Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the unaudited interim consolidated financial statements and related notes in Item 1 of this Quarterly Report on Form 10-Q, as well as the audited consolidated financial statements and MD&A in our Annual Report on Form 10-K for fiscal 2024.
This Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about our financial condition, results of operations, business strategies, growth opportunities, market trends, and future performance. Forward-looking statements can often be identified by words such as "may," "will," "expects," "plans," "anticipates," "believes," "estimates," "intends," and similar expressions.
These forward-looking statements are based on our current expectations and assumptions, are subject to risks and uncertainties, and may differ materially from actual results due to various factors, including those described under "Risk Factors" and elsewhere in this report. We undertake no obligation to update any forward-looking statements, except as required by applicable law.
Our fiscal year ends on the Sunday closest to January 31 of the following year, typically resulting in a 52-week year, but occasionally giving rise to an additional week, resulting in a 53-week year. Fiscal 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 three quarters of 2025 and 2024 ended on November 2, 2025 and October 27, 2024, respectively.
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Components of this MD&A include:
• Overview
• Financial Highlights and Market Conditions and Trends
• Quarter-to-Date Results of Operations
• Year-to-Date Results of Operations
• Comparable Sales
• Non-GAAP Financial Measures
• Seasonality
• Liquidity and Capital Resources
• Critical Accounting Policies and Estimates
• Operating Locations
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 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.
We provide constant dollar changes, which is a non-GAAP financial measure, as supplemental information to help investors understand the underlying growth rate of net revenue excluding the impact of changes in foreign currency exchange rates. Refer to the Non-GAAP Financial Measures section of this MD&A for reconciliations between the non-GAAP financial measures and the most directly comparable measures calculated in accordance with GAAP.
We disclose material non-public information through one or more of the following channels: our investor relations website (http://corporate.lululemon.com/investors), the social media channels identified on our investor relations website, press releases, SEC filings, public conference calls, and webcasts. Information contained on or accessible through our websites is not incorporated into, and does not form a part of, this Quarterly Report or any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only.
Overview
lululemon athletica inc. is principally a designer, distributor, and retailer of technical athletic apparel, footwear, and accessories. We have a vision to create transformative products and experiences that build meaningful connections, unlocking greater possibility and wellbeing for all. Since our inception, we have fostered a distinctive corporate culture; we promote a set of core values in our business which include taking personal responsibility, acting with courage, valuing connection and inclusion, and choosing to have fun. These core values attract passionate and motivated employees who are driven to achieve personal and professional goals, and share our purpose "to elevate human potential by helping people feel their best."
We offer a comprehensive line of technical athletic apparel, footwear, and accessories marketed under the lululemon brand. Our apparel assortment includes items such as pants, shorts, tops, and jackets designed for a healthy lifestyle including athletic activities such as yoga, running, training, and most other activities. We also offer apparel designed for being on the move and fitness-inspired accessories. We expect to continue to broaden our merchandise offerings through expansion across these product areas.
Financial Highlights
The summary below compares the third quarter of 2025 to the third quarter of 2024:
• Net revenue increased 7% to $2.6 billion.
• 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 9%.
• Gross profit increased 2% to $1.4 billion.
• Gross margin decreased 290 basis points to 55.6%.
• Income from operations decreased 11% to $435.9 million.
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• Operating margin decreased 350 basis points to 17.0%.
• Income tax expense decreased 12% to $134.9 million. 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
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 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
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 ("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, 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 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. 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, 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.
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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: Third Quarter Results
The following table summarizes key components of our results of operations for the periods indicated:
Third Quarter
2025 2024 2025 2024
(In thousands) (Percentage of net revenue)
Net revenue $ 2,565,920 $ 2,396,660 100.0 % 100.0 %
Cost of goods sold 1,140,004 995,054 44.4 41.5
Gross profit 1,425,916 1,401,606 55.6 58.5
Selling, general and administrative expenses 988,254 909,827 38.5 38.0
Amortization of intangible assets 1,776 1,118 0.1 —
Income from operations 435,886 490,661 17.0 20.5
Other income (expense), net 5,854 13,743 0.2 0.6
Income before income tax expense 441,740 504,404 17.2 21.0
Income tax expense 134,905 152,534 5.3 6.4
Net income $ 306,835 $ 351,870 12.0 % 14.7 %
Net Revenue
Third Quarter
2025 2024 2025 2024 Year over year change
(In thousands) (Percentage of net revenue) (In thousands) (Percentage) (Constant dollar change)
Americas $ 1,733,382 $ 1,770,382 67.6 % 73.9 % $ (37,000) (2) % (2) %
China Mainland 465,362 318,338 18.1 13.3 147,024 46 % 47 %
Rest of World 367,176 307,940 14.3 12.8 59,236 19 % 19 %
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, partially offset by decreased Americas net revenue. Global comparable sales increased 1%, or 2% on a constant dollar basis.
