lululemon athletica inc. 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Some of the statements contained in this Form 10-Q and any documents incorporated herein by reference constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, included or incorporated in this Form 10-Q are forward-looking statements, particularly statements which relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts, such as statements regarding our future financial condition or results of operations, the impact of the COVID-19 pandemic on our business and results of operations, expectations related to our acquisition of MIRROR, our prospects and strategies for future growth, the development and introduction of new products, and the implementation of our marketing and branding strategies. In many cases, you can identify forward-looking statements by terms such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "intends," "predicts," "potential" or the negative of these terms or other comparable terminology. The forward-looking statements contained in this Form 10-Q and any documents incorporated herein by reference reflect our current views about future events and are subject to risks, uncertainties, assumptions, and changes in circumstances that may cause events or our actual activities or results to differ significantly from those expressed in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, actions, levels of activity, performance, or achievements. Readers are cautioned not to place undue reliance on these forward-looking statements. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements, including, but not limited to, those factors described in "Risk Factors" and elsewhere in this report. The forward-looking statements contained in this Form 10-Q reflect our views and assumptions only as of the date of this Form 10-Q and are expressly qualified in their entirety by the cautionary statements included in this Form 10-Q. Except as required by applicable securities law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. This information should be read in conjunction with the unaudited interim consolidated financial statements and the notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes, and Management's Discussion and Analysis of Financial Condition and Results of Operations, contained in our fiscal 2021 Annual Report on Form 10-K filed with the SEC on March 29, 2022. Fiscal 2022 and fiscal 2021 are referred to as "2022," and "2021," respectively. The first quarter of 2022 and 2021 ended on May 1, 2022 and May 2, 2021, respectively. Components of management's discussion and analysis of financial condition and results of operations include: • Overview and COVID-19 Update • Financial Highlights • Quarter-to-Date Results of Operations • Comparable Store Sales and Total Comparable Sales • Non-GAAP Financial Measures • Seasonality • Liquidity and Capital Resources • Critical Accounting Policies and Estimates • Operating Locations We disclose material non-public information through one or more of the following channels: our investor relations website (http://corporate.lululemon.com/investors), the social media channels identified on our investor relations website, press releases, SEC filings, public conference calls, and webcasts. Overview lululemon athletica inc. is principally a designer, distributor, and retailer of technical athletic apparel, footwear, and accessories. We have a vision to create transformative products and experiences that build meaningful connections, unlocking greater possibility and wellbeing for all. Since our inception, we have fostered a distinctive corporate culture; we promote a set of core values in our business which include taking personal responsibility, acting with courage, valuing connection and inclusion, and choosing to have fun. These core values attract passionate and motivated employees who are driven to achieve personal and professional goals, and share our purpose "to elevate human potential by helping people feel their best." Our performance apparel and footwear are marketed under the lululemon brand. We offer a comprehensive line of apparel and accessories. Our apparel assortment includes items such as pants, shorts, tops, and jackets designed for a healthy lifestyle including athletic activities such as yoga, running, training, and most other activities. We also offer apparel designed 18 Table of Contents for being On the Move and fitness-related accessories. We expect to continue to broaden our merchandise offerings through expansion across these product areas. We also offer in-home fitness equipment and associated content subscriptions, including live and on-demand classes, through our MIRROR brand. COVID-19 Update COVID-19 continues to impact the global economy and cause disruption and volatility. While most of our retail locations were open throughout the first quarter of fiscal 2022 and 2021, certain locations were temporarily closed based on government and health authority guidance. Certain stores and our third party distribution center in the People's Republic of China ("PRC") experienced temporary closures during the first quarter of 2022, and there is uncertainty regarding the ongoing impact of COVID-19 on our operations in the PRC. We