What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-29 compared with 2024-06-05 · 220 added, 80 removed, 249 unchanged (55% of the section changed)

14 unchanged sentences

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

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

The first two quarters of 2024 and 2023 ended on July 28, 2024 and July 30, 2023, respectively.

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

1 unchanged sentence

• Quarter-to-Date Results of Operations

• Year-to-Date Results of Operations

• Comparable Sales

10 unchanged sentences

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.

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 our 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:

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Financial Highlights

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

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

• Net revenue increased 7% to $2.4 billion.

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• Comparable sales increased 2%, or 3% on a constant dollar basis.

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

– Americas comparable sales decreased 3%, or 2% on a constant dollar basis.

– China Mainland comparable sales increased 21%, or 23% on a constant dollar basis.

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• Income from operations increased 13% to $540.2 million.

• Operating margin decreased 50 basis points to 19.6%.

• Operating margin increased 110 basis points to 22.8%.

• Income tax expense increased 14% to $165.3 million.

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.

Our effective tax rate for the second quarter of 2024 was 29.6% compared to 29.8% for the second quarter of 2023.

• Diluted earnings per share were $3.15 compared to $2.68 in the second quarter of 2023.

Market Conditions and Trends

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

Macroeconomic conditions, including consumer purchasing behaviors and foreign currency fluctuations, 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.

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, which has adversely impacted consumer demand for our products.

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

In the United States, net revenue declined by $2.9 million in the second quarter of 2024 compared to the second quarter of 2023.

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.

Foreign currency fluctuations have adversely impacted our financial results.

Foreign currency fluctuations reduced the growth of our net revenue by $43.9 million when comparing the first two quarters of 2024 to the first two quarters of 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:

First Quarter Results

Second Quarter Results

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

First Quarter

Second Quarter

2024 2023 2024 2023

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Net income $ 392,922 $ 341,603 16.6 % 15.5 %

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.

Net revenue increased $161.9 million, or 7%, to $2.4 billion for the second quarter of 2024 from $2.2 billion for the second quarter of 2023.

On a constant dollar basis, net revenue increased 8%.

Comparable sales increased 2%, or 3% 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

The increase in net revenue was primarily due to increased China Mainland and Rest of World net revenue.

Americas net revenue also increased.

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

Second Quarter

2024 2023 2024 2023 Year over year change

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The increase in Americas net revenue was primarily due to a $57.8 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.

We have opened 15 net new stores in the Americas since the second quarter of 2023.

Americas comparable sales decreased 3%, or 2% on a constant dollar basis.

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

China Mainland.

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The increase in China Mainland net revenue was also driven by a $34.3 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.

We have opened 25 net new stores in China Mainland since the second quarter of 2023.

Rest of World.

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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

The increase in Rest of World net revenue was also driven by a $23.8 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 second quarter of 2023.

Second Quarter

2024 2023 Year over year change

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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 net increase in product margin of 130 basis points, primarily due to lower product costs;

• a decrease in costs related to our product departments as a percentage of net revenue of 80 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.

The increase in gross margin was partially offset by an increase in occupancy and depreciation costs as a percentage of net revenue of 70 basis points, an increase in distribution center costs as a percentage of net revenue of 40 basis points, and an unfavorable impact of foreign currency exchange rates of 20 basis points.

Selling, General and Administrative Expenses

First Quarter

Second 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 $28.9 million, comprised of:

– an increase in brand and community costs of $16.1 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 advisory and professional fees of $9.2 million;

– an increase in technology costs, including cloud computing amortization, of $5.3 million;

– an increase in depreciation of $4.5 million;

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.

– an increase in other head office costs of $2.1 million.

The increase in costs related to our head office was partially offset by a net decrease in employee costs of $8.3 million primarily due to decreased incentive compensation, partially offset by increased salaries and wages expense.

• an increase in costs related to our operating channels of $22.5 million, comprised of:

– an increase in employee costs of $12.1 million primarily due to increased salaries and wages expense and benefit costs for retail employees primarily from the growth in our business, partially offset by decreased incentive compensation;

– an increase in brand and community costs of $9.1 million primarily due to increased digital marketing expenses;

– an increase in other operating costs of $7.6 million primarily due to increased technology costs, repairs and maintenance costs, and security costs.