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Gross Profit
Third Quarter
2025 2024 Year over year change
(In thousands) (In thousands) (Percentage)
Gross profit
$ 1,425,916 $ 1,401,606 $ 24,310 1.7 %
Gross margin
55.6 % 58.5 % (290) basis points
The decrease in gross margin was primarily due to:
• a net decrease in product margin of 300 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; and
– 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; and
– an increase in occupancy and depreciation costs of 30 basis points.
Selling, General and Administrative Expenses
Third Quarter
2025 2024 Year over year change
(In thousands) (In thousands) (Percentage)
Selling, general and administrative expenses
$ 988,254 $ 909,827 $ 78,427 8.6 %
Selling, general and administrative expenses as a % of net revenue
38.5 % 38.0 % 50 basis points
The increase in selling, general and administrative expenses was primarily due to:
• an increase in costs related to our operating channels of $66.7 million, comprised of:
– 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; and
– 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;
– 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; and
– a decrease in other head office costs of $0.3 million.
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• an increase in net foreign currency exchange and derivative revaluation losses of $2.0 million.
Amortization of Intangible Assets
Third Quarter
2025 2024 Year over year change
(In thousands) (In thousands) (Percentage)
Amortization of intangible assets
$ 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.
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.
Americas
Third Quarter
2025 2024 Year over year change
(In thousands) (In thousands) (Percentage)
Net revenue $ 1,733,382 $ 1,770,382 $ (37,000) (2.1) %
Product costs 583,551 518,202 65,349 12.6
Other cost of sales 167,970 159,259 8,711 5.5
Gross profit 981,861 1,092,921 (111,060) (10.2)
Selling, general and administrative expenses 464,373 437,982 26,391 6.0
Segmented income from operations $ 517,488 $ 654,939 $ (137,451) (21.0) %
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.
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China Mainland
Third Quarter
2025 2024 Year over year change
(In thousands) (In thousands) (Percentage)
Net revenue $ 465,362 $ 318,338 $ 147,024 46.2 %
Product costs 110,484 73,164 37,320 51.0
Other cost of sales 55,702 48,555 7,147 14.7
Gross profit 299,176 196,619 102,557 52.2
Selling, general and administrative expenses 126,160 86,019 40,141 46.7
Segmented income from operations $ 173,016 $ 110,600 $ 62,416 56.4 %
Product margin 76.3 % 77.0 % (70) basis points
Gross margin
64.3 % 61.8 % 250 basis points
Selling, general and administrative expenses as a % of net revenue
27.1 % 27.0 % 10 basis points
Segmented income from operations as a % of net revenue
37.2 % 34.7 % 250 basis points
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 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
Third Quarter
2025 2024 Year over year change
(In thousands) (In thousands) (Percentage)
Net revenue $ 367,176 $ 307,940 $ 59,236 19.2 %
Product costs 100,579 80,881 19,698 24.4
Other cost of sales 65,916 57,105 8,811 15.4
Gross profit 200,681 169,954 30,727 18.1
Selling, general and administrative expenses 115,724 101,192 14,532 14.4
Segmented income from operations $ 84,957 $ 68,762 $ 16,195 23.6 %
Product margin 72.6 % 73.7 % (110) basis points
Gross margin
54.7 % 55.2 % (50) basis points
Selling, general and administrative expenses as a % of net revenue
31.5 % 32.9 % (140) basis points
Segmented income from operations as a % of net revenue
23.1 % 22.3 % 80 basis points
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 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.