believe we will continue to experience differing levels of disruption and volatility, market by market. The pandemic has impacted our suppliers and our distribution and logistics providers, including in the PRC. There has been disruption in transportation and port congestion, an increase in freight costs, and we have increased our use of air freight. We expect this disruption and these increased costs to continue throughout 2022. Financial Highlights For the first quarter of 2022, compared to the first quarter of 2021: • Net revenue increased 32% to $1.6 billion. On a constant dollar basis, net revenue increased 32%. • Total comparable sales increased 28%, or 29% on a constant dollar basis. – Comparable store sales increased 24%, or 24% on a constant dollar basis. – Direct to consumer net revenue increased 32%, or 33% on a constant dollar basis. • Gross profit increased 24% to $870.4 million. • Gross margin decreased 320 basis points to 53.9%. • Income from operations increased 34% to $260.3 million. • Operating margin increased 30 basis points to 16.1%. • Income tax expense increased 43% to $70.3 million. Our effective tax rate for the first quarter of 2022 was 27.0% compared to 25.3% for the first quarter of 2021. • Diluted earnings per share were $1.48 compared to $1.11 in the first quarter of 2021. The first quarter of 2021 includes $7.3 million of after-tax costs related to the MIRROR acquisition, which reduced diluted earnings per share by $0.05. There were no acquisition-related expenses in the first quarter of 2022. Refer to the non-GAAP reconciliation tables contained in the "Non-GAAP Financial Measures" section of this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" for reconciliations between constant dollar changes in net revenue, total comparable sales, comparable store sales, and direct to consumer net revenue and the most directly comparable measures calculated in accordance with GAAP. 19 Table of Contents Quarter-to-Date Results of Operations: First Quarter Results The following table summarizes key components of our results of operations for the periods indicated: First Quarter 2022 2021 2022 2021 (In thousands) (Percentage of net revenue) Net revenue $ 1,613,463 $ 1,226,465 100.0 % 100.0 % Cost of goods sold 743,070 526,151 46.1 42.9 Gross profit 870,393 700,314 53.9 57.1 Selling, general and administrative expenses 607,851 496,634 37.7 40.5 Amortization of intangible assets 2,195 2,195 0.1 0.2 Acquisition-related expenses — 7,664 — 0.6 Income from operations 260,347 193,821 16.1 15.8 Other income (expense), net (22) 227 — — Income before income tax expense 260,325 194,048 16.1 15.8 Income tax expense 70,327 49,092 4.4 4.0 Net income $ 189,998 $ 144,956 11.8 % 11.8 % Net Revenue Net revenue increased $387.0 million, or 32%, to $1.6 billion for the first quarter of 2022 from $1.2 billion for the first quarter of 2021. On a constant dollar basis, assuming the average foreign currency exchange rates for the first quarter of 2022 remained constant with the average foreign currency exchange rates for the first quarter of 2021, net revenue increased $394.1 million, or 32%. The increase in net revenue was primarily due to increased company-operated store net revenue, including from increased comparable store sales and new company-operated stores. Direct to consumer net revenue and other net revenue also increased. Total comparable sales, which includes comparable store sales and direct to consumer net revenue, increased 28% for the first quarter of 2022 compared to the first quarter of 2021. Total comparable sales increased 29% on a constant dollar basis. Net revenue for the first quarter of 2022 and 2021 is summarized below. First Quarter 2022 2021 2022 2021 Year over year change (In thousands) (Percentages) (In thousands) (Percentages) Company-operated stores $ 731,604 $ 536,584 45.3 % 43.8 % $ 195,020 36.3 % Direct to consumer 721,253 545,089 44.7 44.4 176,164 32.3 Other 160,606 144,792 10.0 11.8 15,814 10.9 Net revenue $ 1,613,463 $ 1,226,465 100.0 % 100.0 % $ 386,998 31.6 % Company-Operated Stores. The increase in net revenue from our company-operated stores was driven by increased comparable store sales. Comparable store sales increased 24%, or 24% on a constant dollar basis. The increase in comparable store sales was primarily a result of increased store traffic, partially offset by a decrease in conversion rates and dollar value per transaction. Net revenue from company-operated stores that we opened or significantly expanded since the first quarter of 2021 contributed $93.9 million to the increase in net revenue from our company-operated stores. We opened 56 net new company-operated stores since the first quarter of 2021, including 38 stores in Asia Pacific, 12 stores in North America, and six stores in Europe. Direct to Consumer. Direct to consumer net revenue increased 32%, or 33% on a constant dollar basis. The increase in net revenue from our direct to consumer segment was primarily a result of increased traffic and a higher dollar value per transaction, partially offset by a decrease in conversion rates. 