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Item 7. Management’s Discussion and Analysis

2025-03-27 compared with 2024-03-21 · 196 added, 338 removed, 245 unchanged (69% of the section changed)

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• Financial Highlights and Market Conditions and Trends

• Results o f Operations

• Comparison of 2023 to 2022

• Results of Operations

• Comparison of 2024 to 2023

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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 2023, 2022, and 2021 were each 52-week years.

Fiscal 2024 will be a 53-week year.

Fiscal 2024 was a 53-week year.

Net revenue includes results from the 53rd week;

however, comparable sales exclude the 53rd week.

Fiscal 2023 was a 52-week year.

This discussion and analysis contains forward-looking statements based on current expectations that involve risks, uncertainties and assumptions, such as our plans, objectives, expectations, and intentions included in the "Special Note Regarding Forward-Looking Statements." Our actual results and the timing of events may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those described in the "Item 1A.

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

We provide constant dollar changes and adjusted financial results, which are non-GAAP financial measures, as supplemental information that enable evaluation of the underlying trend in our operating performance, and enable a comparison to our historical financial information.

We provide constant dollar changes and adjusted financial results which exclude certain inventory provisions, asset impairments, and restructuring costs recognized in relation to lululemon Studio and their related tax effects.

The constant dollar changes and adjusted financial results are non-GAAP financial measures, and we provide them as supplemental information that enable evaluation of the underlying trend in our operating performance, and enable a comparison to our historical financial information.

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

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Information contained on or accessible through our websites is not incorporated into, and does not form a part of, this annual 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.

During the fourth quarter of 2023, we revised the financial information which is regularly reviewed and used by our CODM to evaluate performance and allocate resources.

Historically, our segments were based on selling channel.

As we have further executed on our omni-channel retail strategy, and with the continued expansion of our international operations, our resource allocation decisions have evolved to focus on regional markets.

We organize our operations into four regional markets:

Americas, China Mainland, APAC, and EMEA.

We report three segments, Americas, China Mainland, and Rest of World, which is comprised of the APAC and EMEA regions on a combined basis.

Our prior year segment results have been recast to reflect our new segment reporting structure.

In 2023, lululemon celebrated its 25th anniversary and delivered another strong year of financial results.

We continued to execute against our Power of Three ×2 growth plan, growing net revenue 19% and diluted earnings per share 83%, or 27% on an adjusted basis, as our teams were able to successfully navigate an uncertain macroeconomic environment.

Our growth continued across regions, merchandise categories, and channels.

We delivered strong net revenue growth across our regions including 12% in the Americas, 67% in China Mainland, and 43% in Rest of World.

Net revenue from our women's product range increased 17%, men's increased 15%, and net revenue from our other categories increased 36%.

opened 56 net new company-operated stores, contributing to a 15% increase in square footage, while total company-operated store net revenue increased 21% and e-commerce net revenue increased 17%.

We believe this broad-based growth was underpinned by our ability to bring new innovations into our product assortment, while also increasing our brand awareness and bringing new guests into our brand.

Fiscal 2024 was another year of growth for lululemon.

Net revenue increased 10%, operating margin expanded 150 basis points, or 50 basis points on an adjusted basis, and diluted earnings per share grew 20%, or 15% on an adjusted basis.

Our teams continued to execute against our Power of Three ×2 growth plan and the compound annual growth rate in net revenue was 19% between fiscal 2021 and 2024.

We saw growth across our regions, merchandise categories, and channels as we continue to engage with guests and provide them with innovative products that help enable their wellness journey.

In the Americas, revenue grew 4% driven by strength in Canada.

In the United States, we have been working to increase the level of seasonal newness within our assortment mix.

In China Mainland, revenue increased 41%, and in Rest of World, revenue grew 27%.

By category, we saw a 9% increase in women's, 14% growth in men's, and an 10% increase in other categories.

We expanded our retail presence by adding 56 net new company-operated stores, contributing to a 14% increase in square footage.

These metrics include our stores in Mexico which we now operate directly, the result of the acquisition of the Mexico operations from our license and

supply partner in September 2024.

Company-operated store net revenue increased 14% and e-commerce net revenue increased 6%.

We repurchased 5.1 million shares for $1.6 billion in 2024, and our board of directors approved increases in our stock repurchase authorization totaling $2.0 billion during 2024.

Brand Campaigns and Activations

Deepening our relationship with existing guests while also bringing new guests into the lululemon brand remains an important priority for us.

We believe our unaided brand awareness is relatively low across most of the regions where we operate.

In 2024, we brought several activations to life aimed at increasing loyalty with existing guests while, at the same time, attracting new guests into our brand.

Our partnership with the Canadian Olympic Committee and Canadian Paralympic Committee was on full display during the Paris Olympics, as we outfitted the athletes for their off-field activities.

In the Americas, we continued to grow our membership program and began offering new benefits including our Partner Perks program which provides members with exclusive experiences and perks from select partner brands.

In China Mainland, we expanded our Summer Sweat Games to over 70 stores across nearly 40 cities and for World Mental Health Day, we hosted activities in nine cities across China Mainland, anchored by our event along the West Bund in Shanghai.

We also extended our World Mental Health Day activations to additional countries, including South Korea, Germany, the United Kingdom, and the United States.

In 2024, we also welcomed additional new ambassadors to the brand, including six-time PGA tour winner Max Homa, Chinese director, actress, and screenwriter Jia Ling, and Frances Tiafoe our newest tennis ambassador.

Product Innovation

By innovating through our Science of Feel approach, we continue to seek to solve the unmet needs of our guests.

While continuing to see strength from our key collections including Align, Scuba, Define, and Softstreme for women and our ABC collection for men, we launched new innovations as well.

For women, we launched Wundermost, our new bodywear collection, we expanded our dual gender golf and tennis assortments.

On the men’s side, we launched Steady State and Soft Jersey, to expand our lounge offering, while also enhancing our Pace Breaker short.

In accessories, we continued to see strength across our bag assortment, and in footwear we updated our Blissfeel and Chargefeel styles, and in early 2024, we launched our first footwear styles for men.

We also announced a new textile-to-textile recycling partnership with the goal of enabling circularity in our supply chain by transforming apparel waste into high quality nylon and polyester.

