What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-09-04 compared with 2025-06-05 · 275 added, 82 removed, 263 unchanged (58% of the section changed)

9 unchanged sentences

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 first two quarters of 2025 and 2024 ended on August 3, 2025 and July 28, 2024, respectively.

Components of this MD&A include:

1 unchanged sentence

• Quarter-to-Date Results of Operations

• Year-to-Date Results of Operations

• Comparable Sales

5 unchanged sentences

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

Due to the 53rd week in 2024, comparable sales are calculated on a one week shifted basis such that the 13 weeks ended May 4, 2025 is compared to the 13 weeks ended May 5, 2024 rather than April 28, 2024.

Due to the 53rd week in 2024, comparable sales are calculated on a one-week shifted basis such that the 13 or 26 weeks ended August 3, 2025 is compared to the 13 or 26 weeks ended August 4, 2024 rather than July 28, 2024.

Refer to the Comparable Sales section of this MD&A for further information.

15 unchanged sentences

Financial Highlights

The summary below compares the first quarter of 2025 to the first quarter of 2024:

The summary below compares the second quarter of 2025 to the second quarter of 2024:

• Net revenue increased 7% to $2.5 billion.

5 unchanged sentences

• Gross profit increased 5% to $1.5 billion.

• Gross margin increased 60 basis points to 58.3%.

• Income from operations increased 1% to $438.6 million.

• Gross margin decreased 110 basis points to 58.5%.

• Income from operations decreased 3% to $523.8 million.

• Operating margin decreased 210 basis points to 20.7%.

• Income tax expense increased 1% to $135.8 million.

Our effective tax rate for the first quarter of 2025 was 30.2% compared to 29.5% for the first quarter of 2024.

• Diluted earnings per share were $2.60 compared to $2.54 in the first quarter of 2024.

• Income tax expense decreased 2% to $162.6 million.

Our effective tax rate for the second quarter of 2025 was 30.5% compared to 29.6% for the second quarter of 2024.

• Diluted earnings per share were $3.10 compared to $3.15 in the second quarter of 2024.

Market Conditions and Trends

Our business continues to be negatively influenced by macroeconomic conditions, including consumer demand, trade policies, inflation, and foreign currency fluctuations.

These factors have had varying effects across our markets and are expected to remain relevant throughout 2025.

While total net revenue increased across all regions in the first quarter of 2025, comparable sales in the Americas decreased 2%, or 1% on a constant dollar basis.

We experienced lower store traffic in the Americas, partially reflective of economic uncertainty, inflationary pressures, lower consumer confidence, and changes in discretionary spending.

Recently imposed tariffs on products imported into the United States, along with trade actions by other countries, may adversely affect our business.

As a result of the tariffs imposed since April 2025, the cost of inventory in the United States has increased, which could lead to a significant reduction in gross margin and income from operations.

Additionally, higher tariffs may lead to macroeconomic volatility, both in the United States and globally, potentially affecting consumer demand.

We are taking steps to mitigate some of the financial impact from higher tariffs, which may include sourcing optimization, vendor negotiations, cost reductions, and selective price increases.

Foreign currency fluctuations negatively impacted our financial results during the first quarter of 2025, reducing net revenue growth by $21.3 million compared to the first quarter of 2024, primarily due to the overall appreciation of the US dollar.

Across all markets, our business continues to be negatively influenced by macroeconomic conditions, including trade policies, shifting consumer demand, inflation, foreign currency fluctuations, and geopolitical instability.

These factors have had varying effects across our markets and are expected to continue to impact our business throughout 2025 and beyond.

While total net revenue increased across all regions in the second quarter of 2025, comparable sales in the Americas decreased 4%, or 3% on a constant dollar basis.

We experienced lower conversion rates and store traffic in the Americas, partially reflective of economic uncertainty, lower consumer confidence, changes in discretionary spending, and certain product offerings experiencing lower demand.

Import Tariffs

On April 2, 2025, the United States announced the implementation of a 10% baseline tariff on imports from nearly all countries with higher country-specific tariff rates scheduled to begin April 9, 2025.

The implementation of country-specific tariffs was subsequently delayed to allow negotiations.

Certain countries, including Vietnam, have announced trade deals with the United States and most negotiated tariff rates are higher than the 10% baseline rate.

