What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-12-11 compared with 2025-09-04 · 132 added, 135 removed, 403 unchanged (40% of the section changed)

9 unchanged sentences

Fiscal 2025 and fiscal 2024 are referred to as "2025," and "2024," respectively.

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

The first three quarters of 2025 and 2024 ended on November 2, 2025 and October 27, 2024, respectively.

Components of this MD&A include:

9 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 or 26 weeks ended August 3, 2025 is compared to the 13 or 26 weeks ended August 4, 2024 rather than July 28, 2024.

Due to the 53rd week in 2024, comparable sales are calculated on a one-week shifted basis such that the 13 or 39 weeks ended November 2, 2025 is compared to the 13 or 39 weeks ended November 3, 2024 rather than October 27, 2024.

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

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Financial Highlights

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

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

• Net revenue increased 7% to $2.6 billion.

On a constant dollar basis, net revenue increased 6%.

• Comparable sales increased 1%.

– Americas comparable sales decreased 4%, or 3% on a constant dollar basis.

• Comparable sales increased 1%, or 2% on a constant dollar basis.

– Americas comparable sales decreased 5%.

– China Mainland comparable sales increased 24%, or 25% on a constant dollar basis.

– Rest of World comparable sales increased 12%, or 9% on a constant dollar basis.

– Rest of World comparable sales increased 9%.

• Gross profit increased 2% to $1.4 billion.

3 unchanged sentences

• Income tax expense decreased 12% to $134.9 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.

Our effective tax rate for the third quarter of 2025 was 30.5% compared to 30.2% for the third quarter of 2024.

• Diluted earnings per share were $2.59 compared to $2.87 in the third quarter of 2024.

Market Conditions and Trends

1 unchanged sentence

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.

While total net revenue increased during the third quarter of 2025, net revenue in the Americas decreased 2% and comparable sales in the Americas decreased 5%.

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

Import Tariffs

4 unchanged sentences

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.

The United States also approved the One Big Beautiful Bill Act ("OBBBA") 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.

These changes in the tariff landscape, including the de minimis removal, 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.

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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.

The impact of increased tariffs, net of mitigating activities, resulted in a reduction to income from operations for the first three quarters of 2025 of approximately $60 million.

We estimate, based on the information available to us today, that increased tariffs, and the removal of the de minimis exemption, will reduce income from operations for 2025 by approximately $210 million, net of mitigation efforts.

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

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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.

Our updated forecasts, inclusive of the trends above, 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.

Other Factors Affecting Our Business

Foreign currency fluctuations negatively impacted our financial results during the first three quarters of 2025, reducing net revenue growth by $15.4 million compared to the first three quarters of 2024.

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

The OBBBA includes, among other provisions, the permanent extension of certain provisions of the Tax Cuts and Jobs Act, the reinstatement of 100% bonus depreciation, the immediate expensing of qualifying research and development costs, and modifications to the international tax framework including changes to global intangible low-tax income, the base erosion and anti-abuse tax, and foreign derived intangible income.

Based on our current evaluation of the legislation, we do not expect these tax law changes to have a material impact on our consolidated financial statements.

We will continue to assess the potential impacts of OBBBA as additional regulatory guidance becomes available.

Quarter-to-Date Results of Operations:

Second Quarter Results

Third Quarter Results

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

Second Quarter

Third Quarter

2025 2024 2025 2024

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Net income $ 306,835 $ 351,870 12.0 % 14.7 %

Second Quarter

Third Quarter

2025 2024 2025 2024 Year over year change

4 unchanged sentences

Net revenue $ 2,565,920 $ 2,396,660 100.0 % 100.0 % $ 169,260 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%.

Second Quarter

The increase in net revenue was primarily due to increased China Mainland and Rest of World net revenue, partially offset by decreased Americas net revenue.

Global comparable sales increased 1%, or 2% on a constant dollar basis.

Third Quarter

2025 2024 Year over year change

4 unchanged sentences

• a net decrease in product margin of 300 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:

– a net decrease of 290 basis points primarily from higher tariffs as well as markdowns and credit card affiliate programs, partially offset by higher pricing and lower product costs;

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

• a net decrease in other cost of sales as a percentage of net revenue of 10 basis points, comprised of:

– a decrease in costs related to our product departments of 40 basis points;

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

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

Selling, General and Administrative Expenses

Second Quarter

Third Quarter

2025 2024 Year over year change

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• an increase in costs related to our operating channels of $66.7 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 employee costs of $28.2 million primarily due to increased salaries and wages expense for retail employees;

– an increase in variable costs of $15.1 million primarily due to increased distribution costs and higher credit card fees as a result of higher net revenue;

– an increase in digital marketing expenses of $9.5 million;

– an increase in technology costs of $5.2 million;

– an increase in other operating costs of $8.7 million primarily due to increased depreciation and occupancy costs.

• a net increase in head office costs of $9.7 million, comprised of:

– an increase in brand and community expenses of $8.6 million;

– an increase in technology costs, including cloud computing amortization, of $6.4 million;

– an increase in depreciation of $4.2 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.

