What changed in this filing

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Item 1A. Risk Factors

2022-12-08 compared with 2022-09-01 · 67 added, 56 removed, 329 unchanged (27% of the section changed)

11 unchanged sentences

Any harm to our brand and reputation could have a material adverse effect on our financial condition.

The current COVID-19 coronavirus pandemic and related government, private sector, and individual consumer responsive actions have and could continue to affect our business operations, store traffic, employee availability, supply chain, financial condition, liquidity, and cash flow.

The COVID-19 pandemic has negatively impacted the global economy, disrupted consumer spending and global supply chains, and created significant volatility and disruption of financial markets.

COVID-19 negatively impacted our business and operations in 2020.

While conditions improved in 2021, the extent and duration of ongoing impacts remain uncertain.

Certain stores and our third party distribution center in the 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.

The spread of COVID-19 has caused health officials to impose restrictions and recommend precautions to mitigate the spread of the virus, especially when congregating in heavily populated areas, such as malls and lifestyle centers.

Our stores have experienced temporary closures, and we have implemented precautionary measures in line with guidance from local authorities in the stores that are open.

These measures include restrictions such as limitations on the number of guests allowed in our stores at any single time, minimum physical distancing requirements, and limited operating hours.

We do not know how the measures recommended by local authorities or implemented by us may change over time or what the duration of these restrictions will be.

Further resurgences in COVID-19 cases, including from variants, could cause additional restrictions, including temporarily closing all or some of our stores again.

An outbreak at one of our locations, even if we follow appropriate precautionary measures, could negatively impact our employees, guests, and brand.

There is uncertainty over the impact of COVID-19 on the U.S., Canadian, PRC, and global economies, consumer willingness to visit stores, malls, and lifestyle centers, and employee willingness to staff our stores as the pandemic continues and if there are future resurgences.

There is also

uncertainty regarding potential long-term changes to consumer shopping behavior and preferences and whether consumer demand will recover when restrictions are lifted.

The COVID-19 pandemic also has the potential to significantly impact our supply chain if the factories that manufacture our products, the distribution centers where we manage our inventory, or the operations of our logistics and other service providers are disrupted, temporarily closed, or experience worker shortages.

In particular, we have seen disruptions and delays in shipments, and we may see negative impacts to pricing of certain components of our products as a result of the COVID-19 pandemic.

The COVID-19 situation is changing rapidly and the extent to which COVID-19 impacts our results 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 its variants and the actions taken to contain it or treat its impact, including vaccinations.

Changes in consumer shopping preferences, and shifts in distribution channels could materially impact our results of operations.

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Under these circumstances, unless we are able to obtain replacement products in a timely manner, we risk the loss of net revenue resulting from the inability to sell those products and related increased administrative and shipping costs.

Additionally, if the unacceptability of our products is not discovered until after such products are sold, our guests could lose confidence in our products or we could face a product recall and our results of operations could suffer and our business, reputation, and brand could be harmed.

Our MIRROR subsidiary offers complex hardware and software products and services that can be affected by design and manufacturing defects.

Sophisticated operating system software and applications, such as those offered by MIRROR, often have issues that can unexpectedly interfere with the intended operation of hardware or software products.

Additionally, if the unacceptability of our products is not

discovered until after such products are sold, our guests could lose confidence in our products or we could face a product recall and our results of operations could suffer and our business, reputation, and brand could be harmed.

Our lululemon Studio subsidiary offers complex hardware and software products and services that can be affected by design and manufacturing defects.

Sophisticated operating system software and applications, such as those offered by lululemon Studio, often have issues that can unexpectedly interfere with the intended operation of hardware or software products.

Defects may also exist in components and products that we source from third parties.

Any defects could make our products and services unsafe and create a risk of environmental or property damage or personal injury and we may become subject to the hazards and uncertainties of product liability claims and related litigation.

The occurrence of real or perceived defects in any of our products, now or in the future, could result in additional negative publicity, regulatory investigations, or lawsuits filed against us, particularly if guests or others who use or purchase our MIRROR products are injured.