There has been significant volatility in U.S.

tariff and customs policy, and trade negotiations between the United States and other countries are ongoing.

The United States also approved the One Big Beautiful Bill Act on July 4, 2025, which removed the de minimis exemption for low value shipments imported into the United States in 2027.

On July 30, 2025, the President of the United States issued an executive order removing the de minimis exemption for all countries beginning August 29, 2025.

These changes in the tariff landscape, including the de minimis removal, are expected to have a significant adverse effect on our business and results of operation.

The countries from which we source the majority of our products are now subject to higher tariffs on imports into the United States.

Further, the majority of our sales to U.S.

e-commerce guests are currently fulfilled from distribution centers in Canada, and historically a significant proportion of these orders qualified for the de minimis exemption.

The removal of this exemption increases the cost of fulfilling those orders.

We are taking steps to mitigate the financial impact which includes vendor negotiations and selective price increases.

These actions are not anticipated to fully offset the effect of higher tariffs and the removal of the de minimis exemption, and we anticipate a significant reduction in our gross margin and operating margin.

The impact of increased tariffs, net of mitigating activities, resulted in a reduction to gross profit for the first two quarters of 2025 of approximately $10 million.

We estimate, based on the information available to us today, that increased tariffs, and the removal of the de minimis exemption, will reduce gross profit for 2025 by approximately $240 million, net of mitigation efforts.

This estimate is our best current view and may change materially as conditions evolve and new information becomes available.

It reflects a number of assumptions including (i) the tariff rates and timing of implementation, (ii) the duration and scope of the de minimis exemption removal, (iii) the potential application of transshipment tariff rules, (iv) our ability to execute vendor savings, and (v) customer demand elasticity and pricing response.

Actual results may differ materially from this estimate, whether because these assumptions prove inaccurate or because of subsequent changes in tariff policy, trade negotiations, sourcing conditions, consumer demand for our products, or other factors outside our control.

Because this is an evolving area, future developments may change our expectations materially.

For additional information on related risks, please see “Risk Factors” in this quarterly report.

Our updated forecasts, inclusive of the trends above, have resulted in changes in the probability of achieving performance conditions of performance-based restricted stock units.

Therefore, we recognized a reversal of stock-based compensation expense of $26.3 million during the second quarter of 2025.

Foreign Currency Fluctuations

Foreign currency fluctuations negatively impacted our financial results during the first two quarters of 2025, reducing net revenue growth by $10.7 million compared to the first two quarters of 2024, primarily due to the overall appreciation of

the US dollar relative to the Canadian dollar.

We expect ongoing exchange rate volatility to continue affecting our financial results.

Quarter-to-Date Results of Operations:

First Quarter Results

Second Quarter Results

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

First Quarter

Second Quarter

2025 2024 2025 2024

10 unchanged sentences

Net income $ 370,905 $ 392,922 14.7 % 16.6 %

First Quarter

Second Quarter

2025 2024 2025 2024 Year over year change

4 unchanged sentences

Net revenue $ 2,525,219 $ 2,371,078 100.0 % 100.0 % $ 154,141 7 % 6 %

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

Americas and Rest of World net revenue also increased and global comparable sales increased 1%.

First Quarter

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

Americas net revenue also increased, and global comparable sales increased 1%.

Second Quarter

2025 2024 Year over year change

2 unchanged sentences

58.5 % 59.6 % (110) basis points

The increase in gross margin was primarily the result of a net increase in product margin of 110 basis points, comprised of:

• a net increase of 130 basis points from lower product costs and higher average unit retail, as well as lower damages, partially offset by higher freight costs;

• an unfavorable impact of foreign currency exchange rates of 20 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 50 basis points, comprised of:

The decrease in gross margin was primarily due to:

• a net decrease in product margin of 70 basis points, comprised of:

– a net decrease of 80 basis points from higher markdowns, tariffs, and other costs, partially offset by higher pricing and lower product costs;

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

• a net increase in other cost of sales as a percentage of net revenue of 40 basis points, comprised of:

– an increase in occupancy and depreciation costs of 30 basis points;

• an increase in costs related to our product departments of 20 basis points.

– an increase in distribution center and product department costs of 10 basis points.

