What changed in this filing

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Item 1. Financial Statements

2022-12-08 compared with 2022-09-01 · 68 added, 76 removed, 460 unchanged (24% of the section changed)

60 unchanged sentences

Amounts in thousands, except per share amounts)

Quarter Ended Two Quarters Ended

2022 August 1,

2021 July 31,

2022 August 1,

Quarter Ended Three Quarters Ended

2022 October 31,

2021 October 30,

2022 October 31,

Net revenue $ 1,856,889 $ 1,450,421 $ 5,338,680 $ 4,127,504

23 unchanged sentences

Amounts in thousands)

Quarter Ended July 31, 2022

Quarter Ended October 30, 2022

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

Shares Shares Par Value Shares Par Value

Balance as of May 1, 2022 5,203 5,203 $ — 122,732 $ 614 $ 412,713 $ 2,471,432 $ ( 216,709 ) $ 2,668,050

Balance as of July 31, 2022 5,203 5,203 $ — 122,334 $ 612 $ 433,092 $ 2,636,377 $ ( 212,283 ) $ 2,857,798

Net income 255,470 255,470

4 unchanged sentences

Repurchase of common stock ( 55 ) — ( 100 ) ( 16,892 ) ( 16,992 )

Balance as of July 31, 2022 5,203 5,203 $ — 122,334 $ 612 $ 433,092 $ 2,636,377 $ ( 212,283 ) $ 2,857,798

Quarter Ended August 1, 2021

Balance as of October 30, 2022 5,203 5,203 $ — 122,318 $ 612 $ 455,444 $ 2,874,955 $ ( 291,807 ) $ 3,039,204

Quarter Ended October 31, 2021

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

Shares Shares Par Value Shares Par Value

Balance as of May 2, 2021 5,203 5,203 $ — 125,069 $ 625 $ 364,743 $ 2,408,006 $ ( 133,519 ) $ 2,639,855

Balance as of August 1, 2021 5,203 5,203 $ — 124,644 $ 623 $ 381,737 $ 2,445,845 $ ( 157,039 ) $ 2,671,166

Net income 187,788 187,788

4 unchanged sentences

Repurchase of common stock ( 583 ) ( 2 ) ( 974 ) ( 235,447 ) ( 236,423 )

Balance as of August 1, 2021 5,203 5,203 $ — 124,644 $ 623 $ 381,737 $ 2,445,845 $ ( 157,039 ) $ 2,671,166

Two Quarters Ended July 31, 2022

Balance as of October 31, 2021 5,203 5,203 $ — 124,135 $ 621 $ 406,413 $ 2,398,186 $ ( 146,765 ) $ 2,658,455

Three Quarters Ended October 30, 2022

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

7 unchanged sentences

Repurchase of common stock ( 1,183 ) ( 6 ) ( 2,096 ) ( 372,874 ) ( 374,976 )

Balance as of July 31, 2022 5,203 5,203 $ — 122,334 $ 612 $ 433,092 $ 2,636,377 $ ( 212,283 ) $ 2,857,798

Two Quarters Ended August 1, 2021

Balance as of October 30, 2022 5,203 5,203 $ — 122,318 $ 612 $ 455,444 $ 2,874,955 $ ( 291,807 ) $ 3,039,204

Three Quarters Ended October 31, 2021

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

7 unchanged sentences

Repurchase of common stock ( 1,358 ) ( 6 ) ( 2,270 ) ( 489,060 ) ( 491,336 )

Balance as of August 1, 2021 5,203 5,203 $ — 124,644 $ 623 $ 381,737 $ 2,445,845 $ ( 157,039 ) $ 2,671,166

Balance as of October 31, 2021 5,203 5,203 $ — 124,135 $ 621 $ 406,413 $ 2,398,186 $ ( 146,765 ) $ 2,658,455

See accompanying notes to the unaudited interim consolidated financial statements

2 unchanged sentences

Amounts in thousands)

Two Quarters Ended

2022 August 1,

Three Quarters Ended

2022 October 31,

Cash flows from operating activities

54 unchanged sentences

Recommerce is the sale of repurchased product via the Company's "Like New" program.

