What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-06-05 compared with 2023-12-07 · 160 added, 396 removed, 169 unchanged (77% of the section changed)

10 unchanged sentences

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 2023 Annual Report on Form 10-K filed with the SEC on March 21, 2024.

Our 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 2024 will end on February 2, 2025 and will be a 53-week year.

Fiscal 2023 was a 52-week year and ended on January 28, 2024.

Fiscal 2024 and fiscal 2023 are referred to as "2024," and "2023," respectively.

The first three quarters of 2023 and 2022 ended on October 29, 2023 and October 30, 2022, respectively.

The first quarter of 2024 and 2023 ended on April 28, 2024 and April 30, 2023, respectively.

Components of management's discussion and analysis of financial condition and results of operations include:

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• Quarter-to-Date Results of Operations

• Year-to-Date Results of Operations

• Comparable Store Sales and Total Comparable Sales

• Comparable Sales

• Non-GAAP Financial Measures

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• Operating Locations

We use comparable sales as a metric to evaluate the performance of our business.

Refer to the Comparable Sales section of this management's discussion and analysis of financial condition and results of operations for further information.

We provide constant dollar changes, which is a non-GAAP financial measure, as supplemental information to help investors understand the underlying growth rate of net revenue excluding the impact of changes in foreign currency exchange rates.

Refer to the Non-GAAP Financial Measures section of this management's discussion and analysis of financial condition and results of operations for reconciliations between the non-GAAP financial measures and the most directly comparable measures calculated in accordance with GAAP.

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.

Information contained on or accessible through our websites

is not incorporated into, and does not form a part of, this Quarterly Report or any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only.

As reported in the fiscal 2023 Annual Report on Form 10-K filed with the SEC on March 21, 2024, we changed our operating segments during the fourth quarter of fiscal 2023.

We report three segments:

Americas, China Mainland, and Rest of World, which is Asia Pacific (“APAC”) and Europe and the Middle East (“EMEA”) on a combined basis.

Previously, our segments were based on selling channel.

We have recast our previously reported amounts for segmented net revenue and segmented income from operations to reflect the current presentation.

lululemon athletica inc.

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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."

We offer a comprehensive line of performance apparel, footwear, and accessories marketed under the lululemon brand.

We offer a comprehensive line of technical athletic apparel, footwear, and accessories marketed under the lululemon brand.

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.

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Financial Highlights

The summary below compares the third quarter of 2023 to the third quarter of 2022, and provides both GAAP and non-GAAP financial measures.

The adjusted financial measures for 2023 exclude $72.1 million of post-tax asset impairment and other charges recognized in relation to lululemon Studio.

The summary below compares the first quarter of 2024 to the first quarter of 2023:

• Net revenue increased 10% to $2.2 billion.

• Total comparable sales increased 13%, or 14% on a constant dollar basis.

– Comparable store sales increased 9%.

– Direct to consumer net revenue increased 18%, or 19% on a constant dollar basis.

On a constant dollar basis, net revenue increased 11%.

• Comparable sales increased 6%, or 7% on a constant dollar basis.

– Americas comparable sales were flat compared to the first quarter of 2023.

– China Mainland comparable sales increased 26%, or 33% on a constant dollar basis.

– Rest of World comparable sales increased 23%, or 26% on a constant dollar basis.

• Gross profit increased 11% to $1.3 billion.

Adjusted gross profit increased 23% to $1.3 billion.

• Gross margin increased 20 basis points to 57.7%.

Adjusted gross margin increased 220 basis points to 58.1%.

• Income from operations decreased 4% to $338.1 million.

Adjusted income from operations increased 24% to $436.3 million.

• Income from operations increased 8% to $432.6 million.

• Operating margin decreased 50 basis points to 19.6%.

Adjusted operating margin increased 80 basis points to 19.8%.

• Income tax expense increased 13% to $134.5 million.

Our effective tax rate for the third quarter of 2023 was 28.5% compared to 27.6% for the third quarter of 2022.

The adjusted effective tax rate was 28.1% for the third quarter of 2023.

• We have contracted with Peloton Interactive, Inc.

to be the exclusive digital fitness content provider for the lululemon Studio Mirror and will no longer produce our own digital fitness content.

While we will continue to provide services and support to existing lululemon Studio subscribers, we have ceased selling the Mirror hardware.

We recognized post-tax inventory provisions, asset impairments, and restructuring costs related to lululemon Studio totaling $72.1 million during the third quarter of 2023.

• Diluted earnings per share were $1.96 compared to $2.00 in the third quarter of 2022.

Adjusted diluted earnings per share were $2.53 in the third quarter of 2023.

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 the above adjusted non-GAAP financial measures and the most directly comparable measures calculated in accordance with GAAP.

Our effective tax rate for the first quarter of 2024 was 29.5% compared to 29.1% for the first quarter of 2023.

• Diluted earnings per share were $2.54 compared to $2.28 in the first quarter of 2023.

Market Conditions and Trends

Macroeconomic conditions, supply chain disruption, and the COVID-19 pandemic have impacted our business and operating costs.

Certain trends are expected to continue throughout 2023, with the impact varying by market.

Macroeconomic Conditions

Macroeconomic conditions, including foreign currency fluctuations, have impacted our financial results.

Foreign currency fluctuations reduced the growth of our net revenue by $82.2 million when comparing the first three quarters of 2023 to the first three quarters of 2022, primarily due to the overall appreciation of the US dollar.

We expect that future exchange rate volatility will impact our results.

We have also experienced increased wage rates when comparing the first three quarters of 2023 to the first three quarters of 2022.

Guest traffic in our company-operated stores and online increased during the first three quarters of 2023, compared to the first three quarters of 2022.

Consumer purchasing behaviors may be impacted by current economic conditions including inflation, higher interest rates, and other macroeconomic factors which may have an adverse effect on our future operating margins.

Supply chain disruption

In 2021 and 2022 we experienced supply chain disruption, including delays in inbound delivery of our products as well as in manufacturing.

This supply chain disruption caused us to use higher cost modes of transport, including increasing our use of air freight.

We saw an improvement in the supply chain disruption during the second half of 2022 and during the first three quarters of 2023, including reductions in freight costs and reductions in our levels of air freight usage.