Selling, General and Administrative Expenses

First Quarter

Second Quarter

2025 2024 Year over year change

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

• an increase in head office costs of $51.6 million, comprised of:

– an increase in employee costs of $11.5 million primarily due to increased salaries and wages expense;

• an increase in costs related to our operating channels of $62.8 million, comprised of:

– an increase in employee costs of $23.7 million primarily due to increased salaries and wages expense for retail employees, partially offset by decreased incentive compensation;

– an increase in variable costs of $13.3 million primarily due to increased distribution costs, credit card fees, and packaging costs as a result of higher net revenue;

– an increase in other operating costs of $11.7 million primarily due to increased depreciation and occupancy costs;

– an increase in digital marketing costs of $11.1 million;

– an increase in technology costs of $3.0 million.

• a net increase in head office costs of $17.2 million, comprised of:

– an increase in technology costs, including cloud computing amortization, of $9.0 million;

– an increase in contractor, advisory, and professional services of $8.9 million;

– an increase in brand and community costs of $8.8 million;

– an increase in depreciation of $5.4 million;

– an increase in brand and community costs of $4.0 million;

– an increase in contractor, advisory, and professional services of $3.6 million;

– an increase in other head office costs of $5.3 million;

– a net decrease in employee costs of $10.1 million primarily due to a reversal of stock-based compensation expense due to change in the probability of achieving performance conditions, 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 $0.3 million.

Amortization of Intangible Assets

Second Quarter

2025 2024 Year over year change

(In thousands) (In thousands) (Percentage)

Amortization of intangible assets

$ 1,730 $ — $ 1,730 n/a

The amortization of intangible assets in 2025 was primarily the result of the amortization of intangible assets recognized upon the September 2024 acquisition of the Mexico operations.

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.

Second Quarter

2025 2024 Year over year change

(In thousands) (In thousands) (Percentage)

Net revenue $ 1,758,217 $ 1,741,433 $ 16,784 1.0 %

Product costs 515,473 493,895 21,578 4.4

Other cost of sales 158,390 150,458 7,932 5.3

Gross profit 1,084,354 1,097,080 (12,726) (1.2)

Selling, general and administrative expenses 464,960 427,653 37,307 8.7

Segmented income from operations $ 619,394 $ 669,427 $ (50,033) (7.5) %

Product margin

70.7 % 71.6 % (90) basis points

61.7 % 63.0 % (130) basis points

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

26.4 % 24.6 % 180 basis points

Segmented income from operations as a % of net revenue

35.2 % 38.4 % (320) basis points

The increase in Americas net revenue was primarily due to a $56.6 million increase from new or expanded company-operated stores and our other channels.

We added 26 net new company-operated stores in the Americas since the second quarter of 2024, including 14 company-operated stores from the acquisition of the Mexico operations.

Americas comparable sales decreased 4%, or 3% on a constant dollar basis, driven by lower conversion rates and reduced store traffic, partially offset by higher e-commerce traffic and an increase in average order value.

The decrease in gross margin was primarily due to lower product margin and higher occupancy costs and depreciation as a percentage of net revenue.

The increase in selling, general and administrative expenses was primarily due to higher employee costs, increased digital marketing expenses, and increased depreciation.

China Mainland

Second Quarter

2025 2024 Year over year change

(In thousands) (In thousands) (Percentage)

Net revenue $ 392,898 $ 314,189 $ 78,709 25.1 %

Product costs 92,219 71,547 20,672 28.9

Other cost of sales 51,139 46,084 5,055 11.0

Gross profit 249,540 196,558 52,982 27.0

Selling, general and administrative expenses 97,050 77,473 19,577 25.3

Segmented income from operations $ 152,490 $ 119,085 $ 33,405 28.1 %

Product margin 76.5 % 77.2 % (70) basis points

63.5 % 62.6 % 90 basis points

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

24.7 % 24.7 % — basis points

Segmented income from operations as a % of net revenue

38.8 % 37.9 % 90 basis points

The increase in China Mainland net revenue was primarily due to an increase in comparable sales, which increased 17%, or 16% on a constant dollar basis.

The increase in comparable sales was primarily a result of increased e-commerce traffic, partially offset by a decrease in average order value.