The increase in costs related to our operating channels was partially offset by a decrease in variable costs of $6.3 million primarily due to decreased distribution cost rates, partially offset by increased credit card fees and packaging costs as a result of higher net revenue.

• a decrease in net foreign currency exchange and derivative revaluation gains of $3.2 million.

Amortization of Intangible Assets

First Quarter

Second Quarter

2024 2023 Year over year change

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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.

These assets were fully impaired during the third quarter of 2023.

Income from Operations

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.

Second Quarter

2024 2023 2024 2023 Year over year change

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

Segmented income from operations:

Americas $ 669,427 $ 660,570 38.4 % 38.4 % $ 8,857 1.3 %

China Mainland 119,085 83,481 37.9 35.6 35,604 42.6

Rest of World 74,000 51,292 23.5 20.1 22,708 44.3

$ 862,512 $ 795,343 $ 67,169 8.4 %

General corporate expense 322,286 314,207 8,079 2.6

Amortization of intangible assets — 1,879 (1,879) (100.0)

Income from operations $ 540,226 $ 479,257 $ 60,969 12.7 %

Operating margin 22.8 % 21.7 % 110 basis points

The increase in Americas income from operations was primarily the result of increased gross profit of $7.4 million, driven by increased net revenue, partially offset by lower gross margin.

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

The increase in Americas income from operations was also driven by a decrease in selling, general and administrative expenses, primarily due to decreased distribution cost rates and lower employee costs, partially offset by increased marketing expenses.

Income from operations as a percentage of Americas net revenue was consistent with the second quarter of 2023, primarily due to leverage on selling, general and administrative expenses, offset by lower gross margin.

China Mainland.

The increase in China Mainland income from operations was primarily the result of increased gross profit of $57.6 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 increased marketing expenses and higher employee costs, as well as increased distribution costs driven by higher net revenue.

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

Rest of World.

The increase in Rest of World income from operations was primarily the result of increased gross profit of $39.4 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 distribution center costs, partially offset by unfavorable foreign currency exchange rates.

Income from operations as a percentage of Rest of World net revenue increased primarily 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 advisory and professional fees, technology costs, and depreciation.

The increase was also due to a decrease in net foreign currency exchange and derivative revaluation gains of $3.2 million.

The increase in general corporate expense was partially offset by lower employee costs, driven by decreased incentive compensation.

Other Income (Expense), Net

Second Quarter

2024 2023 Year over year change

(In thousands) (In thousands) (Percentage)

Other income (expense), net

$ 17,994 $ 7,362 $ 10,632 144.4 %

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

Income Tax Expense

Second Quarter

2024 2023 Year over year change

(In thousands) (In thousands) (Percentage)

Income tax expense

$ 165,298 $ 145,016 $ 20,282 14.0 %

Effective tax rate

29.6 % 29.8 % (20) basis points

The decrease in the effective tax rate was primarily due to an increase in tax credits and a decrease in non-deductible expenses in international jurisdictions, partially offset by adjustments upon the filing of certain income tax returns.

Second Quarter

2024 2023 Year over year change

(In thousands) (In thousands) (Percentage)

$ 392,922 $ 341,603 $ 51,319 15.0 %

The increase in net income was primarily due to an increase in gross profit of $113.7 million and an increase in other income (expense), net of $10.6 million, partially offset by an increase in selling, general and administrative expenses of $54.6 million and an increase in income tax expense of $20.3 million.

Year-to-Date Results of Operations:

First Two Quarters Results

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

First Two Quarters

2024 2023 2024 2023

(In thousands) (Percentage of net revenue)

Net revenue $ 4,579,969 $ 4,209,957 100.0 % 100.0 %

Cost of goods sold 1,892,716 1,760,641 41.3 41.8

Gross profit 2,687,253 2,449,316 58.7 58.2

Selling, general and administrative expenses 1,714,385 1,564,888 37.4 37.2

Amortization of intangible assets — 3,757 — 0.1

Income from operations 972,868 880,671 21.2 20.9

Other income (expense), net 41,277 15,387 0.9 0.4

Income before income tax expense 1,014,145 896,058 22.1 21.3

Income tax expense 299,802 264,050 6.5 6.3

Net income $ 714,343 $ 632,008 15.6 % 15.0 %

Net revenue increased $370.0 million, or 9%, to $4.6 billion for the first two quarters of 2024 from $4.2 billion for the first two quarters of 2023.

