lululemon athletica inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) lululemon athletica inc. CONSOLIDATED BALANCE SHEETS (Unaudited; Amounts in thousands, except per share amounts) May 4, 2025 February 2, 2025 ASSETS Current assets Cash and cash equivalents $ 1,325,272 $ 1,984,336 Accounts receivable, net 141,241 120,173 Inventories 1,652,091 1,442,081 Prepaid and receivable income taxes 230,280 182,253 Prepaid expenses and other current assets 233,633 251,459 3,582,517 3,980,302 Property and equipment, net 1,846,609 1,780,617 Right-of-use lease assets 1,549,401 1,416,256 Goodwill 167,359 159,518 Intangible assets, net 10,642 11,673 Deferred income tax assets 17,598 17,085 Other non-current assets 256,417 237,841 $ 7,430,543 $ 7,603,292 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 303,975 $ 271,406 Accrued liabilities and other 506,996 559,463 Accrued compensation and related expenses 144,222 204,543 Current lease liabilities 281,837 275,154 Current income taxes payable 31,276 183,126 Unredeemed gift card liability 271,076 308,352 Other current liabilities 33,003 37,586 1,572,385 1,839,630 Non-current lease liabilities 1,424,945 1,300,637 Deferred income tax liabilities 98,189 98,188 Other non-current liabilities 45,454 40,790 3,140,973 3,279,245 Commitments and contingencies Stockholders' equity Undesignated preferred stock, $ 0.01 par value: 5,000 shares authorized; none issued and outstanding — — Exchangeable stock, no par value: 60,000 shares authorized; 5,116 and 5,116 issued and outstanding — — Special voting stock, $ 0.000005 par value: 60,000 shares authorized; 5,116 and 5,116 issued and outstanding — — Common stock, $ 0.005 par value: 400,000 shares authorized; 114,909 and 116,166 issued and outstanding 574 581 Additional paid-in capital 632,564 638,190 Retained earnings 3,993,154 4,109,717 Accumulated other comprehensive loss ( 336,722 ) ( 424,441 ) 4,289,570 4,324,047 $ 7,430,543 $ 7,603,292 See accompanying notes to the unaudited interim consolidated financial statements 3 Table of Contents lululemon athletica inc. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited; Amounts in thousands, except per share amounts) Quarter Ended May 4, 2025 April 28, 2024 Net revenue $ 2,370,660 $ 2,208,891 Cost of goods sold 987,534 933,823 Gross profit 1,383,126 1,275,068 Selling, general and administrative expenses 942,871 842,426 Amortization of intangible assets 1,630 — Income from operations 438,625 432,642 Other income (expense), net 11,786 23,283 Income before income tax expense 450,411 455,925 Income tax expense 135,839 134,504 Net income $ 314,572 $ 321,421 Other comprehensive income (loss), net of tax: Foreign currency translation adjustment $ 169,772 $ ( 44,305 ) Net investment hedge gains (losses) ( 82,053 ) 13,481 Other comprehensive income (loss), net of tax $ 87,719 $ ( 30,824 ) Comprehensive income $ 402,291 $ 290,597 Basic earnings per share $ 2.61 $ 2.55 Diluted earnings per share $ 2.60 $ 2.54 Basic weighted-average number of shares outstanding 120,632 125,989 Diluted weighted-average number of shares outstanding 120,843 126,336 See accompanying notes to the unaudited interim consolidated financial statements 4 Table of Contents lululemon athletica inc. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited; Amounts in thousands) Quarter Ended May 4, 2025 Exchangeable Stock Special Voting Stock Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Total Stockholders' Equity Shares Shares Par Value Shares Par Value Balance as of February 2, 2025 5,116 5,116 $ — 116,166 $ 581 $ 638,190 $ 4,109,717 $ ( 424,441 ) $ 4,324,047 Net income 314,572 314,572 Other comprehensive income (loss), net of tax 87,719 87,719 Stock-based compensation expense 23,091 23,091 Common stock issued upon settlement of stock-based compensation 195 — 221 221 Shares withheld related to net share settlement of stock-based compensation ( 89 ) — ( 25,641 ) ( 25,641 ) Repurchase of common stock, including excise tax ( 1,363 ) ( 7 ) ( 3,297 ) ( 431,135 ) ( 434,439 ) Balance as of May 4, 2025 5,116 5,116 $ — 114,909 $ 574 $ 632,564 $ 3,993,154 $ ( 336,722 ) $ 4,289,570 Quarter Ended April 28, 2024 Exchangeable Stock Special Voting Stock Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Total Stockholders' Equity Shares Shares Par Value Shares Par Value Balance as of January 28, 2024 5,116 5,116 $ — 121,106 $ 606 $ 575,369 $ 3,920,362 $ ( 264,256 ) $ 4,232,081 Net income 321,421 321,421 Other comprehensive income (loss), net of tax ( 30,824 ) ( 30,824 ) Stock-based compensation expense 25,758 25,758 Common stock issued upon settlement of stock-based compensation 200 — 3,393 3,393 Shares withheld related to net share settlement of stock-based compensation ( 85 ) — ( 32,542 ) ( 32,542 ) Repurchase of common stock, including excise tax ( 751 ) ( 4 ) ( 1,692 ) ( 297,783 ) ( 299,479 ) Balance as of April 28, 2024 5,116 5,116 $ — 120,470 $ 602 $ 570,286 $ 3,944,000 $ ( 295,080 ) $ 4,219,808 See accompanying notes to the unaudited interim consolidated financial statements 5 Table of Contents lululemon athletica inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited; Amounts in thousands) Quarter Ended May 4, 2025 April 28, 2024 Cash flows from operating activities Net