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Corporate
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
Third Quarter
2025 2024 Year over year change
(In thousands) (In thousands) (Percentage)
Other income (expense), net
$ 5,854 $ 13,743 $ (7,889) (57.4) %
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
Third Quarter
2025 2024 Year over year change
(In thousands) (In thousands) (Percentage)
Income tax expense
$ 134,905 $ 152,534 $ (17,629) (11.6) %
Effective tax rate
30.5 % 30.2 % 30 basis points
The increase in the effective tax rate was primarily due to adjustments upon the filing of income tax returns.
Net Income
Third Quarter
2025 2024 Year over year change
(In thousands) (In thousands) (Percentage)
Net income
$ 306,835 $ 351,870 $ (45,035) (12.8) %
The decrease in net income was primarily due to an increase in selling, general and administrative expenses of $78.4 million and a decrease in other income (expense), net of $7.9 million, partially offset by an increase in gross profit of $24.3 million, and a decrease in income tax expense of $17.6 million.
Year-to-Date Results of Operations: First Three Quarters Results
The following table summarizes key components of our results of operations for the periods indicated:
First Three Quarters
2025 2024 2025 2024
(In thousands) (Percentage of net revenue)
Net revenue $ 7,461,799 $ 6,976,629 100.0 % 100.0 %
Cost of goods sold 3,175,555 2,887,770 42.6 41.4
Gross profit 4,286,244 4,088,859 57.4 58.6
Selling, general and administrative expenses 2,882,783 2,624,212 38.6 37.6
Amortization of intangible assets 5,136 1,118 0.1 —
Income from operations 1,398,325 1,463,529 18.7 21.0
Other income (expense), net 27,377 55,020 0.4 0.8
Income before income tax expense 1,425,702 1,518,549 19.1 21.8
Income tax expense 433,390 452,336 5.8 6.5
Net income $ 992,312 $ 1,066,213 13.3 % 15.3 %
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Net Revenue
First Three Quarters
2025 2024 2025 2024 Year over year change
(In thousands) (Percentage of net revenue) (In thousands) (Percentage) (Constant dollar change)
Americas $ 5,166,157 $ 5,134,079 69.2 % 73.6 % $ 32,078 1 % 1 %
China Mainland 1,226,361 936,313 16.4 13.4 290,048 31 % 31 %
Rest of World 1,069,281 906,237 14.3 13.0 163,044 18 % 17 %
Net revenue $ 7,461,799 $ 6,976,629 100.0 % 100.0 % $ 485,170 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%.
Gross Profit
First Three Quarters
2025 2024 Year over year change
(In thousands) (In thousands) (Percentage)
Gross profit
$ 4,286,244 $ 4,088,859 $ 197,385 4.8 %
Gross margin
57.4 % 58.6 % (120) basis points
The decrease in gross margin was primarily due to:
• 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; and
– 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 Three Quarters
2025 2024 Year over year change
(In thousands) (In thousands) (Percentage)
Selling, general and administrative expenses
$ 2,882,783 $ 2,624,212 $ 258,571 9.9 %
Selling, general and administrative expenses as a % of net revenue
38.6 % 37.6 % 100 basis points
The increase in selling, general and administrative expenses was primarily due to:
• an increase in costs related to our operating channels of $167.6 million, comprised of:
– 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 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; and
– an increase in technology costs of $10.9 million; and
– an increase in other operating costs of $29.9 million primarily due to increased depreciation and occupancy costs.
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• 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 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 other head office costs of $9.2 million; and
– 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 Three Quarters
2025 2024 Year over year change
(In thousands) (In thousands) (Percentage)
Amortization of intangible assets
$ 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.
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.
Americas
First Three Quarters
2025 2024 Year over year change
(In thousands) (In thousands) (Percentage)
Net revenue $ 5,166,157 $ 5,134,079 $ 32,078 0.6 %
Product costs 1,579,844 1,494,392 85,452 5.7
Other cost of sales 483,007 456,894 26,113 5.7
Gross profit 3,103,306 3,182,793 (79,487) (2.5)
Selling, general and administrative expenses 1,377,093 1,293,587 83,506 6.5
Segmented income from operations $ 1,726,213 $ 1,889,206 $ (162,993) (8.6) %
Product margin
69.4 % 70.9 % (150) basis points
Gross margin
60.1 % 62.0 % (190) basis points
Selling, general and administrative expenses as a % of net revenue
26.7 % 25.2 % 150 basis points
Segmented income from operations as a % of net revenue
33.4 % 36.8 % (340) basis points
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 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.