20 Table of Contents Other. The increase in net revenue was primarily due to increased outlet sales, license and supply arrangement revenue, and sales to wholesale accounts. The increase in net revenue was partially offset by a decrease in net revenue from MIRROR and our pop up locations, which had fewer locations open compared to the prior year. Gross Profit First Quarter 2022 2021 Year over year change (In thousands) (In thousands) (Percentage) Gross profit $ 870,393 $ 700,314 $ 170,079 24.3 % Gross margin 53.9 % 57.1 % (320) basis points The decrease in gross margin was primarily the result of: • a decrease in product margin of 370 basis points, primarily due to higher air freight costs as a result of global supply chain disruption; • an increase in costs related to our distribution centers and product departments as a percentage of net revenue of 20 basis points; and • an unfavorable impact of foreign currency exchange rates of 10 basis points. The decrease in gross margin was partially offset by a decrease in occupancy and depreciation costs as a percentage of net revenue of 80 basis points, driven primarily by the increase in net revenue. Selling, General and Administrative Expenses First Quarter 2022 2021 Year over year change (In thousands) (In thousands) (Percentage) Selling, general and administrative expenses $ 607,851 $ 496,634 $ 111,217 22.4 % Selling, general and administrative expenses as a percentage of net revenue 37.7 % 40.5 % (280) basis points The increase in selling, general and administrative expenses was primarily due to: • an increase in head office costs of $68.4 million, comprised of: – an increase in costs of $36.4 million primarily due to an increase in brand and community costs, professional fees, technology costs, and depreciation; and – an increase in employee costs of $32.0 million primarily due to an increase in salaries and wages expense and incentive compensation, primarily as a result of headcount growth as well as increased salaries; • an increase in costs related to our operating channels of $43.1 million, comprised of: – an increase in employee costs of $24.6 million primarily due to an increase in salaries and wages expense and incentive compensation in our company-operated stores and direct to consumer channels, primarily from the growth in our business as well as increased wage rates; – an increase in variable costs of $17.3 million primarily due to an increase in distribution costs and credit card fees, as a result of increased net revenue; and – an increase in operating costs of $5.5 million primarily due to increased depreciation and an increase in repairs and maintenance costs in our company-operated stores. 21 Table of Contents The increase in costs related to our operating channels was partially offset by a decrease in brand and community costs of $4.3 million primarily due to a decrease in marketing expenses related to MIRROR, partially offset by an increase in digital marketing expenses related to our direct to consumer channel. • a decrease in net foreign currency exchange and derivative revaluation losses of $0.3 million. Amortization of intangible assets First Quarter 2022 2021 Year over year change (In thousands) (In thousands) (Percentage) Amortization of intangible assets $ 2,195 $ 2,195 $ — — % The amortization of intangible assets was primarily the result of the amortization of intangible assets recognized upon the acquisition of MIRROR. Acquisition-related expenses First Quarter 2022 2021 Year over year change (In thousands) (In thousands) (Percentage) Acquisition-related expenses $ — $ 7,664 $ (7,664) (100.0) % In connection with our acquisition of MIRROR, we recognized acquisition-related compensation expenses of $7.2 million and integration related costs of $0.5 million in the first quarter of 2021. There were no acquisition-related expenses in the first quarter of 2022. Income from Operations On a segment basis, we determine income from operations without taking into account our general corporate expenses. Segmented income from operations is summarized below. First Quarter 2022 2021 2022 2021 Year over year change (In thousands) (Percentage of net revenue of respective operating segment) (In thousands) (Percentage) Segmented income from operations: Company-operated stores $ 160,706 $ 99,148 22.0 % 18.5 % $ 61,558 62.1 % Direct to consumer 285,107 236,933 39.5 43.5 48,174 20.3 Other 19,527 14,506 12.2 10.0 5,021 34.6 $ 465,340 $ 350,587 $ 114,753 32.7 % General corporate expense 202,798 146,907 55,891 38.0 Amortization of intangible assets 2,195 2,195 — — Acquisition-related expenses — 7,664 (7,664) (100.0) Income from operations $ 260,347 $ 193,821 $ 66,526 34.3 % Operating margin 16.1 % 15.8 % 30 basis points Company-Operated Stores . The increase in income from operations from our company-operated stores was primarily the result of increased gross profit of $93.4 million, driven by increased net revenue, as a result of increased comparable store sales and sales from new and significantly expanded stores, as well as higher gross margin. The increase in gross margin was primarily due to leverage on fixed costs, partially offset by lower product margin driven by increased air freight costs relative to net revenue. The increase in gross profit was partially offset by an increase in selling, general and administrative expenses, primarily due to higher employee and operating