During the first three quarters of 2023 compared to the first three quarters of 2022, our product margin increased by 320 basis points excluding the impact of the lululemon Studio inventory provision, primarily due to lower freight costs from rate reductions and reduced air freight usage.

We expect that the reduction in freight costs for the fourth quarter of 2023 will be less significant than in the first three quarters of 2023.

COVID-19 Pandemic

Most of our retail locations were open throughout the first three quarters of 2023 and 2022, with certain locations temporarily closed due to COVID-19 resurgences during the first quarter of 2022, including certain company-operated stores and our third party distribution center in the People's Republic of China ("PRC").

Net revenue from the PRC increased 64% in the first three quarters of 2023 compared to the first three quarters of 2022, with improvements in COVID-19 trading conditions contributing to this increase.

Macroeconomic conditions, including foreign currency fluctuations and consumer purchasing behaviors, impact our business and operating costs.

Such factors are expected to continue to impact our business throughout 2024, with the impact varying by market.

Consumer purchasing behaviors and their propensity to spend in our sector have been impacted by uncertain economic conditions including inflation, higher interest rates, and other factors.

While we experienced traffic and net revenue growth in the first quarter of 2024 in all markets, we saw continued moderation in our quarterly net revenue growth in the Americas,

particularly in the United States.

We continue to monitor macroeconomic conditions and the trends in consumer demand for our products.

Foreign currency fluctuations have impacted our financial results.

Foreign currency fluctuations reduced the growth of our net revenue by $21.8 million when comparing the first quarter of 2024 to 2023, primarily due to the overall appreciation of the US dollar.

We expect future exchange rate volatility to impact our results.

Quarter-to-Date Results of Operations:

Third Quarter Results

First Quarter Results

The following table summarizes key components of our results of operations for the periods indicated:

Third Quarter

First Quarter

2024 2023 2024 2023

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Selling, general and administrative expenses 842,426 747,513 38.1 37.4

Impairment of assets and restructuring costs 74,501 — 3.4 —

Amortization of intangible assets — 1,878 — 0.1

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Net income $ 321,421 $ 290,405 14.6 % 14.5 %

Net revenue increased $347.3 million, or 19%, to $2.2 billion for the third quarter of 2023 from $1.9 billion for the third quarter of 2022.

On a constant dollar basis, assuming the average foreign currency exchange rates for the third quarter of 2023 remained constant with the average foreign currency exchange rates for the third quarter of 2022, net revenue increased $358.4 million, or 19%.

The increase in net revenue was primarily due to increased company-operated store net revenue, including from new company-operated stores and increased comparable store sales, as well as due to increased direct to consumer net revenue.

Other net revenue also increased.

Total comparable sales, which includes comparable store sales and direct to consumer net revenue, increased 13% for the third quarter of 2023 compared to the third quarter of 2022.

Total comparable sales increased 14% on a constant dollar basis.

Net revenue for the third quarter of 2023 and 2022 is summarized below.

Third Quarter

Net revenue increased $208.1 million, or 10%, to $2.2 billion for the first quarter of 2024 from $2.0 billion for the first quarter of 2023.

On a constant dollar basis, net revenue increased 11%.

Comparable sales increased 6%, or 7% on a constant dollar basis.

The increase in net revenue was primarily due to increased China Mainland net revenue.

Rest of World and Americas net revenue also increased.

Net revenue for the first quarter of 2024 and 2023 is summarized below:

First Quarter

2024 2023 2024 2023 Year over year change

(In thousands) (Percentage of net revenue) (In thousands) (Percentage)

Company-operated stores $ 1,073,973 $ 903,060 48.7 % 48.6 % $ 170,913 18.9 %

Direct to consumer 908,127 767,351 41.2 41.3 140,776 18.3

Other 222,118 186,478 10.1 10.0 35,640 19.1

(In thousands) (Percentage of net revenue) (In thousands) (Percentage) (Constant dollar change)

Americas $ 1,622,264 $ 1,567,738 73.4 % 78.4 % $ 54,526 3.5 % 4.0 %

China Mainland 303,786 210,068 13.8 10.5 93,718 44.6 52.0

Rest of World 282,841 222,986 12.8 11.1 59,855 26.8 30.0

Net revenue $ 2,208,891 $ 2,000,792 100.0 % 100.0 % $ 208,099 10.4 % 11.0 %

Company-Operated Stores.

The increase in net revenue from our company-operated stores was driven by net revenue from company-operated stores that we opened or significantly expanded since the third quarter of 2022 which contributed $108.2 million to the increase.

We have opened 63 net new company-operated stores since the third quarter of 2022, including 32 stores in Asia Pacific, 28 stores in North America, and three stores in Europe.

The increase in net revenue from our company-operated stores was also driven by increased comparable store sales.

Comparable store sales increased 9%, or 9% 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 a lower dollar value per transaction.

Direct to Consumer.

Direct to consumer net revenue increased 18%, or 19% 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.

The increase in other net revenue was primarily due to increased outlet sales, sales to wholesale accounts, and license and supply arrangement revenue.

The increase in net revenue was partially offset by a decrease in net revenue from our temporary locations, which had fewer locations open compared to the prior year, and a decrease in lululemon Studio net revenue.

Third Quarter

The increase in Americas net revenue was primarily due to a $50.9 million increase from new or expanded company-operated stores and our other channels.

We have opened 14 net new stores in the Americas since the first quarter of 2023.

Americas comparable sales were flat compared to the first quarter of 2023.

This was primarily a result of increased traffic, offset by a decrease in conversion rates.

China Mainland.

The increase in China Mainland net revenue was primarily due to an increase in comparable sales, which increased 26%, or 33% on a constant dollar basis.

The increase in comparable sales was primarily a result of increased traffic, partially offset by a lower dollar value per transaction.

The increase in China Mainland net revenue was also driven by a $41.7 million increase in net revenue from new or expanded company-operated stores and our other channels.

We have opened 26 net new stores in China Mainland since the first quarter of 2023.

Rest of World.

The increase in Rest of World net revenue was primarily due to an increase in comparable sales, which increased 23%, or 26% on a constant dollar basis.

The increase in comparable sales was primarily a result of increased traffic and a higher dollar value per transaction, partially offset by a decrease in conversion rates.