income $ 314,572 $ 321,421 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 114,529 95,759 Stock-based compensation expense 23,091 25,758 Settlement of derivatives not designated in a hedging relationship ( 47,520 ) ( 316 ) Changes in operating assets and liabilities: Accounts receivable ( 18,504 ) ( 2,624 ) Inventories ( 174,319 ) ( 36,425 ) Prepaid and receivable income taxes ( 48,027 ) ( 10,104 ) Prepaid expenses and other current assets 22,676 ( 19,908 ) Other non-current assets ( 13,524 ) ( 17,969 ) Accounts payable 22,489 ( 82,366 ) Accrued liabilities and other ( 42,971 ) 37,534 Accrued compensation and related expenses ( 65,635 ) ( 190,513 ) Current and non-current income taxes payable ( 160,295 ) 41,116 Unredeemed gift card liability ( 40,665 ) ( 37,172 ) Right-of-use lease assets and current and non-current lease liabilities ( 2,924 ) 1,097 Other current and non-current liabilities ( 1,927 ) 2,236 Net cash (used in) provided by operating activities ( 118,954 ) 127,524 Cash flows from investing activities Purchase of property and equipment ( 152,263 ) ( 130,681 ) Settlement of net investment hedges 48,671 ( 856 ) Other investing activities ( 3,250 ) — Net cash used in investing activities ( 106,842 ) ( 131,537 ) Cash flows from financing activities Proceeds from settlement of stock-based compensation 221 3,393 Taxes paid related to net share settlement of stock-based compensation ( 25,641 ) ( 32,542 ) Repurchase of common stock ( 434,439 ) ( 299,479 ) Other financing activities ( 8,115 ) — Net cash used in financing activities ( 467,974 ) ( 328,628 ) Effect of foreign currency exchange rate changes on cash and cash equivalents 34,706 ( 10,658 ) Decrease in cash and cash equivalents ( 659,064 ) ( 343,299 ) Cash and cash equivalents, beginning of period $ 1,984,336 $ 2,243,971 Cash and cash equivalents, end of period $ 1,325,272 $ 1,900,672 See accompanying notes to the unaudited interim consolidated financial statements 6 Table of Contents lululemon athletica inc. INDEX FOR NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS Note 1 Nature of Operations and Basis of Presentation 8 Note 2 Recent Accounting Pronouncements 8 Note 3 Revolving Credit Facilities 9 Note 4 Supply Chain Financing Program 10 Note 5 Stock-Based Compensation and Benefit Plans 10 Note 6 Fair Value Measurement 11 Note 7 Derivative Financial Instruments 12 Note 8 Earnings Per Share 14 Note 9 Supplementary Financial Information 15 Note 10 Segmented Information 16 Note 11 Disaggregated Net Revenue 18 Note 12 Legal Proceedings and Other Contingencies 18 7 Table of Contents lululemon athletica inc. NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS Note 1. Nature of Operations and Basis of Presentation Nature of operations lululemon athletica inc., a Delaware corporation, ("lululemon" and, together with its subsidiaries unless the context otherwise requires, the "Company") is engaged in the design, distribution, and retail of technical athletic apparel, footwear, and accessories. The Company organizes its operations into four regional markets: Americas, China Mainland, Asia Pacific ("APAC"), and Europe and the Middle East ("EMEA"). It conducts its business through a number of different channels in each market, including company-operated stores, e-commerce, outlets, temporary locations, wholesale, license and supply arrangements, and a re-commerce program. There were 770 and 767 company-operated stores as of May 4, 2025 and February 2, 2025, respectively. Basis of presentation The unaudited interim consolidated financial statements, including the financial position as of May 4, 2025 and the results of operations and cash flows for the periods disclosed, are presented in U.S. dollars and have been prepared by the Company under the rules and regulations of the Securities and Exchange Commission ("SEC"). The financial information is presented in accordance with United States generally accepted accounting principles ("GAAP") for interim financial information and, accordingly, does not include all of the information and footnotes required by GAAP for complete financial statements. The financial information as of February 2, 2025 is derived from the Company's audited consolidated financial statements and related notes for the fiscal year ended February 2, 2025, which are included in Item 8 in the Company's fiscal 2024 Annual Report on Form 10-K filed with the SEC on March 27, 2025. These unaudited interim consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. These unaudited interim consolidated financial statements should be read in conjunction with the Company's consolidated financial statements and related notes included in Item 8 in the Company's fiscal 2024 Annual Report on Form 10-K. On September 10, 2024, the Company acquired the lululemon branded retail locations and operations run by a third party in Mexico. The Company had previously granted the third party the right to operate retail locations and to sell lululemon products in Mexico. The results of operations, financial position, and cash flows of the Mexico operations have been included in the Company's consolidated financial statements since the date of acquisition. The Company's 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 