FinanceLooker

Excrept from filing document 2025-02-02

The aggregate market value of the voting stock held by non affiliates of the registrant on July 26 2024 was approximately 26 721 000 000 Such aggregate market value was computed by reference to the closing price of the common stock as reported on the Nasdaq Global Select Market on July 26 2024 For purposes of determining this amount only the registrant has defined affiliates as including the executive officers directors and owners of 10 or more of the outstanding voting stock of the registrant on July 26 2024
At March 21 2025 there were outstanding 5 115 961 exchangeable shares of Lulu Canadian Holding Inc a wholly owned subsidiary of the registrant Exchangeable shares are exchangeable for an equal number of shares of the registrant s common stock
In addition at March 21 2025 the registrant had outstanding 5 115 961 shares of special voting stock through which the holders of exchangeable shares of Lulu Canadian Holding Inc may exercise their voting rights with respect to the registrant The special voting stock and the registrant s common stock generally vote together as a single class on all matters on which the common stock is entitled to vote
This report and some documents incorporated herein by reference include estimates projections statements relating to our business plans objectives and expected operating results that are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 We use words such as anticipates believes estimates may intends expects and similar expressions to identify forward looking statements Discussions containing forward looking statements may be found in the material set forth under Business Management s Discussion and Analysis of Financial Condition and Results of Operations and in other sections of the report All forward looking statements are inherently uncertain as they are based on our expectations and assumptions concerning future events Any or all of our forward looking statements in this report may turn out to be inaccurate We have based these forward looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition results of operations business strategy and financial needs They may be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties including the risks uncertainties and assumptions described in the section entitled Item 1A Risk Factors and elsewhere in this report In light of these risks uncertainties and assumptions the forward looking events and circumstances discussed in this report may not occur as contemplated and our actual results could differ materially from those anticipated or implied by the forward looking statements All forward looking statements in this report are made as of the date hereof based on information available to us as of the date hereof and we assume no obligation to update any forward looking statement
This annual report includes website addresses and references to additional materials found on those websites These websites and information contained on or accessible through these websites are not incorporated by reference into and do not form a part of this annual report or any other report or document we file with the SEC and any references to any websites are intended to be inactive textual references only
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
In this Annual Report on Form 10 K for the fiscal year ended February 2 2025 lululemon athletica inc together with its subsidiaries is referred to as lululemon the Company we us or our We refer to the fiscal year ended February 2 2025 as 2024 the fiscal year ended January 28 2024 as 2023 Our next fiscal year ends on February 1 2026 and is referred to as 2025
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
Our design and development team continues to source technically advanced fabrics with new feel and fit and craft innovative functional features for our products Through our vertical retail strategy and direct connection with our customers whom we refer to as guests we are able to collect feedback and incorporate unique performance and fashion needs into our design process In this way we believe we are better positioned to address the needs of our guests helping us advance our product lines and differentiate us from our competitors
During 2024 our women s range represented 63 of net revenue and our men s range represented 24 of net revenue Our comprehensive men s line is a key pillar of our strategic growth plans We believe net revenue from our men s range is growing as more guests discover the technical rigor and premium quality of our men s products and are attracted by our distinctive brand
We continue to innovate and introduce new products for our guests This includes introducing new product categories and expanding our accessories assortment We believe this is another way in which we can attract new guests and enable them to experience our products Net revenue from our other product categories represented 13 of net revenue in 2024
We operate an omni channel retail model and aim to efficiently and effectively serve our guests in the ways most convenient to them We continue to evolve and integrate our digital and physical channels in order to enrich our interactions with our guests and to provide a seamless omni channel experience We have invested in technologies which enable our omni channel retailing model Our capabilities differ by market and include
We operate a combination of physical retail locations and e commerce services via our websites other region specific websites digital marketplaces and mobile apps Our physical retail locations remain a key part of our growth strategy and we view them as a valuable tool in helping us build our brand and product line as well as enabling our omni channel capabilities We plan to continue to expand square footage and open new company operated stores to support our growth objectives
We have operated in the Americas for over 25 years We opened our first ever store in Vancouver Canada in 1998 In 2024 the net revenue we generated in the Americas represented 75 of our total net revenue
Our operations in the Americas are core to our business and we aim to continue to grow our net revenue in this market through ongoing product innovation and by building brand awareness We also plan to continue to invest in our omni channel capabilities to open new retail locations and to relocate optimize and renovate our existing locations as needed
We generate net revenue in the Americas through our lululemon branded retail locations which include different sizes of company operated stores outlets pop ups and other temporary locations We also serve our guests via our e commerce website www lululemon com our mobile app our Like New re commerce program and through certain wholesale arrangements including university campus retailers and other organizations that we partner with to sell co branded lululemon products as well as through wholesale arrangements with yoga and fitness studios and other select partners
On September 10 2024 we acquired the lululemon branded retail locations and operations run by a third party in Mexico We had previously granted the third party the right to operate retail locations and to sell lululemon products in Mexico
We have experienced significant net revenue growth in China Mainland and believe that as we continue to expand our operations and build our brand awareness net revenue will continue to increase in this market We believe China Mainland net revenue growth will drive an increase in our overall international net revenue We plan to continue to invest in China Mainland and expect that the majority of our company operated store openings in 2025 will be in this market
We operate lululemon branded retail locations in China Mainland in a variety of different formats including different sizes of company operated stores outlets pop ups and other temporary locations We also serve our guests via our WeChat store and on third party marketplaces such as T Mall and JD com
We have experienced significant net revenue growth in APAC and EMEA and intend to continue to invest in these markets to build brand awareness Where we identify growth opportunities we plan to open new retail locations including in new markets across the EMEA and APAC regions
We operate lululemon branded retail locations in these markets in a variety of different formats including different sizes of company operated stores outlets pop ups and stores operated by third parties under license and supply arrangements We also serve our guests via our country specific websites our mobile app and through third party regional marketplaces such as Zalando Lazada and SSG
In addition to serving as a venue to sell our products our stores give us a direct connection to our guests which we view as a valuable tool in helping us build our brand and product lines as well as enabling our omni channel capabilities Our retail stores are located primarily on street locations in lifestyle centers and in malls Our sales per square foot was 1 574 and 1 609 for 2024 and 2023 respectively
We believe e commerce is convenient for our guests and also allows us to reach and serve guests in markets beyond where our physical retail locations are based We believe this channel is effective in building brand awareness especially in new markets We serve our guests via our e commerce websites other country and region specific websites digital marketplaces and mobile apps E commerce net revenue includes our buy online pick up in store back back room and ship from store omni channel retailing capabilities
Our seasonal stores and pop ups are typically opened for a short period of time enabling us to serve guests during peak shopping periods in markets where we do not ordinarily have a physical location or to expand access in markets where we see high demand at our existing locations
We sell to partners that offer convenient access for both core and new guests including university campus retailers and other organizations that we partner with to sell co branded lululemon products We also sell to yoga and fitness studios and other select partners
Our re commerce program allows guests to exchange their gently used lululemon products for merchandise credit Those products are then verified and quality checked before being resold online at likenew lululemon com We believe this program is a step towards a circular eco system and helps reduce our environmental footprint
We enter into license and supply arrangements when we believe it will be to our advantage to partner with third parties with significant experience and proven success in certain target markets Under these arrangements we have granted certain third parties the right to operate lululemon branded retail locations and to sell lululemon products on websites in specific countries On September 10 2024 we acquired the lululemon branded retail locations and operations run by a third party in Mexico We had previously granted the third party the right to operate retail locations and to sell lululemon products in Mexico
We believe that our brand awareness is relatively low especially outside of the Americas and also with men This represents an opportunity for us and we have designed a multi faceted strategy that leverages what guests know us for our products community and experiences This strategy is designed to leverage owned and paid channels our ambassador network events and content to drive awareness consideration engagement conversion and ultimately loyalty and engagement at the global regional and local levels
Our product design and development efforts are led by a team of researchers scientists engineers and designers Our team is comprised of athletes and users of our products who embody our design philosophy and dedication to premium quality Our design and development team identifies trends based on market intelligence and research proactively seeks the input of our guests and our ambassadors and broadly seeks inspiration consistent with our goals of function style and technical superiority
As we strive to continue to provide our guests with technically advanced fabrics our team works closely with our suppliers to incorporate the latest in technical innovation bringing particular specifications to our products We partner with independent inspection verification and testing companies who conduct a variety of tests on our fabrics testing performance characteristics including pilling shrinkage abrasion resistance and colorfastness We develop proprietary fabrics and collaborate with leading fabric and trims suppliers to manufacture fabrics and trims that we generally seek to protect through agreements trademarks and as trade secrets
We work with a group of approximately 52 vendors that manufacture our products five of which produced 49 of our products in 2024 with the largest manufacturer producing 15 During 2024 40 of our products were manufactured in Vietnam 17 in Cambodia 11 in Sri Lanka 11 in Indonesia and 7 in Bangladesh and the remainder in other regions
We work with a group of approximately 67 suppliers to provide the fabrics for our products In 2024 52 of our fabrics were produced by our top five fabric suppliers with the largest manufacturer producing 18 During 2024 35 of our fabrics originated from Taiwan 28 from China Mainland and 11 from South Korea and the remainder from other regions
We also source other raw materials which are used in our products including items such as content labels elastics buttons clasps and drawcords from suppliers located predominantly in APAC and China Mainland
We have developed long standing relationships with a number of our vendors and take care to ensure that they share our commitment to quality and ethics We do not however have any long term contracts with the majority of our suppliers or manufacturing sources for the production and supply of our fabrics and garments and we compete with other companies for fabrics raw materials and production Our product quality and sustainability teams closely assess and monitor each supplier s compliance with applicable laws and our Vendor Code of Ethics including by partnering with leading inspection and verification firms
We operate and distribute finished products from our distribution facilities in the United States Canada and Australia We own our distribution center in Groveport Ohio and lease our other distribution facilities We also utilize third party logistics providers in a number of countries in which we operate to warehouse and distribute finished products from their warehouse locations We regularly evaluate our distribution infrastructure and consolidate or expand our distribution capacity as we believe appropriate for our operations and to meet anticipated needs
Competition in the athletic apparel industry is based principally on brand image and recognition as well as product quality innovation style distribution and price We believe we successfully compete on the basis of our premium brand image and our technical product innovation We also believe our ability to introduce new product innovations combine function and fashion and connect through in store online and community experiences sets us apart from our competition In addition we believe our vertical retail distribution strategy and community based marketing differentiates us further allowing us to more effectively control our brand image and connect with our guests
The market for athletic apparel is highly competitive It includes increasing competition from established companies that are expanding their production and marketing of performance products as well as from frequent new entrants to the market We are in direct competition with global as well as regional and country specific wholesalers and direct sellers of athletic apparel and footwear
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
Our Impact Agenda sets out our social and environmental goals and strategy across three pillars Be Human Be Well and Be Planet Details can be found in our Impact Report on our website Included within our Impact Agenda is a goal to invest a total of 75 0 million to advance equity in well being by the end of 2025 As of February 2 2025 we have invested a total of 71 0 million
The Be Human pillar of our Impact Agenda sets out our focus areas with respect to human capital including inclusion for all employee empowerment and fair labor practices and the well being of the people who make our products
We are proud that as of February 2 2025 approximately 55 of our board of directors 60 of our senior executive leadership team and 45 of our vice presidents and above are women while approximately 75 of our overall workforce are women
During 2024 we implemented an ongoing feedback approach to gain insights into our workforce composition and gather measurable data on employees feelings of engagement inclusion and belonging Our primary objective is to cultivate a workforce inspired and informed by the diversity of the communities we serve and where we operate
We offer all employees education training and facilitated discussions on topics such as preventing bias ensuring equal opportunity and fostering inclusive leadership behaviors We see strong engagement in inclusion focused education and
We have contributed 71 0 million to lululemon s Centre for Social Impact 45 5 million of which has been contributed directly to social impact organizations The remaining 25 5 million primarily consists of contributions toward a donor advised fund for future grant making
training across our global employee base We strive to foster a culture where inclusion is part of everyday conversations and regularly review our policies programs and practices to try to ensure they support a more inclusive and fair workplace
We believe our people are key to the success of our business As of February 2 2025 we employed approximately 39 000 people worldwide We strive to foster a distinctive culture rooted in our core values that attracts and retains passionate and motivated employees who are driven to achieve personal and professional goals We believe our people succeed because we create an environment that fosters growth and provides opportunities for all
We understand that health and wealth programs need to offer choice at all stages of life Our current offerings support our goal of becoming the number one place where people come to develop and grow as inclusive leaders and we regularly use feedback to inform opportunities to support this goal These offerings include among other things
An employee discount program which includes a lifetime discount to celebrate the contribution of our long tenured employees to keep them within our collective even when they have moved on to pursue goals outside of lululemon
An employee assistance program which provides free confidential support to all our employees and their families in a variety of areas from mental well being to financial services to advice for new parents and
We work with suppliers who we believe share our values and collaborate with us to uphold robust standards address systemic challenges and support the well being of people who make our products Our Responsible Supply Chain program is built on three pillars
Our Vendor Code of Ethics outlines our commitment to respect human and labor rights and promote safe and fair working conditions for people in our supply chain The code which is based on international standards sets the minimum standards for our supplier partners and is a component of our supplier and manufacturer agreements Our finished goods and fabric suppliers are assessed against the Vendor Code of Ethics prior to forming a business relationship and regularly thereafter we work with factories that can uphold our strict requirements
We have trademark rights on many of our products and believe having distinctive marks that are readily identifiable is an important factor in building our brand image and in distinguishing our products from the products of others We consider our lululemon and wave design trademarks to be among our most valuable assets In addition we own many other trademarks for the names of several of our brands slogans fabrics and products We own registered and pending U S and foreign utility and design patents industrial designs in Canada and registered community designs in Europe that protect our product innovations distinctive apparel and accessory designs
Our website address is www lululemon com We provide free access to various reports that we file with or furnish to the United States Securities and Exchange Commission or the SEC through our website as soon as reasonably practicable after they have been filed or furnished These reports include but are not limited to our Annual Reports on Form 10 K quarterly reports on Form 10 Q current reports on Form 8 K and any amendments to those reports Our SEC reports can also be accessed through the SEC s website at www sec gov Also available on our website are printable versions of our Global Code of Business Conduct and Ethics and charters of the standing committees of our board of directors Information contained on or accessible through our websites is not incorporated into and does not form a part of this annual report or any other report or document we file with the SEC and any references to our websites are intended to be inactive textual references only
In addition to the other information contained in this Form 10 K the following risk factors should be considered in evaluating our business Our business financial condition or results of operations could be materially adversely affected as a result of any of these risks
The lululemon name is integral to our business as well as to the implementation of our expansion strategies Maintaining promoting and positioning our brand will depend largely on the success of our marketing and merchandising efforts and our ability to provide a consistent high quality product and guest experience As we grow our brand positioning products and marketing efforts may not be considered distinct culturally relevant or desirable to guests employees and other stakeholders
We rely on social media as one of our marketing strategies to have a positive impact on both our brand value and reputation Our brand and reputation could be adversely affected if we fail to achieve these objectives if our public image was to be tarnished by negative publicity which could be amplified by social media if we fail to deliver innovative and high quality products acceptable to our guests or if we face or mishandle a product recall Our reputation could also be impacted by adverse publicity whether or not valid regarding allegations that we or persons associated with us or formerly associated with us have violated applicable laws or regulations including but not limited to those related to safety employment discrimination harassment whistle blowing privacy corporate citizenship improper business practices or cybersecurity Certain activities on the part of stakeholders including nongovernmental organizations and governmental institutions could cause reputational damage distract senior management and disrupt our business Additionally while we devote considerable effort and resources to protecting our intellectual property if these efforts are not successful the value of our brand may be harmed Any harm to our brand and reputation could have a material adverse effect on our financial condition
The market for our products is highly competitive Competition may result in pricing pressures reduced profit margins or lost market share or a failure to grow or maintain our market share any of which could substantially harm our business and results of operations We compete directly against global as well as regional and country specific wholesalers and direct retailers of athletic apparel including large diversified apparel companies with substantial market share and established companies expanding their production and marketing of technical athletic apparel as well as against smaller retailers and those specifically focused on women s athletic apparel We also face competition from wholesalers and direct retailers of traditional commodity athletic apparel such as cotton T shirts and sweatshirts Many of our competitors are large apparel and sporting goods companies with strong worldwide brand recognition Because of the fragmented nature of the industry we also compete with other apparel sellers including those specializing in yoga apparel and other activewear Our competitors may be able to achieve and maintain brand awareness and market share more quickly and effectively than we can