Brand Awareness

We believe that increasing our brand awareness and introducing new guests to the lululemon brand remains one of our largest opportunities, both in the Americas and to an even greater degree in our international markets.

In order to grow brand awareness we combine our community-based, grass roots model of guest engagement, with larger scale brand activations and global brand campaigns.

With connection points across both our physical and digital channels, we aim to bring new guests into our brand, engage with them in ways that are more than just transactional and create deeper connections.

In 2023, we executed several strategies designed to connect with guests, bring new guests into our brand, and grow awareness.

Highlights include:

hosting our Dupe Swap event in Los Angeles;

testing our first men's focused TV campaign featuring our ABC pants;

taking over the West Bund in Shanghai for one week to host wellness-centric events and experiences intended to bring awareness to World Mental Health Day;

and continuing to grow our Essentials membership program.

In addition, in September 2023 we announced our new partnership with Peloton.

Peloton is now the exclusive provider of content for our lululemon Studio members, we have become their primary apparel provider.

We plan to jointly engage our global communities through special programming, experiences, and events.

We continue to seek to create product that solves the unmet needs of our guests.

We believe our technical product is a key competitive advantage for us, and our positioning as a premium athletic brand, with high style and high performance product, helps differentiate us from our peers.

In 2024, we remained focused on our core activities of yoga, run, and train and also our newer "play" activities including golf and tennis.

In women's, Align, Define, and Scuba continued to be key product franchises for us, and towards the end of the year, we launched our Daydrift trouser;

a refined, casual pant to be worn all day into night.

For men, guests continued to respond to our lounge franchises including Steady State, Soft Jersey, and Smooth Spacer, and our performance franchises including Pacebreaker and Zeroed In.

In footwear, we expanded our offering with new casual and performance styles including our first collection for men.

And in accessories, we continued to bring innovation across our offering of bags, which drove good response from our guests.

Financial Highlights

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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 adjusted financial measures for 2022 exclude $442.7 million of post-tax goodwill impairment and other charges recognized in relation to lululemon Studio and the post-tax net gain on the sale of an administrative building of $8.5 million.

There were no adjusted financial measures for 2024.

• Net revenue increased 10% to $10.6 billion.

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

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

– Americas comparable sales increased 8%, or 9% on a constant dollar basis.

• Comparable sales, which excludes net revenue from the 53rd week of 2024, increased 4%.

– Americas comparable sales decreased 1%.

– China Mainland comparable sales increased 25%, or 27% on a constant dollar basis.

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• Gross profit increased 12% to $6.3 billion.

Adjusted gross profit increased 24% to $5.6 billion.

Adjusted gross profit increased 11%.

• Gross margin increased 90 basis points to 59.2%.

Adjusted gross margin increased 240 basis points to 58.6%.

Adjusted gross margin increased 60 basis points.

• Income from operations increased 17% to $2.5 billion.

Adjusted income from operations increased 25% to $2.2 billion.

• Operating margin increased 580 basis points to 22.2% from 16.4% in 2022.

Adjusted operating margin increased 110 basis points to 23.2% from 22.1% in 2022.

Adjusted income from operations increased 12%.

• Operating margin increased 150 basis points to 23.7%.

Adjusted operating margin increased 50 basis points.

• Income tax expense increased 22% to $761.5 million.

Our effective tax rate for 2024 was 29.6% compared to 28.8% for 2023.

The adjusted effective tax rate was 28.7% and 28.1% for 2023 and 2022, respectively.

The adjusted effective tax rate was 28.7% for 2023.

• Diluted earnings per share were $14.64 for 2024 compared to $12.20 in 2023.

Adjusted diluted earnings per share were $12.77 for 2023 compared to $10.07 in 2022.

Adjusted diluted earnings per share were $12.77 in 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 2024, with the impact varying by market.

Macroeconomic Conditions

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

Macroeconomic conditions, government actions and policies, consumer confidence and purchasing behaviors, and foreign currency fluctuations impact our business.

Such factors are expected to continue to impact our business throughout 2025, with the impact varying by market.

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

We continue to monitor the economic environment, including in the US, Canada, and China Mainland.

We experienced revenue and traffic growth in 2024 compared to 2023 in all regions, but have experienced a reduction in our revenue growth rate in the Americas compared to the growth we had in previous years, driven by our operations in the United States.

During 2024, Americas comparable sales decreased 1%.

We are monitoring government policies in the Americas, including changes in tariffs, and while we do not expect current changes to have a material impact on the cost of our products, tariffs and related uncertainties could impact consumer confidence, traffic, and demand for our products.

Foreign currency fluctuations have adversely impacted our financial results.

Foreign currency fluctuations reduced the growth of our net revenue by $75.3 million when comparing 2024 to 2023, primarily due to the overall appreciation of the US dollar.

We expect future exchange rate volatility to impact our results.

We have also experienced increased wage rates which increased our employee costs when comparing 2023 to 2022.

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 2023 in all markets, over the course of 2023 we saw moderation in the year over year traffic and net revenue growth in the Americas.

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

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 2023, including reductions in freight costs and reductions in our levels of air freight usage.

COVID-19 Pandemic

Most of our retail locations were open throughout 2023, 2022, and 2021, with certain locations temporarily closed due to COVID-19 resurgences during the first quarter of 2022 and at various times in 2021.

The effect of COVID-19, including store closures, impacted our revenue and operating margins in 2021 and the first quarter of 2022 in China Mainland.

Results of Operations

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Amortization of intangible assets 2,735 5,010 — 0.1

Acquisition-related expenses — — 41,394 — — 0.7

Gain on disposal of assets — (10,180) — — (0.1) —

Income from operations 2,505,697 2,132,676 23.7 22.2

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Comparison of 2024 to 2023

Net revenue increased $1.5 billion, or 19%, to $9.6 billion in 2023 from $8.1 billion in 2022.

On a constant dollar basis, net revenue increased 20%.

Comparable sales increased 13%, or 14% on a constant dollar basis.

The increase in net revenue was primarily due to increased Americas net revenue.

China Mainland and Rest of World net revenue also increased.

Net revenue for 2023 and 2022 is summarized below, and reflects our updated segments, including comparatives.