Even if injuries are not the result of any defects, if they are perceived to be, we may incur expenses to defend or settle any claims and our brand and reputation may be harmed.

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Many of our competitors are large apparel and sporting goods companies with strong worldwide brand recognition.

Because of the fragmented nature of the industry, we also compete with other apparel sellers,

including those specializing in yoga apparel and other activewear.

Because of the fragmented nature of the industry, we also compete with other apparel sellers, including those specializing in yoga apparel and other activewear.

Many of our competitors have significant competitive advantages, including longer operating histories, larger and broader customer bases, more established relationships with a broader set of suppliers, greater brand recognition and greater financial, research and development, store development, marketing, distribution, and other resources than we do.

7 unchanged sentences

These factors may cause us to experience increased costs, reduce our prices to consumers or experience reduced sales in response to increased prices, any of which could cause our operating margin to decline if we are unable to offset these factors with reductions in operating costs and could have a material adverse effect on our financial condition, operating results, and cash flows.

MIRROR (now known as lululemon Studio) may not achieve near or long term cash flow forecasts, or could fail to achieve the benefits and synergies sought through the acquisition, which could result in a material impairment of goodwill or other assets.

During 2020, we acquired MIRROR as part of our growth plan, which includes driving business through omni-guest experiences.

During the third quarter of 2022, MIRROR evolved to become lululemon Studio.

The potential benefits of enhancing our digital and interactive capabilities and deepening our roots in the sweatlife might not be realized fully, if at all, or take longer than anticipated to achieve.

Further, the expected synergies between lululemon Studio and our core business,

such as those related to our connections with our guests and communities as well as our store and direct to consumer infrastructure, may not materialize.

A significant portion of the purchase price was allocated to goodwill and if our acquisition does not yield expected returns, we may be required to record impairment charges, which would adversely affect our results of operations.

There has been a deterioration in macroeconomic conditions and trends in the digital fitness industry and the fair value of the lululemon Studio reporting unit as of October 30, 2022 was not significantly in excess of its carrying value.

Our ability to generate expected cash flows is dependent on several factors including, but not limited to, customer demand and trends in the connected fitness industry including the level of desire to exercise at home, our ability to attract new subscribers to grow the community, and to maintain a loyal subscriber base.

The fair value of lululemon Studio is also dependent on achieving long term profitability.

Failure to increase the growth rate of new subscribers in the near term, or if we are unable to reduce customer acquisition costs, or other internal or external factors, could cause a material impairment of goodwill.

Our management team has limited experience in addressing the challenges of integrating management teams, strategies, cultures, and organizations of two companies.

This may divert the attention of management and cause additional expenses.

Management also has limited experience outside of the retail industry, including with the specialized hardware and software sold and licensed by lululemon Studio.

If lululemon Studio has inadequate or ineffective controls and procedures, our internal control over financial reporting could be adversely impacted.

lululemon Studio may not be well received by our customers or employees, and this could hurt our brand and result in the loss of key employees.

If we are unable to manage lululemon Studio operations successfully and efficiently, including its people and technologies, it could adversely affect our results of operations.

lululemon Studio may also divert management time and other resources away from our core business.

In addition, we may, from time to time, evaluate and pursue other strategic investments or acquisitions.

These involve various inherent risks and the benefits sought may not be realized.

The acquisition of MIRROR or other strategic investments or acquisitions may not create value and may harm our brand and adversely affect our business, financial condition, and results of operations.

If we are unable to anticipate consumer preferences and successfully develop and introduce new, innovative, and differentiated products, we may not be able to maintain or increase our sales and profitability.

25 unchanged sentences

If we are unable to effectively and successfully further develop these and future new product categories and lines, we may not be able to increase or maintain our sales and our operating margins may be adversely affected.

We may not realize the potential benefits and synergies sought with the acquisition of MIRROR.

During 2020, we acquired MIRROR as part of our growth plan, which includes driving business through omni-guest experiences.

Further, the expected synergies between lululemon and MIRROR, such as those related to our connections with our guests and communities as well as our store and direct to consumer infrastructure, may not materialize.