We may fail to acknowledge or react appropriately to the entry or growth of a viable competitor or disruptive force and could struggle to continue to innovate differentiate and sustain the growth of our brand The increasing dominance and presence of our brand may also drive guests towards alternative emerging competitors
In addition because we hold limited patents and exclusive intellectual property rights in the technology fabrics or processes underlying our products our current and future competitors are able to manufacture and sell products with performance characteristics fabrication techniques and styling similar to our products
If we are unable to anticipate consumer preferences and successfully develop and introduce new innovative and differentiated products we may not be able to maintain or increase our sales and profitability
Our success depends on our ability to identify and originate product trends as well as to anticipate and react to changing consumer demands in a timely manner All of our products are subject to changing consumer preferences that cannot be predicted with certainty If we are unable to introduce new products or novel technologies in a timely manner or our new products or technologies are not accepted by our guests our competitors may introduce similar products in a more timely fashion which could hurt our goal to be viewed as a leader in technical athletic apparel innovation Our new products may not receive consumer acceptance as consumer preferences could shift rapidly to different types of athletic apparel or away from these types of products altogether and our future success depends in part on our ability to anticipate and respond to these changes Our failure to anticipate and respond in a timely manner to changing consumer preferences could lead to among other things lower sales and excess inventory levels We may not have or successfully leverage the relevant data to effectively understand and react to consumer preferences and expectations Even if we are successful in anticipating consumer preferences our ability to adequately react to and address those preferences will in part depend upon our continued ability to develop and introduce innovative high quality products Our failure to effectively introduce new products that are accepted by consumers could result in a decrease in net revenue and excess inventory levels which could have a material adverse effect on our financial condition
We have occasionally received and may in the future receive shipments of products that fail to comply with our technical specifications or that fail to conform to our quality control standards We have also received and may in the future receive products that are otherwise unacceptable to us or our guests Under these circumstances unless we are able to obtain replacement products in a timely manner we risk the loss of net revenue resulting from the inability to sell those products and related increased administrative and shipping costs Additionally if the unacceptability of our products is not discovered until after such products are sold our guests could lose confidence in our products or we could face a product recall and our results of operations could suffer and our business reputation and brand could be harmed
The complex hardware previously sold by our lululemon Studio subsidiary as well as the services currently offered can be affected by design and manufacturing defects Sophisticated operating system software and applications such as those offered by lululemon Studio often have issues that can unexpectedly interfere with the intended operation of hardware or software products Defects may also exist in components and products that we source from third parties Any defects could make our products and services unsafe and create a risk of environmental or property damage or personal injury and we may become subject to the hazards and uncertainties of product liability claims and related litigation The occurrence of real or perceived defects in any of our products now or in the future could result in additional negative publicity regulatory investigations or lawsuits filed against us particularly if guests or others who use or purchase our lululemon Studio products
Our business is subject to significant pressure on costs and pricing caused by many factors including intense competition constrained sourcing capacity and related inflationary pressure the availability of qualified labor and wage inflation pressure from consumers to reduce the prices we charge for our products and changes in consumer demand These and other factors have and may in the future cause us to experience increased costs reduce our prices to consumers or experience reduced sales in response to increased prices any of which could cause our operating margin to decline if we are unable to offset these factors with reductions in operating costs and could have a material adverse effect on our financial condition operating results and cash flows Unionization efforts or other employee organizing activities could lead to higher people costs or reduce our flexibility to manage our employees which may negatively disrupt our operations
To ensure adequate inventory supply we must forecast inventory needs and place orders with our manufacturers based on our estimates of future demand for particular products Our ability to accurately forecast demand for our products could be affected by many factors including an increase or decrease in guest demand for our products or for products of our competitors our failure to accurately forecast guest acceptance of new products product introductions by competitors unanticipated changes in general market conditions for example because of global economic concerns such as inflation an economic downturn or delays and disruptions resulting from local and international shipping delays and labor shortages and weakening of economic conditions or consumer confidence in future economic conditions for example because of inflationary pressures or because of sanctions restrictions and other responses related to geopolitical events If we fail to accurately forecast guest demand we may experience excess inventory levels or a shortage of products available for sale in our stores or for delivery to guests
Inventory levels in excess of guest demand may result in inventory write downs or write offs and the sale of excess inventory at discounted prices which would cause our gross margin to suffer and could impair the strength and exclusivity of our brand Conversely if we underestimate guest demand for our products our manufacturers may not be able to deliver products to meet our requirements and this could result in damage to our reputation and guest relationships
Our future growth depends in part on our expansion efforts outside of the Americas We have limited experience with regulatory environments and market practices internationally and we may not be able to penetrate or successfully operate in any new market In connection with our expansion efforts we may encounter obstacles we did not face in the Americas including cultural and linguistic differences differences in regulatory environments labor practices and market practices difficulties in keeping abreast of market business and technical developments and international guests tastes and preferences We may also encounter difficulty expanding into new international markets because of limited brand recognition leading to delayed acceptance of our technical athletic apparel by guests in these new international markets Our failure to develop our business in new international markets or disappointing growth outside of existing markets could harm our business and results of operations
In addition our continued growth depends in part on our ability to expand our product categories and introduce new product lines We may not be able to successfully manage integration of new product categories or the new product lines with our existing products Selling new product categories and lines will require our management to test and develop different strategies in order to be successful We may be unsuccessful in entering new product categories and developing or launching new product lines which requires management of new suppliers potential new customers and new business models Our management may not have the experience of selling in these new product categories and we may not be able to grow our business as planned For example in July 2020 we acquired MIRROR which was rebranded as lululemon Studio and in 2023 we discontinued selling its hardware and offering its digital app only subscription If we are unable to effectively and successfully further develop current and future new product categories and lines we may not be able to increase or maintain our sales and our operating margins may be adversely affected This may also divert the attention of management and cause additional expenses
We may be unable to achieve our growth objectives if we do not have the right level of efficiency and scalability in our processes and operations We may experience difficulties in obtaining sufficient raw materials and manufacturing capacity to produce our products as well as delays in production and shipments as our products are subject to risks associated with overseas sourcing and manufacturing We could be required to continue to expand our sales and marketing product development and distribution functions to upgrade our management information systems and other processes and technology and to obtain more space for our expanding workforce This expansion could increase the strain on our resources and we could experience operating difficulties including difficulties in hiring training and managing an increasing number of employees These difficulties could result in the erosion of our brand image which could have a material adverse effect on our financial condition
We operate an omni channel retail model and aim to efficiently and effectively serve our guests in the ways most convenient to them We operate a combination of physical retail locations and e commerce services via our websites other region specific websites digital marketplaces and mobile apps Our physical retail locations remain a key part of our growth strategy and we view them as a valuable tool in helping us build our brand and product line as well as enabling our omni channel capabilities We plan to continue to expand square footage and open new company operated stores to support our growth objectives The diversion of sales from our company operated stores could adversely impact our return on investment and could lead to impairment charges and store closures including lease exit costs We could have difficulty in recreating the in store experience through direct channels Our failure to successfully integrate our digital and physical channels and respond to these risks might adversely impact our business and results of operations as well as damage our reputation and brand In addition our channels have different operating margins and shifts to diversified distribution channels could negatively impact our overall operating margins and results of operations
We lease the majority of our stores under operating leases and our inability to secure appropriate real estate or lease terms could impact our ability to grow Our leases generally have initial terms of between two and 15 years and generally can be extended in increments between two and five years if at all We generally cannot cancel these leases at our option If an existing or new store is not profitable and we decide to close it as we have done in the past and may do in the future we may nonetheless be committed to perform our obligations under the applicable lease including among other things paying the base rent for the balance of the lease term Similarly we may be committed to perform our obligations under the applicable leases even if current locations of our stores become unattractive as demographic patterns change In addition as each of our leases expire we may fail to negotiate renewals either on commercially acceptable terms or at all which could require us to close stores in desirable locations
The performance of our senior management team and other key employees and contractors may not meet our needs and expectations Also the loss of services of any of these key individuals or any negative public perception with respect to these individuals may be disruptive to or cause uncertainty in our business and could have a negative impact on our ability to manage and grow our business effectively Such disruption could have a material adverse impact on our financial performance financial condition and the market price of our stock
If we are unable to successfully maintain and evolve our unique culture offer competitive compensation and benefits and a desirable work model we may be unable to attract and retain highly qualified individuals to support our business and continued growth Our work model may not meet the needs and expectations of our employees and may not be perceived as favorable compared to other companies We also face risks related to employee engagement and productivity which could result in increased headcount and lead to increased labor costs
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 while our operating expenses are more equally distributed throughout the year This seasonality along with other factors that are beyond our control including weather conditions and the effects of climate change could adversely affect our business and cause our results of operations to fluctuate
As part of our normal operations we receive confidential proprietary and personally identifiable information including credit card information and information about our customers our employees job applicants and other third parties Our business employs systems and websites that allow for the storage and transmission of this information However despite our safeguards and security processes and protections security breaches could expose us to a risk of theft or misuse of this information and could result in litigation and potential liability
The retail industry in particular has been the target of many recent cyber attacks We may not have the resources or technical sophistication to be able to anticipate or prevent rapidly evolving types of cyber attacks Attacks may be targeted at us our vendors or customers or others who have entrusted us with information In addition despite taking measures to safeguard our information security and privacy environment from security breaches our customers and our business could still be exposed to risk Actual or anticipated attacks may cause us to incur increasing costs including costs to deploy additional personnel and protection technologies train employees and engage third party experts and consultants Advances in artificial intelligence and other computer capabilities new technological discoveries or other developments may result in the technology used by us to protect transaction or other data being breached or compromised Measures we implement to protect against cyber attacks may also have the potential to impact our customers shopping experience or decrease activity on our websites by making them more difficult to use or requiring website downtime
Data and security breaches can also occur as a result of non technical issues including intentional or inadvertent breach by employees or persons with whom we have commercial relationships that result in the unauthorized release of personal or confidential information Any compromise or breach of our security could result in a violation of applicable privacy and other laws significant legal and financial exposure and damage to our brand and reputation or other harm to our business
In addition the increased use of employee owned devices for communications as well as work from home arrangements present additional operational risks to our technology systems including increased risks of cyber attacks Further like other companies in the retail industry we have in the past experienced and we expect to continue to experience cyber attacks including phishing and other attempts to breach or gain unauthorized access to our systems To date these attacks have not had a material impact on our operations but they may have a material impact in the future
We are subject to a variety of privacy and data protection laws and regulations that change frequently and have requirements that vary from jurisdiction to jurisdiction For example we are subject to significant compliance obligations under privacy laws such as the General Data Privacy Regulation GDPR in the European Union the Personal Information Protection and Electronic Documents Act PIPEDA in Canada the California Consumer Privacy Act CCPA modified by the California Privacy Rights Act CPRA and the Personal Information Protection Law PIPL in the People s Republic of China PRC
Some privacy laws prohibit the transfer of personal information to certain other jurisdictions We are subject to privacy and data protection audits or investigations by various government agencies Our failure to comply with these laws subjects us to potential regulatory enforcement activity fines private litigation including class actions and other costs Our efforts to comply with privacy laws may complicate our operations and add to our compliance costs A significant privacy breach or failure or perceived failure by us or our third party service providers to comply with privacy or data protection laws regulations policies or regulatory guidance might have a materially adverse impact on our reputation business operations and our financial condition or results of operations
We are increasingly dependent on networks technology systems and third parties to operate our e commerce websites process transactions respond to guest inquiries manage inventory purchase sell and ship goods on a timely basis and maintain cost efficient operations The failure of our technology systems to operate properly or effectively problems with transitioning to upgraded or replacement systems or difficulty in integrating new systems could adversely affect our business Our technology systems websites and operations of third parties on whom we rely may encounter damage slowdown or disruption including complete outages caused by a failure to successfully upgrade systems system failures viruses computer hackers natural disasters or other causes These could cause information including data related to guest orders to be lost or delayed which could especially if the disruption or slowdown occurred during the holiday season result in delays in the delivery of products to our stores and guests or lost sales which could reduce demand for our products and cause our sales to decline The concentration of our primary offices several of our distribution centers and a number of our stores along the west coast of North America could amplify the impact of a natural disaster occurring in that area to our business including to our technology systems In addition if changes in technology cause our information systems to become obsolete we do not effectively leverage artificial intelligence or if our information systems are inadequate to handle our growth we could lose guests We have limited back up systems and redundancies and our technology systems and websites have experienced system failures and electrical outages in the past which have disrupted our operations Any significant disruption in our technology systems or websites could harm our reputation and credibility and could have a material adverse effect on our business financial condition and results of operations
Many of our customers shop with us through our e commerce websites and mobile apps Increasingly customers are using tablets and smart phones to shop online with us and with our competitors and to do comparison shopping We are increasingly using social media and proprietary mobile apps to interact with our customers and as a means to enhance their shopping experience Any failure on our part to provide attractive effective reliable user friendly e commerce platforms that offer a wide assortment of merchandise with rapid delivery options and that continually meet the changing expectations of online shoppers could place us at a competitive disadvantage result in the loss of e commerce and other sales harm our reputation with customers have a material adverse impact on the growth of our e commerce business globally and could have a material adverse impact on our business and results of operations
Disruption of our supply chain capabilities due to trade restrictions political instability severe weather natural disasters public health crises war terrorism product recalls labor supply shortages or stoppages the financial or operational instability of key suppliers and carriers changes in diplomatic or trade relationships including any sanctions restrictions and other responses such as those related to current geopolitical events or other reasons could impair our ability to distribute our products To the extent we are unable to mitigate the likelihood or potential impact of such events there could be a material adverse effect on our operating and financial results
We do not manufacture our products or raw materials and rely on suppliers and manufacturers located predominantly in APAC and China Mainland We also source other materials used in our products including items such as content labels elastics buttons clasps and drawcords from suppliers located primarily in this region Based on cost during 2024
The entire apparel industry including our company could face supply chain challenges as a result of the impacts of global public health crises political instability inflationary pressures macroeconomic conditions and other factors including reduced freight availability and increased costs port disruption manufacturing facility closures and related labor shortages and other supply chain disruptions
Our supply chain capabilities may be disrupted due to these or other factors such as severe weather natural disasters war or other military conflicts terrorism labor supply shortages or stoppages the financial or operational instability of key suppliers or the countries in which they operate or changes in diplomatic or trade relationships including any sanctions restrictions and other responses to geopolitical events Any significant disruption in our supply chain capabilities could impair our ability to procure or distribute our products which would adversely affect our business and results of operations
Many of the specialty fabrics used in our products are technically advanced textile products developed and manufactured by third parties and may be available in the short term from only one or a limited number of sources We have no long term contracts with any of our suppliers or manufacturers for the production and supply of our raw materials and products and we compete with other companies for fabrics other raw materials and production During 2024 we worked with approximately 52 vendors to manufacture our products and 67 suppliers to provide the fabric for our products Based on cost during 2024
We have experienced and may in the future experience a significant disruption in the supply of fabrics or raw materials and may be unable to locate alternative suppliers of comparable quality at an acceptable price or at all In addition if we experience significant increased demand or if we need to replace an existing supplier or manufacturer we may be unable to locate additional supplies of fabrics or raw materials or additional manufacturing capacity on terms that are acceptable to us or at all or we may be unable to locate any supplier or manufacturer with sufficient capacity to meet our requirements or fill our orders in a timely manner Identifying a suitable supplier is an involved process that requires us to become satisfied with its quality control responsiveness and service financial stability and labor and other ethical practices Even if we are able to expand existing or find new manufacturing or fabric sources we may encounter delays in production and added costs as a result of the time it takes to train our suppliers and manufacturers in our methods products and quality control standards
Our supply of fabric or manufacture of our products could be disrupted or delayed by economic or political or global health conditions and the related government and private sector responsive actions such as closures restrictions on product shipments and travel restrictions Delays related to supplier changes could also arise due to an increase in shipping times if new suppliers are located farther away from our markets or from other participants in our supply chain In addition freight capacity issues continue to persist worldwide as there is much greater demand for shipping and reduced capacity and equipment Any delays interruption or increased costs in the supply of fabric or manufacture of our products could have an adverse effect on our ability to meet guest demand for our products and result in lower net revenue and income from operations both in the short and long term