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, Singapore, Japan, Ireland, France, Malaysia, Sweden, the Netherlands, Norway, and Switzerland.

There were 600 and 574 company-operated stores as of July 31, 2022 and January 30, 2022, respectively.

The Company also engages in the design and retail of in-home fitness equipment and associated content subscriptions through its MIRROR brand.

COVID-19 pandemic

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.

While most of the Company's retail locations were open throughout the first two quarters of fiscal 2022 and 2021, certain locations were temporarily closed based on government and health authority guidance.

Certain stores and the Company's third party distribution center in the PRC experienced temporary closures during the first quarter of 2022.

Almost all PRC stores reopened in the second quarter of 2022, with certain localized closures dependent on COVID-19 resurgences.

The pandemic has impacted the Company's suppliers and its distribution and logistics providers, including in the PRC.

There has been disruption in transportation, port congestion, and an increase in freight costs, and the Company has increased its use of air freight.

There were 623 and 574 company-operated stores as of October 30, 2022 and January 30, 2022, respectively.

The Company also engages in the design and retail of in-home connected fitness equipment and associated content subscriptions through lululemon Studio, which evolved from the Company's former MIRROR brand during the third quarter of fiscal 2022.

Basis of presentation

The unaudited interim consolidated financial statements as of July 31, 2022 and for the quarters and two quarters ended July 31, 2022 and August 1, 2021 are presented in U.S.

The unaudited interim consolidated financial statements as of October 30, 2022 and for the quarters and three quarters ended October 30, 2022 and October 31, 2021 are presented in U.S.

dollars and have been prepared by the Company under the rules and regulations of the Securities and Exchange Commission ("SEC").

8 unchanged sentences

Fiscal 2022 and fiscal 2021 are referred to as "2022," and "2021," respectively.

The first two quarters of 2022 and 2021 ended on July 31, 2022 and August 1, 2021, respectively.

The first three quarters of 2022 and 2021 ended on October 30, 2022 and October 31, 2021, respectively.

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

3 unchanged sentences

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

ASUs adopted by the Company during the first two quarters of 2022 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.

ASUs adopted by the Company during the first three quarters of 2022 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 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.

1 unchanged sentence

Recently issued accounting pronouncements

ASUs recently issued 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.

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 September 2022, the FASB issued ASC 405-50, Liabilities - Supplier Finance Programs, to require annual and interim disclosures about the key terms of supplier finance programs used in connection with the purchase of goods and services along with information about the obligations under these programs, including the amount outstanding at the end of each reporting period and a rollforward of those obligations.

The guidance is effective for fiscal years beginning after December 15, 2022, including interim periods in those fiscal years, with early adoption permitted.

The Company is currently evaluating the impact that this new guidance may have on its consolidated financial statements.

Acquisition-Related Expenses

1 unchanged sentence

In connection with the acquisition, the Company recognized certain acquisition-related expenses which were expensed within acquisition-related expenses in the consolidated statements of operations.

The third quarter of 2021 included accelerated compensation expense related to the transition of the former MIRROR Chief Executive Officer to a temporary advisory role with the Company.

The following table summarizes the acquisition-related expenses recognized:

Second Quarter First Two Quarters

Third Quarter First Three Quarters

2022 2021 2022 2021

14 unchanged sentences

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 July 31, 2022, aside from letters of credit of $ 5.2 million, the Company had no other borrowings outstanding under this credit facility.

As of October 30, 2022, aside from letters of credit of $ 5.2 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.

2 unchanged sentences

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

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 two KPIs are based on greenhouse gas emissions intensity reduction and gender pay equity, and the Company's 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.

2 unchanged sentences

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

As of July 31, 2022, the Company was in compliance with the covenants of the credit facility.

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

China Mainland revolving credit facility

4 unchanged sentences

The Company is required to follow certain covenants.

As of July 31, 2022, the Company was in compliance with the covenants and, aside from letters of credit of 8.9 million Chinese Yuan ($ 1.3 million), there were no other borrowings or guarantees outstanding under this credit facility.