2025 will end on February 1, 2026 and will be a 52-week year. Fiscal 2024 was a 53-week year and ended on February 2, 2025. Fiscal 2025 and fiscal 2024 are referred to as "2025," and "2024," respectively. The first quarter of 2025 and 2024 ended on May 4, 2025 and April 28, 2024, respectively. The Company's business is affected by the pattern of seasonality common to most retail apparel businesses. Historically, the Company has recognized a significant portion of its operating profit in the fourth fiscal quarter of each year as a result of increased net revenue during the holiday season. Use of estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of net revenue and expenses during the reporting period. Actual results could differ from those estimates. Note 2. Recent Accounting Pronouncements The Company considers the applicability and impact of all Accounting Standard Updates ("ASUs"). ASUs recently issued not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on the Company's consolidated financial position or results of operations. 8 Table of Contents Recently issued accounting pronouncements In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This disclosure requires expanded disclosure within the rate reconciliation as well as disaggregation of annual taxes paid. This amendment is effective for annual periods beginning after December 15, 2024, and is applied prospectively. The Company is currently evaluating the impact that this new guidance may have on its financial statement disclosures. In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. Entities will be required to provide disaggregated disclosures for certain income statement expense line items. This amendment is effective for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027, and will be applied retrospectively for periods presented in the financial statements. The Company is currently evaluating the impact that this new guidance may have on its financial statement disclosures. Note 3. Revolving Credit Facilities Americas revolving credit facility The Company maintains an unsecured revolving credit facility with total commitments of $ 400.0 million and a maturity date of December 14, 2026. The facility permits prepayment of borrowings and reductions or terminations of commitments at any time without premium or penalty, subject to customary breakage costs. As of May 4, 2025, the Company had no borrowings outstanding under this facility other than $ 6.6 million in outstanding letters of credit and guarantee. Borrowings made under the credit facility bear interest at a rate per annum equal to, at the Company's option, either (a) a rate based on the Secured Overnight Financing Rate as administered by the Federal Reserve Bank of New York ("SOFR"), or (b) an alternate base rate, plus, in each case, an applicable margin. The applicable margin is determined by reference to a pricing grid, based on the ratio of indebtedness to earnings before interest, tax, depreciation, amortization, and rent ("EBITDAR") and ranges between 1.000 %- 1.375 % for SOFR loans and 0.000 %- 0.375 % for alternate base rate or Canadian prime rate loans. Additionally, a commitment fee of between 0.100 %- 0.200 %, also determined by reference to the pricing grid, is payable on the average daily unused amounts under the credit facility. The applicable interest rates and commitment fees are subject to adjustment based on certain sustainability key performance indicators ("KPIs"). The two KPIs are based on greenhouse gas emissions intensity reduction and gender pay equity, and the Company's performance against certain targets measured on an annual basis could result in positive or negative sustainability rate adjustments of 2.50 basis points to its drawn pricing and positive or negative sustainability fee adjustments of 0.50 basis points to its undrawn pricing. The credit agreement contains negative covenants that, among other things and subject to certain exceptions, limit the ability of the Company's subsidiaries to incur indebtedness, incur liens, undergo fundamental changes, make dispositions of all or substantially all of their assets, alter their businesses and enter into agreements limiting subsidiary dividends and distributions. The Company's financial covenants include maintaining an operating lease adjusted leverage ratio of not greater than 3.25 :1.00 and the ratio of consolidated EBITDAR to consolidated interest charges (plus rent) of not less than 2.00 :1.00. The credit agreement also contains certain customary representations, warranties, affirmative covenants, and events of default (including, among others, an event of default upon the occurrence of a change of control). If an event of default occurs, the credit agreement may be terminated, and the maturity of any outstanding amounts may be accelerated. As of May 4, 2025, the Company was in compliance with the covenants of the credit facility. China Mainland revolving credit facility The Company has an uncommitted and unsecured 300.0 million Chinese Yuan ($ 41.3 million) revolving credit facility with terms that are reviewed on an annual basis. It is comprised of a revolving loan of up to 200.0 million Chinese Yuan ($ 27.5 million) and a guarantee facility of up to 100.0 million Chinese Yuan ($ 13.8 million), or its equivalent in another currency. Loans are available for a period not to exceed 12 months, at an interest rate equal to the loan prime rate plus a spread of 0.5175 %. The Company is required to follow certain covenants. As of May 4, 2025, the Company was in compliance with the covenants and, there were no borrowings or guarantees outstanding under this facility other than letters of credit of 48.7 million Chinese Yuan ($ 6.7 million). 