On a constant dollar basis, net revenue increased 10%.

Comparable sales increased 4%, or 5% on a constant dollar basis.

The increase in net revenue was primarily due to increased China Mainland and Rest of World net revenue.

Americas net revenue also increased.

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

First Two Quarters

2024 2023 2024 2023 Year over year change

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

Americas $ 3,363,697 $ 3,287,511 73.4 % 78.1 % $ 76,186 2 % 3 %

China Mainland 617,975 444,513 13.5 10.6 173,462 39 % 44 %

Rest of World 598,297 477,933 13.1 11.4 120,364 25 % 28 %

Net revenue $ 4,579,969 $ 4,209,957 100.0 % 100.0 % $ 370,012 9 % 10 %

The increase in Americas net revenue was primarily due to a $108.6 million increase from new or expanded company-operated stores and our other channels.

We have opened 15 net new stores in the Americas since the second quarter of 2023.

Americas comparable sales decreased 1%.

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

China Mainland.

The increase in China Mainland net revenue was primarily due to an increase in comparable sales, which increased 24%, or 28% 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 $76.0 million increase in net revenue from new or expanded company-operated stores and our other channels.

We have opened 25 net new stores in China Mainland since the second 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 20%, or 23% 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 $43.7 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 second quarter of 2023.

First Two Quarters

2024 2023 Year over year change

(In thousands) (In thousands) (Percentage)

$ 2,687,253 $ 2,449,316 $ 237,937 9.7 %

58.7 % 58.2 % 50 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, as well as lower inventory provisions in the current year, which was modestly offset by higher markdowns in the current year;

• a decrease in costs related to our product departments as a percentage of net revenue of 70 basis points.

The increase in gross margin was partially offset by an increase in occupancy and depreciation 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 20 basis points.

Selling, General and Administrative Expenses

First Two Quarters

2024 2023 Year over year change

(In thousands) (In thousands) (Percentage)

Selling, general and administrative expenses

$ 1,714,385 $ 1,564,888 $ 149,497 9.6 %

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

37.4 % 37.2 % 20 basis points

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

• an increase in head office costs of $76.3 million, comprised of:

– an increase in brand and community costs of $37.2 million primarily due to increased marketing expenses and brand campaigns, partially offset by decreased charitable donations;

– an increase in advisory and professional fees of $24.7 million;

– an increase in technology costs, including cloud computing amortization, of $10.1 million;

– an increase in depreciation of $5.6 million;

– an increase in other head office costs of $1.5 million.

The increase in costs related to our head office was partially offset by a net decrease in employee costs of $2.8 million primarily due to decreased incentive compensation, partially offset by increased salaries and wages expense.

• an increase in costs related to our operating channels of $72.0 million, comprised of:

– an increase in employee costs of $26.2 million primarily due to increased salaries and wages expense and benefit costs for retail employees primarily from the growth in our business, partially offset by decreased incentive compensation;

– an increase in other operating costs of $22.9 million primarily due to increased depreciation costs, technology costs, and repairs and maintenance costs;

– an increase in brand and community costs of $11.6 million primarily due to increased digital marketing expenses;

– an increase in variable costs of $11.3 million primarily due to increased packaging costs and credit card fees, primarily as a result of increased net revenue.

• a decrease in net foreign currency exchange and derivative revaluation gains of $1.2 million.

Amortization of Intangible Assets

First Two Quarters

2024 2023 Year over year change

(In thousands) (In thousands) (Percentage)

Amortization of intangible assets

$ — $ 3,757 $ (3,757) (100.0) %

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.

These assets were fully impaired during the third quarter of 2023.

Income from Operations

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.

First Quarter

First Two Quarters

2024 2023 2024 2023 Year over year change

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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.

The increase in selling, general and administrative expenses was primarily due to increased marketing expenses, higher depreciation, and higher technology costs, partially offset by lower employee costs.

The increase in selling, general and administrative expenses was partially offset by increased gross profit of $31.1 million, driven by increased net revenue, partially offset by lower gross margin.