As of October 30, 2022, the Company was in compliance with the covenants and, aside from letters of credit of 11.7 million Chinese Yuan ($ 1.6 million), there were no other borrowings or guarantees outstanding under this credit facility.

Stock-Based Compensation and Benefit Plans

1 unchanged sentence

The Company's eligible employees participate in various stock-based compensation plans, provided directly by the Company.

Stock-based compensation expense charged to income for the plans was $ 38.8 million and $ 33.6 million for the first two quarters of 2022 and 2021, respectively.

Total unrecognized compensation cost for all stock-based compensation plans was $ 154.4 million as of July 31, 2022, which is expected to be recognized over a weighted-average period of 2.3 years.

A summary of the balances of the Company's stock-based compensation plans as of July 31, 2022, and changes during the first two quarters then ended, is presented below:

Stock-based compensation expense charged to income for the plans was $ 58.8 million and $ 49.6 million for the first three quarters of 2022 and 2021, respectively.

Total unrecognized compensation cost for all stock-based compensation plans was $ 132.8 million as of October 30, 2022, which is expected to be recognized over a weighted-average period of 2.2 years.

A summary of the balances of the Company's stock-based compensation plans as of October 30, 2022, and changes during the first three quarters then ended, is presented below:

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

5 unchanged sentences

Forfeited/expired 20 282.29 4 304.22 — — 13 313.90

Balance as of July 31, 2022 909 $ 226.19 166 $ 295.76 4 $ 307.77 236 $ 328.60

Exercisable as of July 31, 2022 415 $ 153.80

Balance as of October 30, 2022 875 $ 229.53 166 $ 295.93 4 $ 307.77 222 $ 325.95

Exercisable as of October 30, 2022 403 $ 155.62

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.

9 unchanged sentences

Treasury yield curve for the period corresponding with the expected term of the options.

The following are weighted averages of the assumptions that were used in calculating the fair value of stock options granted during the first two quarters of 2022:

First Two Quarters

The following are weighted averages of the assumptions that were used in calculating the fair value of stock options granted during the first three quarters of 2022:

First Three Quarters

Expected term 3.75 years

7 unchanged sentences

All shares purchased under the ESPP are purchased in the open market.

During the second quarter of 2022, there were 23.1 thousand shares purchased.

During the third quarter of 2022, there were 25.6 thousand shares purchased.

Defined contribution pension plans

2 unchanged sentences

The Company matches 50 % to 75 % of the contribution depending on the participant's length of service, and the contribution is subject to a two year vesting period.

The Company's net expense for the defined contribution plans was $ 6.7 million and $ 5.8 million in the first two quarters of 2022 and 2021, respectively.

The Company's net expense for the defined contribution plans was $ 10.1 million and $ 8.8 million in the first three quarters of 2022 and 2021, respectively.

Fair Value Measurement

6 unchanged sentences

The fair value measurement is categorized in its entirety by reference to its lowest level of significant input.

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

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

2022 Level 1 Level 2 Level 3 Balance Sheet Classification

29 unchanged sentences

These forward currency contracts are designated as net investment hedges.

The Company assesses hedge effectiveness based on changes in forward rates.

The Company recorded no ineffectiveness from net investment hedges during the first two quarters of 2022.

The Company assesses hedge effectiveness based on

changes in forward rates.

The Company recorded no ineffectiveness from net investment hedges during the first three quarters of 2022.

The Company classifies the cash flows at settlement of its net investment hedges within investing activities in the consolidated statements of cash flows.

4 unchanged sentences

The resulting foreign currency gains and losses are recorded in selling, general and administrative expenses.

During the first two quarters of 2022, 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.

During the first three quarters of 2022, 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.

3 unchanged sentences

However, the Company's Master International Swap Dealers Association, Inc., Agreements and other similar arrangements allow net settlements under certain conditions.

As of July 31, 2022, there were derivative assets of $ 6.4 million and derivative liabilities of $ 5.0 million subject to enforceable netting arrangements.