The increase in Rest of World net

revenue was also driven by a $19.9 million increase in net revenue from new or expanded company-operated stores and our other channels.

We have opened nine net new stores in Rest of World since the first quarter of 2023.

First Quarter

2024 2023 Year over year change

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57.7 % 57.5 % 20 basis points

As a result of our decision to cease selling the lululemon Studio Mirror, we recognized an inventory obsolescence provision of $23.7 million during the third quarter of 2023.

This reduced gross margin by 110 basis points.

Please refer to Note 3.

Impairment of Assets and Restructuring Costs included in Item 1 of Part I of this report.

Gross margin increased 110 basis points, or increased 220 basis points on an adjusted basis.

The 220 basis point increase in adjusted gross margin was primarily the result of:

• a net increase in product margin of 250 basis points, primarily due to lower freight costs from rate reductions and reduced air freight usage as well as lower duty costs, modestly offset by higher inventory provisions, shrink, and damages in the current year.

The increase in adjusted gross margin was partially offset by an increase in occupancy costs as a percentage of net revenue of 20 basis points and an unfavorable impact of foreign currency exchange rates of 10 basis points.

The increase in gross margin was primarily the result of:

• a net increase in product margin of 120 basis points, primarily due to lower product costs including lower freight costs, as well as lower inventory provisions.

This was partially offset by higher markdowns in the current year;

• a decrease in costs related to our product departments as a percentage of net revenue of 50 basis points.

The increase in gross margin was partially offset by an increase in occupancy costs as a percentage of net revenue of 70 basis points, an increase in distribution center costs as a percentage of net revenue of 50 basis points, and an unfavorable impact of foreign currency exchange rates of 30 basis points.

Selling, General and Administrative Expenses

Third Quarter

First Quarter

2024 2023 Year over year change

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The increase in selling, general and administrative expenses was primarily due to:

• an increase in costs related to our operating channels of $49.6 million, comprised of:

– an increase in variable costs of $17.6 million primarily due to increased distribution costs, packaging costs, and credit card fees, primarily as a result of increased net revenue;

– an increase in other operating costs of $15.4 million primarily due to increased depreciation, technology costs, and repairs and maintenance costs;

– an increase in employee costs of $14.1 million primarily due to increased salaries and wages expense, and benefit costs for retail employees, partially offset by decreased incentive compensation;

– an increase in brand and community costs of $2.5 million primarily due to increased digital marketing expenses and events.

• an increase in head office costs of $47.3 million, comprised of:

– an increase in brand and community costs of $36.3 million primarily due to increased marketing expenses;

– an increase in employee costs of $26.9 million primarily due to increased salaries and wages expense as well as increased benefits costs, stock-based compensation, and incentive compensation, primarily as a result of headcount growth and increased wage rates;

– an increase in other head office costs of $11.2 million, primarily due to increased professional fees;

– an increase in brand and community costs of $21.1 million primarily due to increased marketing expenses and brand campaigns;

– an increase in other head office costs of $14.7 million, primarily due to increased advisory and professional fees;

– an increase in employee costs of $5.5 million primarily due to increased salaries and wages expense as well as increased stock-based compensation and benefit costs, partially offset by decreased other incentive compensation;

– an increase in technology costs, including cloud computing amortization, of $4.9 million;

– an increase in depreciation of $1.1 million.

• an increase in costs related to our operating channels of $75.6 million, comprised of:

– an increase in employee costs of $34.2 million primarily due to increased salaries and wages expense, benefit costs, and incentive compensation in our company-operated stores channel, primarily from the growth in our business and increased wage rates;

– an increase in other operating costs of $18.8 million primarily due to increased depreciation, repairs and maintenance costs, and technology costs;

– an increase in variable costs of $15.2 million primarily due to increased credit card fees, distribution costs, and packaging costs primarily as a result of increased net revenue;

– an increase in brand and community costs of $7.4 million primarily due to increased digital marketing expenses related to our direct to consumer channel.

The increase in selling, general and administrative expenses was partially offset by a decrease in net foreign currency exchange and derivative revaluation losses of $2.0 million.

Impairment of Assets and Restructuring Costs

Third Quarter

2023 2022 Year over year change

(In thousands) (In thousands) (Percentage)

Impairment of assets and restructuring costs $ 74,501 $ — $ 74,501 n/a

During the third quarter of 2023, we recognized certain asset impairments and restructuring costs related to lululemon Studio.

Please refer to Note 3.

Impairment of Assets and Restructuring Costs included in Item 1 of Part I of this report for further information.

Amortization of Intangible Assets

Third Quarter

First Quarter

2024 2023 Year over year change

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On a segment basis, we determine income from operations without taking into account our general corporate expenses and certain other expenses.

General corporate expenses include centrally managed support functions and other head office costs, including product design teams and brand costs which support all regions.

Segmented income from operations is summarized below.

Third Quarter

First Quarter

2024 2023 2024 2023 Year over year change

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Segmented income from operations:

Company-operated stores $ 310,510 $ 242,733 28.9 % 26.9 % $ 67,777 27.9 %

Direct to consumer 384,393 321,742 42.3 41.9 62,651 19.5

Other 53,527 24,911 24.1 13.4 28,616 114.9

Americas $ 564,840 $ 581,222 34.8 % 37.1 % $ (16,382) (2.8) %

China Mainland 119,778 73,885 39.4 35.2 45,893 62.1

Rest of World 66,681 43,794 23.6 19.6 22,887 52.3

$ 751,299 $ 698,901 $ 52,398 7.5 %

General corporate expense 318,657 295,609 23,048 7.8

lululemon Studio obsolescence provision 23,709 — 23,709 n/a

Impairment of assets and restructuring costs 74,501 — 74,501 n/a

Amortization of intangible assets — 1,878 (1,878) (100.0)

1 unchanged sentence

Operating margin 19.6 % 20.1 % (50) 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 $114.5 million, driven by increased net revenue and higher gross margin.

The increase in gross margin was primarily due to higher product margin driven by lower freight costs and lower markdowns, partially offset by higher inventory provisions, shrink, and damages.

The increase in gross margin was partially offset by an unfavorable impact of foreign currency exchange rates, deleverage in occupancy costs, and deleverage in costs from our product teams.