– a net decrease in employee costs of $7.7 million primarily due to decreased incentive compensation, partially offset by increased salaries and wages expense;

– a decrease in contractor, advisory, and professional services of $1.5 million;

– a decrease in other head office costs of $0.3 million.

• an increase in net foreign currency exchange and derivative revaluation losses of $2.0 million.

Amortization of Intangible Assets

Second Quarter

Third Quarter

2025 2024 Year over year change

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Amortization of intangible assets

$ 1,730 $ — $ 1,730 n/a

$ 1,776 $ 1,118 $ 658 58.9 %

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.

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

Second Quarter

Third Quarter

2025 2024 Year over year change

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Segmented income from operations $ 517,488 $ 654,939 $ (137,451) (21.0) %

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.

Product margin 66.3 % 70.7 % (440) basis points

Gross margin 56.6 % 61.7 % (510) basis points

Selling, general and administrative expenses as a % of net revenue 26.8 % 24.7 % 210 basis points

Segmented income from operations as a % of net revenue 29.9 % 37.0 % (710) basis points

The decrease in Americas net revenue was primarily due to a decrease in comparable sales, which decreased 5%.

The decrease in comparable sales was primarily a result of a decrease in average order value, lower conversion rates, and reduced store traffic, partially offset by higher e-commerce traffic, which was partially driven by the impact of credit card affiliate programs.

The decrease in comparable sales was partially offset by a $50.3 million increase from new or expanded company-operated stores and our other channels.

We opened 11 net new company-operated stores in the Americas since the third quarter of 2024.

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

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

China Mainland

Second Quarter

Third Quarter

2025 2024 Year over year change

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The increase in China Mainland net revenue was primarily due to an increase in comparable sales, which increased 24%, or 25% 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.

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

The increase in China Mainland net revenue was also driven by a $46.6 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 third quarter of 2024.

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 increased marketing expenses, employee costs, variable costs, and technology costs.

Rest of World

Second Quarter

Third Quarter

2025 2024 Year over year change

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The increase in Rest of World net revenue was primarily due to a $35.1 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.

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

The increase in Rest of World net revenue was also driven by an increase in comparable sales, which increased 9%.

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

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

The increase in selling, general and administrative expenses was primarily due to higher employee costs and other operating and head office costs.

Corporate expenses decreased $4.1 million to $339.6 million in the third quarter of 2025 compared to the third quarter of 2024.

The net decrease was primarily due to lower employee costs driven by decreased incentive compensation as well as lower professional fees.

The decrease in corporate expenses was partially offset by higher technology costs, depreciation, marketing expenses, as well as an increase in net foreign currency exchange and derivative losses of $2.0 million.

Other Income (Expense), Net

Second Quarter

Third Quarter

2025 2024 Year over year change

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Income Tax Expense

Second Quarter

Third Quarter

2025 2024 Year over year change

4 unchanged sentences

30.5 % 30.2 % 30 basis points

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

Second Quarter

The increase in the effective tax rate was primarily due to adjustments upon the filing of income tax returns.

Third Quarter

2025 2024 Year over year change

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Year-to-Date Results of Operations:

First Two Quarters Results

First Three Quarters Results

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

First Two Quarters

First Three Quarters

2025 2024 2025 2024

10 unchanged sentences

Net income $ 992,312 $ 1,066,213 13.3 % 15.3 %

First Two Quarters

First Three Quarters

2025 2024 2025 2024 Year over year change

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

First Two Quarters

First Three Quarters

2025 2024 Year over year change

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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;

• a net decrease in product margin of 90 basis points, comprised of:

– a net decrease of 80 basis points primarily from higher tariffs as well as markdowns and credit card affiliate programs, partially offset by higher pricing, lower product costs, and lower damages;

– an unfavorable 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 30 basis points, comprised of higher occupancy and depreciation costs.

Selling, General and Administrative Expenses

First Two Quarters

First Three Quarters

2025 2024 Year over year change

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– an increase in employee costs of $77.3 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;

– an increase in digital marketing costs of $20.5 million;

– an increase in digital marketing expenses of $29.9 million;

– an increase in variable costs of $19.6 million primarily due to increased credit card fees and packaging costs as a result of higher net revenue;

– an increase in technology costs of $10.9 million;

– 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 other operating costs of $29.9 million primarily due to increased depreciation and occupancy costs.

• an increase in head office costs of $78.5 million, comprised of:

– an increase in technology costs, including cloud computing amortization, of $26.5 million;

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

– an increase in brand and community expenses of $21.3 million;

– an increase in depreciation of $16.9 million;

– an increase in in contractor, advisory, and professional services of $10.9 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 $9.2 million;

– a decrease in employee costs of $6.3 million primarily due to a reversal of stock-based compensation expense during the second quarter of 2025 due to a change in the probability of achieving performance conditions, partially offset by increased salaries and wages expense.

• an increase in net foreign currency exchange and derivative revaluation losses of $12.5 million.