The increase in China Mainland net revenue was also driven by a $37.4

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

We have opened 27 new company-operated stores in China Mainland since the second quarter of 2024.

The increase in gross margin was primarily due to lower occupancy costs as a percentage of net revenue, partially offset by lower product margin.

The increase in selling, general and administrative expenses was primarily due to higher employee costs, increased digital marketing expenses, and increased technology costs.

Rest of World

Second Quarter

2025 2024 Year over year change

(In thousands) (In thousands) (Percentage)

Net revenue $ 374,104 $ 315,456 $ 58,648 18.6 %

Product costs 108,449 90,860 17,589 19.4

Other cost of sales 63,200 51,891 11,309 21.8

Gross profit 202,455 172,705 29,750 17.2

Selling, general and administrative expenses 121,212 98,705 22,507 22.8

Segmented income from operations $ 81,243 $ 74,000 $ 7,243 9.8 %

Product margin 71.0 % 71.2 % (20) basis points

54.1 % 54.7 % (60) basis points

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

32.4 % 31.3 % 110 basis points

Segmented income from operations as a % of net revenue

21.7 % 23.5 % (180) basis points

The increase in Rest of World net revenue was primarily due to a $31.1 million increase in net revenue from new or expanded company-operated stores and our other channels.

We have opened 10 new company-operated stores in Rest of World since the second quarter of 2024.

The increase in Rest of World net revenue was also driven by an increase in comparable sales, which increased 12%, or 9% on a constant dollar basis.

The increase in comparable sales was primarily a result of increased traffic, partially offset by a decrease in average order value.

The decrease in gross margin was primarily due to higher occupancy costs as a percentage of net revenue as well as lower product margin.

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 credit card fees driven by higher net revenue.

Corporate expenses increased $7.0 million to $329.3 million in the second quarter of 2025 compared to the second quarter of 2024.

The net increase was primarily due to higher technology costs and depreciation.

The increase in corporate expenses was partially offset by lower employee costs driven by decreased incentive compensation as well as an increase in net foreign currency exchange and derivative gains of $0.3 million.

Other Income (Expense), Net

Second Quarter

2025 2024 Year over year change

(In thousands) (In thousands) (Percentage)

Other income (expense), net

$ 9,737 $ 17,994 $ (8,257) (45.9) %

The decrease in other income, net was primarily due to a decrease in interest income as a result of lower average cash balances and lower interest rates.

Income Tax Expense

Second Quarter

2025 2024 Year over year change

(In thousands) (In thousands) (Percentage)

Income tax expense

$ 162,646 $ 165,298 $ (2,652) (1.6) %

Effective tax rate

30.5 % 29.6 % 90 basis points

The increase in the effective tax rate was primarily due to an increase in non-deductible expenses in international jurisdictions.

Second Quarter

2025 2024 Year over year change

(In thousands) (In thousands) (Percentage)

$ 370,905 $ 392,922 $ (22,017) (5.6) %

The decrease in net income was primarily due to an increase in selling, general and administrative expenses of $79.7 million, and a decrease in other income (expense), net of $8.3 million, partially offset by an increase in gross profit of $65.0 million, and a decrease in income tax expense of $2.7 million.

Year-to-Date Results of Operations:

First Two Quarters Results

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

First Two Quarters

2025 2024 2025 2024

(In thousands) (Percentage of net revenue)

Net revenue $ 4,895,879 $ 4,579,969 100.0 % 100.0 %

Cost of goods sold 2,035,551 1,892,716 41.6 41.3

Gross profit 2,860,328 2,687,253 58.4 58.7

Selling, general and administrative expenses 1,894,529 1,714,385 38.7 37.4

Amortization of intangible assets 3,360 — 0.1 —

Income from operations 962,439 972,868 19.7 21.2

Other income (expense), net 21,523 41,277 0.4 0.9

Income before income tax expense 983,962 1,014,145 20.1 22.1

Income tax expense 298,485 299,802 6.1 6.5

Net income $ 685,477 $ 714,343 14.0 % 15.6 %

First Two Quarters

2025 2024 2025 2024 Year over year change

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

Americas $ 3,432,775 $ 3,363,697 70.1 % 73.4 % $ 69,078 2 % 3 %

China Mainland 760,999 617,975 15.5 13.5 143,024 23 % 23 %

Rest of World 702,105 598,297 14.3 13.1 103,808 17 % 16 %

Net revenue $ 4,895,879 $ 4,579,969 100.0 % 100.0 % $ 315,910 7 % 7 %

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

Americas net revenue also increased, and global comparable sales increased 1%.