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, benefit costs, and incentive compensation as a result of the growth in our business and increased wage rates.

Store operating costs increased primarily due to increases in credit card fees and packaging costs, as a result of higher net revenue, as well as increased repairs and maintenance.

Income from operations as a percentage of company-operated store net revenue increased due to higher gross margin, partially offset by deleverage on selling, general and administrative expenses.

Direct to Consumer.

The increase in income from operations from our direct to consumer segment was primarily the result of increased gross profit of $105.5 million, driven by increased net revenue and higher gross margin.

The increase in gross margin was primarily due to higher product margin driven by lower freight costs, partially offset by higher markdowns and inventory provisions.

The increase in gross margin was partially offset by an unfavorable impact of foreign currency exchange rates and deleverage in costs from our product teams and distribution centers.

The increase in gross profit was partially offset by an increase in selling, general and administrative expenses, primarily due to higher digital marketing expenses, higher variable operating costs including distribution costs, credit card fees, and packaging costs as a result of higher net revenue, as well as higher depreciation costs and technology costs.

Income from operations as a percentage of direct to consumer net revenue increased primarily due to higher gross margin, partially offset by deleverage on selling, general and administrative expenses.

The increase in income from operations from our other channels was primarily the result of increased gross profit of $21.6 million, driven by increased net revenue and higher gross margin.

The increase in income from operations from our other channels was partially offset by an increase in selling, general and administrative expenses primarily due to increased salaries and wages expense and increased repairs and maintenance, partially offset by reduced lululemon Studio marketing expenses.

Income from operations as a percentage of other net revenue increased primarily due to leverage on selling, general and administrative expenses and higher gross margin.

The decrease in Americas income from operations was primarily the result of increased selling, general and administrative expenses.

The increase in selling, general and administrative expenses was primarily due to increased marketing expenses, increased distribution costs and packaging costs driven by higher net revenue, and increased depreciation, technology costs, and repairs and maintenance costs.

The increase in selling, general and administrative expenses was partially offset by increased gross profit of $23.7 million, which was driven by increased net revenue, partially offset by lower gross margin.

The decrease in gross margin was primarily due to deleverage in distribution center and occupancy costs, partially offset by leverage on costs from our product teams and higher product margin.

Income from operations as a percentage of Americas net revenue decreased due to deleverage on selling, general and administrative expenses and lower gross margin.

China Mainland.

The increase in China Mainland income from operations was primarily the result of increased gross profit of $61.3 million, driven by increased net revenue and higher gross margin.

The increase in gross margin was primarily due to higher product margin as well as leverage on occupancy and other costs, partially offset by unfavorable foreign currency exchange rates.

The increase in gross profit was partially offset by an increase in selling, general and administrative expenses, primarily due to higher employee costs, increased packaging costs driven by higher net revenue, and increased marketing expenses.

Income from operations as a percentage of China Mainland net revenue increased due to leverage on selling, general and administrative expenses and higher gross margin.

Rest of World.

The increase in Rest of World income from operations was primarily the result of increased gross profit of $40.2 million, driven by increased net revenue and higher gross margin.

The increase in gross margin was primarily due to higher product margin as well as leverage on occupancy costs, partially offset by unfavorable foreign currency exchange rates.

The increase in gross profit was partially offset by an increase in selling, general and administrative expenses primarily due to higher employee costs and increased marketing expenses, as well as increased credit card fees and distribution costs driven by higher net revenue.

Income from operations as a percentage of Rest of World net revenue increased due to higher gross margin and leverage on selling, general and administrative expenses.

General Corporate Expense.

The increase in general corporate expense was primarily due to increased brand and community costs, as well as increased employee costs, primarily from headcount growth and increased wage rates, professional fees, technology costs, and depreciation.

The increase in general corporate expense was primarily due to increased advisory and professional fees, employee costs, 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 $2.0 million.

Other Income (Expense), Net

Third Quarter

2023 2022 Year over year change

(In thousands) (In thousands) (Percentage)

Other income (expense), net

$ 9,842 $ 331 $ 9,511 n/a

The increase in other income, net was primarily due to an increase in interest income as a result of higher interest rates and higher cash balances.

Income Tax Expense

Third Quarter

2023 2022 Year over year change

(In thousands) (In thousands) (Percentage)

Income tax expense

$ 99,243 $ 97,288 $ 1,955 2.0 %

Effective tax rate

28.5 % 27.6 % 90 basis points

The increase in the effective tax rate was primarily due to the accrual of withholding taxes on unremitted foreign earnings and a lower tax rate on certain inventory provisions, asset impairments, and restructuring costs recognized in relation to lululemon Studio which increased the effective tax rate in the third quarter of 2023 by 40 basis points.

This was partially offset by a reduction in non-deductible expenses in international jurisdictions and an increase in tax benefits related to stock-based compensation.

Excluding certain inventory provisions, asset impairments, and restructuring costs recognized in relation to lululemon Studio in 2023, and their tax effects, our adjusted effective tax rate was 28.1% for the third quarter of 2023.

Third Quarter

First Quarter

2024 2023 Year over year change

(In thousands) (In thousands) (Percentage)

$ 248,714 $ 255,470 $ (6,756) (2.6) %

The decrease in net income was primarily due to an increase in selling, general and administrative expenses of $158.6 million, asset impairment and restructuring costs recognized in relation to lululemon Studio in the third quarter of 2023 of $74.5 million, and an increase in income tax expense of $2.0 million, partially offset by an increase in gross profit of $217.8 million and an increase in other income (expense), net of $9.5 million.

Excluding certain inventory provisions, asset impairments, and restructuring costs recognized in relation to lululemon Studio in 2023, and their tax effects, adjusted net income increased $65.4 million or 26%.