While we require our suppliers and manufacturers to comply with our Vendor Code of Ethics which includes labor health and safety and environment standards we do not control their operations If suppliers or contractors do not comply with these standards or applicable laws or there is negative publicity regarding the production methods of any of our suppliers or manufacturers even if unfounded or not specific to our supply chain our reputation and sales could be adversely affected we could be subject to legal liability or could cause us to contract with alternative suppliers or manufacturing sources
The fabrics used to make our products include synthetic fabrics whose raw materials include petroleum based products Our products also include silver and natural fibers including cotton Our costs for raw materials are affected by among other things weather consumer demand speculation on the commodities market the relative valuations and fluctuations of the currencies of producer versus consumer countries and other factors that are generally unpredictable and beyond our control Any and all of these factors may be exacerbated by global climate change In addition political instability trade relations sanctions inflationary pressure or other geopolitical or economic conditions could cause raw material costs to increase and have an adverse effect on our future margins Increases in the cost of raw materials including petroleum or the prices we pay
We rely on our distribution facilities for substantially all of our product distribution Our distribution facilities include computer controlled and automated equipment which means their operations may be subject to a number of risks related to security or computer viruses the proper operation of software and hardware electronic or power interruptions or other system failures In addition our operations could also be interrupted by labor difficulties pandemics the impacts of climate change extreme or severe weather conditions or by floods fires or other natural disasters near our distribution centers If we encounter problems with our distribution system our ability to meet guest expectations manage inventory complete sales and achieve objectives for operating efficiencies could be harmed
A significant portion of our products are produced in South Asia and South East Asia and increases in the costs of labor and other costs of doing business in the countries in this area could significantly increase our costs to produce our products and could have a negative impact on our operations and earnings Factors that could negatively affect our business include labor shortages and increases in labor costs labor disputes pandemics the impacts of climate change difficulties and additional costs in transporting products manufactured from these countries to our distribution centers and significant revaluation of the currencies used in these countries which may result in an increase in the cost of producing products Also the imposition of trade sanctions or other regulations against products imported by us from or the loss of normal trade relations status with any country in which our products are manufactured could significantly increase our cost of products and harm our business
There is increasing concern that a gradual rise in global average temperatures due to increased concentration of carbon dioxide and other greenhouse gases in the atmosphere will cause significant changes in weather patterns around the globe an increase in the frequency severity and duration of extreme weather conditions and natural disasters and water scarcity and poor water quality These events could adversely impact the cultivation of cotton which is a key resource in the production of our products disrupt the operation of our supply chain and the productivity of our contract manufacturers increase our production costs impose capacity restraints and impact the types of apparel products that consumers purchase These events could also compound adverse economic conditions and impact consumer confidence and discretionary spending As a result the effects of climate change could have a long term adverse impact on our business and results of operations In many countries governmental bodies are enacting new or additional legislation and regulations to reduce or mitigate the potential impacts of climate change If we our suppliers or our contract manufacturers are required to comply with these laws and regulations or if we choose to take voluntary steps to reduce or mitigate our impact on climate change we may experience increased costs for energy production transportation and raw materials increased capital expenditures or increased insurance premiums and deductibles which could adversely impact our operations Inconsistency of legislation and regulations among jurisdictions may also affect the costs of compliance with such laws and regulations Any assessment of the potential impact of future climate change legislation regulations or industry standards as well as any international treaties and accords is uncertain given the wide scope of potential regulatory change in the countries in which we operate
Increased scrutiny from investors and others regarding our environmental social governance or sustainability responsibilities could result in additional costs or risks and adversely impact our reputation employee retention and willingness of customers and suppliers to do business with us
Investor and political advocacy groups certain institutional investors investment funds other market participants stockholders and customers have focused increasingly on the environmental social and governance ESG practices of companies including those associated with climate change and social responsibility These parties have placed increased importance on the implications of the social cost of their investments and disclosure of their ESG practices If our ESG practices do not meet customer investor employee or other stakeholder expectations or do not align with their opinions or values our brand reputation employee retention and business may be negatively impacted Any sustainability or impact report that we publish or other ESG disclosures we make may include our policies practices goals and targets on a variety of social and ethical matters including corporate governance environmental compliance employee health and safety practices
human capital management product quality supply chain management and workforce inclusion and composition It is possible that stakeholders may not be satisfied with our ESG policies practices goals or targets including how we describe and report our ESG goals efforts and practices and this could reduce demand for our products or lead to regulatory enforcement that could restrict our ability to market and sell our products We could also incur additional costs and require additional resources to monitor report and comply with various ESG practices Also our failure or perceived failure to meet the goals or targets included in any sustainability disclosure could negatively impact our reputation employee retention and the willingness of our customers and suppliers to do business with us
Many of our products may be considered discretionary items for consumers Some of the factors that may influence consumer spending on discretionary items include general economic conditions high levels of unemployment pandemics higher consumer debt levels reductions in net worth based on market declines and uncertainty home foreclosures and reductions in home values fluctuating interest and foreign currency exchange rates and credit availability government austerity measures fluctuating fuel and other energy costs fluctuating commodity prices inflationary pressure tax rates and general uncertainty regarding the overall future economic environment Global economic conditions are uncertain and volatile due in part to the potential impacts of increasing inflation the potential impacts of geopolitical uncertainties and any potential sanctions restrictions or responses to those conditions For example the PRC market presents a number of risks including changes in laws and regulations currency fluctuations increased competition and changes in economic conditions including the risk of an economic downturn or recession trade embargoes restrictions or other barriers as well as other conditions that may adversely impact consumer spending any of which could cause us to fail to achieve anticipated growth As global economic conditions continue to be volatile or economic uncertainty remains trends in consumer discretionary spending also remain unpredictable and subject to reductions due to credit constraints and uncertainties about the future Unfavorable economic conditions may lead consumers to delay or reduce purchases of our products Consumer demand for our products may not reach our targets or may decline when there is an economic downturn or economic uncertainty in our key markets Our sensitivity to economic cycles and any related fluctuation in consumer demand may have a material adverse effect on our financial condition
Uncertain or challenging global economic and political conditions could impact our performance including our ability to successfully expand internationally Global economic conditions could impact levels of consumer spending in the markets in which we operate which could impact our sales and profitability Political unrest such as the turmoil related to current geopolitical events and the related sanctions restrictions or other responses could negatively impact our guests and employees reduce consumer spending and adversely impact our business and results of operations
The United States and the countries in which our products are produced or sold have imposed and may impose additional quotas duties tariffs or other restrictions or regulations or may adversely adjust prevailing quota duty or tariff levels The results of any audits or related disputes regarding these restrictions or regulations could have an adverse effect on our financial statements for the period or periods for which the applicable final determinations are made Countries impose modify and remove tariffs and other trade restrictions in response to a diverse array of factors including global and national economic and political conditions which make it impossible for us to predict future developments regarding tariffs and other trade restrictions Trade restrictions including tariffs changes to de minimis thresholds quotas embargoes safeguards and customs restrictions could increase the cost or reduce the supply of products available to us could increase shipping times or may require us to modify our supply chain organization or other current business practices any of which could harm our business financial condition and results of operations
We are dependent on international trade agreements and regulations The countries in which we produce and sell our products could impose or increase tariffs duties or other similar charges that could negatively affect our results of operations financial position or cash flows
Adverse changes in or withdrawal from trade agreements or political relationships between the United States and the PRC Canada or other countries where we sell or source our products could negatively impact our results of operations or cash flows General geopolitical instability and the responses to it such as the possibility of sanctions trade restrictions and
changes in tariffs including sanctions against the PRC tariffs imposed by the United States and the PRC and the possibility of additional tariffs or other trade restrictions could adversely impact our business It is possible that further tariffs may be introduced or increased Such changes could adversely impact our business and could increase the costs of sourcing our products from the PRC as well as other countries or could require us to source our products from different countries The Uyghur Forced Labor Prevention Act and other similar legislation may lead to greater supply chain compliance costs and delays to us and to our vendors
We are subject to the income tax laws of the United States Canada and several other international jurisdictions Our effective income tax rates could be unfavorably impacted by a number of factors including changes in the mix of earnings amongst countries with differing statutory tax rates changes in the valuation of deferred tax assets and liabilities changes in tax laws new tax interpretations and guidance the outcome of income tax audits in various jurisdictions around the world and any repatriation of unremitted earnings for which we have not previously accrued applicable U S income taxes and international withholding taxes
Repatriations from our Canadian subsidiaries are not subject to Canadian withholding taxes if such distributions are made as a return of capital The extent to which the accumulated earnings of our Canadian subsidiaries can be repatriated as a return of capital is dependent on among other things the amount of paid up capital in our Canadian subsidiaries and transactions undertaken by our exchangeable shareholders
Prior to 2022 we had not accrued for Canadian withholding taxes because the accumulated earnings of or net investment in our Canadian subsidiaries was either indefinitely reinvested or could be repatriated as a return of capital without the payment of withholding taxes
Since 2022 the net investment in our Canadian subsidiaries which was not indefinitely reinvested exceeded the paid up capital and therefore we recognized Canadian withholding taxes on the portion of our net investment which we are unable to repatriate free of withholding tax
In 2025 assuming there are no exchange transactions by our exchangeable shareholders we will continue to recognize Canadian withholding taxes on the accumulated earnings of our Canadian subsidiaries which are not indefinitely reinvested
We engage in a number of intercompany transactions across multiple tax jurisdictions Although we believe that these transactions reflect the accurate economic allocation of profit and that proper transfer pricing documentation is in place the profit allocation and transfer pricing terms and conditions may be scrutinized by local tax authorities during an audit and any resulting changes may impact our mix of earnings in countries with differing statutory tax rates At the end of 2020 our Advance Pricing Arrangement APA with the Internal Revenue Service and the Canada Revenue Agency expired This APA stipulated the allocation of certain profits between the U S and Canada We are currently in the process of negotiating the renewal of this arrangement and the final agreed upon terms and conditions thereof could impact our effective tax rate
Current economic and political conditions make tax rules in any jurisdiction including the United States and Canada subject to significant change Changes in applicable U S Canadian or other international tax laws and regulations or their interpretation and application including the possibility of retroactive effect could affect our income tax expense and profitability as they did in fiscal 2017 and fiscal 2018 upon passage of the U S Tax Cuts and Jobs Act and in 2020 with the passage of the Coronavirus Aid Relief and Economic Security Act Certain provisions of the Inflation Reduction Act passed in 2022 including a 15 corporate alternative minimum tax as well as the similar 15 global minimum tax under the Organization for Economic Cooperation and Development s Pillar Two Global Anti Base Erosion Rules may impact our income tax expense profitability and capital allocation decisions
The labeling distribution importation marketing and sale of our products as well as components of our products including chemicals are subject to extensive regulation by various regulatory bodies These include federal agencies such as the Federal Trade Commission Consumer Product Safety Commission and state attorneys general in the United States the Competition Bureau and Health Canada in Canada the State Administration for Market Regulation of the PRC General Administration of Customs of the PRC as well as other federal state provincial local and international regulatory authorities in the countries in which our products are distributed or sold Our ability to track and respond to regulations may not be sufficient to meet the increased number and complexity of regulations we are subject to globally If we fail to comply with any of these regulations we could become subject to enforcement actions or the imposition of significant penalties or claims which could harm our results of operations or our ability to conduct our business In addition any audits and inspections by governmental agencies related to these matters could result in significant settlement amounts damages fines or other
penalties divert financial and management resources and result in significant legal fees An unfavorable outcome of any particular proceeding could have an adverse impact on our business financial condition and results of operations In addition the adoption of new regulations or changes in the interpretation of existing regulations or changes in consumer perceptions of the components of our products may result in significant compliance costs or discontinuation of product sales and could impair the marketing of our products resulting in significant loss of net revenue
Our international operations are also subject to compliance with the U S Foreign Corrupt Practices Act FCPA and other anti bribery laws applicable to our operations In many countries particularly in those with developing economies it may be a local custom that businesses operating in such countries engage in business practices that are prohibited by the FCPA or other U S and international laws and regulations applicable to us As we expand our operations across multiple jurisdictions we could be subject to conflicting laws or differing consumer sentiment on application of laws that could lead to non compliance which could have an adverse effect on our operations Although we have implemented procedures designed to ensure compliance with the FCPA and similar laws some of our employees agents or other partners as well as those companies to which we outsource certain of our business operations could take actions in violation of our policies Any such violation could have a material and adverse effect on our business
As we expand internationally we are subject to complex employee regulations and if we fail to comply with these regulations we could be subject to enforcement actions or negative employee relations which could harm our results of operations
Because a significant portion of our net revenue and expenses are generated in countries other than the United States fluctuations in foreign currency exchange rates have affected our results of operations and may continue to do so in the future
The functional currency of our international subsidiaries is generally the applicable local currency Our consolidated financial statements are presented in U S dollars Therefore the net revenue expenses assets and liabilities of our international subsidiaries are translated from their functional currencies into U S dollars Fluctuations in the value of the U S dollar affect the reported amounts of net revenue expenses assets and liabilities Foreign currency exchange differences which arise on translation of our international subsidiaries balance sheets into U S dollars are recorded as other comprehensive income loss net of tax in accumulated other comprehensive income or loss within stockholders equity
We also have exposure to changes in foreign currency exchange rates associated with transactions which are undertaken by our subsidiaries in currencies other than their functional currency Such transactions include intercompany transactions and inventory purchases denominated in currencies other than the functional currency of the purchasing entity As a result we have been impacted by changes in foreign currency exchange rates and may be impacted for the foreseeable future The potential impact of currency fluctuation increases as our international expansion increases
The COVID 19 pandemic negatively impacted the global economy disrupted consumer spending and global supply chains and created significant volatility and disruption of financial markets The COVID 19 pandemic and related government private sector and individual consumer responsive actions negatively impacted our business operations store traffic employee availability supply chain financial condition liquidity and cash flows
The occurrence or resurgence of global or regional health events such as the COVID 19 pandemic and the related governmental private sector and individual consumer responses could contribute to a recession depression or global economic downturn reduce store traffic and consumer spending result in temporary or permanent closures of retail locations offices and factories and could negatively impact the flow of goods Such events could cause health officials to impose restrictions and recommend precautions to mitigate the health crisis such as the temporary closure of our stores limitations on the number of guests allowed in our stores at any single time minimum physical distancing requirements and limited operating hours A health event such as the COVID 19 pandemic could also negatively impact our employees guests and brand by reducing consumer willingness to visit stores malls and lifestyle centers and employee willingness to staff our stores A global or regional health event may also cause long term changes to consumer shopping behavior preferences and demand for our products that may have a material adverse effect on our business
A global or regional health event such as the COVID 19 pandemic could significantly and adversely impact our supply chain if the factories that manufacture our products the distribution centers where we manage our inventory or the operations of our logistics and other service providers are disrupted temporarily closed or experience worker shortages
Our fabrics and manufacturing technology generally are not patented and can be imitated by our competitors If our competitors sell products similar to ours at lower prices our net revenue and profitability could suffer
The intellectual property rights in the technology fabrics and processes used to manufacture our products generally are owned or controlled by our suppliers and are generally not unique to us Our ability to obtain intellectual property protection for our products is therefore limited We hold limited patents and exclusive intellectual property rights in the technology fabrics or processes underlying our products As a result our current and future competitors are able to manufacture and sell products with performance characteristics fabrics and styling similar to our products Because many of our competitors have significantly greater financial distribution marketing and other resources than we do they may be able to manufacture and sell products based on our fabrics and manufacturing technology at lower prices than we can If our competitors sell products similar to ours at lower prices our net revenue and profitability could suffer
We currently rely on a combination of patent copyright trademark trade dress trade secret and unfair competition laws as well as confidentiality procedures and licensing arrangements to establish and protect our intellectual property rights The steps we take to protect our intellectual property rights may not be adequate to prevent infringement of these rights by others including imitation of our products and misappropriation of our brand In addition any of our intellectual property rights may be challenged which could result in them being narrowed in scope or declared invalid or unenforceable or our intellectual property protection may be unavailable or limited in some international countries where laws or law enforcement practices may not protect our intellectual property rights as fully as in the United States or Canada and it may be more difficult for us to successfully challenge the use of our intellectual property rights by other parties in these countries If we fail to protect and maintain our intellectual property rights the value of our brand could be diminished and our competitive position may suffer