9 Table of Contents Note 4. Supply Chain Financing Program The Company facilitates a voluntary supply chain financing ("SCF") program that allows its suppliers to elect to sell the receivables owed to them by the Company to a third party financial institution. Participating suppliers negotiate arrangements directly with the financial institution. If a supplier chooses to participate in the SCF program it may request an invoice be paid earlier than it would by the Company, and the financial institution at its sole and absolute discretion, may elect to make an early payment to the supplier at a discount. The Company’s obligations to its suppliers, including amounts due and scheduled payment terms, are not impacted by a supplier's participation in the arrangement and the Company provides no guarantees to any third parties under the SCF program. As of May 4, 2025 and February 2, 2025, $ 45.2 million and $ 36.3 million, respectively, were outstanding under the SCF program and presented within accounts payable. Note 5. Stock-Based Compensation and Benefit Plans Stock-based compensation plans The Company's eligible employees participate in various stock-based compensation plans, provided directly by the Company. Stock-based compensation expense charged to income for the plans was $ 23.0 million and $ 25.4 million for the first quarter of 2025 and 2024, respectively. Total unrecognized compensation cost for all stock-based compensation plans was $ 208.8 million as of May 4, 2025, which is expected to be recognized over a weighted-average period of 2.5 years. A summary of the balances of the Company's stock-based compensation plans as of May 4, 2025, and changes during the first quarter of 2025, is presented below: Stock Options Performance-Based Restricted Stock Units Restricted Shares Restricted Stock Units Number Weighted-Average Exercise Price Number Weighted-Average Grant Date Fair Value Number Weighted-Average Grant Date Fair Value Number Weighted-Average Grant Date Fair Value (In thousands, except per share amounts) Balance as of February 2, 2025 849 $ 314.27 177 $ 371.83 5 $ 317.86 239 $ 371.09 Granted 291 283.06 158 311.57 — — 172 282.93 Exercised/released 6 93.97 100 373.03 — — 89 375.36 Forfeited/expired 11 358.69 3 365.02 — — 5 357.15 Balance as of May 4, 2025 1,123 $ 306.87 232 $ 330.44 5 $ 317.86 317 $ 322.27 Exercisable as of May 4, 2025 546 $ 284.91 The Company's performance-based restricted stock units ("PSUs") are awarded to eligible employees and entitle the grantee to receive a maximum of two shares of common stock per PSU if the Company achieves specified performance goals and the grantee remains employed during the vesting period. The fair value of PSU is based on the closing price of the Company's common stock on the grant date. Expense for PSU is recognized when it is probable that the performance goal will be achieved. The grant date fair value of the restricted shares and restricted stock units is based on the closing price of the Company's common stock on the grant date. 10 Table of Contents The grant date fair value of each stock option granted is estimated on the date of grant using the Black-Scholes model. The closing price of the Company's common stock on the grant date is used in the model. The assumptions used to calculate the fair value of the options granted are evaluated and revised, as necessary, to reflect market conditions and the Company's historical experience. The expected term of the options is based upon the historical experience of similar awards, giving consideration to expectations of future exercise behavior. Expected volatility is based upon the historical volatility of the Company's common stock for the period corresponding with the expected term of the options. The risk-free interest rate is based on the U.S. Treasury yield curve for the period corresponding with the expected term of the options. The following are weighted averages of the assumptions that were used in calculating the fair value of stock options granted during the first quarter of 2025: First Quarter 2025 Expected term 4.00 years Expected volatility 38.70 % Risk-free interest rate 4.00 % Dividend yield — % Employee share purchase plan The Company has an Employee Share Purchase Plan ("ESPP"). Contributions are made by eligible employees, subject to certain limits defined in the ESPP, and the Company matches one-third of the contribution. The maximum number of shares authorized to be purchased under the ESPP is 6.0 million shares. All shares purchased under the ESPP are purchased in the open market. During the first quarter of 2025, there were 35.2 thousand shares purchased. As of May 4, 2025, 4.2 million shares remain authorized to be purchased under the ESPP. Defined