Amortization of Intangible Assets

First Two Quarters

First Three Quarters

2025 2024 Year over year change

1 unchanged sentence

Amortization of intangible assets

$ 3,360 $ — $ 3,360 n/a

$ 5,136 $ 1,118 $ 4,018 359.4 %

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.

3 unchanged sentences

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

First Two Quarters

First Three Quarters

2025 2024 Year over year change

14 unchanged sentences

The increase in Americas net revenue was primarily due to a $163.9 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 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.

We opened 11 net new company-operated stores in the Americas since the third quarter of 2024.

The increase in Americas net revenue was partially offset by a decrease in comparable sales, which decreased 3%.

The decrease in comparable sales was primarily a result of lower conversion rates and reduced store traffic, partially offset by higher e-commerce traffic, which was partially driven by the impact of credit card affiliate programs.

The decrease in gross margin was primarily due to lower product margin as well as 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, marketing expenses, depreciation, and professional fees.

China Mainland

First Two Quarters

First Three Quarters

2025 2024 Year over year change

12 unchanged sentences

39.1 % 37.3 % 180 basis points

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 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 China Mainland net revenue was primarily due to an increase in comparable sales, which increased 16%, or 17% 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 $122.3 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 third quarter of 2024.

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.

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

Rest of World

First Two Quarters

First Three Quarters

2025 2024 Year over year change

13 unchanged sentences

The increase in Rest of World net revenue was primarily due to a $91.7 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.

We have opened nine net new company-operated stores in Rest of World since the third 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, 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 $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.

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

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

Corporate expenses increased $61.5 million to $1.0 billion in the first three quarters of 2025 compared to the first three quarters of 2024.

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

Corporate expenses also increased due to an increase in net foreign currency exchange and derivative losses of $12.5 million.

1 unchanged sentence

Other Income (Expense), Net

First Two Quarters

First Three Quarters

2025 2024 Year over year change

4 unchanged sentences

Income Tax Expense

First Two Quarters

First Three 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 Two Quarters

First Three Quarters

2025 2024 Year over year change

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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.

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

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.

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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.

Company-operated stores acquired as a result of the acquisition of the Mexico operations were 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.

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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 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

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 39 weeks ended November 2, 2025 is compared to the 13 or 39 weeks ended November 3, 2024 rather than October 27, 2024.

Third Quarter 2025

First Three Quarters 2025

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

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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.

For example, we generated approximately 42% of our full year operating profit during the fourth quarter of 2024.

Events predominantly impacting our international net revenue, such as those related to Lunar New Year and Singles Day, can fall in different fiscal quarters from year to year.

Liquidity and Capital Resources

4 unchanged sentences

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

First Two Quarters

First Three Quarters

2025 2024 Year over year change

8 unchanged sentences

Net income decreased $73.9 million.

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 primarily due to a decrease in cash flows from changes in operating assets and liabilities of $354.5 million, primarily driven by the timing of income tax payments, accounts receivable, and inventory purchases, partially offset by changes in accrued compensation and the timing of accounts payable.

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 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.

The decrease in cash used in investing activities was primarily due to the acquisition of lululemon branded retail locations and operations run by a third party in Mexico during the third quarter of 2024, partially offset by increased capital expenditures.

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

Financing Activities

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.

During the first three quarters of 2025, we repurchased 3.5 million shares at a total cost including commissions and excise taxes of $906.6 million.

During the first three quarters of 2024, we repurchased 4.2 million shares at a total cost including commissions and excise taxes of $1.3 billion.

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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We believe that our cash and cash equivalent balances, cash generated from operations, and borrowings available to us under our committed revolving credit facility will be adequate to meet our liquidity needs and capital expenditure requirements for at least the next 12 months.

Our ability to access borrowings under the credit facility depends on our ongoing compliance with the covenants in the credit agreement, and a failure to maintain such compliance could adversely affect our liquidity.

Our cash from operations may be negatively impacted by a decrease in demand for our products, as well as the other factors described in "Item 1A.

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

November 2, 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 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.

As of November 2, 2025, letters of credit and guarantee totaling $15.0 million had been issued, including $7.0 million under our committed revolving credit facility.

Our existing Americas credit facility provides for $600.0 million in commitments under an unsecured five-year revolving credit facility.

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

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

The credit facility has a maturity date of October 15, 2030.

As of November 2, 2025, no borrowings were outstanding under this facility other than letters of credit and guarantee of $7.0 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 August 3, 2025 was $1.7 billion, an increase of 21% from July 28, 2024.

Our inventory balance as of November 2, 2025 was $2.0 billion, an increase of 11% from October 27, 2024.

Critical Accounting Policies and Estimates

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An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact our consolidated financial statements.

Our critical accounting policies, estimates, and judgements are discussed within "Item 7.

Our critical accounting policies, estimates, and judgments are discussed within "Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 2024 Annual Report on Form 10-K filed with the SEC on March 27, 2025.

Operating Locations

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,

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

Number of company-operated stores by market November 2,

2025 February 2,

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Total company-operated stores 796 767

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,

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

Number of retail locations operated by third parties by market November 2,

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