Our management team has limited experience in addressing the challenges of integrating management teams, strategies, cultures, and organizations of two companies.

This integration may divert the attention of management and cause additional expenses.

Management also has limited experience outside of the retail industry, including with the specialized hardware and software sold and licensed by MIRROR.

If MIRROR has inadequate or ineffective controls and procedures, our internal control over financial reporting could be adversely impacted.

The acquisition may not be well received by the customers or employees of either company, and this could hurt our brand and result in the loss of key employees.

If we are unable to successfully integrate MIRROR, including its people and technologies, or if integration takes longer than planned, we may not be able to manage operations efficiently, which could adversely affect our results of operations.

The acquisition of MIRROR may also divert management time and other resources away from our existing business.

In addition, we may, from time to time, evaluate and pursue other strategic investments or acquisitions.

These involve various inherent risks and the benefits sought may not be realized.

The acquisition of MIRROR or other strategic investments or acquisitions may not create value and may harm our brand and adversely affect our business, financial condition, and results of operations.

We may not be able to grow the MIRROR business and have it achieve profitability.

We may be unable to attract and retain subscribers to MIRROR.

We may not be able to grow the lululemon Studio business and have it achieve profitability.

We may be unable to attract and retain subscribers to lululemon Studio.

If we do not provide the delivery and installation service that our guests expect, offer engaging and innovative classes, and support and continue to improve the technology used, we may not be able to maintain and grow the number of subscribers.

This could adversely impact our results of operations.

We are dependent on technology systems to provide live and recorded classes to our customers with MIRROR subscriptions, to maintain its software, and to manage subscriptions.

We are dependent on technology systems to provide live and recorded classes to our customers with lululemon Studio subscriptions, to maintain its software, and to manage subscriptions.

If we experience issues such as cybersecurity threats or actions, or interruptions or delays in our technology systems, the data privacy and overall experience of subscribers could be negatively impacted and could therefore damage our brand and adversely affect our results of operations.

Competition, including from other in-home fitness providers as well as in-person fitness studios, and trends of consumer preferences, could also impact the level of subscriptions and therefore our results of operations.

We also may not successfully adapt the lululemon Studio strategy in response to changing market conditions and customer preferences.

If we continue to grow at a rapid pace, we may not be able to effectively manage our growth and the increased complexity of our business and as a result our brand image and financial performance may suffer.

9 unchanged sentences

If an existing or new store is not profitable, and we decide to close it, as we have done in the past and may do in the future, we may nonetheless be committed to perform our obligations under the applicable lease including, among other things, paying the base rent for the balance of the lease term.

Similarly, we may be committed to perform our obligations under the applicable leases even if current locations of our stores become unattractive as demographic patterns change.

Similarly, we may be committed to perform our obligations under the applicable leases even if

current locations of our stores become unattractive as demographic patterns change.

In addition, as each of our leases expire, we may fail to negotiate renewals, either on commercially acceptable terms or at all, which could require us to close stores in desirable locations.

15 unchanged sentences

Disruptions of our supply chain could have a material adverse effect on our operating and financial results.

stoppages, the financial or operational instability of key suppliers and carriers, changes in diplomatic or trade relationships (including any sanctions, restrictions, and other responses such as those related to current geopolitical events), or other reasons could impair our ability to distribute our products.

Disruption of our supply chain capabilities due to trade restrictions, political instability, severe weather, natural disasters, public health crises such as the ongoing COVID-19 pandemic, war, terrorism, product recalls, labor supply or stoppages, the financial or operational instability of key suppliers and carriers, changes in diplomatic or trade relationships (including any sanctions, restrictions, and other responses such as those related to current geopolitical events), or other reasons could impair our ability to distribute our products.

To the extent we are unable to mitigate the likelihood or potential impact of such events, there could be a material adverse effect on our operating and financial results.

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The receipt of inventory sourced from areas impacted by COVID-19 has been slowed or disrupted and our manufacturers may also face similar challenges in receiving fabric and fulfilling our orders.

In addition, freight capacity issues

continue to persist worldwide as there is much greater demand for shipping and reduced capacity and equipment.