2024 2023 2024 2023 Year over year change

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Net revenue $ 10,588,126 $ 9,619,278 100.0 % 100.0 % $ 968,848 10 % 11 %

The increase in Americas net revenue was primarily due to an increase in comparable sales, which increased 8%, or 9% 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 and a decrease in conversion rates.

The increase in Americas net revenue was also driven by a $327.6 million increase in non-comparable sales, primarily from our company-operated stores that were opened or significantly expanded since 2022 as well as increased outlet, wholesale, and license and supply arrangement net revenue, partially offset by fewer temporary locations and lower lululemon Studio net revenue.

China Mainland.

The increase in China Mainland net revenue was primarily due to an increase in comparable sales, which increased 39%, or 46% on a constant dollar basis.

The increase in comparable sales 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 China Mainland net revenue was also driven by a $180.6 million increase in non-comparable sales, primarily from our company-operated stores that were opened or significantly expanded since 2022 as well as increased net revenue from outlets.

Rest of World.

The increase in Rest of World net revenue was primarily due to an increase in comparable sales, which increased 32%, or 33% on a constant dollar basis.

The increase in comparable sales was primarily a result of increased traffic, partially offset by a decrease in conversion rates.

The increase in Rest of World net revenue was also driven by a $118.9 million increase in non-comparable sales, primarily from our company-operated stores that were opened or significantly expanded since 2022 as well as increased license and supply arrangements and outlets net revenue.

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

Americas and Rest of World net revenue also increased.

We had total net revenue of $163.2 million during the 53rd week of 2024 which contributed to the total increase in net revenue in 2024.

Comparable sales, which excludes net revenue from the 53rd week of 2024, increased 4%.

2024 2023 Year over year change

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59.2 % 58.3 % 90 basis points

During 2022, we decided to shift our lululemon Studio strategy to focus on providing digital app-based services.

While we continued to sell at-home hardware in 2023, we reached the decision to cease selling the lululemon Studio Mirror during the third quarter of 2023.

These strategy shifts resulted in the recognition of an inventory obsolescence provision of $62.9 million in 2022 and a further provision of $23.7 million in 2023.

These provisions reduced gross margin by 80 basis points and 30 basis points in 2022 and 2023 respectively.

Gross margin increased 90 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 2023, which reduced gross margin by 30 basis points.

Adjusted gross margin increased 60 basis points.

Please refer to Note 9.

Impairment of Goodwill and Other Assets, Restructuring Costs included in Item 8 of Part II of this report.

Gross margin increased 290 basis points, or excluding the impact of the lululemon Studio obsolescence provisions detailed above, increased 240 basis points.

This 240 basis point net increase was primarily a result of:

• a net increase in product margin of 290 basis points, primarily due to lower freight costs from rate reductions and reduced air freight, as well as lower duty costs, modestly offset by higher inventory provisions and shrink in the current year;

The increase in gross margin was primarily the result of a net increase in product margin of 120 basis points, comprised of:

• a net increase of 120 basis points from lower product costs and lower inventory provision expense, partially offset by higher freight costs;

• an increase of 30 basis points due to the lululemon Studio obsolescence provision recognized during 2023;

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

• deleverage on occupancy costs of 20 basis points and an increase in costs related to our distribution centers as a percentage of net revenue of 10 basis points.

The increase in product margin was partially offset by a net increase in other cost of sales as a percentage of net revenue of 30 basis points, comprised of:

• an increase in occupancy and depreciation costs of 60 basis points;

• an increase in distribution center costs of 30 basis points;

• a decrease in costs related to our product departments of 50 basis points;

• a favorable impact of foreign currency exchange rates of 10 basis points.

Selling, General and Administrative Expenses

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Selling, general and administrative expenses $ 3,762,379 $ 3,397,218 $ 365,161 10.7 %

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

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

35.5 % 35.3 % 20 basis points

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

• an increase in head office costs of $327.7 million, comprised of:

– an increase in employee costs of $108.8 million primarily due to increased salaries and wages expense as well as increased stock-based compensation and incentive compensation, primarily as a result of headcount growth and increased wage rates;

– an increase in brand and community costs of $95.4 million primarily due to increased marketing expenses;

– an increase in depreciation of $46.0 million;

– an increase in other head office costs of $40.4 million, primarily due to increased professional fees;

– an increase in technology costs, including cloud computing amortization, of $37.1 million.

• an increase in costs related to our operating channels of $196.0 million, comprised of:

– an increase in employee costs of $145.1 million primarily due to increased salaries and wages expense, incentive compensation, and benefit costs for retail employees, primarily from the growth in our business and increased wage rates;

– an increase in other operating costs of $67.7 million primarily due to increased depreciation costs, technology costs, and repairs and maintenance costs;

– an increase in variable costs of $66.8 million primarily due to increased credit card fees, distribution costs, and packaging costs, primarily as a result of increased net revenue;

– an increase in employee costs of $84.2 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 brand and community costs of $54.2 million primarily due to increased digital marketing expenses;

The increase in selling, general and administrative expenses was partially offset by a decrease in net foreign currency exchange and derivative revaluation losses of $7.0 million.

– an increase in other operating costs of $41.9 million primarily due to increased depreciation costs and repairs and maintenance costs;

– an increase in technology costs of $18.7 million.

The increase in costs related to our operating channels was partially offset by a decrease in variable costs of $2.9 million primarily due to decreased distribution costs driven by lower rates, partially offset by increased credit card fees as a result of increased net revenue.

• an increase in head office costs of $179.0 million, comprised of:

– an increase in brand and community costs of $64.5 million primarily due to increased marketing expenses as well as increased charitable donations;

– an increase in advisory and professional fees of $42.9 million;

– an increase in technology costs, including cloud computing amortization, of $27.6 million;

– an increase in other head office costs of $25.7 million;

– an increase in depreciation of $20.2 million.

The increase in costs related to our head office was partially offset by a net decrease in employee costs of $1.9 million primarily due to decreased incentive compensation, partially offset by increased salaries and wages expense.

The increase in selling, general and administrative expenses was partially offset by an increase in net foreign currency exchange and derivative revaluation gains of $9.9 million.