Year-to-Date Results of Operations:

First Three Quarters Results

The following table summarizes key components of our results of operations for the periods indicated:

First Three Quarters

2023 2022 2023 2022

(In thousands) (Percentage of net revenue)

Net revenue $ 6,414,175 $ 5,338,680 100.0 % 100.0 %

Cost of goods sold 2,708,195 2,373,959 42.2 44.5

Gross profit 3,705,980 2,964,721 57.8 55.5

Selling, general and administrative expenses 2,407,683 1,954,340 37.5 36.6

Impairment of assets and restructuring costs 74,501 — 1.2 —

Amortization of intangible assets 5,010 6,579 0.1 0.1

Gain on disposal of assets — (10,180) — (0.2)

Income from operations 1,218,786 1,013,982 19.0 19.0

Other income (expense), net

Income before income tax expense 1,244,015 1,014,436 19.4 19.0

Income tax expense 363,293 279,447 5.7 5.2

Net income $ 880,722 $ 734,989 13.7 % 13.8 %

Net revenue increased $1.1 billion, or 20%, to $6.4 billion for the first three quarters of 2023 from $5.3 billion for the first three quarters of 2022.

On a constant dollar basis, assuming the average foreign currency exchange rates for the first three quarters of 2023 remained constant with the average foreign currency exchange rates for the first three quarters of 2022, net revenue increased $1.2 billion, or 22%.

Other net revenue also increased.

Total comparable sales, which includes comparable store sales and direct to consumer net revenue, increased 13% for the first three quarters of 2023 compared to the first three quarters of 2022.

Total comparable sales increased 14% on a constant dollar basis.

Net revenue for the first three quarters of 2023 and 2022 is summarized below.

First Three Quarters

2023 2022 2023 2022 Year over year change

(In thousands) (Percentage of net revenue) (In thousands) (Percentage)

Company-operated stores $ 3,128,999 $ 2,537,741 48.8 % 47.5 % $ 591,258 23.3 %

Direct to consumer 2,636,742 2,264,029 41.1 42.4 372,713 16.5

Other 648,434 536,910 10.1 10.1 111,524 20.8

Net revenue $ 6,414,175 $ 5,338,680 100.0 % 100.0 % $ 1,075,495 20.1 %

Company-Operated Stores .

We have opened 63 net new company-operated stores since the third quarter of 2022, including 32 stores in Asia Pacific, 28 stores in North America, and three stores in Europe.

The increase in net revenue from our company-operated stores was also driven by increased comparable store sales.

Comparable store sales increased 10%, or 11% 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 a lower dollar value per transaction.

Direct to Consumer.

Direct to consumer net revenue increased 16%, or 18% on a constant dollar basis.

The increase in net revenue from our direct to consumer segment was primarily a result of increased traffic, partially offset by a decrease in conversion rates and a lower dollar value per transaction.

The increase in other net revenue was primarily due to increased outlet sales, sales to wholesale accounts, and license and supply arrangement revenue.

First Three Quarters

2023 2022 Year over year change

(In thousands) (In thousands) (Percentage)

$ 23,283 $ 8,025 $ 15,258 190.1 %

57.8 % 55.5 % 230 basis points

As a result of our decision to cease selling the lululemon Studio Mirror, we recognized an inventory obsolescence provision of $23.7 million during the third quarter of 2023.

This reduced gross margin by 30 basis points.

Please refer to Note 3.

Impairment of Assets and Restructuring Costs included in Item 1 of Part I of this report.

Gross margin increased 230 basis points, or increased 260 basis points on an adjusted basis.

The 260 basis point increase in adjusted gross margin was primarily the result of:

• a net increase in product margin of 320 basis points, primarily due to lower freight costs from rate reductions and reduced air freight usage as well as lower duty costs, modestly offset by higher inventory provisions and damages in the current year.

The increase in adjusted gross margin was partially offset by:

• an unfavorable impact of foreign currency exchange rates of 30 basis points;

• an increase in costs related to our distribution centers and product departments as a percentage of net revenue of 20 basis points;

• an increase in occupancy costs as a percentage of net revenue of 10 basis points.

Selling, General and Administrative Expenses

First Three Quarters

2023 2022 Year over year change

(In thousands) (In thousands) (Percentage)

Selling, general and administrative expenses

$ 2,407,683 $ 1,954,340 $ 453,343 23.2 %

Selling, general and administrative expenses as a percentage of net revenue

37.5 % 36.6 % 90 basis points

The increase in selling, general and administrative expenses was primarily due to:

• an increase in head office costs of $258.0 million, comprised of:

– an increase in employee costs of $90.1 million primarily due to increased salaries and wages expense as well as increased incentive compensation, benefit costs, and stock-based compensation;

primarily as a result of headcount growth and increased wage rates;

– an increase in brand and community costs of $73.2 million primarily due to increased marketing expenses as well as increased charitable donations;

– an increase in depreciation of $34.1 million;

– an increase in technology costs, including cloud computing amortization, of $32.1 million;

– an increase in other head office costs of $28.5 million, primarily due to increased professional fees.

• an increase in costs related to our operating channels of $213.1 million, comprised of:

– an increase in employee costs of $109.7 million primarily due to increased salaries and wages expense, incentive compensation, and benefit costs in our company-operated stores channel, primarily from the growth in our business and increased wage rates;

– an increase in other operating costs of $45.3 million primarily due to increased depreciation costs, technology costs, and repairs and maintenance costs;

– an increase in variable costs of $39.5 million primarily due to increased credit card fees, distribution costs, and packaging costs, primarily as a result of increased net revenue;

– an increase in brand and community costs of $18.6 million primarily due to increased digital marketing expenses related to our direct to consumer channel.

The increase in selling, general and administrative expenses was partially offset by a decrease in net foreign currency exchange and derivative revaluation losses of $17.8 million.

Impairment of Assets and Restructuring Costs

First Three Quarters

2023 2022 Year over year change

(In thousands) (In thousands) (Percentage)

Impairment of assets and restructuring costs $ 74,501 $ — $ 74,501 n/a

During the third quarter of 2023, we recognized certain asset impairments and restructuring costs related to lululemon Studio.

Please refer to Note 3.

Impairment of Assets and Restructuring Costs included in Item 1 of Part I of this report for further information.

Amortization of Intangible Assets

First Three Quarters

2023 2022 Year over year change

(In thousands) (In thousands) (Percentage)

Amortization of intangible assets

$ 5,010 $ 6,579 $ (1,569) (23.8) %

The amortization of intangible assets was primarily the result of the amortization of intangible assets recognized upon the acquisition of MIRROR, which we rebranded as lululemon Studio.