Our success depends in large part on our brand image We believe that our trademarks patents and other proprietary rights have significant value and are important to identifying and differentiating our products from those of our competitors and creating and sustaining demand for our products We have applied for and obtained some United States Canada and international trademark registrations and patents and will continue to evaluate additional trademarks and patents as appropriate However some or all of these pending trademark or patent applications may not be approved by the applicable governmental authorities Moreover even if the applications are approved third parties may seek to oppose or otherwise challenge these applications or registrations Additionally we may face obstacles as we expand our product line and the geographic scope of our sales and marketing Third parties may assert intellectual property claims against us particularly as we expand our business and the number of products we offer Our defense of any claim regardless of its merit could be expensive and time consuming and could divert management resources Successful infringement claims against us could result in significant monetary liability or prevent us from selling some of our products In addition resolution of claims may require us to redesign our products license rights from third parties or cease using those rights altogether Any of these events could harm our business and cause our results of operations liquidity and financial condition to suffer
There is considerable patent and other intellectual property development activity in our market and litigation based on allegations of infringement or other violations of intellectual property is frequent in the fitness and technology industries Furthermore it is common for individuals and groups to purchase patents and other intellectual property assets for the purpose of making claims of infringement to extract settlements from companies like ours Our use of third party content including music content software and other intellectual property rights may be subject to claims of infringement or misappropriation We cannot guarantee that our internally developed or acquired technologies and content do not or will not infringe the intellectual property rights of others From time to time our competitors or other third parties may claim that we are infringing upon or misappropriating their intellectual property rights and we may be found to be infringing upon such rights Any claims or litigation could cause us to incur significant expenses and if successfully asserted against us could
require that we pay substantial damages or ongoing royalty payments prevent us from offering our platform or services or using certain technologies force us to implement expensive work arounds or impose other unfavorable terms We expect that the occurrence of infringement claims is likely to grow as the market for fitness products and services grows and as we introduce new and updated products and offerings Accordingly our exposure to damages resulting from infringement claims could increase and this could further exhaust our financial and management resources Any of the foregoing could prevent us from competing effectively and could have an adverse effect on our business financial condition and operating results
We may be subject to actions or proposals from stockholders political or consumer activists or others that may not align with our business strategies or the interests of our other stockholders Activism could include geopolitical conflict between the PRC and other countries Responding to such actions can be costly and time consuming disrupt our business and operations and divert the attention of our board of directors management and employees from the pursuit of our business strategies Such activities could interfere with our ability to execute our strategic plan Stockholders political or consumer activists or others may create perceived uncertainties as to the future direction of our business or strategy which may be exploited by our competitors and may make it more difficult to attract and retain qualified personnel and potential guests and may affect our relationships with current guests vendors investors and other third parties In addition a proxy contest for the election of directors at our annual meeting would require us to incur significant legal fees and proxy solicitation expenses and require significant time and attention by management and our board of directors The perceived uncertainties as to our future direction also could affect the market price and volatility of our securities
From time to time we are involved in litigation and other proceedings including matters related to product liability claims stockholder class action and derivative claims commercial disputes and intellectual property as well as trade regulatory employment and other claims related to our business Any of these proceedings could result in significant settlement amounts damages fines or other penalties divert financial and management resources and result in significant legal fees An unfavorable outcome of any particular proceeding could exceed the limits of our insurance policies or the carriers may decline to fund such final settlements and or judgments and could have an adverse impact on our business financial condition and results of operations In addition any proceeding could negatively impact our reputation among our guests and our brand image
Certain provisions of our certificate of incorporation and bylaws and applicable provisions of the Delaware General Corporation Law may make it more difficult or impossible for a third party to acquire control of us or effect a change in our board of directors and management These provisions include
a special meeting of stockholders may only be called by our chairman or Chief Executive Officer or upon a resolution adopted by an affirmative vote of a majority of the board of directors and not by our stockholders
our stockholders must comply with advance notice procedures in order to nominate candidates for election to our board of directors or to place stockholder proposals on the agenda for consideration at any meeting of our stockholders
In addition we are governed by Section 203 of the Delaware General Corporation Law which subject to some specified exceptions prohibits business combinations between a Delaware corporation and an interested stockholder which is
generally defined as a stockholder who becomes a beneficial owner of 15 or more of a Delaware corporation s voting stock for a three year period following the date that the stockholder became an interested stockholder Section 203 could have the effect of delaying deferring or preventing a change in control that our stockholders might consider to be in their best interests
Our business operations and relationships with customers and suppliers are heavily reliant on technology We operate a cybersecurity program designed to assess our security risks and threats to manage those risks and protect our technology systems and data and to detect and respond to cybersecurity incidents
We manage strategic risks including cybersecurity risk through our Enterprise Risk Management program which has direct involvement from the board of directors the audit committee and senior management Through this process we have identified cybersecurity as a risk management priority
Our board of directors is responsible for the oversight of cybersecurity risks and has delegated primary responsibility to the audit committee which is responsible for overseeing our enterprise risk assessments and management policies procedures and practices including regarding those risks related to information security cybersecurity and data protection
The audit committee maintains a cybersecurity sub committee that is comprised of our EVP Chief Information Officer CIO our SVP Chief Information Security Officer CISO and representatives from the audit committee and board of directors that have knowledge and experience in cybersecurity matters The cybersecurity sub committee reviews our cybersecurity risk assessments and the steps being taken to monitor control and report on those risks as well as discusses regulatory and market developments They also review our process for identifying and responding to cybersecurity incidents in a timely manner and details of cybersecurity attacks or incidents which have occurred
Management generally meets with and provides reports to the cybersecurity sub committee on a quarterly basis Our CIO and CISO also meet with and provide reports to the audit committee at least quarterly The board of directors receives periodic reports regarding the activities of the cybersecurity sub committee These reports and meetings are designed to inform the board of directors and committees about the current state of our information security program including cybersecurity risks the nature timing and extent of cybersecurity incidents if any and the resolution of such matters
Our CISO is responsible for our cybersecurity program including risk assessments information security activities and controls The CISO is responsible for establishing and maintaining corporate information security policies and overseeing our risk management activities which prioritize vulnerability management risk reduction and prevention Our CISO also leads our Cyber Defense and Incident Response CDIR team which identifies assesses escalates and remediates cybersecurity incidents Our CISO has over 30 years of experience in the field of cybersecurity bringing an extensive understanding of cybersecurity threats regulatory compliance and industry best practices
The CDIR team monitors and manages key cybersecurity risks including threats related to third parties cloud security malicious code e commerce systems and store technology It also conducts security reviews assesses vulnerabilities and analyzes threat intelligence to strengthen our cyber defenses and incident response efforts
As part of our cybersecurity program we conduct cybersecurity awareness training including phishing simulations and supplemental campaigns as well as mandatory e learning for all our employees Our employees have multiple mechanisms for reporting cybersecurity and data privacy concerns We work with third party cybersecurity advisors to undertake assessments of our critical systems and to remediate any high risk vulnerabilities identified We also engage third parties to perform penetration testing on our key systems to identify potential weaknesses
As part of our cyber incident response plan we utilize an established framework to assess the severity of cybersecurity incidents Under the plan incidents are escalated to relevant senior management and the board of directors as appropriate based on their severity Our disclosure committee assesses the materiality of severe incidents including both quantitative and qualitative factors
We utilize third party service providers as a normal part of our business operations To address cybersecurity risks arising from our relationships with third party service providers we employ a vendor risk program We monitor risks relating to potential compromises of sensitive information at our third party service providers and re evaluate the risks associated with our partners periodically Prior to exchanging our data with third party service providers they are required to go through a vendor risk assessment We also conduct third party security reviews and evaluate their network processes and systems In addition we obtain annual attestation reports related to data security and privacy from certain third party service providers to further support compliance with industry standard cybersecurity protocols
As of the date of this annual report we are not aware of any cybersecurity incidents that have had a material impact on our business However like many companies we continue to face ongoing cyber threats including phishing and other unauthorized access attempts which if successful could have a material impact in the future For more information see Risks related to information security and technology included in Item 1A Risk Factors of this annual report
We lease non retail properties in a number of locations globally The general location use approximate size and lease renewal date of our principal non retail leased properties as of February 2 2025 are set forth below
During 2022 we entered into a new lease for a Canadian distribution center in Brampton Ontario of approximately 980 000 square feet which expires in 2041 We expect this distribution center to be operational in fiscal 2026
We do not anticipate paying any cash dividends on our common stock in the foreseeable future Any future determination as to the payment of cash dividends will be at the discretion of our board of directors and will depend on our financial condition operating results current and anticipated cash needs plans for expansion and other factors that our board of directors considers to be relevant In addition financial and other covenants in any instruments or agreements that we enter into in the future may restrict our ability to pay cash dividends on our common stock
The graph set forth below compares the cumulative total stockholder return on our common stock between February 2 2020 the date of our fiscal year end five years ago and February 2 2025 with the cumulative total return of i the S P 500 Index and ii S P 500 Apparel Accessories Luxury Goods Index over the same period This graph assumes the investment of 100 on February 2 2020 at the closing sale price of our common stock the S P 500 Index and the S P Apparel Accessories Luxury Goods Index and assumes the reinvestment of dividends if any
The comparisons shown in the graph below are based on historical data We caution that the stock price performance shown in the graph below is not necessarily indicative of nor is it intended to forecast the potential future performance of our common stock Information used in the graph was obtained from Bloomberg a source believed to be reliable but we are not responsible for any errors or omissions in such information
On November 29 2023 our board of directors approved a stock repurchase program for up to 1 0 billion of our common shares on the open market or in privately negotiated transactions On each of May 29 2024 and December 3 2024 our board of directors approved 1 0 billion increases to the existing stock repurchase program
The repurchase plan has no time limit and does not require the repurchase of a minimum number of shares Common shares repurchased on the open market are 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 The timing and actual number of common shares to be repurchased will depend upon market conditions eligibility to trade and other factors The authorized value of shares available to be repurchased under this program excludes the cost of commissions and excise taxes
All shares purchased under the ESPP are purchased on the Nasdaq Global Select Market or such other stock exchange as we may designate Unless our board terminates the ESPP earlier it will continue until all shares authorized for purchase have been purchased The maximum number of shares authorized to be purchased under the ESPP is 6 000 000
Management s discussion and analysis of financial condition and results of operations is provided as a supplement to and should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10 K Components of management s discussion and analysis of financial condition and results of operations include
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 2024 was a 53 week year Net revenue includes results from the 53rd week however comparable sales exclude the 53rd week Fiscal 2023 was a 52 week year
This discussion and analysis contains forward looking statements based on current expectations that involve risks uncertainties and assumptions such as our plans objectives expectations and intentions included in the Special Note Regarding Forward Looking Statements Our actual results and the timing of events may differ materially from those anticipated in these forward looking statements as a result of various factors including those described in the Item 1A Risk Factors section and elsewhere in this Annual Report on Form 10 K
We provide constant dollar changes and adjusted financial results which exclude certain inventory provisions asset impairments and restructuring costs recognized in relation to lululemon Studio and their related tax effects The constant dollar changes and adjusted financial results are non GAAP financial measures and we provide them as supplemental information that enable evaluation of the underlying trend in our operating performance and enable a comparison to our historical financial information Refer to the Non GAAP Financial Measures section of this management s discussion and analysis of financial condition and results of operations for reconciliations between the adjusted non GAAP financial measures and the most directly comparable measures calculated in accordance with GAAP
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 annual report or any other report or document we file with the SEC and any references to our websites are intended to be inactive textual references only
Fiscal 2024 was another year of growth for lululemon Net revenue increased 10 operating margin expanded 150 basis points or 50 basis points on an adjusted basis and diluted earnings per share grew 20 or 15 on an adjusted basis Our teams continued to execute against our Power of Three 2 growth plan and the compound annual growth rate in net revenue was 19 between fiscal 2021 and 2024
We saw growth across our regions merchandise categories and channels as we continue to engage with guests and provide them with innovative products that help enable their wellness journey In the Americas revenue grew 4 driven by strength in Canada In the United States we have been working to increase the level of seasonal newness within our assortment mix In China Mainland revenue increased 41 and in Rest of World revenue grew 27 By category we saw a 9 increase in women s 14 growth in men s and an 10 increase in other categories We expanded our retail presence by adding 56 net new company operated stores contributing to a 14 increase in square footage These metrics include our stores in Mexico which we now operate directly the result of the acquisition of the Mexico operations from our license and
Deepening our relationship with existing guests while also bringing new guests into the lululemon brand remains an important priority for us We believe our unaided brand awareness is relatively low across most of the regions where we operate In 2024 we brought several activations to life aimed at increasing loyalty with existing guests while at the same time attracting new guests into our brand
Our partnership with the Canadian Olympic Committee and Canadian Paralympic Committee was on full display during the Paris Olympics as we outfitted the athletes for their off field activities In the Americas we continued to grow our membership program and began offering new benefits including our Partner Perks program which provides members with exclusive experiences and perks from select partner brands
In China Mainland we expanded our Summer Sweat Games to over 70 stores across nearly 40 cities and for World Mental Health Day we hosted activities in nine cities across China Mainland anchored by our event along the West Bund in Shanghai We also extended our World Mental Health Day activations to additional countries including South Korea Germany the United Kingdom and the United States
In 2024 we also welcomed additional new ambassadors to the brand including six time PGA tour winner Max Homa Chinese director actress and screenwriter Jia Ling and Frances Tiafoe our newest tennis ambassador
We continue to seek to create product that solves the unmet needs of our guests We believe our technical product is a key competitive advantage for us and our positioning as a premium athletic brand with high style and high performance product helps differentiate us from our peers
In 2024 we remained focused on our core activities of yoga run and train and also our newer play activities including golf and tennis In women s Align Define and Scuba continued to be key product franchises for us and towards the end of the year we launched our Daydrift trouser a refined casual pant to be worn all day into night For men guests continued to respond to our lounge franchises including Steady State Soft Jersey and Smooth Spacer and our performance franchises including Pacebreaker and Zeroed In In footwear we expanded our offering with new casual and performance styles including our first collection for men And in accessories we continued to bring innovation across our offering of bags which drove good response from our guests
The summary below compares 2024 to 2023 and provides both GAAP and non GAAP financial measures The adjusted financial measures for 2023 exclude 72 1 million of post tax asset impairment and other charges recognized in relation to lululemon Studio There were no adjusted financial measures for 2024
Macroeconomic conditions government actions and policies consumer confidence and purchasing behaviors and foreign currency fluctuations impact our business Such factors are expected to continue to impact our business throughout 2025 with the impact varying by market
Consumer confidence purchasing behaviors and their propensity to spend in our sector have been impacted by uncertain economic conditions including inflation fluctuating interest rates and other factors We continue to monitor the economic environment including in the US Canada and China Mainland
We experienced revenue and traffic growth in 2024 compared to 2023 in all regions but have experienced a reduction in our revenue growth rate in the Americas compared to the growth we had in previous years driven by our operations in the United States During 2024 Americas comparable sales decreased 1 We are monitoring government policies in the Americas including changes in tariffs and while we do not expect current changes to have a material impact on the cost of our products tariffs and related uncertainties could impact consumer confidence traffic and demand for our products
Foreign currency fluctuations have adversely impacted our financial results Foreign currency fluctuations reduced the growth of our net revenue by 75 3 million when comparing 2024 to 2023 primarily due to the overall appreciation of the US dollar We expect future exchange rate volatility to impact our results
The increase in net revenue was primarily due to increased China Mainland net revenue Americas and Rest of World net revenue also increased We had total net revenue of 163 2 million during the 53rd week of 2024 which contributed to the total increase in net revenue in 2024 Comparable sales which excludes net revenue from the 53rd week of 2024 increased 4
Gross margin increased 90 basis points As a result of our decision to cease selling the lululemon Studio Mirror we recognized an inventory obsolescence provision of 23 7 million during 2023 which reduced gross margin by 30 basis points Adjusted gross margin increased 60 basis points Please refer to Note 9 Impairment of Goodwill and Other Assets Restructuring Costs included in Item 8 of Part II of this report
an increase in employee costs of 84 2 million primarily due to increased salaries and wages expense and benefit costs for retail employees primarily from the growth in our business partially offset by decreased incentive compensation
The increase in costs related to our operating channels was partially offset by a decrease in variable costs of 2 9 million primarily due to decreased distribution costs driven by lower rates partially offset by increased credit card fees as a result of increased net revenue
The increase in costs related to our head office was partially offset by a net decrease in employee costs of 1 9 million primarily due to decreased incentive compensation partially offset by increased salaries and wages expense
During 2023 we recognized certain asset impairments and restructuring costs related to lululemon Studio Please refer to Note 9 Impairment of Goodwill and Other Assets Restructuring Costs included in Item 8 of Part II of this report for further information
The amortization of intangible assets in 2024 was primarily the result of the amortization of intangible assets recognized upon the acquisition of the Mexico operations The amortization of intangible assets in 2023 was primarily the result of the amortization of intangible assets recognized upon the acquisition of MIRROR which we rebranded as lululemon Studio