Impairment of Goodwill and Other Assets, Restructuring Costs

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Impairment of goodwill and other assets, restructuring costs $ — $ 74,501 $ (74,501) (100.0) %

During 2023, we recognized certain asset impairments and restructuring costs, and during 2022, we recognized impairment of goodwill and other assets, each in relation to lululemon Studio.

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

Please refer to Note 9.

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$ 2,735 $ 5,010 $ (2,275) (45.4) %

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

The amortization of intangible assets in 2024 was primarily the result of the amortization of intangible assets recognized upon the acquisition of the Mexico operations.

The amortization of intangible assets in 2023 was primarily the result of the amortization of intangible assets recognized upon the acquisition of MIRROR, which we rebranded as lululemon Studio.

Segment Results

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

Corporate expenses include the cost of centrally managed support functions including product design, raw material development, product innovation, sourcing, supply chain, and global merchandising which are included in other cost of sales.

Administrative corporate expenses include technology, brand and marketing, finance, human resources, legal, and other head office costs.

2024 2023 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.

Our prior year segment results have been recast to reflect our new segment reporting structure.

2023 2022 2023 2022 Year over year change

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

Net revenue $ 7,928,156 $ 7,631,647 $ 296,509 3.9 %

Product costs 2,336,251 2,283,490 52,761 2.3

Other cost of sales 641,699 576,810 64,889 11.2

Gross profit 4,950,206 4,771,347 178,859 3.7

Selling, general and administrative expenses 1,934,649 1,834,163 100,486 5.5

Segmented income from operations $ 3,015,557 $ 2,937,184 $ 78,373 2.7 %

Americas $ 2,937,184 $ 2,503,740 38.5 % 36.7 % $ 433,444 17.3 %

China Mainland 337,316 196,865 35.0 34.1 140,451 71.3

Rest of World 201,832 103,204 19.7 14.4 98,628 95.6

$ 3,476,332 $ 2,803,809 $ 672,523 24.0 %

General corporate expenses 1,240,436 1,005,988 234,448 23.3

lululemon Studio obsolescence provision 23,709 62,928 (39,219) (62.3)

Impairment of goodwill and other assets, restructuring costs 74,501 407,913 (333,412) (81.7)

Amortization of intangible assets 5,010 8,752 (3,742) (42.8)

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

Income from operations $ 2,132,676 $ 1,328,408 $ 804,268 60.5 %

Operating margin 22.2 % 16.4 % 580 basis points

The increase in Americas income from operations was primarily the result of increased gross profit of $691.7 million, driven by increased net revenue and higher gross margin.

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

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

increased depreciation, and technology costs.

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

China Mainland.

The increase in China Mainland income from operations was primarily the result of increased gross profit of $228.1 million, driven by increased net revenue.

Gross margin was consistent year over year, primarily due to leverage on occupancy and other costs, partially offset by unfavorable foreign currency exchange rates and lower product margin.

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

Income from operations as a percentage of China Mainland net revenue increased due to leverage 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 $190.2 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 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, as well as increased digital marketing expenses, increased distribution costs, credit card fees, and packaging costs driven by higher net revenue, and increased technology costs.

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 Expenses.

The increase in general corporate expenses was primarily due to increased employee costs, as well as increased brand and community costs, depreciation, technology costs, professional fees, and product team costs.

The increase in general corporate expenses was partially offset by a decrease in net foreign currency exchange and derivative losses of $7.0 million.

Other Income (Expense), Net

2023 2022 Year over year change

(In thousands) (In thousands) (Percentage)

Other income (expense), net

$ 43,059 $ 4,163 $ 38,896 934.3 %

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.

Income Tax Expense

2023 2022 Year over year change

(In thousands) (In thousands) (Percentage)

Income tax expense $ 625,545 $ 477,771 $ 147,774 30.9 %

Effective tax rate

Product margin

70.5 % 70.1 % 40 basis points

The decrease in the effective tax rate was primarily due the income tax impact of certain non-deductible impairment and other charges recognized in 2022 and 2023 related to lululemon Studio, partially offset by a lower tax rate on the gain on the sale of an administrative building in 2022.

These items increased the effective tax rate by 780 basis points and 10 basis points in 2022 and 2023, respectively.

Excluding the income tax effects of the impairment and other charges recognized in 2022 and 2023 in relation to lululemon Studio, and excluding the tax effect of the gain on the sale of the administrative building in 2022, the adjusted effective tax rate increased to 28.7% in 2023 from 28.1% in 2022.

The increase in the adjusted effective tax rate was primarily due to withholding taxes on unremitted earnings which are not considered to be permanently reinvested, partially offset by adjustments upon the filing of certain income tax returns, and a decrease in U.S.

62.4 % 62.5 % (10) basis points

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

24.4 % 24.0 % 40 basis points

Segmented income from operations as a % of net revenue

38.0 % 38.5 % (50) basis points

The increase in Americas net revenue was primarily due to a $263.5 million increase from new or expanded company-operated stores and our other channels.

We added 24 net new company-operated stores in the Americas since 2023, including 14 company-operated stores from the acquisition of the Mexico operations.

Americas net revenue during the 53rd week of 2024 was $118.0 million, which contributed to the increase in Americas net revenue in 2024.

Americas comparable sales, which excludes net revenue from the 53rd week of 2024, 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.

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 selling, general and administrative expenses was primarily due to increased marketing expenses, higher depreciation, and higher employee costs, partially offset by decreased distribution cost rates.

China Mainland

2024 2023 Year over year change

(In thousands) (In thousands) (Percentage)

$ 1,550,190 $ 854,800 $ 695,390 81.4 %

The increase in net income in 2023 was primarily due to an increase in gross profit of $1.1 billion, an increase in other income (expense), net of $38.9 million, and impairment and restructuring charges recognized in 2023 of $74.5 million compared to impairment charges of $407.9 million recognized in 2022, partially offset by an increase in selling, general and administrative expenses of $639.8 million, an increase in income tax expense of $147.8 million, and a gain on disposal of assets of $10.2 million in the prior year.

Excluding certain inventory provisions, goodwill and other asset impairments, and restructuring costs recognized in relation to lululemon Studio in 2023 and 2022 and the gain on sale of an administrative building in 2022, and their tax effects, adjusted net income increased $333.4 million or 26%.