costs. Employee costs increased primarily due to higher salaries and wages expense and higher incentive compensation as a result of the growth in our business. Store operating costs increased primarily due to increases in credit card fees, packaging costs, and distribution costs, as a result of higher net revenue, as well 22 Table of Contents as increased repairs and maintenance. Income from operations as a percentage of company-operated stores net revenue increased due to leverage on selling, general and administrative expenses and higher gross margin. Direct to Consumer. The increase in income from operations from our direct to consumer segment was primarily the result of increased gross profit of $79.5 million, driven by increased net revenue as a result of increased traffic and a higher dollar value per transaction, partially offset by lower gross margin. The decrease in gross margin was primarily due to lower product margin driven by increased air freight and distribution center costs relative to net revenue. The increase in gross profit was partially offset by an increase in selling, general and administrative expenses, primarily due to higher variable operating costs including distribution costs and credit card fees, as a result of higher net revenue, as well as higher digital marketing expenses, employee costs, and depreciation. Income from operations as a percentage of direct to consumer net revenue decreased primarily due to decreased gross margin, partially offset by leverage on selling, general and administrative expenses. Other. The increase in other income from operations was primarily due to decreased selling, general and administrative expenses, driven by decreased MIRROR marketing expenses, and decreased people costs at our other retail locations primarily due to fewer pop up locations open compared to the prior year. These decreases were partially offset by decreased gross profit of $2.9 million, driven by increased air freight costs. Income from operations as a percentage of other net revenue increased primarily due to leverage on selling, general and administrative expenses, partially offset by lower gross margin. General Corporate Expenses. The increase in general corporate expenses was primarily due to increased employee costs, primarily from the growth in our business, as well as increased brand and community costs, professional fees, technology costs, and depreciation. The increase in general corporate expense was partially offset by a decrease in net foreign currency exchange and derivative revaluation losses of $0.3 million. Other Income (Expense), Net First Quarter 2022 2021 Year over year change (In thousands) (In thousands) (Percentage) Other income (expense), net $ (22) $ 227 $ (249) (109.7) % The decrease in other income, net was primarily due to a decrease in interest income as a result of lower cash balances. Income Tax Expense First Quarter 2022 2021 Year over year change (In thousands) (In thousands) (Percentage) Income tax expense $ 70,327 $ 49,092 $ 21,235 43.3 % Effective tax rate 27.0 % 25.3 % 170 basis points The increase in the effective tax rate was primarily due to a net decrease in tax deductions related to stock-based compensation and accrued withholding taxes on unremitted foreign earnings. Net Income First Quarter 2022 2021 Year over year change (In thousands) (In thousands) (Percentage) Net income $ 189,998 $ 144,956 $ 45,042 31.1 % The increase in net income was primarily due to an increase in gross profit of $170.1 million and a decrease in acquisition-related expenses of $7.7 million, partially offset by an increase in selling, general and administrative expenses of $111.2 million, an increase in income tax expense of $21.2 million, and a decrease in other income (expense), net of $0.2 million. 23 Table of Contents Comparable Store Sales and Total Comparable Sales We use comparable store sales to assess the performance of our existing stores as it allows us to monitor the performance of our business without the impact of recently opened or expanded stores. We use total comparable sales to evaluate the performance of our business from an omni-channel perspective. We believe investors would similarly find these metrics useful in assessing the performance of our business. Comparable store sales reflect net revenue from company-operated stores that have been open, or open after being significantly expanded, for at least 12 full fiscal months. Net revenue from a store is included in comparable store sales beginning with the first fiscal month for which the store has a full fiscal month of sales in the prior year. Comparable store sales exclude sales from new stores that have not been open for at least 12 full fiscal months, from stores which have not been in their significantly expanded space for at least 12 full fiscal months, and from stores which have been temporarily relocated for renovations or temporarily closed. Comparable store sales also exclude sales from direct to consumer and our other operations, as well as sales from company-operated stores that have closed. Total comparable sales combines comparable store sales and direct to consumer net revenue. In fiscal years with 53 weeks, the 53rd week of net revenue is excluded from