contribution pension plans The Company offers defined contribution pension plans to its eligible employees. Participating employees may elect to defer and contribute a portion of their eligible compensation to a plan up to limits stated in the plan documents, not to exceed the dollar amounts set by applicable laws. The Company matches 50 % to 75 % of the contribution depending on the participant's length of service, and the contribution is subject to a two-year vesting period. The Company's net expense for the defined contribution plans was $ 6.2 million and $ 5.8 million in the first quarter of 2025 and 2024, respectively. Note 6. Fair Value Measurement Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are made using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value: • Level 1 - defined as observable inputs such as quoted prices in active markets; • Level 2 - defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and • Level 3 - defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. 11 Table of Contents Assets and liabilities measured at fair value on a recurring basis The fair value measurement is categorized in its entirety by reference to its lowest level of significant input. As of May 4, 2025 and February 2, 2025, the Company held certain assets and liabilities that are required to be measured at fair value on a recurring basis: May 4, 2025 Level 1 Level 2 Level 3 Balance Sheet Classification (In thousands) Money market funds $ 71,080 $ 71,080 $ — $ — Cash and cash equivalents Forward currency contract assets 41,046 — 41,046 — Prepaid expenses and other current assets Forward currency contract liabilities 42,126 — 42,126 — Other current liabilities February 2, 2025 Level 1 Level 2 Level 3 Balance Sheet Classification (In thousands) Money market funds $ 240,918 $ 240,918 $ — $ — Cash and cash equivalents Term deposits 8 — 8 — Cash and cash equivalents Forward currency contract assets 76,848 — 76,848 — Prepaid expenses and other current assets Forward currency contract liabilities 74,638 — 74,638 — Other current liabilities The Company records cash, accounts receivable, accounts payable, and accrued liabilities at cost. The carrying values of these instruments approximate their fair value due to their short-term maturities. The Company has short-term, highly liquid investments classified as cash equivalents, which are invested in money market funds and short-term deposits with original maturities of three months or less. The Company records cash equivalents at their original purchase prices plus interest that has accrued at the stated rate. The fair values of the forward currency contract assets and liabilities are determined using observable Level 2 inputs, including foreign currency spot exchange rates, forward pricing curves, and interest rates. The fair values consider the credit risk of the Company and its counterparties. The Company's Master International Swap Dealers Association, Inc., Agreements and other similar arrangements allow net settlements under certain conditions. However, the Company records all derivatives on its consolidated balance sheets at fair value and does not offset derivative assets and liabilities. Note 7. Derivative Financial Instruments Foreign currency exchange risk The Company is exposed to risks associated with changes in foreign currency exchange rates and uses derivative financial instruments to manage its exposure to certain of these foreign currency exchange rate risks. The Company does not enter into derivative contracts for speculative or trading purposes. The Company currently hedges against changes in the Canadian dollar and Chinese Yuan to the U.S. dollar exchange rate and changes in the Euro and Australian dollar to the Canadian dollar exchange rate using forward currency contracts. Net investment hedges The Company is exposed to foreign currency exchange gains and losses which arise on translation of its international subsidiaries' balance sheets into U.S. dollars. These gains and losses are recorded as other comprehensive income (loss), net of tax in accumulated other comprehensive income or loss within stockholders' equity. The Company holds a significant portion of its assets in Canada and enters into forward currency contracts designed to hedge a portion of the foreign currency exposure that arises on translation of a Canadian subsidiary into U.S. dollars. These forward currency contracts are designated as net investment hedges. The Company assesses hedge effectiveness based on changes in forward rates. The Company recorded no ineffectiveness from net investment hedges during the first quarter of 2025. 