Gain on Disposal of Assets

First Three Quarters

2023 2022 Year over year change

(In thousands) (In thousands) (Percentage)

Gain on disposal of assets

$ — $ (10,180) $ 10,180 (100.0) %

During the second quarter of 2022, we completed the sale of an administrative office building, which resulted in a pre-tax gain of $10.2 million.

Income from Operations

On a segment basis, we determine income from operations without taking into account our general corporate expenses and certain other expenses.

Segmented income from operations is summarized below.

First Three Quarters

2023 2022 2023 2022 Year over year change

(In thousands) (Percentage of net revenue of respective operating segment) (In thousands) (Percentage)

Segmented income from operations:

Company-operated stores $ 910,021 $ 660,246 29.1 % 26.0 % $ 249,775 37.8 %

Direct to consumer 1,137,716 933,272 43.1 41.2 204,444 21.9

Other 146,293 74,064 22.6 13.8 72,229 97.5

$ 2,194,030 $ 1,667,582 $ 526,448 31.6 %

General corporate expense 872,024 657,201 214,823 32.7

lululemon Studio obsolescence provision 23,709 — 23,709 n/a

Impairment of assets and restructuring costs 74,501 — 74,501 n/a

Amortization of intangible assets 5,010 6,579 (1,569) (23.8)

Gain on disposal of assets — (10,180) 10,180 (100.0)

Income from operations $ 1,218,786 $ 1,013,982 $ 204,804 20.2 %

Operating margin 19.0 % 19.0 % 0 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 $396.0 million, driven by increased net revenue and higher gross margin.

The increase in gross margin was primarily due to higher product margin driven by lower freight costs and lower markdowns, partially offset by higher inventory provisions, shrink, and damages.

The increase in gross margin was also due to leverage on depreciation costs, partially offset by an unfavorable impact of foreign currency exchange rates and deleverage in costs from our product teams.

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, incentive compensation, and benefit costs as a result of the growth in our business and increased wage rates.

Store operating costs increased primarily due to increases in credit card fees and packaging costs as a result of higher net revenue, as well as increased repairs and maintenance.

Income from operations as a percentage of company-operated store net revenue increased due to higher gross margin, partially offset by deleverage on selling, general and administrative expenses.

Direct to Consumer.

The increase in income from operations from our direct to consumer segment was primarily the result of increased gross profit of $311.3 million, driven by increased net revenue and higher gross margin.

The increase in

gross margin was primarily due to higher product margin driven by lower freight costs, partially offset by higher markdowns and higher inventory provisions and damages.

The increase in gross margin was partially offset by an unfavorable impact of foreign currency exchange rates and deleverage in costs from our product teams and distribution centers.

The increase in gross profit was partially offset by an increase in selling, general and administrative expenses primarily due to higher digital marketing expenses, higher variable operating costs including distribution costs, credit card fees, and packaging costs as a result of higher net revenue, as well as higher depreciation costs and higher technology costs.

The increase in income from operations from our other channels was primarily the result of increased gross profit of $57.7 million, driven by increased net revenue and higher gross margin.

The increase in income from operations from our other channels was partially offset by an increase in selling, general and administrative expenses driven by higher salaries and wages expense, higher repairs and maintenance, and professional fees, partially offset by reduced lululemon Studio marketing expenses.

Income from operations as a percentage of other net revenue increased primarily due to leverage on selling, general and administrative expenses and higher gross margin.

General Corporate Expense.

The increase in general corporate expense was primarily due to increased employee costs, primarily from headcount growth and increased wage rates, as well as increased brand and community costs, depreciation, technology costs, and professional fees.

The increase in general corporate expense was partially offset by a decrease in net foreign currency exchange and derivative revaluation losses of $17.8 million.

Other Income (Expense), Net

First Three Quarters

2023 2022 Year over year change

(In thousands) (In thousands) (Percentage)

Other income (expense), net

$ 25,229 $ 454 $ 24,775 n/a

The increase in other income, net was primarily due to an increase in interest income as a result of higher interest rates and higher cash balances.

The increase in other income, net was primarily due to an increase in interest income as a result of higher cash balances and higher interest rates.

Income Tax Expense

First Three Quarters

First Quarter

2024 2023 Year over year change

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29.5 % 29.1 % 40 basis points

The increase in the effective tax rate was primarily due to the accrual of withholding taxes on unremitted foreign earnings, adjustments upon the filing of income tax returns, and a lower tax rate on certain inventory provisions, asset impairments, and restructuring costs recognized in relation to lululemon Studio which increased the effective tax rate in the first three quarters of 2023 by 20 basis points.

A lower tax rate on the capital gain on the sale of an administrative building reduced our effective tax rate in the first three quarters of 2022 by 20 basis points.

The increase in the effective tax rate was partially offset by a reduction in non-deductible expenses in international jurisdictions.

Excluding certain inventory provisions, asset impairments, and restructuring costs recognized in relation to lululemon Studio in 2023, and the gain on sale of an administrative building in 2022, and their tax effects, our adjusted effective tax rates were 29.0% and 27.7% for the first three quarters of 2023 and 2022, respectively.

First Three Quarters

The increase in the effective tax rate was primarily due to a decrease in tax benefits related to stock-based compensation and an increase in non-deductible expenses in international jurisdictions.

First Quarter

2024 2023 Year over year change

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$ 321,421 $ 290,405 $ 31,016 10.7 %

The increase in net income was primarily due to an increase in gross profit of $741.3 million and an increase in other income (expense), net of $24.8 million, partially offset by an increase in selling, general and administrative expenses of $453.3 million, an increase in income tax expense of $83.8 million, asset impairment and restructuring costs recognized in relation to lululemon Studio in 2023 of $74.5 million, and a gain on disposal of assets of $10.2 million in the prior year.

Excluding certain inventory provisions, asset impairments, and restructuring costs recognized in relation to lululemon Studio in 2023, and the gain on sale of an administrative building in 2022, and their tax effects, adjusted net income increased $226.4 million or 31%.

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.

The increase in net income was primarily due to an increase in gross profit of $124.3 million and an increase in other income (expense), net of $15.3 million, partially offset by an increase in selling, general and administrative expenses of $94.9 million, and an increase in income tax expense of $15.5 million.