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

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

China Mainland.

1 unchanged sentence

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.

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 packaging and distribution costs driven by higher net revenue.

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

Rest of World.

1 unchanged sentence

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.

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 distribution costs and credit card fees driven by higher net revenue.

Income from operations as a percentage of Rest of World net revenue increased primarily 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 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.

The increase in general corporate expense was primarily due to increased advisory and professional fees, technology costs, depreciation, and employee costs.

The increase was also due to a decrease in net foreign currency exchange and derivative revaluation gains of $1.2 million.

The increase in general corporate expense was partially offset by decreased charitable donations.

Other Income (Expense), Net

First Quarter

First Two Quarters

2024 2023 Year over year change

2 unchanged sentences

$ 41,277 $ 15,387 $ 25,890 168.3 %

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.

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

Income Tax Expense

First Quarter

First Two Quarters

2024 2023 Year over year change

4 unchanged sentences

29.6 % 29.5 % 10 basis points

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

The increase in the effective tax rate was primarily due to a decrease in tax benefits related to stock-based compensation and adjustments upon the filing of certain income tax returns, partially offset by an increase in tax credits.

First Two Quarters

2024 2023 Year over year change

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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.

Management uses these 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.

3 unchanged sentences

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

Second Quarter 2024 Compared to Second Quarter 2023

First Two Quarters 2024 Compared to First Two Quarters 2023

Change Foreign exchange changes Change in constant dollars Change Foreign exchange changes Change in constant dollars

Americas 1 % 1 % 2 % 2 % 1 % 3 %

18 unchanged sentences

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

First Quarter

First Two Quarters

2024 2023 Year over year change

5 unchanged sentences

Effect of foreign currency exchange rate changes on cash and cash equivalents (21,355) 19,761 (41,116)

Increase (decrease) in cash and cash equivalents $ (343,299) $ (204,260) $ (139,039)

Decrease in cash and cash equivalents $ (633,859) $ (47,337) $ (586,522)

Operating Activities

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 $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.

The increase in cash provided by operating activities was primarily as a result of increased net income of $82.3 million.

The increase in cash provided by operating activities was partially offset by a decrease in cash flows from the changes in operating assets and liabilities of $25.1 million, primarily driven by changes in accounts payable, accrued compensation, and other current assets, partially offset by changes in income taxes, inventories, and accrued liabilities.

The increase in cash provided by operating activities was also partially offset by changes in adjusting items of $8.7 million, primarily driven by lower cash inflows related to derivatives, partially offset by increased depreciation.

Investing Activities

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.

The decrease in cash used in investing activities was primarily due to the settlement of net investment hedges and decreased capital expenditures, partially offset by an increase in other investing activities.

The modest decrease in capital expenditures was primarily due to a decrease in corporate capital expenditures, while we had similar levels of capital expenditures across distribution centers, technology infrastructure and system initiatives, and company-operated stores.

Financing Activities

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

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.

During the first two quarters of 2024, we repurchased 2.6 million shares at a total cost including commissions and excise taxes of $888.9 million.

During the first two quarters of 2023, we repurchased 0.8 million shares at a total cost including commissions and excise taxes of $292.0 million.

We repurchased the shares of common stock in the open market at prevailing market prices, including under plans complying with the provisions of Rule 10b5-1 and Rule 10b-18 of the Securities Exchange Act of 1934, with the timing and actual number of shares repurchased depending upon market conditions, eligibility to trade, and other factors.

Liquidity Outlook

4 unchanged sentences

The following table includes certain measures of our liquidity:

April 28, 2024

July 28, 2024

(In thousands)

4 unchanged sentences

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

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.

As of July 28, 2024, letters of credit and guarantee totaling $11.2 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 April 28, 2024, aside from letters of credit and guarantee of $6.3 million, we had no other borrowings outstanding under this credit facility.

As of July 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.

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

Our inventory balance as of July 28, 2024 was $1.4 billion, a decrease of 14% from July 30, 2023.

Critical Accounting Policies and Estimates

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Operating Locations

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,

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

Number of company-operated stores by market July 28,

2024 January 28,

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Total company-operated stores 721 711

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,

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

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

2024 January 28,

3 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 2. Management’s Discussion and Analysis