Comparison of 2022 to 2021

Net revenue increased $1.9 billion, or 30%, to $8.1 billion in 2022 from $6.3 billion in 2021.

On a constant dollar basis, net revenue increased 32%.

Comparable sales increased 25%, or 28% on a constant dollar basis.

The increase in net revenue was primarily due to increased Americas net revenue.

China Mainland and Rest of World net revenue also increased.

Net revenue for 2022 and 2021 is summarized below, and reflects our updated segments, including comparatives.

2022 2021 2022 2021 Year over year change

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

Americas $ 6,817,454 $ 5,299,906 84.1 % 84.7 % $ 1,517,548 28.6 % 30.0 %

China Mainland 576,503 434,261 7.1 6.9 142,242 32.8 40.0

Rest of World 716,561 522,450 8.8 8.4 194,111 37.2 49.0

Net revenue $ 1,361,337 $ 963,760 $ 397,577 41.3 %

The increase in Americas net revenue was primarily due to an increase in comparable sales, which increased 28%, or 29% on a constant dollar basis.

The increase in comparable sales was primarily a result of increased traffic, partially offset by a decrease in conversion rates.

Americas net revenue also increased due to a $296.9 million increase in non-comparable sales, primarily from our company-operated stores that were opened or significantly expanded since 2021 as well as increased outlet, wholesale, and re-commerce net revenue, partially offset by lower license and supply arrangement and lululemon Studio net revenue.

China Mainland.

Product costs 324,237 241,663 82,574 34.2

Other cost of sales 198,373 154,136 44,237 28.7

Gross profit 838,727 567,961 270,766 47.7

Selling, general and administrative expenses 328,868 230,645 98,223 42.6

Segmented income from operations $ 509,859 $ 337,316 $ 172,543 51.2 %

Product margin 76.2 % 74.9 % 130 basis points

61.6 % 58.9 % 270 basis points

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

24.2 % 23.9 % 30 basis points

Segmented income from operations as a % of net revenue

37.5 % 35.0 % 250 basis points

The increase in China Mainland net revenue was primarily due to an increase in comparable sales, which increased 25%, or 27% on a constant dollar basis.

The increase in comparable sales was primarily a result of increased traffic, partially offset by a decrease in conversion rates.

The increase in China Mainland net revenue was also driven by a $77.5 million increase in non-comparable sales, primarily from our company-operated stores that were opened or significantly expanded since 2021.

China Mainland comparable sales excludes net revenue from the 53rd week of 2024.

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 $156.5 million increase in in net revenue from new or expanded company-operated stores and our other channels.

We have opened 24 net new company-operated stores since 2023.

China Mainland net revenue during the 53rd week of 2024 was $23.6 million, which contributed to the increase in China Mainland net revenue in 2024.

The increase in gross margin was primarily due to higher product margin as well as leverage on occupancy and other costs.

The increase in selling, general and administrative expenses was primarily due to higher employee costs and increased marketing expenses, as well as increased distribution costs and packaging costs driven by higher net revenue.

Rest of World

The increase in Rest of World net revenue was primarily due to a $151.5 million increase in non-comparable sales, primarily from our company-operated stores that were opened or significantly expanded since 2021 as well as increased license and supply arrangements, outlets, and wholesale net revenue.

The increase in Rest of World net revenue was also driven by an increase in comparable sales, which increased 10%, or 19% on a constant dollar basis.

The increase in comparable sales was primarily a result of increased traffic, partially offset by a decrease in conversion rates.

2024 2023 Year over year change

(In thousands) (In thousands) (Percentage)

Net revenue $ 1,298,633 $ 1,023,871 $ 274,762 26.8 %

Product costs 364,906 316,542 48,364 15.3

Other cost of sales 217,536 171,992 45,544 26.5

Gross profit 716,191 535,337 180,854 33.8

55.4 % 57.7 % (230) basis points

During 2022, we updated our lululemon Studio strategy to focus on digital app-based services, which meant we no longer expected to be able to sell all of the in-home hardware inventory above cost.

We recognized a provision of $62.9 million against hardware inventory during 2022.

This reduced 2022 gross margin by 80 basis points.

Please refer to Note 8.

Impairment of Goodwill and Other Assets, Restructuring Costs included in Item 8 of Part II of this report.

The remaining 150 basis point decrease in gross margin was primarily the result of:

• a decrease in product margin of 100 basis points primarily due to higher markdowns, sales mix, and increased damages and shrink, partially offset by lower air freight costs;

• an increase in costs related to our product departments and distribution centers as a percentage of net revenue of 60 basis points;

• an unfavorable impact of foreign currency exchange rates of 40 basis points.

The decrease in gross margin was partially offset by leverage on occupancy and depreciation costs of 50 basis points, driven primarily by the increase in net revenue.

Selling, general and administrative expenses 401,245 333,505 67,740 20.3

2022 2021 Year over year change

(In thousands) (In thousands) (Percentage)

Selling, general and administrative expenses $ 2,757,447 $ 2,225,034 $ 532,413 23.9 %

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

Segmented income from operations $ 314,946 $ 201,832 $ 113,114 56.0 %

Product margin 71.9 % 69.1 % 280 basis points

55.1 % 52.3 % 280 basis points

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

• an increase in head office costs of $283.7 million, comprised of:

– an increase in costs of $142.2 million primarily due to increased depreciation of $43.5 million and increased technology costs, including cloud computing amortization, of $35.7 million, as well as increased brand and community costs and professional fees;

– an increase in employee costs of $141.5 million primarily due to an increase in salaries and wages expense of $76.5 million and incentive compensation of $34.8 million, as well as increased stock-based compensation expense and travel costs, primarily as a result of headcount growth and increased wage rates.

• an increase in costs related to our operating channels of $249.5 million, comprised of:

– an increase in variable costs of $127.6 million primarily due to an increase in distribution costs and credit card fees, primarily as a result of increased net revenue;

– an increase in employee costs of $104.2 million primarily due to an increase in salaries and wages expense and incentive compensation in our company-operated store and e-commerce channels, primarily due to growth in our business and increased wage rates;

– an increase in other costs of $15.3 million primarily due to an increase in repairs and maintenance costs, depreciation, and technology costs, partially offset by a decrease in professional fees;

– an increase in brand and community costs of $2.4 million primarily due to an increase in digital marketing expenses related to our e-commerce channel, partially offset by a decrease in marketing expenses related to lululemon Studio.