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
The increase in Americas net revenue was primarily due to a 263 5 million increase from new or expanded company operated stores and our other channels We added 24 net new company operated stores in the Americas since 2023 including 14 company operated stores from the acquisition of the Mexico operations Americas net revenue during the 53rd week of 2024 was 118 0 million which contributed to the increase in Americas net revenue in 2024 Americas comparable sales which excludes net revenue from the 53rd week of 2024 decreased 1 The decrease in comparable sales was primarily a result of decreased conversion rates partially offset by an increase in traffic and a higher dollar value per transaction
The increase in selling general and administrative expenses was primarily due to increased marketing expenses higher depreciation and higher employee costs partially offset by decreased distribution cost rates
The increase in China Mainland net revenue was primarily due to an increase in comparable sales which increased 25 or 27 on a constant dollar basis China Mainland comparable sales excludes net revenue from the 53rd week of 2024 The increase in comparable sales was primarily a result of increased traffic partially offset by a lower dollar value per transaction The increase in China Mainland net revenue was also driven by a 156 5 million increase in in net revenue from new or expanded company operated stores and our other channels We have opened 24 net new company operated stores since 2023 China Mainland net revenue during the 53rd week of 2024 was 23 6 million which contributed to the increase in China Mainland net revenue in 2024
The increase in selling general and administrative expenses was primarily due to higher employee costs and increased marketing expenses as well as increased distribution costs and packaging costs driven by higher net revenue
The increase in Rest of World net revenue was primarily due to an increase in comparable sales which increased 19 or 20 on a constant dollar basis Rest of World comparable sales excludes net revenue from the 53rd week of 2024 The increase in comparable sales was primarily a result of increased traffic and a higher dollar value per transaction partially offset by a decrease in conversion rates The increase in Rest of World net revenue was also driven by a 95 8 million increase in net revenue from new or expanded company operated stores and our other channels We have opened eight net new company operated stores since 2023 Rest of World net revenue during the 53rd week of 2024 was 21 7 million which contributed to the increase in Rest of World net revenue in 2024
The increase in 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 decreased 9 0 million to 1 3 billion in 2024 compared to 2023 The net decrease was primarily due to an inventory obsolescence provision of 23 7 million and certain asset impairments and restructuring costs of 74 5 million in relation to lululemon Studio recognized in 2023 Please refer to Note 9 Impairment of Goodwill and Other Assets Restructuring Costs included in Item 8 of Part II of this report for further information Corporate expenses also decreased due to an increase in net foreign currency exchange and derivative gains of 9 9 million as well as a decrease in employee costs The decrease in corporate expenses was partially offset by increased professional fees and technology costs as well as increased depreciation and marketing expenses
The increase in the effective tax rate was primarily due to an increase in non deductible expenses in international jurisdictions a decrease in tax benefits related to stock based compensation adjustments upon the filing of certain income tax returns and an increase in net revenue outside of the United States The increase in the effective tax rate was partially offset by an increase in tax credits and the income tax impact of certain non deductible impairment and other charges related to lululemon Studio which increased the effective tax rate by 10 basis points in 2023
The increase in net income in 2024 was primarily due to an increase in gross profit of 661 4 million impairment and restructuring charges recognized in 2023 of 74 5 million an increase in other income expense net of 27 3 million partially offset by an increase in selling general and administrative expenses of 365 2 million and an increase in income tax expense of 135 9 million
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 would similarly find these metrics useful in assessing the performance of our business
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 months Net revenue from a company operated store is included in comparable sales beginning with the first fiscal month for which the store has a full fiscal month of sales in the prior year Comparable sales excludes sales from new stores that have not been open for at least 12 full fiscal months from stores which have not been in their significantly expanded space for at least 12 full fiscal months from stores which have been temporarily relocated for renovations or temporarily closed and sales from company operated stores that have closed Comparable sales also excludes sales from our selling channels other than company operated stores and e commerce The comparable sales measures we report may not be equivalent to similarly titled measures reported by other companies
Company operated stores acquired as a result of the acquisition of the Mexico operations will be considered comparable beginning October 2025 after 12 full fiscal months of sales from the date of acquisition Prior to the acquisition wholesale sales were made to a third party under a license and supply arrangement
In fiscal years with 53 weeks the 53rd week of net revenue is excluded from the calculation of comparable sales In the year following a 53 week year the prior year period is shifted by one week to compare similar calendar weeks
We use sales per square foot to assess the performance of our company operated stores relative to their square footage We believe that sales per square foot is useful in evaluating the performance of our company operated stores Sales per square foot is calculated using total net revenue from all company operated stores divided by the average ending square footage of the stores for each period during the year In fiscal years with 53 weeks the 53rd week of net revenue is excluded from the calculation of sales per square foot The square footage of our company operated stores includes all retail related space including selling space as well as storage and back office areas The sales per square foot metric we report may not be equivalent to similarly titled metrics reported by other companies
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 provide constant dollar changes in our results to help investors understand the underlying growth rate of net revenue excluding the impact of changes in foreign currency exchange rates
For 2023 adjusted gross profit gross margin income from operations operating margin income tax expense effective tax rates net income and diluted earnings per share exclude certain inventory provisions asset impairments and restructuring costs recognized in relation to lululemon Studio and the related income tax effects of these items
We believe these adjusted financial measures are useful to investors as they provide supplemental information that enable evaluation of the underlying trend in our operating performance and enable a comparison to our historical financial information Further due to the finite and discrete nature of these items we do not consider them to be normal operating expenses that are necessary to run our business or impairments that are expected to arise in the normal course of our operations Management uses these adjusted financial measures and constant currency metrics internally when reviewing and assessing financial performance
The presentation of this financial information is not intended to be considered in isolation or as a substitute for or with greater prominence to the financial information prepared and presented 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
The following table reconciles the most directly comparable measures calculated in accordance with GAAP with the adjusted financial measures for 2023 The adjustments relate to certain inventory provisions asset impairments and restructuring costs recognized in relation to lululemon Studio and their related tax effects Please refer to Note 9 Impairment of Goodwill and Other Assets Restructuring Costs included in Item 8 of Part II of this report for further information on the nature of these amounts There were no adjusted financial measures for 2024
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
Net income increased 264 4 million The decrease in cash provided by operating activities was primarily as a result of a decrease in cash flows from changes in operating assets and liabilities of 251 1 million primarily driven by changes in accounts payable inventories accrued compensation and other assets partially offset by changes in income taxes and accrued liabilities The decrease in cash provided by operating activities was also a result of changes in impairment and other charges recognized in relation to lululemon Studio in 2023 and lower cash inflows related to derivatives partially offset by increased deferred incomes taxes and depreciation
The increase in cash used in investing activities was primarily due to the acquisition of the lululemon branded retail locations and operations run by a third party in Mexico Please refer to Note 6 Acquisition included in Item 8 of Part II of this Annual Report on Form 10 K for further information The increase in cash used in investing activities was also due to increased capital expenditures primarily due to an increase in supply chain infrastructure company operated stores expenditures and system initiatives partially offset by a decrease in corporate infrastructure capital expenditures The increase in cash used in investing activities was partially offset by the settlement of net investment hedges
The increase in cash used in financing activities was primarily the result of an increase in our stock repurchases During 2024 we repurchased 5 1 million shares at a total cost including commissions and excise taxes of 1 6 billion During 2023 we repurchased 1 5 million shares at a total cost including commissions and excise taxes of 558 7 million The common stock was repurchased in the open market at prevailing market prices including under plans complying with the provisions of Rule 10b5 1 and Rule 10b 18 of the Securities Exchange Act of 1934 with the timing and actual number of shares repurchased depending upon market conditions eligibility to trade and other factors
We believe 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 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
Our current commitments with respect to inventory purchases are included within our purchase obligations outlined below 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 February 2 2025 was 1 4 billion an increase of 9 from January 28 2024 We expect that our inventories will continue to grow in 2025 and we expect the growth rate will exceed net revenue growth in 2025
Our existing Americas credit facility provides for 400 0 million in commitments under an unsecured five year revolving credit facility The credit facility has a maturity date of December 14 2026 As of February 2 2025 aside from letters of credit of 6 1 million we had no other borrowings outstanding under this credit facility Further information regarding our credit facilities and associated covenants is outlined in Note 12 Revolving Credit Facilities included in Item 8 of Part II of this report
We lease certain store and other retail locations distribution centers offices and equipment under non cancellable operating leases Our leases generally have initial terms of between two and 15 years and generally can be extended in increments between two and five years if at all The following table details our future minimum lease payments Minimum lease commitments exclude variable lease expenses including contingent rent payments common area maintenance property taxes and landlord s insurance
The amounts listed for purchase obligations in the table below represent agreements including open purchase orders to purchase products and for other expenditures in the ordinary course of business that are enforceable and legally binding and that specify all significant terms In some cases values are subject to change such as for product purchases throughout the production process The reported amounts exclude liabilities included in our consolidated balance sheets as of February 2 2025
The following table summarizes our contractual arrangements due by fiscal year as of February 2 2025 and the timing and effect that such commitments are expected to have on our liquidity and cash flows in future periods
As of February 2 2025 our minimum operating lease commitment for distribution center operating leases which have been committed to but not yet commenced was 274 8 million which is not reflected in the table above
We enter into standby letters of credit to secure certain of our obligations including leases taxes and duties As of February 2 2025 letters of credit and letters of guarantee totaling 12 6 million had been issued including 6 1 million under our committed revolving credit facility
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
Inventory is valued at the lower of cost and net realizable value We periodically review our inventories and make a provision for obsolescence and goods that have quality issues or that are damaged We record a provision at an amount that is equal to the difference between the inventory cost and its net realizable value As of February 2 2025 the net carrying value of our inventories was 1 4 billion which included provisions for obsolete and damaged inventory of 82 3 million The provision is determined based upon assumptions about product quality damages future demand selling prices and market conditions
We have not recognized U S state income taxes and foreign withholding taxes on the net investment in our subsidiaries which we have determined to be indefinitely reinvested This determination is based on the cash flow projections and operational and fiscal objectives of each of our foreign subsidiaries Such estimates are inherently imprecise since many assumptions utilized in the projections are subject to revision in the future
For the portion of our net investment in our Canadian subsidiaries that is not indefinitely reinvested we have recorded a deferred tax liability for the taxes which would be due upon repatriation For distributions made by our Canadian subsidiaries the amount of tax payable is partially dependent on how the repatriation transactions are made The deferred tax liability has been recorded on the basis that we would choose to make the repatriation transactions in the most tax efficient manner Specifically to the extent that the Canadian subsidiaries have sufficient paid up capital any such distributions would be made as a return of capital rather than as a dividend and therefore would not be subject to Canadian withholding tax
As of February 2 2025 the net investment in our Canadian subsidiaries was 3 7 billion of which 1 6 billion was determined to be indefinitely reinvested The paid up capital balance of the Canadian subsidiaries was approximately 165 2 million
We have recognized a deferred tax liability of 107 0 million as of February 2 2025 which represents the Canadian withholding taxes payable on the portion of our Canadian earnings that are not indefinitely reinvested and cannot be repatriated as a return of capital and U S state income taxes payable upon repatriation of the amounts which are not indefinitely reinvested
In future periods if the net investment in our Canadian subsidiaries continues to grow whether due to the accumulation of profits by these subsidiaries or due to a change in the amount that is indefinitely reinvested we will record additional deferred tax liabilities including both Canadian withholding taxes for the amount in excess of the paid up capital balance and U S state income taxes
We are involved in legal proceedings regarding contractual and employment relationships and a variety of other matters We record contingent liabilities when a loss is assessed to be probable and its amount is reasonably estimable If it is reasonably possible that a material loss could occur through ongoing litigation we provide disclosure in the footnotes to our financial statements Assessing probability of loss and estimating the amount of probable losses requires analysis of multiple factors including in some cases judgments about the potential actions of third party claimants and courts Should we experience adverse court judgments or should negotiated outcomes differ to our expectations with respect to such ongoing litigation it could have a material adverse effect on our results of operations financial position and cash flows
The functional currency of our international subsidiaries is generally the applicable local currency Our consolidated financial statements are presented in U S dollars Therefore the net revenue expenses assets and liabilities of
our international subsidiaries are translated from their functional currencies into U S dollars Fluctuations in the value of the U S dollar affect the reported amounts of net revenue expenses assets and liabilities As a result of the fluctuation in exchange rates compared to the U S dollar our revenue was 75 3 million lower in 2024 in comparison to 2023
Foreign currency exchange differences which arise on translation of our international subsidiaries balance sheets into U S dollars are recorded as other comprehensive income loss net of tax in accumulated other comprehensive income loss within stockholders equity A significant portion of our net assets are held by our Canadian dollar subsidiary We enter into forward currency contracts in order to hedge a portion of the foreign currency exposure associated with the translation of our net investment in our Canadian subsidiary During 2024 the impact to other comprehensive loss of translation of our Canadian subsidiaries was an increase in the loss of 134 8 million inclusive of net investment hedge gains
We also have exposure to changes in foreign currency exchange rates associated with transactions which are undertaken by our subsidiaries in currencies other than their functional currency Such transactions include intercompany transactions and inventory purchases denominated in currencies other than the functional currency of the purchasing entity We also hold cash and cash equivalents and other monetary assets in currencies that are different to the functional currency of our subsidiaries As of February 2 2025 we had certain forward currency contracts outstanding in order to economically hedge the foreign currency revaluation gains and losses recognized by our foreign subsidiaries including our Canadian and Chinese subsidiaries on their monetary assets and liabilities denominated in currencies other than their functional currency
We perform a sensitivity analysis to determine the market risk exposure associated with the fair values of our forward currency contracts The net fair value of outstanding derivatives as of February 2 2025 was an asset of 2 2 million As of February 2 2025 a 10 depreciation in the U S dollar against the hedged currencies would have resulted in the net fair value of outstanding derivatives depreciating by 11 0 million The hypothetical change in the fair value of the forward currency contracts would have been substantially offset by a corresponding but directionally opposite change in the underlying hedged items
In the future in an effort to reduce foreign currency exchange risks we may enter into further derivative financial instruments including hedging additional currency pairs We do not and do not intend to engage in the practice of trading derivative securities for profit
Our committed revolving credit facility provides us with available borrowings in an amount up to 400 0 million Because our revolving credit facilities bear interest at a variable rate we will be exposed to market risks relating to changes in interest rates if we have a meaningful outstanding balance As of February 2 2025 aside from letters of credit of 6 1 million there were no borrowings outstanding under these credit facilities We currently do not engage in any interest rate hedging activity and currently have no intention to do so However in the future if we have a meaningful outstanding balance under our revolving facility in an effort to mitigate losses associated with these risks we may at times enter into derivative financial instruments although we have not historically done so These may take the form of forward contracts option contracts or interest rate swaps We do not and do not intend to engage in the practice of trading derivative securities for profit
Our cash and cash equivalent balances are held in the form of cash on hand bank balances and short term deposits with original maturities of three months or less and in money market funds As of February 2 2025 we held cash and cash equivalents of 2 0 billion Interest generated on cash balances is subject to variability as interest rates increase or decrease
We have cash on deposit with various large reputable financial institutions and have invested in AAA rated money market funds The amount of cash and cash equivalents held with certain financial institutions exceeds government insured limits We are also exposed to credit related losses in the event of nonperformance by the financial institutions that are counterparties to our forward currency contracts The credit risk amount is our unrealized gains on our derivative instruments based on foreign currency rates at the time of nonperformance We have not experienced any losses related to these items and we believe credit risk to be minimal We seek to minimize our credit risk by entering into transactions with investment grade credit worthy and reputable financial institutions and by monitoring the credit standing of the financial institutions with whom we transact We seek to limit the amount of exposure with any one counterparty
Inflationary factors such as increases in the cost of our product as well as overhead costs and capital expenditures may adversely affect our operating results Sustained increases in transportation costs wages and raw material costs or other inflationary pressures in the future may have an adverse effect on our ability to maintain current levels of operating margin if the selling prices of our products do not increase with these increased costs or we cannot identify cost efficiencies Inflationary pressures could also reduce consumer spending and impact the demand for our products
We have audited the accompanying consolidated balance sheets of lululemon athletica inc and its subsidiaries the Company as of February 2 2025 and January 28 2024 and the related consolidated statements of operations and comprehensive income of stockholders equity and of cash flows for the 53 week year ended February 2 2025 the 52 week year ended January 28 2024 and the 52 week year ended January 29 2023 including the related notes collectively referred to as the consolidated financial statements We also have audited the Company s internal control over financial reporting as of February 2 2025 based on criteria established in Internal Control Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission COSO
In our opinion the consolidated financial statements referred to above present fairly in all material respects the financial position of the Company as of February 2 2025 and January 28 2024 and the results of its operations and its cash flows for the 53 week year ended February 2 2025 the 52 week year ended January 28 2024 and the 52 week year ended January 29 2023 in conformity with accounting principles generally accepted in the United States of America Also in our opinion the Company maintained in all material respects effective internal control over financial reporting as of February 2 2025 based on criteria established in Internal Control Integrated Framework 2013 issued by the COSO