First Two Quarters

2025 2024 Year over year change

(In thousands) (In thousands) (Percentage)

$ 2,860,328 $ 2,687,253 $ 173,075 6.4 %

58.4 % 58.7 % (30) basis points

The decrease in gross margin was primarily due to:

• a net increase in other cost of sales as a percentage of net revenue of 40 basis points, comprised of:

– an increase in occupancy and depreciation costs of 30 basis points;

– an increase in costs related to our product departments of 10 basis points.

• a net increase in product margin of 10 basis points, comprised of:

– a net increase of 20 basis points from lower damages, as well as lower product costs and higher pricing, partially offset by higher markdowns, freight costs, and tariffs;

– an unfavorable impact of foreign currency exchange rates of 10 basis points.

Selling, General and Administrative Expenses

First Two Quarters

2025 2024 Year over year change

(In thousands) (In thousands) (Percentage)

Selling, general and administrative expenses

$ 1,894,529 $ 1,714,385 $ 180,144 10.5 %

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

38.7 % 37.4 % 130 basis points

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

• an increase in costs related to our operating channels of $100.9 million, comprised of:

– an increase in employee costs of $25.4 million primarily due to increased salaries and wages expense for retail employees;

– an increase in employee costs of $49.1 million primarily due to increased salaries and wages expense for retail employees, partially offset by decreased incentive compensation;

– an increase in other operating costs of $21.2 million primarily due to increased depreciation and occupancy costs;

1 unchanged sentence

– an increase in technology costs of $5.6 million;

The increase in costs related to our operating channels was partially offset by a decrease in variable costs of $8.8 million primarily due to decreased distribution cost rates, partially offset by increased credit card fees as a result of higher net revenue.

– an increase in variable costs of $4.5 million primarily due to increased credit card fees and packaging costs as a result of higher net revenue, partially offset by decreased distribution cost rates.

• an increase in head office costs of $68.7 million, comprised of:

– an increase in technology costs, including cloud computing amortization, of $20.0 million;

– an increase in brand and community costs of $12.8 million;

– an increase in depreciation of $12.7 million;

– an increase in in contractor, advisory, and professional services of $12.4 million;

– an increase in employee costs of $1.3 million primarily due to increased salaries and wages expense, partially offset by a reversal of stock-based compensation expense due to change in the probability of achieving performance conditions;

– an increase in other head office costs of $9.5 million.

• an increase in net foreign currency exchange and derivative revaluation losses of $10.5 million.

Amortization of Intangible Assets

First Quarter

First Two Quarters

2025 2024 Year over year change

2 unchanged sentences

$ 3,360 $ — $ 3,360 n/a

The amortization of intangible assets in 2025 was primarily the result of the amortization of intangible assets recognized upon the acquisition of the Mexico operations.

The amortization of intangible assets in 2025 was primarily the result of the amortization of intangible assets recognized upon the September 2024 acquisition of the Mexico operations.

Segment Results

2 unchanged sentences

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

First Quarter

First Two Quarters

2025 2024 Year over year change

14 unchanged sentences

The increase in Americas net revenue was primarily due to a $113.6 million increase from new or expanded company-operated stores and our other channels.

We added 22 net new company-operated stores in the Americas since the first quarter of 2024, including 14 company-operated stores from the acquisition of the Mexico operations.

Americas comparable sales decreased 2%, or 1% on a constant dollar basis.

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

The increase in gross margin was primarily due to higher product margin partially offset by deleverage on occupancy and depreciation costs.

We added 26 net new company-operated stores in the Americas since the second quarter of 2024, including 14 company-operated stores from the acquisition of the Mexico operations.

Americas comparable sales decreased 3%, or 2% on a constant dollar basis, driven by lower conversion rates and reduced store traffic, partially offset by higher e-commerce traffic and an increase in average order value.

The decrease in gross margin was primarily due to higher occupancy costs and depreciation as a percentage of net revenue.