The increase in selling, general and administrative expenses was partially offset by a decrease in net foreign exchange and derivative revaluation losses of $0.8 million.

Impairment of Goodwill and Other Assets, Restructuring Costs

2022 2021 Year over year change

(In thousands) (In thousands) (Percentage)

Impairment of goodwill and other assets, restructuring costs $ 407,913 $ — $ 407,913 n/a

During 2022, we recognized an impairment of goodwill and other long-lived assets in relation to our lululemon Studio business unit.

Please refer to Note 8.

Impairment of Goodwill and Other Assets, Restructuring Costs included in Item 8 of Part II of this report.

Amortization of Intangible Assets

2022 2021 Year over year change

(In thousands) (In thousands) (Percentage)

Amortization of intangible assets

$ 8,752 $ 8,782 $ (30) (0.3) %

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.

Acquisition-Related Expenses

2022 2021 Year over year change

(In thousands) (In thousands) (Percentage)

Acquisition-related expenses

$ — $ 41,394 $ (41,394) (100.0) %

In connection with our acquisition of MIRROR, we recognized acquisition-related compensation expenses of $38.4 million and transaction and integration related costs of $3.0 million in 2021.

There were no acquisition-related expenses in 2022.

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

30.9 % 32.6 % (170) basis points

Segmented income from operations as a % of net revenue

24.3 % 19.7 % 460 basis points

The increase in Rest of World net revenue was primarily due to an increase in comparable sales, which increased 19%, or 20% on a constant dollar basis.

Rest of World comparable sales excludes net revenue from the 53rd week of 2024.

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 $95.8 million increase in net revenue from new or expanded company-operated stores and our other channels.

We have opened eight net new company-operated stores since 2023.

Rest of World net revenue during the 53rd week of 2024 was $21.7 million, which contributed to the increase in Rest of World net revenue in 2024.

The increase in gross margin was primarily due to higher product margin.

Corporate expenses decreased $9.0 million to $1.3 billion in 2024 compared to 2023.

The net decrease was primarily due to an inventory obsolescence provision of $23.7 million and certain asset impairments and restructuring costs of $74.5 million in relation to lululemon Studio recognized in 2023.

Please refer to Note 9.

Acquisition-Related Expenses included in Item 8 of Part II of this report for further information.

Gain on Disposal of Assets

2022 2021 Year over year change

(In thousands) (In thousands) (Percentage)

Gain on disposal of assets

$ (10,180) $ — $ (10,180) n/a

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.

Our prior segment results have been recast to reflect our new segment reporting structure.

2022 2021 2022 2021 Year over year change

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

Segmented income from operations:

Americas $ 2,503,740 $ 1,867,016 36.7 % 35.2 % $ 636,724 34.1 %

China Mainland 196,865 167,318 34.1 38.5 29,547 17.7

Rest of World 103,204 67,674 14.4 13.0 35,530 52.5

$ 2,803,809 $ 2,102,008 $ 701,801 33.4 %

General corporate expenses 1,005,988 718,477 287,511 40.0

lululemon Studio obsolescence provision 62,928 — 62,928 n/a

Impairment of goodwill and other assets, restructuring costs 407,913 — 407,913 n/a

Amortization of intangible assets 8,752 8,782 (30) (0.3)

Acquisition-related expenses — 41,394 (41,394) (100.0)

Gain on disposal of assets (10,180) — (10,180) n/a

Income from operations $ 1,328,408 $ 1,333,355 $ (4,947) (0.4) %

Operating margin 16.4 % 21.3 % (490) basis points

The increase in Americas income from operations was primarily the result of increased gross profit of $855.2 million, driven by increased net revenue, partially offset by lower gross margin.

The decrease in gross margin was primarily due to lower product margin, partially offset by leverage on occupancy and other costs.

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

Income from operations as a percentage of Americas net revenue increased due to leverage on selling, general and administrative expenses.

China Mainland.

The increase in China Mainland income from operations was primarily the result of increased gross profit of $70.4 million, driven by increased net revenue, partially offset by lower gross margin.

The decrease in gross margin was primarily due to unfavorable foreign currency exchange rates as well as deleverage on distribution center and other costs.

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

Income from operations as a percentage of China Mainland net revenue decreased primarily due to lower gross margin.

Rest of World.

The increase in Rest of World income from operations was primarily the result of increased gross profit of $80.9 million, driven by increased net revenue, partially offset by lower gross margin.

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

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

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

General Corporate Expenses.

The increase in general corporate expenses was primarily due to higher employee costs, as well as increased depreciation, brand and community costs, technology costs, professional fees, and product team costs.

The increase in general corporate expenses was partially offset by a decrease in net foreign exchange and derivative losses of $0.8 million.

Impairment of Goodwill and Other Assets, Restructuring Costs included in Item 8 of Part II of this report for further information.

Corporate expenses also decreased due to an increase in net foreign currency exchange and derivative gains of $9.9 million, as well as a decrease in employee costs.

The decrease in corporate expenses was partially offset by increased professional fees and technology costs, as well as increased depreciation and marketing expenses.

Other Income (Expense), Net

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$ 70,380 $ 43,059 $ 27,321 63.5 %

The increase in other income, net was primarily due to an increase in interest income from higher interest rates, partially offset by an increase in other expenses.

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

Income Tax Expense

4 unchanged sentences

29.6 % 28.8 % 80 basis points

The increase in the effective tax rate was primarily due to certain non-deductible expenses related to the impairment of goodwill and other assets recognized in relation to our lululemon Studio business unit (formerly MIRROR) partially offset by the gain on sale of an administrative building in 2022 which increased the effective tax rate by 780 basis points.

Certain non-deductible expenses related to the MIRROR acquisition increased the effective tax rate by 70 basis points in 2021.

The increase in the effective tax rate was also due to the accrual of U.S.

state tax and Canadian withholding taxes on unremitted earnings which are not considered to be permanently reinvested, adjustments upon filing of certain income tax returns, and a decrease in deductions for stock-based compensation, partially offset by a decrease in non-deductible expenses in international jurisdictions.