The Company s management is responsible for these consolidated financial statements for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in Management s Annual Report on Internal Control over Financial Reporting appearing under Item 9A of the Company s 2024 Annual Report on Form 10 K Our responsibility is to express opinions on the Company s consolidated financial statements and on the Company s internal control over financial reporting based on our audits We are a public accounting firm registered with the Public Company Accounting Oversight Board United States PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audits in accordance with the standards of the PCAOB Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement whether due to error or fraud and whether effective internal control over financial reporting was maintained in all material respects
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements whether due to error or fraud and performing procedures that respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the consolidated financial statements Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the consolidated financial statements Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk Our audits also included performing such other procedures as we considered necessary in the circumstances We believe that our audits provide a reasonable basis for our opinions
A company s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles A company s internal control over financial reporting includes those policies and procedures that i pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company ii provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and iii provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the company s assets that could have a material effect on the financial statements
Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that i relates to accounts or disclosures that are material to the consolidated financial statements and ii involved our especially challenging subjective or complex judgments The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements taken as a whole and we are not by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates
As described in Notes 2 and 3 to the consolidated financial statements inventories are valued at the lower of cost and net realizable value and management records a provision as necessary to appropriately value inventories that are obsolete have quality issues or are damaged Provision expense is recorded in cost of goods sold As of February 2 2025 the Company s consolidated net inventories balance was 1 442 1 million inclusive of the inventory provision of 84 0 million The amount of the inventory provision is equal to the difference between the cost of the inventory and its estimated net realizable value based on assumptions about product quality damages future demand selling prices and market conditions
The principal considerations for our determination that performing procedures relating to the inventory provision is a critical audit matter are the significant judgment by management in determining the estimated net realizable value of inventories that are obsolete have quality issues or are damaged which in turn led to a high degree of auditor judgment subjectivity and effort in performing procedures and evaluating audit evidence relating to the inventory provision
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements These procedures included testing the effectiveness of controls relating to the review of the inventory provision including the assumptions used These procedures also included among others i observing the physical condition of inventories during inventory counts ii evaluating the appropriateness of management s process for developing the estimates of net realizable value iii testing the reliability of reports used by management by agreeing to underlying records iv testing the reasonableness of the assumptions about quality damages future demand selling prices and market conditions by considering historical trends and consistency with evidence obtained in other areas of the audit and v corroborating the assumptions with individuals within the product team
lululemon athletica inc a Delaware corporation lululemon and together with its subsidiaries unless the context otherwise requires the Company is engaged in the design distribution and retail of technical athletic apparel footwear and accessories The Company organizes its operations into four regional markets Americas China Mainland Asia Pacific APAC and Europe and the Middle East EMEA It conducts its business through a number of different channels in each market including company operated stores e commerce outlets temporary locations wholesale license and supply arrangements and a re commerce program There were 767 711 and 655 company operated stores in operation as of February 2 2025 January 28 2024 and January 29 2023 respectively
On September 10 2024 the Company acquired the lululemon branded retail locations and operations run by a third party in Mexico The Company had previously granted the third party the right to operate retail locations and to sell lululemon products in Mexico The results of operations financial position and cash flows of the Mexico operations have been included in the Company s consolidated financial statements since the date of acquisition Please refer to Note 6 Acquisition for further information
The Company s fiscal year ends on the Sunday closest to January 31 of the following year typically resulting in a 52 week year but occasionally giving rise to an additional week resulting in a 53 week year Fiscal 2024 was a 53 week year Fiscal 2023 and fiscal 2022 were each 52 week years Fiscal 2024 2023 and 2022 ended on February 2 2025 January 28 2024 and January 29 2023 respectively and are referred to as 2024 2023 and 2022 respectively
The Company s business is affected by the pattern of seasonality common to most retail apparel businesses Historically the Company has recognized a significant portion of its operating profit in the fourth fiscal quarter of each year as a result of increased net revenue during the holiday season
Cash and cash equivalents consist of cash on hand bank balances money market funds and short term deposits with original maturities of three months or less The Company has not experienced any losses related to these balances and management believes the Company s credit risk to be minimal
Accounts receivable primarily arise out of third party gift card sales sales to wholesale accounts online marketplaces duty receivables and license and supply arrangements The allowance for doubtful accounts represents management s best estimate of probable credit losses in accounts receivable Receivables are written off against the allowance when management believes that the amount receivable will not be recovered As of February 2 2025 and January 28 2024 the Company had an insignificant allowance for doubtful accounts
Inventories consisting of finished goods inventories in transit and raw materials are stated at the lower of cost and net realizable value Cost is determined using weighted average costs and includes all costs incurred to deliver inventory to the Company s distribution centers including freight non refundable taxes duty and other landing costs
The Company periodically reviews its inventories and makes a provision as necessary to appropriately value goods that are obsolete have quality issues or are damaged The amount of the provision is equal to the difference between the cost of the inventory and its net realizable value based upon assumptions about product quality damages future demand selling prices and market conditions If changes in market conditions result in reductions in the estimated net realizable value of its inventory below its previous estimate the Company would increase its provision in the period in which it made such a determination
In addition the Company provides for inventory shrinkage based on historical trends from actual physical inventory counts Inventory shrinkage estimates are made to reduce the inventory value for lost or stolen items The Company performs physical inventory counts and cycle counts throughout the year and adjusts the shrink provision accordingly
The purchase price of an acquisition is measured as the aggregate of the fair value of the consideration transferred including the acquisition date fair value of the Company s previously held equity interests The purchase price is allocated to the fair values of the tangible and intangible assets acquired and liabilities assumed with any excess recorded as goodwill These fair value determinations require judgment and may involve the use of significant estimates and assumptions The purchase price allocation may be provisional during a measurement period of up to one year to provide reasonable time to obtain the information necessary to identify and measure the assets acquired and liabilities assumed Any such measurement period adjustments are recognized in the period in which the adjustment amount is determined Transaction costs associated with the acquisition are expensed as incurred
Goodwill represents the excess of the aggregate of the consideration transferred the fair value of any non controlling interest in the acquiree and the acquisition date fair value of the Company s previously held equity interest over the net assets acquired and liabilities assumed Goodwill is allocated to the reporting unit which is expected to receive the benefit from the synergies of the combination
Goodwill is tested annually for impairment or more frequently when an event or circumstance indicates that goodwill might be impaired Generally the Company first performs a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value If factors indicate that this is the case the Company then estimates the fair value of the related reporting unit If the fair value is less than the carrying value the goodwill of the reporting unit is determined to be impaired and the Company will record an impairment equal to the excess of the carrying value over its fair value
Acquired finite lived intangible assets are amortized on a straight line basis over their estimated useful lives and are reviewed for impairment when events or circumstances indicate that the asset group to which the intangible assets belong might be impaired The Company revises the estimated remaining useful life of these assets when events or changes in circumstances warrant a revision If the Company revises the useful life the unamortized balance is amortized over the remaining useful life on a prospective basis
Property and equipment are recorded at cost less accumulated depreciation Direct internal and external costs related to software used for internal purposes which are incurred during the application development stage or for upgrades that add functionality are capitalized All other costs related to internal use software are expensed as incurred Property and equipment carrying values are reviewed for impairment when events or circumstances indicate that the asset group to which the property and equipment belong might be impaired
Depreciation commences when an asset is ready for its intended use Buildings are depreciated on a straight line basis over the expected useful life of the asset which is individually assessed and estimated to be up to 40 years Leasehold improvements are depreciated on a straight line basis over the lesser of the expected lease term and the estimated useful life of the improvement to a maximum of 10 years for stores and 15 years for corporate offices and distribution centers All other property and equipment are depreciated using the declining balance method as follows
The Company incurs costs to implement cloud computing arrangements hosted by third party vendors Costs incurred to implement cloud computing service arrangements are capitalized when incurred during the application development phase and recognized as other non current assets Implementation costs are subsequently amortized over the expected term of the related cloud service The carrying value of cloud computing implementation costs are tested for impairment when an event or circumstance indicates that the asset might be impaired Changes in cloud computing arrangement implementation costs are classified within operating activities in the consolidated statements of cash flows
Long lived assets held for use are evaluated for impairment when the occurrence of events or a change in circumstances indicates that the carrying value of the assets may not be recoverable as measured by comparing their carrying value to the estimated undiscounted future cash flows generated by their use and eventual disposition Impaired assets are recorded at fair value determined principally by discounting the future cash flows expected from their use and eventual disposition Reductions in asset values resulting from impairment valuations are recognized in income in the period that the impairment is determined
At lease commencement which is generally when the Company takes possession of the asset the Company records a lease liability and corresponding right of use asset Lease liabilities represent the present value of minimum lease payments over the expected lease term which includes options to extend or terminate the lease when it is reasonably certain those options will be exercised The present value of the lease liability is determined using the Company s incremental collateralized borrowing rate at the lease commencement
Minimum lease payments include base rent fixed escalation of rental payments and rental payments that are adjusted periodically depending on a rate or index In determining minimum lease payments the Company does not separate non lease components for real estate leases Non lease components are generally services that the lessor performs for the Company associated with the leased asset such as common area maintenance
Right of use assets represent the right to control the use of the leased asset during the lease and are initially recognized in an amount equal to the lease liability In addition prepaid rent initial direct costs and adjustments for lease incentives are components of the right of use asset Over the lease term the lease expense is amortized on a straight line basis beginning on the lease commencement date Right of use assets are assessed for impairment as part of the impairment of long lived assets which is performed whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable
Variable lease payments including contingent rental payments based on sales volume are recognized when the achievement of the specific target is probable A right of use asset and lease liability are not recognized for leases with an initial term of 12 months or less and the lease expense is recognized on a straight line basis over the lease term
The Company recognizes a liability for the fair value of asset retirement obligations AROs when such obligations are incurred The Company s AROs are primarily associated with leasehold improvements which at the end of a lease the Company is contractually obligated to remove in order to comply with the lease agreement At the inception of a lease with such conditions the Company records an ARO liability and a corresponding capital asset in an amount equal to the estimated fair value of the obligation The liability is estimated based on a number of assumptions requiring management s judgment including store closing costs cost inflation rates and discount rates and is accreted to its projected future value over time The capitalized asset is depreciated using the convention for depreciation of leasehold improvement assets Upon satisfaction of the ARO conditions any difference between the recorded ARO liability and the actual retirement costs incurred is recognized as an operating gain or loss in the consolidated statements of operations
The Company recognizes a liability for a cost associated with a lease exit or disposal activity when such obligation is incurred A lease exit or disposal liability is measured initially at its fair value in the period in which the liability is incurred The Company estimates fair value at the cease use date of its operating leases as the remaining lease rentals reduced by estimated sublease rentals that could be reasonably obtained for the property even where the Company does not intend to enter into a sublease Estimating the cost of certain lease exit costs involves subjective assumptions including the time it would take to sublease the leased location and the related potential sublease income The estimated accruals for these costs could be significantly affected if future experience differs from the assumptions used in the initial estimate
The Company has entered into certain subleases which have been classified as operating leases Sublease income is recognized on a straight line basis beginning on the commencement date of the sublease Sublease income offsets the head lease expense within net lease expense
Net revenue is comprised of company operated store net revenue e commerce net revenue through websites and mobile apps including mobile apps on in store devices that allow demand to be fulfilled via the Company s distribution centers and other net revenue which includes revenue from outlets sales to wholesale accounts license and supply arrangement net revenue which consists of royalties as well as sales of the Company s products to licensees re commerce revenue revenue from temporary locations and lululemon Studio revenue All revenue is reported net of markdowns discounts sales taxes collected from customers on behalf of taxing authorities and returns lululemon Studio generates gross revenue from digital content subscriptions
Revenue is recognized when performance obligations are satisfied through the transfer of control of promised goods or services to the Company s customers Control transfers once a customer has the ability to direct the use of and obtain substantially all of the benefits from the product This includes the transfer of legal title physical possession the risks and rewards of ownership and customer acceptance Revenue from company operated stores and other retail locations is recognized at the point of sale E commerce revenue sales to wholesale accounts and in home fitness hardware sales are recognized upon receipt by the customer In certain arrangements the Company receives payment before the customer receives the promised good These payments are initially recorded as deferred revenue and recognized as revenue in the period when control is transferred to the customer
Revenue is presented net of an allowance for estimated returns The Company s liability for sales return refunds is recognized within accrued liabilities and other and an asset for the value of inventory which is expected to be returned is recognized within other
Proceeds from the sale of gift cards are initially deferred and recognized within unredeemed gift card liability on the consolidated balance sheets and are recognized as revenue when tendered for payment While the Company will continue to honor all gift cards presented for payment to the extent management determines there is no requirement to remit unused card balances to government agencies under unclaimed property laws the portion of card balances not expected to be redeemed are recognized in net revenue in proportion to the gift cards which have been redeemed under the redemption recognition method As of February 2 2025 and January 28 2024 the unredeemed gift card liability was 308 4 million and 306 5 million respectively During 2024 2023 and 2022 the Company recognized net revenue of 180 9 million 151 4 million and 126 9 million respectively that was included in the opening balance of the unredeemed gift card liability at the beginning of each year For 2024 2023 and 2022 net revenue recognized on unredeemed gift card balances was 36 2 million 28 5 million and 23 3 million respectively
the cost of the Company s product design raw materials development product innovation sourcing supply chain and merchandising departments including salaries stock based compensation and benefits and other expenses
Selling general and administrative expenses consist of all operating costs not otherwise included in cost of goods sold intangible asset amortization or acquisition related expenses The Company s selling general and administrative expenses include the costs of corporate and retail employee wages and benefits costs to transport the Company s products from the distribution facilities to the Company s retail locations and e commerce guests professional fees marketing technology human resources accounting legal corporate facility and occupancy costs and depreciation and amortization expense other than in cost of goods sold
For 2024 2023 and 2022 the Company incurred costs to transport its products from its distribution facilities to its retail locations and e commerce guests of 349 0 million 374 2 million and 353 7 million respectively
Advertising costs including the costs to produce advertising are expensed as incurred Advertising expenses were 541 5 million 429 7 million and 328 6 million for 2024 2023 and 2022 respectively and are included within selling general and administrative expenses
The Company follows the liability method with respect to accounting for income taxes Deferred income tax assets and liabilities are determined based on the temporary differences between the carrying amounts and the tax basis of assets and liabilities and for tax losses tax credit carryforwards and other tax attributes Deferred income tax assets and liabilities are measured using enacted tax rates for the appropriate tax jurisdiction that are expected to be in effect when these differences are anticipated to reverse
Deferred income tax assets are reduced by a valuation allowance if based on the weight of available evidence it is more likely than not that some portion or all of the deferred tax assets will not be realized The evaluation as to the likelihood of realizing the benefit of a deferred income tax asset is based on the timing of scheduled reversals of deferred tax liabilities taxable income forecasts and tax planning strategies The recognition of a deferred income tax asset is based upon several assumptions and forecasts including current and anticipated taxable income the utilization of previously unrealized non operating loss carryforwards and regulatory reviews of tax filings
The Company evaluates its tax filing positions and recognizes the largest amount of tax benefit that is considered more likely than not to be sustained upon examination by the relevant taxing authorities based on the technical merits of the position This determination requires the use of significant judgment Income tax expense is adjusted in the period in which an uncertain tax position is effectively settled the statute of limitations expires facts or circumstances change tax laws change or new information becomes available The Company s policy is to recognize interest expense and penalties related to income tax matters as part of income tax expense Accrued interest and penalties are included within the related tax liability on the Company s consolidated balance sheets
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date Fair value measurements are made using a three tier fair value hierarchy which prioritizes the inputs used in measuring fair value
The Company holds certain assets and liabilities that are required to be measured at fair value on a recurring basis and performs certain valuations on a non recurring basis which are outlined in Note 16 Fair Value Measurement
The functional currency for each entity included in these consolidated financial statements that is domiciled outside of the United States is generally the applicable local currency Assets and liabilities of each foreign entity are translated into U S dollars at the exchange rate in effect on the balance sheet date Net revenue and expenses are translated at the average rate in effect during the period Unrealized translation gains and losses are recorded as a foreign currency translation adjustment which is included in other comprehensive income loss net of tax which is a component of accumulated other comprehensive income or loss included in stockholders equity
Foreign currency transactions denominated in a currency other than an entity s functional currency are remeasured into the functional currency with any resulting gains and losses recognized in selling general and administrative expenses except for gains and losses arising on intercompany foreign currency transactions that are of a long term investment nature which are recorded as a net investment hedge gains losses in other comprehensive income loss net of tax