12 Table of Contents The Company classifies the cash flows at settlement of its net investment hedges within investing activities in the consolidated statements of cash flows. Derivatives not designated as hedging instruments The Company is exposed to gains and losses arising from changes in foreign currency exchange rates associated with transactions which are undertaken by its subsidiaries in currencies other than their functional currency. Such transactions include intercompany transactions and inventory purchases. These transactions result in the recognition of certain foreign currency denominated monetary assets and liabilities which are remeasured to the quarter-end or settlement date foreign currency exchange rate. The resulting foreign currency gains and losses are recorded in selling, general and administrative expenses. During the first quarter of 2025, the Company entered into certain forward currency contracts designed to economically hedge the foreign currency exchange revaluation gains and losses that are recognized by its Canadian and Chinese subsidiaries on specific monetary assets and liabilities denominated in currencies other than the functional currency of the entity. The Company has not applied hedge accounting to these instruments and the change in fair value of these derivatives is recorded within selling, general and administrative expenses. The Company classifies the cash flows at settlement of its forward currency contracts which are not designated in hedging relationships within operating activities in the consolidated statements of cash flows. Quantitative disclosures about derivative financial instruments The Company presents its derivative assets and derivative liabilities at their gross fair values within prepaid expenses and other current assets and other current liabilities on the consolidated balance sheets. However, the Company's Master International Swap Dealers Association, Inc., Agreements and other similar arrangements allow net settlements under certain conditions. As of May 4, 2025, there were derivative assets of $ 41.0 million and derivative liabilities of $ 42.1 million subject to enforceable netting arrangements. The notional amounts and fair values of forward currency contracts were as follows: May 4, 2025 February 2, 2025 Gross Notional Assets Liabilities Gross Notional Assets Liabilities (In thousands) Derivatives designated as net investment hedges: Forward currency contracts $ 1,153,000 $ — $ 38,986 $ 1,969,000 $ 74,908 $ — Derivatives not designated in a hedging relationship: Forward currency contracts 1,411,176 41,046 3,140 2,167,657 1,940 74,638 Net derivatives recognized on consolidated balance sheets: Forward currency contracts $ 41,046 $ 42,126 $ 76,848 $ 74,638 The forward currency contracts designated as net investment hedges outstanding as of May 4, 2025 mature on different dates between May 2025 and November 2025. The forward currency contracts not designated in a hedging relationship outstanding as of May 4, 2025 mature on different dates between May 2025 and November 2025. The pre-tax gains and losses on foreign currency exchange forward contracts recorded in accumulated other comprehensive income or loss were as follows: First Quarter 2025 2024 (In thousands) Gains (losses) recognized in net investment hedge gains (losses): Derivatives designated as net investment hedges $ ( 65,223 ) $ 18,137 13 Table of Contents No gains or losses have been reclassified from accumulated other comprehensive income or loss into net income for derivative financial instruments in a net investment hedging relationship, as the Company has not sold or liquidated (or substantially liquidated) its hedged subsidiary. The pre-tax net foreign currency exchange and derivative gains and losses recorded in the consolidated statement of operations were as follows: First Quarter 2025 2024 (In thousands) Gains (losses) recognized in selling, general and administrative expenses: Foreign currency exchange gains (losses) $ ( 73,277 ) 14,935 Derivatives not designated in a hedging relationship 63,068 ( 14,327 ) Net foreign currency exchange and derivative gains (losses) $ ( 10,209 ) $ 608 Credit risk The Company is exposed to credit-related losses in the event of nonperformance by the counterparties to the forward currency contracts. The credit risk amount is the Company's unrealized gains on its derivative instruments, based on foreign currency rates at the time of nonperformance. The Company's forward currency contracts are generally entered into with what the Company believes are investment grade credit worthy and reputable financial institutions that are monitored by the Company for counterparty risk. The Company's derivative contracts contain certain credit risk-related contingent features. Under certain circumstances, including an event of default, bankruptcy, termination, and cross default under the Company's revolving credit facility, the Company may be required to make immediate payment for outstanding liabilities under its derivative contracts. Note 8. Earnings Per Share The details of the computation of basic and diluted earnings per share are as follows: First Quarter 2025 2024 (In thousands, except per share amounts) Net income $ 314,572 $ 321,421 Basic weighted-average number of shares outstanding $ 120,632 $ 125,989 Assumed conversion of dilutive stock options and awards 211 347 Diluted weighted-average number of shares outstanding 120,843 126,336 Basic earnings per share $ 2.61 $ 2.55 Diluted earnings per share $ 2.60 $ 2.54 The Company's calculation of weighted-average shares includes the common stock of the Company as well as the exchangeable shares. Exchangeable shares are the economic equivalent of common shares in all material respects. All classes of stock have, in effect, the same economic rights and share equally in