In addition, freight capacity issues continue to persist worldwide as there is much greater demand for shipping and reduced capacity and equipment.

Any delays, interruption, or increased costs in the supply of fabric or manufacture of our products could have an adverse effect on our ability to meet guest demand for our products and result in lower net revenue and income from operations both in the short and long term.

7 unchanged sentences

Any and all of these factors may be exacerbated by global climate change.

In addition, ongoing impacts of the pandemic, political instability, trade relations, sanctions, inflationary pressure, or other geopolitical or economic conditions could cause raw material costs to increase and have an adverse effect on our future margins.

In addition, ongoing impacts of the pandemic, political instability, trade relations, sanctions, inflationary pressure, or other geopolitical or economic conditions could cause

raw material costs to increase and have an adverse effect on our future margins.

Increases in the cost of raw materials, including petroleum or the prices we pay for silver and our cotton yarn and cotton-based textiles, could have a material adverse effect on our cost of goods sold, results of operations, financial condition, and cash flows.

46 unchanged sentences

Increasingly, customers are using tablets and smart phones to shop online with us and with our competitors and to do comparison shopping.

increasingly using social media and proprietary mobile apps to interact with our customers and as a means to enhance their shopping experience.

We are increasingly using social media and proprietary mobile apps to interact with our customers and as a means to enhance their shopping experience.

Any failure on our part to provide attractive, effective, reliable, user-friendly e-commerce platforms that offer a wide assortment of merchandise with rapid delivery options and that continually meet the changing expectations of online shoppers could place us at a competitive disadvantage, result in the loss of e-commerce and other sales, harm our reputation with customers, have a material adverse impact on the growth of our e-commerce business globally and could have a material adverse impact on our business and results of operations.

6 unchanged sentences

In many countries, governmental bodies are enacting new or additional legislation and regulations to reduce or mitigate the potential impacts of climate change.

If we, our suppliers, or our contract manufacturers are required to comply with these laws and regulations, or if we choose to take voluntary steps to reduce or mitigate our impact on climate change, we may experience increased costs for energy, production, transportation, and raw materials, increased capital expenditures, or increased insurance premiums and deductibles, which could adversely impact our operations.

If we, our suppliers, or our contract manufacturers are required to comply

with these laws and regulations, or if we choose to take voluntary steps to reduce or mitigate our impact on climate change, we may experience increased costs for energy, production, transportation, and raw materials, increased capital expenditures, or increased insurance premiums and deductibles, which could adversely impact our operations.

Inconsistency of legislation and regulations among jurisdictions may also affect the costs of compliance with such laws and regulations.

17 unchanged sentences

Our sensitivity to economic cycles and any related fluctuation in consumer demand may have a material adverse effect on our financial condition.

The current COVID-19 coronavirus pandemic and related government, private sector, and individual consumer responsive actions have affected, and could continue to affect, our business operations, store traffic, employee availability, supply chain, financial condition, liquidity, and cash flow.

The COVID-19 pandemic has negatively impacted the global economy, disrupted consumer spending and global supply chains, and created significant volatility and disruption of financial markets.

COVID-19 negatively impacted our business and operations in 2020.

While conditions improved in 2021, the extent and duration of ongoing impacts remain uncertain.

Our stores have experienced temporary closures, and we have implemented precautionary measures in line with guidance from local authorities in the stores that are open.

These measures include restrictions such as limitations on the number of guests

allowed in our stores at any single time, minimum physical distancing requirements, and limited operating hours.

We do not know how the measures recommended by local authorities or implemented by us may change over time or what the duration of these restrictions will be.

Further resurgences in COVID-19 cases, including from variants, could cause additional restrictions, including temporarily closing all or some of our stores again.

An outbreak at one of our locations, even if we follow appropriate precautionary measures, could negatively impact our employees, guests, and brand.

There is also uncertainty regarding potential long-term changes to consumer shopping behavior and preferences and whether consumer demand will recover when restrictions are lifted.

In particular, we have seen disruptions and delays in shipments, and we may see negative impacts to pricing of certain components of our products as a result of the COVID-19 pandemic.