The Company enters into certain forward currency contracts that are designated as net investment hedges The effective portions of the hedges are reported in accumulated other comprehensive income or loss net of tax and will subsequently be reclassified to net earnings in the period in which the hedged investment is either sold or substantially liquidated Hedge effectiveness is measured using a method based on changes in forward exchange rates The Company classifies the cash flows at settlement of its net investment hedges within investing activities in the consolidated statements of cash flows
The Company also enters into certain forward currency contracts that are not designated as net investment hedges They are designed to economically hedge the foreign exchange revaluation gains and losses of certain monetary assets and liabilities The Company has not applied hedge accounting to these instruments and the change in fair value of these derivatives is recorded within selling general and administrative expenses The Company classifies the cash flows at settlement of its forward currency contracts which are not designated in hedging relationships within operating activities in the consolidated statements of cash flows
The Company presents its derivative assets and derivative liabilities at their gross fair values within prepaid expenses and other current assets and other current liabilities on the consolidated balance sheets However the Company s Master International Swap Dealers Association Inc Agreements and other similar arrangements allow net settlements under certain conditions
The Company does not enter into derivative contracts for speculative or trading purposes Additional information on the Company s derivative financial instruments is included in Note 16 Fair Value Measurement and Note 17 Derivative Financial Instruments
Accounts receivable primarily arise out of third party gift card sales sales to wholesale accounts online marketplaces duty receivables and license and supply arrangements The Company generally does not require collateral to support the accounts receivable however in certain circumstances the Company may require parties to provide payment for goods prior to delivery of the goods or to provide letters of credit The accounts receivable are net of an allowance for doubtful accounts which is established based on management s assessment of the credit risk of the underlying accounts
Cash and cash equivalents are held with high quality financial institutions The amount of cash and cash equivalents held with certain financial institutions exceeds government insured limits The Company is also exposed to credit related losses in the event of nonperformance by the counterparties to the forward currency contracts The credit risk amount is the Company s unrealized gains on its derivative instruments based on foreign currency rates at the time of nonperformance The Company has not experienced any losses related to these items and it believes credit risk to be minimal The Company seeks to minimize its credit risk by entering into transactions with investment grade credit worthy and reputable financial institutions and by monitoring the credit standing of the financial institutions with whom it transacts It seeks to limit the amount of exposure with any one counterparty
The Company s derivative contracts contain certain credit risk related contingent features Under certain circumstances including an event of default bankruptcy termination and cross default under the Company s Americas revolving credit facility the Company may be required to make immediate payment for outstanding liabilities under its derivative contracts
The Company accounts for stock based compensation using the fair value method The fair value of awards granted is estimated at the date of grant The employee compensation expense is recognized on a straight line basis over the requisite service period with the offsetting credit to additional paid in capital
For awards with service and or performance conditions the amount of compensation expense recognized is based on the number of awards expected to vest reflecting estimated expected forfeitures and is adjusted to reflect those awards that do ultimately vest The forfeiture rate is based on management s best estimate of expected forfeitures taking into consideration historical trends and expected future behavior For awards with performance conditions the Company recognizes the compensation expense if and when the Company concludes that it is probable that the performance condition will be achieved The Company reassesses the probability of achieving the performance condition at each reporting date
The grant date fair value of each stock option granted is estimated on the grant date using the Black Scholes model The grant date fair value of restricted shares performance based restricted stock units and restricted stock units is based on the closing price of the Company s common stock on the grant date
Earnings per share is calculated using the weighted average number of common and exchangeable shares outstanding during the period Exchangeable shares are the economic equivalent of common shares in all material respects All classes of stock have in effect the same economic rights and share equally in undistributed net income Diluted earnings per share is calculated by dividing net income available to stockholders for the period by the diluted weighted average number of shares outstanding during the period Diluted earnings per share reflects the potential dilution from common shares issuable through stock options performance based restricted stock units that have satisfied their performance factor restricted shares and restricted stock units using the treasury stock method
In the ordinary course of business the Company is involved in legal proceedings regarding contractual and employment relationships and a variety of other matters The Company records contingent liabilities resulting from claims against it when a loss is assessed to be probable and the amount of the loss is reasonably estimable
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of net revenue and expenses during the reporting period Actual results could differ from those estimates
The Company considers the applicability and impact of all Accounting Standard Updates ASUs ASUs adopted during 2024 not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on its consolidated financial position or results of operations
In November 2023 the FASB issued ASU 2023 07 Segment Reporting Topic 280 Improvements to Reportable Segment Disclosures Entities are required to provide disclosures of significant segmented expenses and other categories used by the Chief Operating Decision Maker CODM in order to enhance disclosure at the segment level The Company adopted this update for 2024 and the related disclosures are included in Note 23 Segmented Information
ASUs recently issued not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on the Company s consolidated financial position or results of operations
In December 2023 the FASB issued ASU 2023 09 Income Taxes Topic 740 Improvements to Income Tax Disclosures This disclosure requires expanded disclosure within the rate reconciliation as well as disaggregation of annual taxes paid This amendment is effective for annual periods beginning after December 15 2024 and is applied prospectively The Company is currently evaluating the impact that this new guidance may have on its financial statement disclosures
In November 2024 the FASB issued ASU 2024 03 Income Statement Reporting Comprehensive Income Expense Disaggregation Disclosures Subtopic 220 40 Disaggregation of Income Statement Expenses Entities will be required to provide disaggregated disclosures for certain income statement expense line items This amendment is effective for annual periods beginning after December 15 2026 and interim periods within fiscal years beginning after December 15 2027 and shall be applied retrospectively for periods presented in the financial statements The Company is currently evaluating the impact that this new guidance may have on its financial statement disclosures
During 2024 we disposed of the lululemon Studio Mirror inventories which had previously been provided for Please refer to Note 9 Impairment of Goodwill and Other Assets Restructuring Costs for further details on the lululemon Studio obsolescence provision
During the second quarter of 2022 the Company completed the sale of an administrative office building which resulted in a pre tax gain of 10 2 million The income tax effect of the gain on disposal of assets was an expense of 1 7 million
On September 10 2024 the Company acquired the lululemon branded retail locations and operations run by a third party in Mexico The Company acquired all outstanding shares of the third party and had previously granted it the right to operate retail locations and to sell lululemon products in Mexico
Goodwill relates to the assembled workforce and benefits expected as a result of the acquisition and has been allocated to the Americas segment None of the goodwill is expected to be deductible for income tax purposes
Reacquired franchise rights were valued using the future expected cash flows of the remaining contractual franchise period until November 2026 These intangible assets have a fair value of 15 5 million which is being amortized until November 2026 Contingent consideration of 15 0 million relates to performance related conditions from the acquisition date to December 31 2025 and has been recognized at fair value
During 2024 the Company recognized 3 5 million in acquisition related expenses within selling general and administrative expenses primarily related to legal accounting valuation and other professional services
Of the Company s goodwill 147 0 million relates to the acquisition of the Mexico operations in 2024 Goodwill relates to the assembled workforce and benefits expected as a result of the acquisition and has been allocated to the Americas segment Please refer to Note 6 Acquisition
As part of the acquisition of the Mexico operations in 2024 the Company recognized intangible assets related to reacquired franchise rights which are being amortized until November 2026 Please refer to Note 6 Acquisition
Amortization of intangible assets was 2 7 million 5 0 million and 8 8 million in 2024 2023 and 2022 respectively Future expected amortization expense as of February 2 2025 is 6 4 million and 5 2 million for 2025 and 2026 respectively
During 2023 and 2022 the Company recognized intangible asset impairment charges of 17 0 million and 40 6 million respectively These impairment charges related to the intangible assets that were recognized on the acquisition of MIRROR Please refer to Note 9 Impairment of Goodwill and Other Assets Restructuring Costs for further information
During 2022 the Company decided to shift its lululemon Studio strategy to focus on providing digital app based services The Company continued to sell the lululemon Studio Mirror hardware in 2023 and reached the decision to cease selling it during the third quarter of 2023 It also contracted with Peloton Interactive Inc to be the exclusive digital fitness content provider to existing lululemon Studio subscribers and stopped producing its own digital fitness content The Company ceased selling the lululemon Studio Mirror and new digital content subscriptions in December 2023
These strategy shifts resulted in impairment testing and the recognition of goodwill impairment inventory provisions asset impairments and restructuring costs related to the lululemon Studio reporting unit The following table summarizes the amounts recognized
During 2022 the change in strategy related to lululemon Studio to focus on digital app based services meant the Company no longer expected to be able to sell all of the lululemon Studio hardware inventory above cost and it recognized an obsolescence provision of 62 9 million The net realizable value was determined based on hardware sales forecasts and assumptions regarding liquidation value
As a result of the decision to cease selling the lululemon Studio Mirror in the third quarter of 2023 the Company recognized a further inventory obsolescence provision of 23 7 million during 2023 The net realizable value of the lululemon Studio inventory was based on assumptions regarding liquidation value
As a result of the strategy shift during 2022 it was concluded that the Company should conduct an impairment test for the goodwill intangible assets and property and equipment related to lululemon Studio as of January 29 2023 The Company used a discounted cash flow model to estimate the fair value of the lululemon Studio reporting unit based on the updated strategic plans supplemented by market comparable analysis which indicated the fair value of lululemon Studio was lower than its carrying value and led to a recognition of an impairment of goodwill of 362 5 million The key assumptions used to estimate the fair value of the lululemon Studio reporting unit were the revenue growth rates operating profit margins and the discount rate The fair value of the lululemon Studio reporting unit was a Level 3 fair value measurement
As of January 29 2023 the undiscounted cash flows of the lululemon Studio asset group to which the intangible assets belonged were less than their carrying value and therefore the Company calculated the fair value of the asset group which was also less than its carrying value This resulted in impairment of intangible assets of 40 6 million relating to the MIRROR brand which was associated with in home hardware and to the customer relationship intangible assets that were recognized as part of the acquisition
During 2023 as a result of the Company s decision to no longer produce digital fitness content and to cease the sale of the lululemon Studio Mirror the Company performed impairment testing for the lululemon Studio asset group as of October 29 2023 The undiscounted cash flows of the lululemon Studio asset group were less than their carrying value and therefore the Company calculated the fair value of the asset group which was also less than its carrying value
As a result of the impairment test the Company recognized asset impairments totaling 44 2 million during 2023 The fair value of long lived assets was based on a discounted cash flow model and is a Level 3 non recurring fair value measurement The key assumptions used to estimate the fair value were subscriber churn rates and operating costs
As of February 2 2025 and January 28 2024 cloud computing arrangement implementation costs consisted of deferred costs of 385 4 million and 289 3 million respectively and associated accumulated amortization of 223 7 million and 155 7 million respectively
On December 14 2021 the Company entered into an amended and restated credit agreement extending its existing credit facility which 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 Borrowings under the credit facility may be prepaid and commitments may be reduced or terminated without premium or penalty other than customary breakage costs
Borrowings made under the credit facility bear interest at a rate per annum equal to at the Company s option either a a rate based on the Secured Overnight Financing Rate as administered by the Federal Reserve Bank of New York SOFR or b an alternate base rate plus in each case an applicable margin The applicable margin is determined by reference to a pricing grid based on the ratio of indebtedness to earnings before interest tax depreciation amortization and rent EBITDAR and ranges between 1 000 1 375 for SOFR loans and 0 000 0 375 for alternate base rate or Canadian prime rate loans Additionally a commitment fee of between 0 100 0 200 also determined by reference to the pricing grid is payable on the average daily unused amounts under the credit facility
The applicable interest rates and commitment fees are subject to adjustment based on certain sustainability key performance indicators KPIs The two KPIs are based on greenhouse gas emissions intensity reduction and gender pay equity and the Company s performance against certain targets measured on an annual basis could result in positive or negative sustainability rate adjustments of 2 50 basis points to its drawn pricing and positive or negative sustainability fee adjustments of 0 50 basis points to its undrawn pricing
The credit agreement contains negative covenants that among other things and subject to certain exceptions limit the ability of the Company s subsidiaries to incur indebtedness incur liens undergo fundamental changes make dispositions of all or substantially all of their assets alter their businesses and enter into agreements limiting subsidiary dividends and distributions
The Company s financial covenants include maintaining an operating lease adjusted leverage ratio of not greater than 3 25 1 00 and the ratio of consolidated EBITDAR to consolidated interest charges plus rent of not less than 2 00 1 00 The credit agreement also contains certain customary representations warranties affirmative covenants and events of default including among others an event of default upon the occurrence of a change of control If an event of default occurs the credit agreement may be terminated and the maturity of any outstanding amounts may be accelerated As of February 2 2025 the Company was in compliance with the covenants of the credit facility
The Company has an uncommitted and unsecured 300 0 million Chinese Yuan 41 4 million revolving credit facility with terms that are reviewed on an annual basis It is comprised of a revolving loan of up to 200 0 million Chinese Yuan 27 6
million and a guarantee facility of up to 100 0 million Chinese Yuan 13 8 million or its equivalent in another currency Loans are available for a period not to exceed 12 months at an interest rate equal to the loan prime rate plus a spread of 0 5175 The Company is required to follow certain covenants As of February 2 2025 the Company was in compliance with the covenants and aside from letters of credit of 45 8 million Chinese Yuan 6 3 million there were no other borrowings or guarantees outstanding under this credit facility
The Company facilitates a voluntary supply chain financing SCF program that allows its suppliers to elect to sell the receivables owed to them by the Company to a third party financial institution Participating suppliers negotiate arrangements directly with the financial institution If a supplier chooses to participate in the SCF program it may request an invoice be paid earlier than it would by the Company and the financial institution at its sole and absolute discretion may elect to make an early payment to the supplier at a discount The Company s obligations to its suppliers including amounts due and scheduled payment terms are not impacted by a supplier s participation in the arrangement and the Company provides no guarantees to any third parties under the SCF program
The holders of the special voting stock are entitled to one vote for each share held The special voting shares are not entitled to receive dividends or distributions or receive any consideration in the event of a liquidation dissolution or wind up To the extent that exchangeable shares as described below are exchanged for common stock a corresponding number of special voting shares will be cancelled without consideration
The holders of the exchangeable shares have dividend and liquidation rights equivalent to those of holders of the common shares of the Company The exchangeable shares can be converted on a one for one basis by the holder at any time into common shares of the Company plus a cash payment for any accrued and unpaid dividends Holders of exchangeable shares are entitled to the same or economically equivalent dividend as declared on the common stock of the Company The exchangeable shares are non voting The Company has the right to convert the exchangeable shares into common shares of the Company at any time after the earliest of July 26 2047 the date on which fewer than 4 2 million exchangeable shares are outstanding or in the event of certain events such as a change in control
In June 2023 the Company s stockholders approved the adoption of the lululemon athletica inc 2023 Equity Incentive Plan The 2023 Equity Incentive Plan provides for awards in the form of stock options stock appreciation rights restricted stock purchase rights restricted stock bonuses restricted stock units performance shares performance based restricted stock units cash based awards other stock based awards and deferred compensation awards to employees including officers and directors who are also employees consultants and directors of the Company
The Company has granted stock options performance based restricted stock units restricted stock units and restricted shares Stock options granted to date generally have a four year vesting period and vest at a rate of 25 each year on the anniversary date of the grant Stock options generally expire on the earlier of seven years from the date of grant or a specified period of time following termination Performance based restricted stock units issued generally vest three years from the grant date and restricted shares generally vest one year from the grant date Restricted stock units granted generally have a three year vesting period and vest at a certain percentage each year on the anniversary date of the grant
The Company issues previously unissued shares upon the exercise of Company options vesting of performance based restricted stock units or restricted stock units that are settled in common stock and granting of restricted shares
Total unrecognized compensation cost for all stock based compensation plans was 122 3 million as of February 2 2025 which is expected to be recognized over a weighted average period of 2 0 years and was 135 9 million as of January 28 2024 over a weighted average period of 2 0 years
The Company s performance based restricted stock units are awarded to eligible employees and entitle the grantee to receive a maximum of two shares of common stock per performance based restricted stock unit if the Company achieves specified performance goals and the grantee remains employed during the vesting period The fair value of performance based restricted stock units is based on the closing price of the Company s common stock on the grant date Expense for performance based restricted stock units is recognized when it is probable that the performance goal will be achieved
The grant date fair value of each stock option granted is estimated on the date of grant using the Black Scholes model The closing price of the Company s common stock on the grant date is used in the model The assumptions used to calculate the fair value of the options granted are evaluated and revised as necessary to reflect market conditions and the Company s historical experience The expected term of the options is based upon the historical experience of similar awards giving consideration to expectations of future exercise behavior Expected volatility is based upon the historical volatility of the Company s common stock for the period corresponding with the expected term of the options The risk free interest rate is based on the U S Treasury yield curve for the period corresponding with the expected term of the options The following are weighted averages of the assumptions that were used in calculating the fair value of stock options granted in 2024 2023 and 2022
As of February 2 2025 the unrecognized compensation cost related to these options was 38 1 million which is expected to be recognized over a weighted average period of 2 5 years The weighted average grant date fair value of options granted during 2024 2023 and 2022 was 130 87 130 75 and 124 17 respectively
The Company has an Employee Share Purchase Plan ESPP Contributions are made by eligible employees subject to certain limits defined in the ESPP and the Company matches one third of the contribution The maximum number of shares authorized to be purchased under the ESPP is 6 0 million shares All shares purchased under the ESPP are purchased in the open market During each of 2024 2023 and 2022 there were 0 1 million shares purchased As of February 2 2025 4 3 million shares remain authorized to be purchased under the ESPP
The Company offers defined contribution pension plans to its eligible employees Participating employees may elect to defer and contribute a portion of their eligible compensation to a plan up to limits stated in the plan documents not to exceed the dollar amounts set by applicable laws The Company matches 50 to 75 of the contribution depending on the participant s length of service and the contribution is subject to a two year vesting period The Company s net expense for the defined contribution plans was 22 2 million 19 8 million and 14 0 million during 2024 2023 and 2022 respectively