undistributed net income. For the first quarter of 2025 and 2024, 0.2 million and 0.1 million stock options and awards, respectively, were anti-dilutive to earnings per share and therefore have been excluded from the computation of diluted earnings per share. On March 23, 2022, the Company's board of directors approved a stock repurchase program authorizing up to $ 1.0 billion of common shares, which was fully utilized during the first quarter of 2024. Subsequently, the board of directors approved a new repurchase program authorizing up to $ 3.0 billion in aggregate, including $ 1.0 billion initially authorized on November 29, 2023, and additional $ 1.0 billion increases on May 29, 2024 and December 3, 2024. This program does not have an expiration date or require a minimum number of shares to be repurchased. Repurchases may be made on the open market at prevailing prices or through privately negotiated transactions, including under plans pursuant to Rule 10b5-1 and Rule 10b-18 of the Securities Exchange Act of 1934. The timing and amount of 14 Table of Contents repurchases will depend on market conditions, trading eligibility, and other factors. As of May 4, 2025, the remaining authorized amount available under the program, excluding commissions and excise taxes was $ 1.1 billion. During the first quarter of 2025 and 2024, 1.4 million and 0.8 million shares, respectively, were repurchased at a total cost including commissions and excise taxes of $ 434.4 million and $ 299.5 million, respectively. Subsequent to May 4, 2025, and up to May 30, 2025, 0.2 million shares were repurchased at a total cost including commissions and excise taxes of $ 55.7 million. Note 9. Supplementary Financial Information A summary of certain consolidated balance sheet accounts is as follows: May 4, 2025 February 2, 2025 (In thousands) Inventories: Inventories, at cost $ 1,740,318 $ 1,526,055 Inventory provisions and reserves ( 88,227 ) ( 83,974 ) $ 1,652,091 $ 1,442,081 Prepaid expenses and other current assets: Prepaid expenses $ 163,683 $ 147,680 Forward currency contract assets 41,046 76,848 Other current assets 28,904 26,931 $ 233,633 $ 251,459 Property and equipment, net: Land $ 78,277 $ 74,461 Buildings 28,554 27,655 Leasehold improvements 1,262,739 1,227,247 Furniture and fixtures 184,688 177,651 Computer hardware 207,208 202,479 Computer software 1,364,179 1,274,322 Equipment and vehicles 54,556 51,453 Work in progress 229,636 206,398 Property and equipment, gross 3,409,837 3,241,666 Accumulated depreciation ( 1,563,228 ) ( 1,461,049 ) $ 1,846,609 $ 1,780,617 Other non-current assets: Cloud computing arrangement implementation costs $ 168,592 $ 161,759 Security deposits 52,819 44,076 Other 35,006 32,006 $ 256,417 $ 237,841 15 Table of Contents May 4, 2025 February 2, 2025 (In thousands) Accrued liabilities and other: Accrued operating expenses $ 163,315 $ 166,745 Forward currency contract liabilities 42,126 74,638 Sales return allowances 61,574 73,892 Accrued freight 47,909 53,121 Accrued duty 70,097 45,400 Accrued digital marketing 28,147 45,392 Accrued capital expenditures 26,264 36,690 Accrued rent 18,803 17,962 Sales tax collected 22,033 16,967 Other 26,728 28,656 $ 506,996 $ 559,463 Note 10. Segmented Information The Company's segments are based on the financial information the CODM, who is the Chief Executive Officer, uses to evaluate performance and allocate resources. The CODM approves the annual budget on a segment level, and regularly assesses the performance of the Company's segments using key financial metrics, including net revenue and segmented income from operations. The Company reports three segments: Americas, China Mainland, and Rest of World, which is comprised of its non-significant operating segments APAC and EMEA reported on a combined basis. The Company does not report capital expenditures and assets by segment as that information is not reviewed by the CODM. First Quarter 2025 Americas China Mainland Rest of World Total Segments Corporate (1) Total (In thousands) Net revenue $ 1,674,558 $ 368,101 $ 328,001 $ 2,370,660 $ — $ 2,370,660 Product costs (2) 480,820 81,815 90,264 652,899 — 652,899 Other cost of sales (2) 156,647 50,273 58,471 265,391 69,244 334,635 Selling, general and administrative expenses 447,760 82,378 106,410 636,548 306,323 942,871 Amortization of intangible assets — — — — 1,630 1,630 Income from operations $ 589,331 $ 153,635 $ 72,856 $ 815,822 $ ( 377,197 ) $ 438,625 Other income (expense), net 11,786 Income before income tax expense $ 450,411 Supplemental information: Depreciation and amortization (3) $ 51,441 $ 8,576 $ 8,712 $ 68,729 $ 45,800 $ 114,529 16 Table of Contents First Quarter 2024 Americas China Mainland Rest of World Total Segments Corporate (1) Total (In thousands) Net revenue $ 1,622,264 $ 303,786 $ 282,841 $ 2,208,891 $ — $ 2,208,891 Product costs (2) 482,295 68,675 80,074 631,044 — 631,044 Other cost of sales (2) 147,177 47,508 47,742 242,427 60,352 302,779 Selling, general and administrative expenses 427,952 67,825 88,344 584,121 258,305 842,426 Income from operations $ 564,840 $ 119,778 $ 66,681 $ 751,299 $ ( 318,657 ) $ 432,642 Other income (expense), net 23,283 Income before income tax expense $ 455,925 Supplemental information: Depreciation and amortization (3) $ 44,326 $ 8,025 $ 6,506 $ 58,857 $ 36,902 $ 95,759 __________ (1) Corporate includes 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. (2) Cost of goods sold is made up of product costs and other cost of sales. Product costs include the cost of purchased merchandise, costs incurred to deliver inventory to the Company's distribution centers, shrink and inventory provision expenses, the cost of digital content subscription services, and hemming costs. Other cost of sales includes occupancy and depreciation expense for company-operated stores, distribution center costs, and product department costs. (3) The amounts of depreciation and amortization disclosed by reportable segment are included within other cost of sales and selling, general and administrative expenses. 17 Table of Contents Note 11. Disaggregated Net Revenue In addition to the disaggregation of net revenue by reportable segment in Note 10. Segmented Information, the following table disaggregates the Company's net revenue by geographic area. Prior to the acquisition of the Mexico operations on September 10, 2024, wholesale sales to the third party under the license and supply arrangement by lululemon athletica canada inc. were disclosed as net revenue recognized within Canada. First Quarter 2025 2024 (In thousands) United States $ 1,362,524 $ 1,340,400 Canada 292,820 281,864 Mexico 19,214 — Americas 1,674,558 1,622,264 China Mainland 368,101 303,786 Hong Kong SAR, Taiwan, and Macau SAR 44,104 42,264 People's Republic of China 412,205 346,050 Other geographic areas 283,897 240,577 $ 2,370,660 $ 2,208,891 The following table disaggregates the Company's net revenue by category. Accessories and other categories is primarily composed of accessories, footwear, and lululemon Studio. First Quarter 2025 2024 (In thousands) Women's apparel $ 1,535,172 $ 1,435,241 Men's apparel 544,788 505,698 Accessories and other categories 290,700 267,952 $ 2,370,660 $ 2,208,891 The following table disaggregates the Company's net revenue by channel. First Quarter 2025 2024 (In thousands) Company-operated stores $ 1,153,107 $ 1,070,525 E-commerce 960,890 905,787 Other channels 256,663 232,579 $ 2,370,660 $ 2,208,891 Note 12. Legal Proceedings and Other Contingencies In addition to the legal proceedings described below, the Company is, from time to time, involved in routine legal matters, and audits and inspections by governmental agencies and other third parties which are incidental to the conduct of its business. This includes legal matters such as initiation and defense of proceedings to protect intellectual property rights, employment claims, product liability claims, personal injury claims, and similar matters. The Company believes the ultimate resolution of any such legal proceedings, audits, and inspections will not have a material adverse effect on its consolidated balance sheets, results of operations or cash flows. The Company has recognized immaterial provisions related to the expected outcome of legal proceedings. 18 Table of Contents On August 8, 2024, lululemon athletica inc. and certain officers of the Company were named as defendants in a purported securities class action ( Patel v. Lululemon Athletica Inc., et al ., No. 1:24-cv-06033) in the United States District Court for the Southern District of New York. On March 10, 2025, plaintiffs filed an amended complaint, asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 based on allegedly false and misleading public statements and omissions by defendants during the period December 8, 2023 to July 24, 2024 relating to lululemon's business, product offerings, and inventory allocation that plaintiffs allege artificially inflated the Company’s stock price. The amended complaint currently seeks unspecified monetary damages. On May 19, 2025, defendants moved to dismiss the amended complaint. The Company intends to defend the action vigorously. Since November 4, 2024, six stockholder derivative complaints have been filed in the United States Court for the Southern District of New York: Bhavsar v. McDonald et al. , No. 1:24-cv-08405; Muszynski v. McDonald et al. , No. 1:24-cv-08507; Holtz v. McDonald et al. , No. 1:24-cv-08572; Wong v. McDonald et al. , No. 1:24-cv-08752; Kanaly v. McDonald et al. , No. 1:24-cv-08839; and Wasserman v. McDonald et al. , No. 1:25-cv-02793 (collectively, the "Derivative Actions."). The complaints in the Derivative Actions are generally based on the same allegations alleged in the securities action complaint and assert claims against certain of the Company’s current and former directors and officers for, among other things, alleged breaches of fiduciary duty and violations of Sections 10(b), 14(a), and 20(a) of the Exchange Act. Certain of the Derivative Actions also assert claims based on alleged false and misleading statements during the period October 28, 2020 to April 25, 2024 relating to the Company’s "IDEA" program. The complaints seek, among other things, monetary damages and equitable relief on behalf of the Company, as well as an award of attorneys’ fees and costs. On May 15, 2025, plaintiff in Bhavsar v. McDonald et al. voluntarily dismissed the complaint and that action has been terminated.