Excluding the impairment of goodwill and other assets recognized in relation to our lululemon Studio business unit (formerly MIRROR) and the gain on sale of an administrative building in 2022, and the MIRROR acquisition-related expenses in 2021, and their tax effects, our adjusted effective tax rates were 28.1% and 26.2% for 2022 and 2021, respectively.

The increase in the effective tax rate was primarily due to an increase in non-deductible expenses in international jurisdictions, a decrease in tax benefits related to stock-based compensation, adjustments upon the filing of certain income tax returns, and an increase in net revenue outside of the United States.

The increase in the effective tax rate was partially offset by an increase in tax credits, and the income tax impact of certain non-deductible impairment and other charges related to lululemon Studio, which increased the effective tax rate by 10 basis points in 2023.

Excluding the income tax effects of the impairment and other charges recognized in relation to lululemon Studio in 2023, the adjusted effective tax rate was 28.7% in 2023.

2024 2023 Year over year change

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$ 1,814,616 $ 1,550,190 $ 264,426 17.1 %

The decrease in net income in 2022 was primarily due to an increase in selling, general and administrative expenses of $532.4 million, an impairment charge recognized in 2022 of $407.9 million, an increase in income tax expense of $119.2 million, partially offset by an increase in gross profit of $883.8 million, a decrease in acquisition-related expenses of $41.4 million, a gain on disposal of assets of $10.2 million, and an increase in other income (expense), net of $3.6 million.

Excluding the impairment of goodwill and other assets recognized in relation to our lululemon Studio business unit (formerly MIRROR) and the gain on sale of an administrative building in 2022, and the MIRROR acquisition-related expenses in 2021, and their tax effects, adjusted net income increased $273.7 million or 27.0%.

The increase in net income in 2024 was primarily due to an increase in gross profit of $661.4 million, impairment and restructuring charges recognized in 2023 of $74.5 million, an increase in other income (expense), net of $27.3 million, partially offset by an increase in selling, general and administrative expenses of $365.2 million, and an increase in income tax expense of $135.9 million.

Excluding the impairment and other charges recognized in relation to lululemon Studio in 2023, and their tax effects, adjusted net income increased $192.3 million or 12%.

Comparable Sales and Sales Per Square Foot

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

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

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.

Company-operated stores acquired as a result of the acquisition of the Mexico operations will be considered comparable beginning October 2025, after 12 full fiscal months of sales from the date of acquisition.

Prior to the acquisition, wholesale sales were made to a third party under a license and supply arrangement.

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.

Non-comparable sales includes all net revenue other than comparable sales.

Sales Per Square Foot

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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.

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, goodwill and other 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, the MIRROR acquisition-related expenses, and the related income tax effects of these items.

For 2023, 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, 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.

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 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.

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

2023 Compared to 2022

Comparable sales exclude net revenue from the 53rd week of 2024.

2024 Compared to 2023

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

Change Foreign exchange changes Change in constant dollars

Americas 4 % — % 4 %

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Adjusted Financial Measures

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

The 2023 and 2022 adjustments relate to certain inventory provisions, goodwill and other asset impairments, and restructuring costs recognized in relation to lululemon Studio, and their related tax effects.

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

The 2021 adjustments relate to MIRROR acquisition-related expenses, and their related tax effects.

The following table reconciles the most directly comparable measures calculated in accordance with GAAP with the adjusted financial measures for 2023.

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

Please refer to Note 9.

Property and Equipment, Note 8.

Impairment of Goodwill and Other Assets, Restructuring Costs, and Note 9.

Acquisition-Related Expenses included in Item 8 of Part II of this report for further information on the nature of these amounts.

Impairment of Goodwill and Other Assets, Restructuring Costs included in Item 8 of Part II of this report for further information on the nature of these amounts.

There were no adjusted financial measures for 2024.

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

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Adjusted results (non-GAAP) $ 5,633,114 58.6 % $ 2,230,886 23.2 % $ 651,630 28.7 % $ 1,622,315 $ 12.77

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 $ 4,492,340 55.4 % $ 1,328,408 16.4 % $ 477,771 35.9 % $ 854,800 $ 6.68

lululemon Studio charges:

lululemon Studio obsolescence provision 62,928 0.8 62,928 0.8 62,928 0.49

Impairment of goodwill and other assets 407,913 5.0 407,913 3.19

Tax effect of the above 28,171 (7.8) (28,171) (0.22)

62,928 0.8 470,841 5.8 28,171 (7.8) 442,670 3.46

Gain on disposal of assets (10,180) (0.1) (10,180) (0.08)

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

Adjusted results (non-GAAP) $ 4,555,268 56.2 % $ 1,789,069 22.1 % $ 504,281 28.1 % $ 1,288,951 $ 10.07

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 $ 1,333,355 21.3 % $ 358,547 26.9 % $ 975,322 $ 7.49

Transaction and integration costs 2,989 — 2,989 0.02

Acquisition-related compensation 38,405 0.7 38,405 0.29

Tax effect of the above 1,417 (0.7) (1,417) (0.01)

Adjusted results (non-GAAP) $ 1,374,749 22.0 % $ 359,964 26.2 % $ 1,015,299 $ 7.79

Liquidity and Capital Resources

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Operating Activities

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

• an increase in cash flows from changes in operating assets and liabilities of $859.1 million, primarily driven by changes in inventories, accounts payable, and prepaid expenses and other current assets, partially offset by changes in income taxes and accrued liabilities;

• increased net income of $695.4 million.

The increase in cash provided by operating activities was partially offset by changes in adjusting items of $224.8 million, primarily driven by goodwill and other asset impairments and restructuring costs recognized in relation to lululemon Studio, as well as increased depreciation and higher cash inflows related to derivatives.

Net income increased $264.4 million.

The decrease in cash provided by operating activities was primarily as a result of a decrease in cash flows from changes in operating assets and liabilities of $251.1 million, primarily driven by changes in accounts payable, inventories, accrued compensation, and other assets, partially offset by changes in income taxes and accrued liabilities.

The decrease in cash provided by operating activities was also a result of changes in impairment and other charges recognized in relation to lululemon Studio in 2023, and lower cash inflows related to derivatives, partially offset by increased deferred incomes taxes and depreciation.