Comparable Sales

We use comparable sales to evaluate the performance of our company-operated store and e-commerce businesses from an omni-channel perspective.

It allows us to monitor the performance of our business without the impact of recently opened or expanded stores.

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.

Comparable sales includes comparable company-operated store and all e-commerce net revenue.

E-commerce net revenue includes buy online pick-up in store, back-back room, and ship from store net revenue in addition to our websites, other region-specific websites, digital marketplaces, and mobile apps.

Our back-back room capability allows our store educators to access inventory located at our other locations and have product shipped directly to a guest's address or a store.

Comparable company-operated stores have been open, or open after being significantly expanded, for at least 12 full fiscal months.

Net revenue from a company-operated store is included in comparable sales beginning with the first fiscal month for which the store has a full fiscal month of sales in the prior year.

Comparable sales excludes 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, from stores which have been temporarily relocated for renovations or temporarily closed, and sales from company-operated stores that have closed.

Comparable sales also excludes sales from our selling channels other than company-operated stores and e-commerce.

The comparable sales measures we report may not be equivalent to similarly titled measures reported by other companies.

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.

Constant dollar changes 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.

Adjusted gross profit, gross margin, income from operations, operating margin, income tax expense, effective tax rates, net income, and diluted earnings per share exclude certain inventory provisions, asset impairments, and restructuring costs recognized in relation to lululemon Studio, the gain on disposal of assets for the sale of an administrative office building, and the related income tax effects of these items.

We believe these adjusted financial measures are useful to investors as they provide supplemental information that enable evaluation of the underlying trend in our operating performance, and enable a comparison to our historical financial information.

Further, due to the finite and discrete nature of these items, we do not consider them to be normal operating expenses that are necessary to run our business, or impairments or disposal gains that are expected to arise in the normal course of our operations.

Management uses these adjusted financial measures and constant currency metrics internally when reviewing and assessing financial performance.

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.

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Our non-GAAP financial measures may be calculated differently from, and therefore may not be directly comparable to, similarly titled measures reported by other companies.

Constant Dollar Changes in Net Revenue

The below changes in net revenue show the change compared to the corresponding period in the prior year.

Third Quarter 2023

First Three Quarters 2023

Net Revenue Net Revenue

(In thousands) (Percentage) (In thousands) (Percentage)

Change $ 347,329 19 % $ 1,075,495 20 %

Adjustments due to foreign currency exchange rate changes 11,098 — 82,201 2 %

Change in constant dollars $ 358,427 19 % $ 1,157,696 22 %

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.

Third Quarter 2023

First Three Quarters 2023

Constant Dollar Changes

The below changes in net revenue and comparable sales show the change compared to the corresponding period in the prior year.

First Quarter 2024 Compared to First Quarter 2023

Change Foreign exchange changes Change in constant dollars

Americas 3 % 1 % 4 %

China Mainland 45 7 52

Rest of World 27 3 30

Total net revenue 10 % 1 % 11 %

Comparable sales (1)

Americas — % — % — %

China Mainland 26 7 33

Rest of World 23 3 26

Total comparable sales 6 % 1 % 7 %

Comparable Store Sales (2)

Direct to Consumer Net Revenue Total Comparable Sales (1),(2)

Comparable Store Sales (2)

Direct to Consumer Net Revenue

Change 13 % 9 % 18 % 13 % 10 % 16 %

Adjustments due to foreign currency exchange rate changes 1 — 1 1 1 2

Change in constant dollars 14 % 9 % 19 % 14 % 11 % 18 %

(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.

Adjusted financial measures

The following tables reconcile adjusted financial measures with the most directly comparable measures calculated in accordance with GAAP.

The 2023 adjustments relate to certain inventory provisions, asset impairments, and restructuring costs recognized in relation to lululemon Studio and their related tax effects.

The 2022 adjustments relate to the gain on sale of an administrative office building and its related tax effects.

Please refer to Note 3.

Impairment of Assets and Restructuring Costs and Note 4.

Gain on Disposal of Assets included in Item 1 of Part I of this report for further information on the nature of these amounts.

Third Quarter 2023

Gross Profit Gross Margin Income from Operations Operating Margin Income Tax Expense Effective Tax Rate Net Income Diluted Earnings Per Share

(In thousands, except per share amounts)

GAAP results $ 1,256,664 57.0 % $ 338,115 15.3 % $ 99,243 28.5 % $ 248,714 $ 1.96

lululemon Studio charges:

lululemon Studio obsolescence provision 23,709 1.1 23,709 1.1 23,709 0.19

Impairment of assets 44,186 2.0 44,186 0.35

Restructuring costs 30,315 1.4 30,315 0.24

Tax effect of the above 26,085 (0.4) (26,085) (0.21)

23,709 1.1 98,210 4.5 26,085 (0.4) 72,125 0.57

Adjusted results (non-GAAP) $ 1,280,373 58.1 % $ 436,325 19.8 % $ 125,328 28.1 % $ 320,839 $ 2.53

First Three Quarters 2023

Gross Profit Gross Margin Income from Operations Operating Margin Income Tax Expense Effective Tax Rate Net Income Diluted Earnings Per Share

(In thousands, except per share amounts)

GAAP results $ 3,705,980 57.8 % $ 1,218,786 19.0 % $ 363,293 29.2 % $ 880,722 $ 6.92

lululemon Studio charges:

lululemon Studio obsolescence provision 23,709 0.3 23,709 0.3 23,709 0.19

Impairment of assets 44,186 0.7 44,186 0.35

Restructuring costs 30,315 0.5 30,315 0.24

Tax effect of the above 26,085 (0.2) (26,085) (0.21)

23,709 0.3 98,210 1.5 26,085 (0.2) 72,125 0.57

Adjusted results (non-GAAP) $ 3,729,689 58.1 % $ 1,316,996 20.5 % $ 389,378 29.0 % $ 952,847 $ 7.49

First Three Quarters 2022

Income from Operations Operating Margin Income Tax Expense Effective Tax Rate Net Income Diluted Earnings Per Share

(In thousands, except per share amounts)

GAAP results $ 1,013,982 19.0 % $ 279,447 27.5 % $ 734,989 $ 5.74

Gain on disposal of assets (10,180) (0.2) (10,180) (0.08)

Tax effect of the above (1,661) 0.2 1,661 0.01

Adjusted results (non-GAAP) $ 1,003,802 18.8 % $ 277,786 27.7 % $ 726,470 $ 5.67

(1) Comparable sales includes comparable company-operated store and e-commerce net revenue.