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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 Three Quarters
2025 2024 Year over year change
(In thousands) (In thousands) (Percentage)
Net revenue $ 1,226,361 $ 936,313 $ 290,048 31.0 %
Product costs 284,518 213,386 71,132 33.3
Other cost of sales 157,114 142,147 14,967 10.5
Gross profit 784,729 580,780 203,949 35.1
Selling, general and administrative expenses 305,588 231,317 74,271 32.1
Segmented income from operations $ 479,141 $ 349,463 $ 129,678 37.1 %
Product margin 76.8 % 77.2 % (40) basis points
Gross margin
64.0 % 62.0 % 200 basis points
Selling, general and administrative expenses as a % of net revenue
24.9 % 24.7 % 20 basis points
Segmented income from operations as a % of net revenue
39.1 % 37.3 % 180 basis points
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, marketing expenses, variable costs, and technology costs.
Rest of World
First Three Quarters
2025 2024 Year over year change
(In thousands) (In thousands) (Percentage)
Net revenue $ 1,069,281 $ 906,237 $ 163,044 18.0 %
Product costs 299,292 251,815 47,477 18.9
Other cost of sales 187,587 156,738 30,849 19.7
Gross profit 582,402 497,684 84,718 17.0
Selling, general and administrative expenses 343,346 288,241 55,105 19.1
Segmented income from operations $ 239,056 $ 209,443 $ 29,613 14.1 %
Product margin 72.0 % 72.2 % (20) basis points
Gross margin
54.5 % 54.9 % (40) basis points
Selling, general and administrative expenses as a % of net revenue
32.1 % 31.8 % 30 basis points
Segmented income from operations as a % of net revenue
22.4 % 23.1 % (70) basis points
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 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.
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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
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. The increase in corporate expenses was partially offset by lower employee costs driven by decreased incentive compensation.
Other Income (Expense), Net
First Three Quarters
2025 2024 Year over year change
(In thousands) (In thousands) (Percentage)
Other income (expense), net
$ 27,377 $ 55,020 $ (27,643) (50.2) %
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
First Three Quarters
2025 2024 Year over year change
(In thousands) (In thousands) (Percentage)
Income tax expense
$ 433,390 $ 452,336 $ (18,946) (4.2) %
Effective tax rate
30.4 % 29.8 % 60 basis points
The increase in the effective tax rate was primarily due to a decrease in tax benefits related to stock-based compensation and an increase in non-deductible expenses in international jurisdictions.
Net Income
First Three Quarters
2025 2024 Year over year change
(In thousands) (In thousands) (Percentage)
Net income
$ 992,312 $ 1,066,213 $ (73,901) (6.9) %
The decrease in net income was primarily due to an increase in selling, general and administrative expenses of $258.6 million and a decrease in other income (expense), net of $27.6 million, partially offset by an increase in gross profit of $197.4 million, and a decrease in income tax expense of $18.9 million.
Comparable Sales
We use comparable sales to evaluate the performance of our company-operated store and e-commerce businesses from an omni-channel perspective. It allows us to monitor the performance of our business without the impact of recently opened or expanded stores. We believe investors also find these metrics useful in assessing performance.
Comparable sales includes comparable company-operated store and all e-commerce net revenue. E-commerce net revenue includes buy online pick-up in store, back-back room, and ship from store net revenue in addition to our websites, other region-specific websites, digital marketplaces, and mobile apps. Our back-back room capability allows our store educators to access inventory located at our other locations and have product shipped directly to a guest's address or a store. Comparable company-operated stores have been open, or open after being significantly expanded, for at least 12 full fiscal
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months. Net revenue from a company-operated store is included in comparable sales beginning with the first fiscal month for which the store has a full fiscal month of sales in the prior year.
Comparable sales excludes sales from:
• new stores that have not been open for at least 12 full fiscal months;
• 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; and
• sales from our selling channels other than company-operated stores and e-commerce.
The comparable sales measures we report may not be equivalent to similarly titled measures reported by other companies.
Company-operated stores acquired as a result of the acquisition of the Mexico operations 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.