Investing Activities

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

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

The increase in cash used in investing activities was primarily due to the acquisition of the lululemon branded retail locations and operations run by a third party in Mexico.

Please refer to Note 6.

Acquisition included in Item 8 of Part II of this Annual Report on Form 10-K for further information.

The increase in cash used in investing activities was also due to increased capital expenditures primarily due to an increase in supply chain infrastructure, company-operated stores expenditures, and system initiatives, partially offset by a decrease in corporate infrastructure capital expenditures.

The increase in cash used in investing activities was partially offset by the settlement of net investment hedges.

Financing Activities

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

During 2023, 1.5 million shares were repurchased at a total cost including commissions and excise taxes of $558.7 million.

During 2022, 1.4 million shares were repurchased at a total cost including commissions and excise taxes of $444.0 million.

During 2024, we repurchased 5.1 million shares at a total cost including commissions and excise taxes of $1.6 billion.

During 2023, we repurchased 1.5 million shares at a total cost including commissions and excise taxes of $558.7 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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Risk Factors".

In addition, we may make discretionary capital improvements with respect to our stores, distribution facilities, headquarters, or systems, or we may repurchase shares under an approved stock repurchase program, which we would expect to fund through the use of cash, issuance of debt or equity securities or other external financing sources to the extent we were unable to fund such expenditures out of our cash and cash equivalents and cash generated from operations.

debt or equity securities or other external financing sources to the extent we were unable to fund such expenditures out of our cash and cash equivalents and cash generated from operations.

The following table includes certain measures of our liquidity:

January 28, 2024

February 2, 2025

(In thousands)

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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 January 28, 2024 was $1.3 billion, a decrease of 9% from January 29, 2023.

We expect our inventories to decrease during the first half of 2024 compared to the first half of 2023, and then increase in the second half of 2024 compared to the second half of 2023.

Our inventory balance as of February 2, 2025 was $1.4 billion, an increase of 9% from January 28, 2024.

We expect that our inventories will continue to grow in 2025, and we expect the growth rate will exceed net revenue growth in 2025.

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

The credit facility has a maturity date of December 14, 2026.

As of February 2, 2025, aside from letters of credit of $6.1 million, we had no other borrowings outstanding under this credit facility.

Further information regarding our credit facilities and associated covenants is outlined in Note 12.

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In some cases, values are subject to change, such as for product purchases throughout the production process.

The reported amounts exclude liabilities included in our consolidated balance sheets as of January 28, 2024.

One-time transition tax payable .

tax reforms enacted in December 2017 imposed a mandatory transition tax on accumulated foreign subsidiary earnings which have not previously been subject to U.S.

The one-time transition tax is payable over eight years beginning in fiscal 2018.

The one-time transition tax payable is net of foreign tax credits, and the table below outlines the expected payments due by fiscal year.

The following table summarizes our contractual arrangements due by fiscal year as of January 28, 2024, and the timing and effect that such commitments are expected to have on our liquidity and cash flows in future periods:

The reported amounts exclude liabilities included in our consolidated balance sheets as of February 2, 2025.

The following table summarizes our contractual arrangements due by fiscal year as of February 2, 2025, and the timing and effect that such commitments are expected to have on our liquidity and cash flows in future periods:

Total 2025 2026 2027 2028 2029 Thereafter

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Purchase obligations 803,579 725,155 22,982 16,807 25,635 13,000 —

One-time transition tax payable 28,555 12,691 15,864 — — — —

As of January 28, 2024, our operating lease commitments for distribution center operating leases which have been committed to, but not yet commenced, was $299.6 million, which is not reflected in the table above.

As of February 2, 2025, our minimum operating lease commitment for distribution center operating leases which have been committed to, but not yet commenced, was $274.8 million, which is not reflected in the table above.

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

As of January 28, 2024, letters of credit and letters of guarantee totaling $10.2 million had been issued, including $6.3 million under our committed revolving credit facility.

As of February 2, 2025, letters of credit and letters of guarantee totaling $12.6 million had been issued, including $6.1 million under our committed revolving credit facility.

Critical Accounting Policies and Estimates

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generally accepted accounting principles requires management to make estimates and assumptions.

Predicting future events is inherently an imprecise activity and, as such, requires the use of significant judgment.

Predicting future events is inherently an imprecise activity and, as such,

requires the use of significant judgment.

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

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We record a provision at an amount that is equal to the difference between the inventory cost and its net realizable value.

As of January 28, 2024 the net carrying value of our inventories was $1.3 billion, which included provisions for obsolete and damaged inventory of $139.7 million.

provision is determined based upon assumptions about product quality, damages, future demand, selling prices, and market conditions, and includes a provision of $63.0 million against lululemon Studio Mirror inventory.

As of February 2, 2025, the net carrying value of our inventories was $1.4 billion, which included provisions for obsolete and damaged inventory of $82.3 million.

The provision is determined based upon assumptions about product quality, damages, future demand, selling prices, and market conditions.

Deferred taxes on undistributed net investment of foreign subsidiaries.

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Specifically, to the extent that the Canadian subsidiaries have sufficient paid-up-capital, any such distributions would be made as a return of capital, rather than as a dividend, and therefore would not be subject to Canadian withholding tax.

As of January 28, 2024, the net investment in our Canadian subsidiaries was $2.5 billion, of which $1.6 billion was determined to be indefinitely reinvested.

As of February 2, 2025, the net investment in our Canadian subsidiaries was $3.7 billion, of which $1.6 billion was determined to be indefinitely reinvested.

The paid-up-capital balance of the Canadian subsidiaries was approximately $165.2 million.

We have recognized a deferred tax liability of $41.2 million as of January 28, 2024 which represents the Canadian withholding taxes payable on the portion of our Canadian earnings that are not indefinitely reinvested and cannot be repatriated as a return of capital, and U.S.

We have recognized a deferred tax liability of $107.0 million as of February 2, 2025 which represents the Canadian withholding taxes payable on the portion of our Canadian earnings that are not indefinitely reinvested and cannot be repatriated as a return of capital, and U.S.

state income taxes payable upon repatriation of the amounts which are not indefinitely reinvested.

8 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-K

Item 7. Management’s Discussion and Analysis