the calculation of comparable sales. In the year following a 53 week year, the prior year period is shifted by one week to compare similar calendar weeks. Opening new stores and expanding existing stores is an important part of our growth strategy. Accordingly, total comparable sales is just one way of assessing the success of our growth strategy insofar as comparable sales do not reflect the performance of stores opened, or significantly expanded, within the last 12 full fiscal months. The comparable sales measures we report may not be equivalent to similarly titled measures reported by other companies. Non-GAAP Financial Measures Constant dollar changes in net revenue, total comparable sales, comparable store sales, and direct to consumer net revenue are non-GAAP financial measures. A constant dollar basis assumes the average foreign currency exchange rates for the period remained constant with the average foreign currency exchange rates for the same period of the prior year. We provide constant dollar changes in our results to help investors understand the underlying growth rate of net revenue excluding the impact of changes in foreign currency exchange rates. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or with greater prominence to, the financial information prepared and presented in accordance with GAAP. A reconciliation of the non-GAAP financial measures follows, which includes more detail on the GAAP financial measure that is most directly comparable to each non-GAAP financial measure, and the related reconciliations between these financial measures. Constant dollar changes in net revenue The below changes in net revenue show the change compared to the corresponding period in the prior year. First Quarter 2022 Net Revenue (In thousands) (Percentages) Change $ 386,998 32 % Adjustments due to foreign currency exchange rate changes 7,098 — Change in constant dollars $ 394,096 32 % 24 Table of Contents Constant dollar changes in total comparable sales, comparable store sales, and direct to consumer net revenue The below changes in total comparable sales, comparable store sales, and direct to consumer net revenue show the change compared to the corresponding period in the prior year. First Quarter 2022 Total Comparable Sales 1,2 Comparable Store Sales 2 Direct to Consumer Net Revenue Change 28 % 24 % 32 % Adjustments due to foreign currency exchange rate changes 1 — 1 Change in constant dollars 29 % 24 % 33 % __________ (1) Total comparable sales includes comparable store sales and direct to consumer net revenue. (2) Comparable store sales reflects net revenue from company-operated stores that have been open for at least 12 full fiscal months, or open for at least 12 full fiscal months after being significantly expanded. Seasonality Our business is affected by the general seasonal trends common to the retail apparel industry. Our annual net revenue is weighted more heavily toward our fourth fiscal quarter, reflecting our historical strength in sales during the holiday season, while our operating expenses are more equally distributed throughout the year. As a result, a substantial portion of our operating profits are generated in the fourth quarter of our fiscal year. For example, we generated approximately 44% and 56% of our full year operating profit during the fourth quarters of 2021 and 2020, respectively. Due to a significant number of our company-operated stores being temporarily closed due to COVID-19 during the first two quarters of 2020, we earned a higher proportion of our operating profit during the last two quarters of 2020 compared to 2021. Liquidity and Capital Resources Our primary sources of liquidity are our current balances of cash and cash equivalents, cash flows from operations, and capacity under our committed revolving credit facility. Our primary cash needs are capital expenditures for opening new stores and remodeling or relocating existing stores, investing in technology and making system enhancements, funding working capital requirements, and making other strategic capital investments both in North America and internationally. We may also use cash to repurchase shares of our common stock. Cash and cash equivalents in excess of our needs are held in interest bearing accounts with financial institutions, as well as in money market funds and term deposits. The following table summarizes our net cash flows provided by and used in operating, investing, and financing activities for the periods indicated: First Quarter 2022 2021 Year over year change (In thousands) Total cash provided by (used in): Operating activities $ (243,256) $ 214,109 $ (457,365) Investing activities (101,328) (85,464) (15,864) Financing activities (259,560) (122,235) (137,325) Effect of foreign currency exchange rate changes on cash (6,711) 22,812 (29,523) Increase (decrease) in cash and cash equivalents $ (610,855) $ 29,222 $ (640,077) Operating Activities The increase in cash used in operating activities was primarily as a result of: • a decrease in cash flows from the changes in operating assets and liabilities of $487.9 million. This decrease was driven by changes in inventories, income taxes, and accrued compensation; and 25 Table of Contents • changes in adjusting items of $14.5 