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.

Our annual net revenue is typically weighted more heavily toward our fourth fiscal quarter, reflecting our historical strength in sales during the holiday season in the Americas, while our operating expenses are generally more equally distributed throughout the year.

As a result, a substantial portion of our operating profits are typically generated in the fourth quarter of our fiscal year.

For example, we generated approximately 43% of our full year operating profit during the fourth quarter of 2023.

Our operating profits in 2022 were not weighted towards our fourth quarter primarily due to the impairment of goodwill and other assets recognized in relation to lululemon Studio during that quarter.

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, including to fund short-term working capital requirements.

Our primary cash needs are capital expenditures for opening new stores and remodeling or relocating existing stores, investing in our distribution centers, 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.

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The following table summarizes our net cash flows provided by and used in operating, investing, and financing activities for the periods indicated:

First Three Quarters

First Quarter

2024 2023 Year over year change

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The increase in cash provided by operating activities was primarily as a result of:

• an increase in cash flows from the changes in operating assets and liabilities of $613.9 million, primarily driven by changes in inventories, prepaid expenses and other current assets, and accounts payable, partially offset by changes in income taxes;

• changes in adjusting items of $232.2 million, primarily driven by certain inventory provisions, asset impairments, and restructuring costs recognized in relation to lululemon Studio, as well as increased depreciation and higher cash inflows related to derivatives;

• an increase in cash flows from the changes in operating assets and liabilities of $34.5 million, primarily driven by changes in income taxes, inventories, and accrued liabilities, partially offset by changes in accounts payable, accrued compensation, and prepaid expenses and other current assets;

• increased net income of $31.0 million;

• changes in adjusting items of $16.5 million, primarily driven by increased depreciation and stock-based compensation expense.

Investing Activities

The increase in cash used in investing activities was primarily due to increased capital expenditures and the settlement of net investment hedges.

The increase in capital expenditures was primarily due to investment in our distribution centers as well as technology infrastructure and digital investments, partially offset by a slight decrease in company-operated store expenditures.

The decrease in cash used in investing activities was primarily due to decreased capital expenditures.

The decrease in capital expenditures was primarily due to a decrease in corporate capital expenditures and decreased investment in our distribution centers as well as other technology infrastructure and system initiatives, partially offset by an increase in company-operated store expenditures.

Financing Activities

The increase in cash used in financing activities was primarily the result of an increase in our stock repurchases.

During the first three quarters of 2023, 1.4 million shares were repurchased at a total cost including commissions and excise taxes of $504.6 million.

During the first three quarters of 2022, 1.2 million shares were repurchased at a total cost including commissions of $375.0 million.

During the first quarter of 2024, 0.8 million shares were repurchased at a total cost including commissions and excise taxes of $299.5 million.

During the first quarter of 2023, 0.3 million shares were repurchased at a total cost including commissions and excise taxes of $98.5 million.

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.

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The following table includes certain measures of our liquidity:

October 29, 2023

April 28, 2024

(In thousands)

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We enter into standby letters of credit and guarantee to secure certain of our obligations, including leases, taxes, and duties.

As of October 29, 2023, letters of credit and guarantee totaling $10.0 million had been issued, including $6.6 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.

As of April 28, 2024, letters of credit and guarantee totaling $10.1 million had been issued, including $6.3 million under our committed revolving credit facility.

Our existing Americas 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 October 29, 2023, aside from letters of credit and guarantee of $6.6 million, we had no other borrowings outstanding under this credit facility.

As of April 28, 2024, aside from letters of credit and guarantee of $6.3 million, we had no other borrowings outstanding under this credit facility.

Further information regarding our credit facilities and associated covenants is outlined in Note 3.

Revolving Credit Facilities and Supply Chain Financing Program included in Item 1 of Part I of this report.

Revolving Credit Facilities included in Item 1 of Part I of this report.

The timing and cost of our inventory purchases will vary depending on a variety of factors such as revenue growth, assortment and purchasing decisions, product costs including freight and duty, and the availability of production capacity and speed.

Our inventory balance as of October 29, 2023 was $1.7 billion, a decrease of 4% from October 30, 2022.

Our inventory balance as of April 28, 2024 was $1.3 billion, a decrease of 15% from April 30, 2023.

Critical Accounting Policies and Estimates

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Actual results may vary from our estimates in amounts that may be material to the financial statements.

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.

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, estimates, and judgements are discussed within "Item 7.

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Operating Locations

Our company-operated stores by country as of October 29, 2023 and January 29, 2023 are summarized in the table below.

Number of company-operated stores by country (market) October 29,

Our company-operated stores by market as of April 28, 2024 and January 28, 2024 are summarized in the table below.

Number of company-operated stores by market April 28,

2024 January 28,

United States 369 367

People's Republic of China (1)

Americas 440 438

China Mainland 127 127

Australia 32 33

United Kingdom 20 20

South Korea 19 19

Hong Kong SAR 9 9

New Zealand 8 8

Singapore 7 7

Macau SAR 2 2

United Kingdom 19 20

Netherlands 2 2

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Total company-operated stores 711 711

(1) PRC included 114 stores in China Mainland, nine stores in Hong Kong Special Administrative Region, eight stores in Taiwan, and two stores in Macao Special Administration Region, as of October 29, 2023.

As of January 29, 2023, there were 99 stores in China Mainland, nine stores in Hong Kong Special Administrative Region, seven 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 October 29, 2023, there were 38 licensed locations, including 18 in Mexico, six in the United Arab Emirates, six in Saudi Arabia, three in Qatar, three in Kuwait, and two in Israel.

Our retail locations operated by third parties by market as of April 28, 2024 and January 28, 2024 are summarized in the table below.

Number of retail locations operated by third parties by market April 28,

2024 January 28,

United Arab Emirates 9 8

Saudi Arabia 7 6

Total locations operated by third parties under license and supply arrangements 41 39

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 2. Management’s Discussion and Analysis