In fiscal years with 53 weeks, the 53rd week of net revenue is excluded from the calculation of comparable sales. In the year following a 53-week year, the prior year period is shifted by one week to compare similar calendar weeks.
Non-GAAP Financial Measures
We report certain financial metrics on a constant dollar basis, which is a non-GAAP financial measure.
A constant dollar basis assumes the average foreign currency exchange rates for the period remained constant with the average foreign currency exchange rates for the same period of the prior year. We use constant dollar metrics to facilitate comparison of underlying performance excluding the impact of changes in foreign currency exchange rates. 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, 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. Our non-GAAP financial measures may be calculated differently from, and therefore may not be directly comparable to, similarly titled measures reported by other companies.
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Constant Dollar Changes
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 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
Net Revenue
Americas (2) % — % (2) % 1 % — % 1 %
China Mainland 46 1 47 31 — 31
Rest of World 19 — 19 18 (1) 17
Total net revenue 7 % — % 7 % 7 % — % 7 %
Comparable sales (1)
Americas (5) % — % (5) % (3) % — % (3) %
China Mainland 24 1 25 16 1 17
Rest of World 9 — 9 9 (1) 8
Total comparable sales 1 % 1 % 2 % 1 % — % 1 %
__________
(1) Comparable sales includes comparable company-operated store and e-commerce net revenue.
Seasonality
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. 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
Our primary sources of liquidity are our current balances of cash and cash equivalents, cash flows from operations, and capacity under our committed revolving credit facility, including to fund short-term working capital requirements. Our primary cash needs are capital expenditures for opening new stores and remodeling or relocating existing stores, investing in our distribution centers, investing in technology and making system enhancements, funding working capital requirements, and making other strategic capital investments. We may also use cash to repurchase shares of our common stock. Cash and cash equivalents in excess of our needs are held in interest bearing accounts with financial institutions, as well as in money market funds and term deposits.
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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 Three Quarters
2025 2024 Year over year change
(In thousands)
Total cash provided by (used in):
Operating activities $ 459,606 $ 871,323 $ (411,717)
Investing activities (489,057) (575,214) 86,157
Financing activities (938,996) (1,328,510) 389,514
Effect of foreign currency exchange rate changes on cash and cash equivalents 19,973 (23,151) 43,124
Decrease in cash and cash equivalents $ (948,474) $ (1,055,552) $ 107,078
Operating Activities
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 $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 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 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.
Liquidity Outlook
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.
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The following table includes certain measures of our liquidity:
November 2, 2025
(In thousands)
Cash and cash equivalents $ 1,035,862
Working capital (1) excluding cash and cash equivalents
1,045,620
Capacity under committed revolving credit facility 592,964
_________
(1) Working capital is calculated as current assets of $3.9 billion less current liabilities of $1.8 billion.
We enter into standby letters of credit and guarantee to secure certain of our obligations, including leases, taxes, and duties. 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 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. Revolving Credit Facilities included in Item 1 of Part I of this report.
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 November 2, 2025 was $2.0 billion, an increase of 11% from October 27, 2024.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions. Predicting future events is inherently an imprecise activity and, as such, requires the use of significant judgment. Actual results may vary from our estimates in amounts that may be material to the financial statements. 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 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.
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Operating Locations
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,
2025
United States 378 374
Canada 72 71
Mexico 20 17
Americas 470 462
China Mainland 165 151
Australia 34 33
South Korea 21 20
Hong Kong SAR 11 10
Japan 10 10
Singapore 9 7
New Zealand 8 8
Taiwan 7 8
Malaysia 5 5
Thailand 5 4
Macau SAR 2 2
APAC 112 107
United Kingdom 20 19
Germany 9 9
France 6 6
Ireland 4 4
Spain 3 3
Netherlands 2 2
Sweden 2 2
Italy 1 —
Norway 1 1
Switzerland 1 1
EMEA 49 47
Total company-operated stores 796 767
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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,
2025
United Arab Emirates 12 10
Saudi Arabia 9 8
Israel 8 7
Kuwait 4 4
Qatar 4 4
Belgium 2 —
Turkey 2 —
Bahrain 1 1
Denmark 1 —
Total locations operated by third parties under license and supply arrangements 43 34
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.