million, primarily driven by lower cash inflows related to derivatives not designated in a hedging relationship, partially offset by increased depreciation and stock-based compensation expenses. The increase in cash used in operating activities was partially offset by increased net income of $45.0 million. Investing Activities The increase in cash used in investing activities was primarily due to increased capital expenditures, partially offset by the settlement of net investment hedges. The increase in capital expenditures was primarily due to increased corporate expenditures driven by investment in technology and business systems and increased expenditures on corporate office renovations. There was also increased company-operated store expenditures driven by opening new stores as well remodeling stores to support our footwear launch. This was partially offset by decreased capital expenditures for our direct to consumer segment. Financing Activities The increase in cash used in financing activities was primarily the result of an increase in stock repurchases. Cash used in financing activities for the first quarter of 2022 included $232.6 million to repurchase 0.7 million shares of our common stock compared to $83.8 million to repurchase 0.3 million shares for the first quarter of 2021. The common stock was repurchased in the open market 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, with the timing and actual number of shares repurchased depending upon market conditions, eligibility to trade, and other factors. Liquidity Outlook We believe that our cash and cash equivalent balances, cash generated from operations, and borrowings available to us under our committed revolving credit facility will be adequate to meet our liquidity needs and capital expenditure requirements for at least the next 12 months. Our cash from operations may be negatively impacted by a decrease in demand for our products, as well as the other factors described in "Item 1A. Risk Factors". In addition, we may make discretionary capital improvements with respect to our stores, distribution facilities, headquarters, or systems, or we may repurchase shares under an approved stock repurchase program, which we would expect to fund through the use of cash, issuance of debt or equity securities or other external financing sources to the extent we were unable to fund such expenditures out of our cash and cash equivalents and cash generated from operations. The following table includes certain measures of our liquidity: May 1, 2022 (In thousands) Cash and cash equivalents $ 649,016 Working capital excluding cash and cash equivalents (1) 447,333 Capacity under committed revolving credit facility 396,907 __________ (1) Working capital is calculated as current assets of $2.3 billion less current liabilities of $1.2 billion. We enter into standby letters of credit to secure certain of our obligations, including leases, taxes, and duties. As of May 1, 2022, letters of credit and letters of guarantee totaling $4.3 million had been issued, including $3.1 million under our committed revolving credit facility. Our committed North America credit facility 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. As of May 1, 2022, aside from letters of credit of $3.1 million, we had no other borrowings outstanding under this credit facility. Further information regarding our credit facilities and associated covenants is outlined in Note 4. Revolving Credit Facilities included in Item 1 of Part I of this report. Critical Accounting Policies and Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions. Predicting future events is inherently an imprecise activity and, as such, requires the use of judgment. Actual results may vary from our estimates in amounts that may be material to the financial 26 Table of Contents statements. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact our consolidated financial statements. Our critical accounting policies and estimates are discussed within "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 2021 Annual Report on Form 10-K filed with the SEC on March 29, 2022. Operating Locations Our company-operated stores by country as of May 1, 2022 and January 30, 2022 are summarized in the table below. Number of company-operated stores by country May 1, 2022 January 30, 2022 United States 325 324 People's Republic of China (1) 87 86 Canada 64 63 Australia 31 31 United Kingdom 18 17 South Korea 13 12 Germany 8 9 New Zealand 7 7 Japan 6 6 Singapore 6 6 Ireland 4 3 France 3 3 Malaysia 2 2 Sweden 2 2 Netherlands 1 1 Norway 1 1 Switzerland 1 1 Total company-operated stores 579 574 __________ (1) Included within PRC as of May 1, 2022, were nine stores in Hong Kong Special Administrative Region, five stores in Taiwan, and two stores in Macao Special Administration Region. As of January 30, 2022, there were nine stores in Hong Kong Special Administrative Region, five stores in Taiwan, and two stores in Macao Special Administration Region. Retail locations operated by third parties under license and supply arrangements are not included in the above table. As of May 1, 2022, there were 16 licensed locations, including eight in Mexico, six in the United Arab Emirates, one in Kuwait, and one in Qatar.