The Company has short term highly liquid investments classified as cash equivalents which are invested in money market funds and short term deposits with original maturities of three months or less The Company records cash equivalents at their original purchase prices plus interest that has accrued at the stated rate
The fair values of the forward currency contract assets and liabilities are determined using observable Level 2 inputs including foreign currency spot exchange rates forward pricing curves and interest rates The fair values consider the credit risk of the Company and its counterparties The Company s Master International Swap Dealers Association Inc Agreements and other similar arrangements allow net settlements under certain conditions However the Company records all derivatives on its consolidated balance sheets at fair value and does not offset derivative assets and liabilities
The Company has also recorded lease termination liabilities at fair value on a non recurring basis determined using Level 3 inputs based on remaining lease rentals and reduced by estimated sublease income
During 2023 and 2022 the Company recorded impairment charges for goodwill intangible assets cloud computing arrangement implementation costs and property and equipment as disclosed in Note 9 Impairment of Goodwill and Other Assets Restructuring Costs That note includes details on the discounted cash flow model used to estimate fair value which is a Level 3 valuation technique
The Company currently hedges against changes in the Canadian dollar and Chinese Yuan to the U S dollar exchange rate and changes in the Euro and Australian dollar to the Canadian dollar exchange rate using forward currency contracts
The Company is exposed to foreign currency exchange gains and losses which arise on translation of its international subsidiaries balance sheets into U S dollars These gains and losses are recorded as other comprehensive income loss net of tax in accumulated other comprehensive income or loss within stockholders equity
The Company holds a significant portion of its assets in Canada and enters into forward currency contracts designed to hedge a portion of the foreign currency exposure that arises on translation of a Canadian subsidiary into U S dollars These forward currency contracts are designated as net investment hedges The Company assesses hedge effectiveness based on changes in forward rates The Company recorded no ineffectiveness from net investment hedges during 2024
During 2024 the Company entered into certain forward currency contracts designed to economically hedge the foreign currency exchange revaluation gains and losses that are recognized by its Canadian and Chinese subsidiaries on specific monetary assets and liabilities denominated in currencies other than the functional currency of the entity The Company has not applied hedge accounting to these instruments and the change in fair value of these derivatives is recorded within selling general and administrative expenses
No gains or losses have been reclassified from accumulated other comprehensive income or loss into net income for derivative financial instruments in a net investment hedging relationship as the Company has not sold or liquidated or substantially liquidated its hedged subsidiary
The Company has obligations under operating leases for its store and other retail locations distribution centers offices and equipment As of February 2 2025 the initial lease terms of the various leases generally range from two to 15 years The majority of the Company s leases include renewal options at the sole discretion of the Company The lease term includes options to extend or terminate the lease when it is reasonably certain those options will be exercised
The following table details the Company s net lease expense Certain of the Company s leases include rent escalation clauses rent holidays and leasehold rental incentives The majority of the Company s leases for store premises also include contingent rental payments based on sales volume The variable lease expenses disclosed below include contingent rent payments and other non fixed lease related costs including common area maintenance property taxes and landlord s insurance
As of February 2 2025 the Company s minimum lease commitment for distribution center operating leases which have been committed to but not yet commenced was 274 8 million which is not reflected in the table above
As of February 2 2025 the Company s net investment in its Canadian subsidiaries was 3 7 billion of which 1 6 billion was determined to be indefinitely reinvested A deferred income tax liability of 107 0 million has been recognized in relation to the portion of the Company s net investment in its Canadian subsidiaries that is not indefinitely reinvested representing the Canadian withholding taxes and U S state income taxes which would be due upon repatriation This deferred tax liability has been recorded on the basis that the Company would choose to make the repatriation transactions in the most tax efficient manner Specifically to the extent that the Canadian subsidiaries have paid up capital any such distributions would be structured as a return of capital and therefore not subject to Canadian withholding tax The unrecognized deferred income tax liability on the indefinitely reinvested amount is approximately 88 8 million No deferred income tax liabilities have been recognized on any of the undistributed earnings of the Company s other foreign subsidiaries as these earnings are permanently reinvested outside of the United States Excluding its Canadian subsidiaries cumulative undistributed earnings of the Company s foreign subsidiaries as of February 2 2025 were 599 1 million
The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and deferred income tax liabilities as of February 2 2025 and January 28 2024 are presented below
The Company files income tax returns in the U S Canada and various foreign and state jurisdictions The 2021 to 2023 tax years remain subject to examination by the U S federal and state tax authorities The 2017 to 2023 tax years remain subject to examination by Canadian tax authorities The 2015 to 2023 tax years remain subject to examination by the China Mainland tax authorities The 2017 to 2023 tax years remain subject to examination by tax authorities in certain other foreign jurisdictions The Company does not have any significant unrecognized tax benefits arising from uncertain tax positions taken or expected to be taken in the Company s tax returns
The Company s calculation of weighted average shares includes the common stock of the Company as well as the exchangeable shares Exchangeable shares are the economic equivalent of common shares in all material respects All classes of stock have in effect the same economic rights and share equally in undistributed net income For 2024 2023 and 2022 64 2 thousand 62 7 thousand and 43 5 thousand stock options and awards respectively were anti dilutive to earnings per share and therefore have been excluded from the computation of diluted earnings per share
On January 31 2019 the Company s board of directors approved a stock repurchase program for up to 500 0 million of the Company s common shares On December 1 2020 it approved an increase in the remaining authorization from 263 6 million to 500 0 million and on October 1 2021 it approved an increase in the remaining authorization from 141 2 million to 641 2 million During the first quarter of 2022 the Company completed the remaining stock repurchases under this program
On March 23 2022 the Company s board of directors approved a stock repurchase program for up to 1 0 billion of the Company s common shares on the open market or in privately negotiated transactions During the first quarter of 2024 the Company completed the remaining stock repurchases under this program
On November 29 2023 the Company s board of directors approved a stock repurchase program for up to 1 0 billion of the Company s common shares on the open market or in privately negotiated transactions On each of May 29 2024 and December 3 2024 the Company s board of directors approved an additional increase of 1 0 billion to the existing stock repurchase program The repurchase plan has no time limit and does not require the repurchase of a minimum number of shares Common shares repurchased on the open market are 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 The timing and actual number of common shares to be repurchased will depend upon market conditions eligibility to trade and other factors in accordance with Securities and Exchange Commission requirements The authorized value of shares available to be repurchased under this program excludes the cost of commissions and excise taxes and as of February 2 2025 the remaining authorized value was 1 6 billion
During 2024 2023 and 2022 5 1 million 1 5 million and 1 4 million shares respectively were repurchased under the programs at a total cost including commissions and excise taxes of 1 6 billion 558 7 million and 444 0 million respectively
The Company has obligations under operating leases for its store and other retail locations distribution centers offices and equipment Please refer to Note 18 Leases for further details regarding lease commitments and the timing of future minimum lease payments
The Company has entered into license and supply arrangements with partners which grant them the right to operate lululemon branded retail locations and sell lululemon products on websites in specific countries Under these arrangements the Company supplies the partners with lululemon products training and other support As of February 2 2025 there were 34 licensed locations including ten in the United Arab Emirates eight in Saudi Arabia seven in Israel four in Qatar four in Kuwait and one in Bahrain On September 10 2024 we acquired the lululemon branded retail locations and operations run by a third party in Mexico We had previously granted the third party the right to operate retail locations and to sell lululemon products in Mexico Please refer to Note 6 Acquisition for further information
In addition to the legal proceedings described below the Company is from time to time involved in routine legal matters and audits and inspections by governmental agencies and other third parties which are incidental to the conduct of its business This includes legal matters such as initiation and defense of proceedings to protect intellectual property rights employment claims product liability claims personal injury claims and similar matters The Company believes the ultimate resolution of any such legal proceedings audits and inspections will not have a material adverse effect on its consolidated balance sheets results of operations or cash flows The Company has recognized immaterial provisions related to the expected outcome of legal proceedings
No 1 24 cv 22651 BB in the United States District Court for the Southern District of Florida On September 16 2024 plaintiffs filed an amended complaint asserting claims under the Florida Deceptive and Unfair Trade Practices Act New York General Business Law California Consumer Legal Remedies Act California Unfair Competition Law and for unjust enrichment based on statements by the Company relating to the sustainability and environmental impact of the Company s products and actions during the period October 28 2020 to present The amended complaint seeks monetary damages as well as non monetary relief such as an injunction to end the alleged unlawful practices lululemon moved to dismiss the amended complaint and on February 19 2025 the Court granted lululemon s motion in full dismissing the action without prejudice and without leave to amend
No 1 24 cv 06033 in the United States District Court for the Southern District of New York On March 10 2025 plaintiffs filed an amended complaint asserting claims under Sections 10 b and 20 a of the Securities Exchange Act of 1934 based on allegedly false and misleading public statements and omissions by Defendants during the period December 8 2023 to July 24 2024 relating to lululemon s business product offerings and inventory allocation that plaintiffs allege artificially inflated the Company s stock price The amended complaint currently seeks unspecified monetary damages The Company intends to defend the action vigorously
On November 4 2024 November 8 2024 November 12 2024 November 18 2024 and November 20 2024 stockholder derivative complaints were filed against certain of the Company s officers and all of the Company s directors as of that date in the United States Court for the Southern District of New York
Action additionally names certain of the Company s former directors The Derivative Actions assert claims for a violating Sections 10 b 14 a and 20 a of the Exchange Act b breach of fiduciary duties and c unjust enrichment and waste of corporate assets on allegations substantially similar to the allegations in the securities action complaint The
Action further bring claims based on allegedly false and misleading public statements and omissions during the period October 28 2020 to March 21 2024 relating to lululemon s IDEA program The complaints seek monetary damages equitable relief and attorneys fees and costs on behalf of the Company as well as an order directing certain governance reforms
The Company s segments are based on the financial information the CODM who is the Chief Executive Officer uses to evaluate performance and allocate resources The CODM approves the annual budget on a segment level and regularly assesses the performance of the Company s segments using key financial metrics including net revenue and segmented income from operations
The Company reports three segments Americas China Mainland and Rest of World which is comprised of its non significant operating segments APAC and EMEA reported on a combined basis The Company does not report capital expenditures and assets by segment as that information is not reviewed by the CODM
Corporate includes centrally managed support functions including product design raw material development product innovation sourcing supply chain and global merchandising which are included in other cost of sales Administrative corporate expenses include technology brand and marketing finance human resources legal and other head office costs An inventory obsolescence provision in relation to lululemon Studio of 23 7 million and 62 9 million in 2023 and 2022 respectively is included within product costs
Prior to the acquisition of the Mexico operations on September 10 2024 wholesale sales to the third party under the license and supply arrangement by lululemon athletica canada inc were disclosed as net revenue recognized within Canada
Under the supervision and with the participation of our management including our principal executive officer and principal financial and accounting officer we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a 15 e and 15d 15 e under the Securities Exchange Act of 1934 as amended or the Exchange Act as of the end of the period covered by this report or the Evaluation Date Based upon the evaluation our principal executive officer and principal financial and accounting officer concluded that our disclosure controls and procedures were effective as of the Evaluation Date Disclosure controls and procedures are controls and procedures designed to reasonably ensure that information required to be disclosed in our reports filed under the Exchange Act such as this report is recorded processed summarized and reported within the time periods specified in the SEC s rules and forms Disclosure controls and procedures include controls and procedures designed to reasonably ensure that such information is accumulated and communicated to our management including our principal executive officer and principal financial and accounting officer as appropriate to allow timely decisions regarding required disclosure
Our internal control over financial reporting is designed to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles Our internal control over financial reporting includes those policies and procedures that i pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets ii provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors and iii provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of our assets that could have a material effect on the financial statements Management including our principal executive officer and principal financial and accounting officer does not expect that our internal controls will prevent or detect all errors and all fraud A control system no matter how well designed and operated can provide only reasonable not absolute assurance that the objectives of the control system are met Further the design of a control system must reflect the fact that there are resource limitations on all control systems no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud if any have been detected Also any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions or that the degree of compliance with the policies and procedures may deteriorate
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a 15 f under the Securities Exchange Act of 1934 as amended Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria set forth in Internal Control Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission or COSO Based on this evaluation management concluded that we maintained effective internal control over financial reporting as of February 2 2025
The effectiveness of our internal control over financial reporting as of February 2 2025 has been audited by PricewaterhouseCoopers LLP our independent registered public accounting firm as stated in their report which appears in Item 8 of Part II of this Form 10 K
There were no changes in our internal control over financial reporting during the fourth quarter of 2024 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting
During the fourth quarter of 2024 no director or officer of lululemon as defined in Rule 16a 1 f under the Exchange Act adopted or terminated a Rule 10b5 1 trading arrangement or non Rule 10b5 1 trading arrangement in each case as defined in Item 408 a of Regulation S K
On March 25 2025 Michael Casey notified us of his resignation as a director of lululemon and from all committees of our board of directors effective June 12 2025 Mr Casey s decision to resign is not the result of any disagreement with us
We have adopted an insider trading policy which governs the purchase sale and other dispositions of lululemon securities by our board of directors officers and other employees of lululemon or our subsidiaries as well as members of their immediate families and households It also applies to consultants or contractors who provide services to lululemon We also follow guidelines for our stock repurchase programs We believe that our insider trading policy is reasonably designed to promote compliance with insider trading laws rules and regulations and listing standards applicable to lululemon The foregoing summary does not purport to be a complete description of our insider trading policy and is qualified in its entirety by reference to the full text of the lululemon Insider Trading Policy a copy of which is filed as Exhibit 19 1 to this Annual Report on Form 10 K
The remaining information required by this item concerning our directors director nominees and Section 16 beneficial ownership reporting compliance is incorporated by reference to our definitive Proxy Statement for our 2025 Annual Meeting of Stockholders under the captions Election of Directors Executive Officers and Corporate Governance and to the extent necessary under the caption Delinquent Section 16 a Reports
We have adopted a written code of business conduct and ethics which applies to all of our directors officers and employees including our principal executive officer and our principal financial and accounting officer Our Global Code of Business Conduct and Ethics is available on our website www lululemon com and can be obtained by writing to Investor Relations lululemon athletica inc 1818 Cornwall Avenue Vancouver British Columbia Canada V6J 1C7 or by sending an email to investors lululemon com Information contained on or accessible through our websites is not incorporated into and does not form a part of this annual report or any other report or document we file with the SEC and any references to our websites are intended to be inactive textual references only Any amendments other than technical administrative or other non substantive amendments to our Global Code of Business Conduct and Ethics or waivers from the provisions of the Global Code of Business Conduct and Ethics for our principal executive officer and our principal financial and accounting officer will be promptly disclosed on our website following the effective date of such amendment or waiver
This amount represents the following a 849 003 shares subject to outstanding options b 177 329 shares subject to outstanding performance based restricted stock units and c 239 287 shares subject to outstanding restricted stock units The options performance based restricted stock units and restricted stock units are all under our 2023 Equity Incentive Plan Restricted shares outstanding under our 2023 Equity Incentive Plan have already been reflected in our total outstanding common stock balance
The weighted average exercise price is calculated solely on the exercise prices of the outstanding options and does not reflect the shares that will be issued upon the vesting of outstanding awards of performance based restricted stock units and restricted stock units which have no exercise price
This includes a 3 483 657 shares of our common stock available for future issuance under our 2023 Equity Incentive Plan and b 4 270 372 shares of our common stock available for future issuance under our Employee Share Purchase Plan The number of shares remaining available for future issuance under our 2023 Equity Incentive Plan is reduced by 1 7 shares for each award other than stock options granted and by one share for each stock option award granted Outstanding awards that expire or are canceled without having been exercised or settled in full are available for issuance again under our 2023 Equity Incentive Plan but shares that are withheld in satisfaction of tax withholding obligations for full value awards are not again available for issuance No further awards may be issued under the predecessor plan our 2014 Equity Incentive Plan
Separate financial statement schedules have been omitted either because they are not applicable or because the required information is included in the consolidated financial statements or notes described in Item 15 a 1 above
Credit Agreement dated December 14 2021 among lululemon athletica inc lululemon athletica canada inc Lulu Canadian Holding Inc and lululemon usa inc as borrowers Bank of America N A as administrative agent swing line lender and letter of credit issuer HSBC Bank Canada as syndication agent and letter of credit issuer BOFA Securities Inc as sustainability coordinator and the other lenders party thereto
The following financial statements from the Company s 10 K for the fiscal year ended February 2 2025 formatted in iXBRL i Consolidated Balance Sheets ii Consolidated Statements of Operations and Comprehensive Income iii Consolidated Statements of Stockholders Equity iv Consolidated Statements of Cash Flows v Notes to the Consolidated Financial Statements
Pursuant to the requirements of Section 13 or 15 d of the Securities Exchange Act of 1934 as amended the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears below constitutes and appoints Calvin McDonald and Meghan Frank and each of them with full power of substitution and resubstitution and full power to act without the other as his or her true and lawful attorney in fact and agent to act in his or her name place and stead and to execute in the name and on behalf of each person individually and in each capacity stated below and to file any and all documents in connection therewith with the Securities and Exchange Commission granting unto said attorneys in fact and agents and each of them full power and authority to do and perform each and every act and thing ratifying and confirming all that said attorneys in fact and agents or any of them or their and his or her substitute or substitutes may lawfully do or cause to be done by virtue thereof
Pursuant to the requirements of the Securities Exchange Act of 1934 as amended this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated

Company Name	lululemon athletica inc. Vist SEC web-site
Category	APPAREL & OTHER FINISHED PRODS OF FABRICS & SIMILAR MATERIAL
Trading Symbol	LULU