As of October 30, 2022, there were derivative assets of $ 46.8 million and derivative liabilities of $ 24.9 million subject to enforceable netting arrangements.

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

July 31, 2022 January 30, 2022

October 30, 2022 January 30, 2022

Gross Notional Assets Liabilities Gross Notional Assets Liabilities

6 unchanged sentences

Forward currency contracts $ 46,813 $ 24,857 $ 19,077 $ 18,985

The forward currency contracts designated as net investment hedges outstanding as of July 31, 2022 mature on different dates between August 2022 and June 2023.

The forward currency contracts not designated in a hedging relationship outstanding as of July 31, 2022 mature on different dates between August 2022 and February 2023.

The forward currency contracts designated as net investment hedges outstanding as of October 30, 2022 mature on different dates between November 2022 and August 2023.

The forward currency contracts not designated in a hedging relationship outstanding as of October 30, 2022 mature on different dates between November 2022 and May 2023.

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

Second Quarter First Two Quarters

Third Quarter First Three Quarters

2022 2021 2022 2021

4 unchanged sentences

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

Second Quarter First Two Quarters

Third Quarter First Three Quarters

2022 2021 2022 2021

11 unchanged sentences

The details of the computation of basic and diluted earnings per share are as follows:

Second Quarter First Two Quarters

Third Quarter First Three Quarters

2022 2021 2022 2021

9 unchanged sentences

All classes of stock have, in effect, the same rights and share equally in undistributed net income.

For the first two quarters of 2022 and 2021, 0.1 million and 0.1 million stock options and awards, respectively, were anti-dilutive to earnings per share and therefore have been excluded from the computation of diluted earnings per share.

For the first three quarters of 2022 and 2021, 50.1 thousand and 48.0 thousand stock options and awards, respectively, were anti-dilutive to earnings per share and therefore have been excluded from the computation of diluted earnings per share.

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.

3 unchanged sentences

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.

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 July 31, 2022, the remaining authorized value of shares available to be repurchased under this program was $ 829.5 million.

During the first two quarters of 2022 and 2021, 1.1 million and 0.8 million shares, respectively, were repurchased under the program at a total cost of $ 358.0 million and $ 254.9 million, respectively.

Subsequent to July 31, 2022, and up to August 26, 2022, 31.5 thousand shares were repurchased at a total cost of $ 10.0 million.

As of October 30, 2022, the remaining authorized value of shares available to be repurchased under this program was $ 812.5 million.

During the first three quarters of 2022 and 2021, 1.2 million and 1.4 million shares, respectively, were repurchased under the program at a total cost of $ 375.0 million and $ 491.3 million, respectively.

Subsequent to October 30, 2022, and up to December 2, 2022, 9.2 thousand shares were repurchased at a total cost of $ 3.4 million.

Supplementary Financial Information

23 unchanged sentences

$ 1,122,490 $ 927,710

2022 January 30,

(In thousands)

Other non-current assets:

3 unchanged sentences

$ 149,257 $ 132,102

2022 January 30,

(In thousands)

Accrued liabilities and other:

13 unchanged sentences

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

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

Second Quarter First Two Quarters

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

Third Quarter First Three Quarters

2022 2021 2022 2021

28 unchanged sentences

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

Second Quarter First Two Quarters

Third Quarter First Three Quarters

2022 2021 2022 2021

5 unchanged sentences

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

Other categories is primarily composed of accessories, MIRROR, and footwear.

Second Quarter First Two Quarters

Other categories is primarily composed of accessories, lululemon Studio, and footwear.

Third Quarter First Three Quarters

2022 2021 2022 2021

9 unchanged sentences

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

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

The Ninth Circuit affirmed the district court's decision on all grounds and entered judgment in favor of the Company in August 2022.

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

2 unchanged sentences

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.

In the ITC investigation, an Administrative Law Judge has issued an Initial Determination recommending an Exclusion Order and Cease and Desist Order be entered against the Company.

The Company has filed a petition to the ITC contesting the Initial Determination.

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

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-Q

Item 1. Financial Statements