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

China Mainland

First Quarter

First Two Quarters

2025 2024 Year over year change

13 unchanged sentences

The increase in China Mainland net revenue was primarily due to a $75.8 million increase in net revenue from new or expanded company-operated stores and our other channels.

We have opened 27 net new company-operated stores in China Mainland since the first quarter of 2024.

The increase in China Mainland net revenue was also driven by an increase in comparable sales, which increased 7%, or 8% on a constant dollar basis.

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

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

We have opened 27 new company-operated stores in China Mainland since the second quarter of 2024.

The increase in China Mainland net revenue was also driven by an increase in comparable sales, which increased 12%.

The increase in comparable sales was primarily a result of increased e-commerce traffic, partially offset by a decrease in average order value.

The increase in gross margin was primarily due to lower occupancy costs and depreciation as a percentage of net revenue, partially offset by lower product margin.

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

Rest of World

First Quarter

First Two Quarters

2025 2024 Year over year change

13 unchanged sentences

The increase in Rest of World net revenue was primarily due to a $56.6 million increase in net revenue from new or expanded company-operated stores and our other channels.

We have opened 10 net new company-operated stores in Rest of World since the first quarter of 2024.

We have opened 10 new company-operated stores in Rest of World since the second quarter of 2024.

The increase in Rest of World net revenue was also driven by an increase in comparable sales, which increased 9%, or 8% on a constant dollar basis.

The increase in comparable sales was primarily a result of increased traffic.

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

The increase in comparable sales was primarily a result of increased traffic, partially offset by a decrease in average order value.

The decrease in gross margin was primarily due to higher distribution center and other costs as a percentage of net revenue, partially offset by higher product margin.

Corporate expenses increased $58.5 million to $377.2 million in the first quarter of 2025 compared to the first quarter of 2024.

The net increase was primarily due to higher technology costs, employee costs, professional fees, and depreciation.

Corporate expenses increased $65.6 million to $706.5 million in the first two quarters of 2025 compared to the first two quarters of 2024.

The net increase was primarily due to higher technology costs, depreciation, and professional fees.

Corporate expenses also increased due to an increase in net foreign currency exchange and derivative losses of $10.5 million.

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

Other Income (Expense), Net

First Quarter

First Two Quarters

2025 2024 Year over year change

4 unchanged sentences

Income Tax Expense

First Quarter

First Two Quarters

2025 2024 Year over year change

5 unchanged sentences

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

First Quarter

First Two Quarters

2025 2024 Year over year change

1 unchanged sentence

$ 685,477 $ 714,343 $ (28,866) (4.0) %

The decrease in net income was primarily due to an increase in selling, general and administrative expenses of $100.4 million, a decrease in other income (expense), net of $11.5 million, and an increase in income tax expense of $1.3 million, partially offset by an increase in gross profit of $108.1 million.

The decrease in net income was primarily due to an increase in selling, general and administrative expenses of $180.1 million, and a decrease in other income (expense), net of $19.8 million, partially offset by an increase in gross profit of $173.1 million, and a decrease in income tax expense of $1.3 million.

Comparable Sales

1 unchanged sentence

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

We believe investors would similarly find these metrics useful in assessing the performance of our business.

We believe investors also find these metrics useful in assessing performance.

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

3 unchanged sentences

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.

Comparable sales excludes sales from:

• new stores that have not been open for at least 12 full fiscal months;

• stores which have not been in their significantly expanded space for at least 12 full fiscal months;

• stores which have been temporarily relocated for renovations or temporarily closed;

• sales from company-operated stores that have closed;

• 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.

8 unchanged sentences

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

These non-GAAP financial measures are provided in addition to, and not a substitute for, or with greater prominence than, the corresponding financial measures calculated in accordance with GAAP.

These non-GAAP financial measures are provided in addition to, and not a substitute for, the corresponding financial measures calculated in accordance with GAAP.

A reconciliation of the non-GAAP financial measures follows, which includes more detail on the GAAP financial measure that is most directly comparable to each non-GAAP financial measure, and the related reconciliations between these financial measures.

2 unchanged sentences

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

Due to the 53rd week in 2024, the below changes in comparable sales are calculated on a one week shifted basis such that the 13 weeks ended May 4, 2025 is compared to the 13 weeks ended May 5, 2024 rather than April 28, 2024.

