limit and does not require the repurchase of a minimum number of shares.

Common shares repurchased on the open market are at prevailing market prices, including under plans complying with the provisions of Rule 10b5-1 and Rule 10b-18 of the Securities Exchange Act of 1934.

The timing and actual number of common shares to be repurchased will depend upon market conditions, eligibility to trade, and other factors, in accordance with Securities and Exchange Commission requirements.

As of January 31, 2021, the remaining value of shares available to be repurchased under this program was $ 500.0 million.

As of January 30, 2022, the remaining authorized value of shares available to be repurchased under this program was $ 187.4 million.

During 2021, 2020, and 2019, 2.2 million, 0.4 million, and 1.1 million shares, respectively, were repurchased under the programs at a total cost of $ 812.6 million, $ 63.7 million, and $ 173.4 million, respectively.

Subsequent to January 31, 2021, and up to March 24, 2021, no shares were repurchased.

Subsequent to January 30, 2022, and up to March 23, 2022, 0.6 million shares were repurchased at a total cost of $ 187.5 million, completing the existing stock repurchase program.

COMMITMENTS AND CONTINGENCIES

8 unchanged sentences

The initial term of the agreement for Mexico expires in November 2026.

As of January 31, 2021, there were four licensed retail locations in Mexico, three in the United Arab Emirates, and one in Qatar.

Table o f Contents

As of January 30, 2022, there were 14 licensed locations, including six in Mexico, six in the United Arab Emirates, one in Kuwait, and one in Qatar.

The following table summarizes the Company's contractual arrangements as of January 30, 2022, and the timing and effect that such commitments are expected to have on its liquidity and cash flows in future periods:

6 unchanged sentences

The amounts listed for deferred consideration in the table above represent expected future cash payments for certain continuing MIRROR employees, subject to the continued employment of those individuals up to three years from the acquisition date as outlined in Note 6.

One-time transition tax .

As outlined in Note 17.

Income Taxes, U.S.

tax reform imposed a mandatory transition tax on accumulated foreign subsidiary earnings which have not previously been subject to U.S.

The one-time transition tax is payable over eight years beginning in 2018.

One-time transition tax payable .

tax reforms enacted in December 2017 imposed a mandatory transition tax on accumulated foreign subsidiary earnings which have not previously been subject to U.S.

The one-time transition tax is payable over eight years beginning in fiscal 2018.

The one-time transition tax payable is net of foreign tax credits, and the table above outlines the expected payments due by fiscal year.

5 unchanged sentences

The Company has recognized immaterial provisions related to the expected outcome of legal proceedings.

In March 2020, a former retail employee filed a representative action in the Los Angeles Superior Court alleging violation of the Private Attorney General Act ("PAGA") based on purported California labor code violations including failure to pay wages, failure to pay overtime, failure to provide accurate itemized statements, and failure to provide meal and rest periods.

The plaintiff is seeking to recover civil penalties under PAGA.

The Company intends to vigorously defend this matter.

In April 2020, Aliign Activation Wear, LLC filed a lawsuit in the United States District Court for the Central District of California alleging federal trademark infringement, false designation of origin and unfair competition.

The plaintiff is seeking injunctive relief, monetary damages and declaratory relief.

The Company obtained summary judgment that the Company did not infringe upon any of the plaintiff's rights and the district court entered judgment in the Company's favor on all claims.

The plaintiff has filed a Notice of Appeal with the United States Court of Appeals for the Ninth Circuit.

The Company intends to defend its win at the appellate level.

In April 2021, DISH Technologies L.L.C., and Sling TV L.L.C.

(DISH) filed a complaint in the United States District Court for the District of Delaware and, along with DISH DBS Corporation, also with the United States International Trade Commission (ITC) under Section 337 of the Tariff Act of 1930 against the Company and its Curiouser Products subsidiary (MIRROR), along with ICON Health & Fitness, Inc., FreeMotion Fitness, Inc., NordicTrack, Inc., and Peloton Interactive, Inc., alleging infringement of various patents related to fitness devices containing internet-streaming enabled video displays.

In the ITC complaint, DISH seeks an exclusion order barring the importation of MIRROR fitness devices, streaming components and systems containing components that infringe one or more of the asserted patents as well as a cease and desist order preventing the Company from carrying out commercial activities within the United States related to those products.

In the District of Delaware complaint, DISH is seeking an order permanently enjoining the Company from infringing the asserted patents, an award of damages for the infringement of the asserted patents, and an award of damages for lost sales.

The ITC investigation is ongoing and the Delaware litigation remains stayed pending resolution to the ITC investigation.

The Company intends to vigorously defend this matter.

6 unchanged sentences

Interest paid 12 110 325

Table o f Contents

SEGMENTED INFORMATION

1 unchanged sentence

(i) company-operated stores and (ii) direct to consumer.

The remainder of its operations which includes outlets, temporary locations, sales to wholesale accounts, license and supply arrangements, and MIRROR are included within Other.

The remainder of its operations which includes outlets, temporary locations, MIRROR, sales to wholesale accounts, and license and supply arrangements are included within Other.

During the first quarter of 2020, the Company reviewed its segment and general corporate expenses and determined certain costs that are more appropriately classified in different categories.

Accordingly, comparative figures have been reclassified to conform to the financial presentation adopted for the current year.

Accordingly, comparative figures have been reclassified to conform to the financial presentation adopted for the prior year.

2021 2020 2019

26 unchanged sentences

Intercompany amounts are excluded from the above table as they are not included in the materials reviewed by the chief operating decision maker.

The amortization of intangible assets for 2020 in the above table includes $ 5.1 million related to MIRROR.

The amortization of intangible assets in the above table includes $ 8.7 million and $ 5.1 million related to MIRROR for 2021 and 2020, respectively.

MIRROR is included within Other in the Company's segment disclosures.

Table o f Contents

Property and equipment, net by geographic area as of January 31, 2021 and February 2, 2020 were as follows:

January 31, 2021 February 2, 2020

Property and equipment, net by geographic area as of January 30, 2022 and January 31, 2021 were as follows:

January 30, 2022 January 31, 2021

(In thousands)

11 unchanged sentences

$ 6,256,617 $ 4,401,879 $ 3,979,296

The following table disaggregates the Company's net revenue by category.

In addition to the disaggregation of net revenue by reportable segment, the following table disaggregates the Company's net revenue by category.

During the fourth quarter of 2020, the Company determined that a portion of certain sales returns which had been recorded within Other categories were more appropriately classified within Women's product and Men's product.

Accordingly, comparative figures have been reclassified to conform to the presentation adopted for the current year.

Accordingly, comparative figures have been reclassified to conform to the current presentation.

2021 2020 2019

5 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data