Global economic and political conditions and global events such as health pandemics could adversely impact our results of operations.

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It is possible that further tariffs may be introduced, or increased.

Such changes could adversely impact our business and could increase the costs of sourcing our products from the PRC, or could require us to source more of our products from other countries.

Such changes could adversely impact our business and could increase the

costs of sourcing our products from the PRC, or could require us to source more of our products from other countries.

The Uyghur Forced Labor Prevention Act may lead to greater supply chain compliance costs and delays to us and to our vendors.

There could be changes in economic conditions in the United Kingdom ("UK") or European Union ("EU"), including due to the UK's withdrawal from the EU, foreign currency exchange rates, and consumer markets.

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Repatriations from our Canadian subsidiaries are not subject to Canadian withholding taxes if such distributions are made as a return of capital.

Historically, we have not accrued for any Canadian withholding taxes that would be payable on repatriations from our Canadian subsidiaries because the net investment in our Canadian subsidiaries is indefinitely reinvested, or could be repatriated free of withholding tax.

Historically, we have not accrued any significant amounts for Canadian withholding taxes that would be payable on repatriations from our Canadian subsidiaries because the net investment in our Canadian subsidiaries is indefinitely reinvested, or could be repatriated free of withholding tax.

The extent to which increases in the net assets of our Canadian subsidiaries can be repatriated free of withholding tax is dependent on, among other things, the amount of paid-up-capital in our Canadian subsidiaries and transactions undertaken by our exchangeable shareholders.

As of July 31, 2022, we had 5.2 million exchangeable shares outstanding.

As of October 30, 2022, we had 5.2 million exchangeable shares outstanding.

If there are insufficient transactions by our exchangeable shareholders between now and the end of 2022, and our Canadian subsidiary continues to generate profits at historic rates, then we will be unable to repatriate all of our 2022 Canadian earnings free of withholding tax.

1 unchanged sentence

This has increased our effective tax rate, and absent further transactions by our exchangeable shareholders, we expect our tax rate to increase further in fiscal 2023.

We and our subsidiaries engage in a number of intercompany transactions across multiple tax jurisdictions.

We engage in a number of intercompany transactions across multiple tax jurisdictions.

Although we believe that these transactions reflect the accurate economic allocation of profit and that proper transfer pricing documentation is in place, the profit allocation and transfer pricing terms and conditions may be scrutinized by local tax authorities during an audit and any resulting changes may impact our mix of earnings in countries with differing statutory tax rates.

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Certain provisions of the recently enacted Inflation Reduction Act effective January 1, 2023, including a 1% excise tax on share repurchases and a 15% corporate alternative minimum tax, may impact our income tax expense, profitability, and capital allocation decisions.

We continue to evaluate the impact of the legislation.

Our failure to comply with trade and other regulations could lead to investigations or actions by government regulators and negative publicity.

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An unfavorable outcome of any particular proceeding could have an adverse impact on our business, financial condition, and results of operations.

In addition, the adoption of new regulations or changes in the interpretation of existing regulations may result in significant compliance costs or discontinuation of product sales and could impair the marketing of our products, resulting in significant loss of net revenue.

In addition, the adoption of new regulations or changes in the interpretation of existing regulations may result in

significant compliance costs or discontinuation of product sales and could impair the marketing of our products, resulting in significant loss of net revenue.

Our international operations are also subject to compliance with the U.S.

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Activist stockholders or others may create perceived uncertainties as to the future direction of our business or strategy which may be exploited by our competitors and may make it more difficult to attract and retain qualified personnel and potential guests, and may affect our relationships with current guests, vendors, investors, and other third parties.

In addition, a proxy contest for the election of directors at our annual meeting would require us to incur significant legal fees and proxy solicitation expenses and require significant time and attention by management and our board of directors.

In addition, a proxy contest for the election of directors at our annual meeting would require us to incur significant legal fees and proxy solicitation expenses and require

significant time and attention by management and our board of directors.

The perceived uncertainties as to our future direction also could affect the market price and volatility of our securities.

12 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-Q

Item 1A. Risk Factors