First Quarter 2025

Change Foreign exchange changes Change in constant dollars

Due to the 53rd week in 2024, the below changes in comparable sales are calculated on a one-week shifted basis such that the 13 or 26 weeks ended August 3, 2025 is compared to the 13 or 26 weeks ended August 4, 2024 rather than July 28, 2024.

Second Quarter 2025

First Two Quarters 2025

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

Americas 1 % — % 1 % 2 % 1 % 3 %

9 unchanged sentences

Our business is affected by the general seasonal trends common to the retail apparel industry.

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

Our annual net revenue is typically weighted more heavily toward our fourth fiscal quarter, reflecting our historical strength in sales during the holiday

season in the Americas, while our operating expenses are generally more equally distributed throughout the year.

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

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

First Quarter

First Two Quarters

2025 2024 Year over year change

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Net income decreased $28.9 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 $208.5 million, primarily driven by changes in income taxes, inventories, and accrued liabilities, partially offset by changes in accrued compensation, accounts payable, and other assets.

The decrease in cash provided by operating activities was also a result of lower cash inflows related to derivatives, partially offset by increased depreciation.

The decrease in cash provided by operating activities was primarily due to a decrease in cash flows from changes in operating assets and liabilities of $341.8 million, primarily driven by the timing of income tax payments, accrued liabilities driven by changes in the value of forward currency contracts, and inventory purchases, partially offset by the timing of accounts payable and changes in accrued compensation.

The decrease in cash provided by operating activities was partially offset by increased depreciation, partially offset by lower stock-based compensation expense.

Investing Activities

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

The increase in capital expenditures was primarily due to an increase in supply chain infrastructure, company-operated stores expenditures in North America and e-commerce-related technology systems, partially offset by a decrease in corporate infrastructure capital expenditures.

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

The increase in capital expenditures was primarily due to increased capital expenditures for company-operated stores in the Americas, partially offset by a decrease in corporate and supply chain infrastructure capital expenditures.

Financing Activities

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

During the first quarter of 2025, we repurchased 1.4 million shares at a total cost including commissions and excise taxes of $434.4 million.

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

The decrease in cash used in financing activities was primarily due to a decrease in our stock repurchases.

During the first two quarters of 2025, we repurchased 2.5 million shares at a total cost including commissions and excise taxes of $715.7 million.

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

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.

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.

The following table includes certain measures of our liquidity:

August 3, 2025

(In thousands)

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

As of May 4, 2025, letters of credit and guarantee totaling $13.5 million had been issued, including $6.6 million under our committed revolving credit facility.

As of August 3, 2025, letters of credit and guarantee totaling $14.3 million had been issued, including $6.8 million under our committed revolving credit facility.

Our existing Americas credit facility provides for $400.0 million in commitments under an unsecured five-year revolving credit facility.

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

As of May 4, 2025, no borrowings were outstanding under this facility other than letters of credit and guarantee of $6.6 million.

As of August 3, 2025, no borrowings were outstanding under this facility other than letters of credit and guarantee of $6.8 million.

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

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

Our inventory balance as of May 4, 2025 was $1.7 billion, an increase of 23% from April 28, 2024.

Our inventory balance as of August 3, 2025 was $1.7 billion, an increase of 21% from July 28, 2024.

Critical Accounting Policies and Estimates

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Operating Locations

Our company-operated stores by market as of May 4, 2025 and February 2, 2025 are summarized in the table below.

Number of company-operated stores by market May 4,

Our company-operated stores by market as of August 3, 2025 and February 2, 2025 are summarized in the table below.

Number of company-operated stores by market August 3,

2025 February 2,

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Hong Kong SAR 10 10

New Zealand 8 8

Singapore 9 7

New Zealand 8 8

Macau SAR 2 2

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Total company-operated stores 784 767

Retail locations operated by third parties by market as of May 4, 2025 and February 2, 2025 are summarized in the table below.

Number of retail locations operated by third parties by market May 4,

Retail locations operated by third parties by market as of August 3, 2025 and February 2, 2025 are summarized in the table below.

Number of retail locations operated by third parties by market August 3,

2025 February 2,

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis