Item 1. BUSINESS

General

lululemon athletica inc. is a designer and retailer of technical athletic apparel. Since our inception, we have developed a distinctive corporate culture with a mission to produce products which create transformational experiences for people to live happy, healthy, fun lives.

We promote a set of core values in our business which include, developing the highest quality products, operating with integrity, leading a balanced and fun life, and nurturing entrepreneurial spirit. These core values attract passionate and motivated employees who are driven to succeed and share our purpose of "elevating the world from mediocrity to greatness."

In this Annual Report on Form 10-K ("10-K" or "Report") for the fiscal year ended February 1, 2015 ("fiscal 2014"), lululemon athletica inc. (together with its subsidiaries) is referred to as "lululemon, "the Company," "we," "us" or "our."

Our Products

Our healthy lifestyle inspired athletic apparel is marketed under the lululemon athletica and ivivva athletica brand names. We offer a comprehensive line of apparel and accessories for women, men and female youth. Our apparel assortment includes items such as pants, shorts, tops and jackets designed for healthy lifestyle activities and athletic pursuits such as yoga, running, general fitness, and dance-inspired apparel for female youth.

Although we benefit from the growing number of people that participate in yoga, we believe the percentage of our products sold for other activities will continue to increase as we broaden our product range to address other activities. Our fitness-related accessories include an array of items such as bags, socks, underwear, yoga mats and water bottles.

Our design team continues to source and develop technically advanced fabrics and innovative functional features that we believe will help advance our product line and differentiate us from the competition.

Our Market

Our primary target customer is a sophisticated and educated woman who understands the importance of an active, healthy lifestyle. She is increasingly tasked with the dual responsibilities of career and family and is constantly challenged to balance her work, life and health. We believe she pursues exercise to achieve physical fitness and inner peace.

As women have continued to embrace a variety of fitness and athletic activities, including yoga, we believe we have been able to effectively address their unique fit and performance needs by incorporating style along with comfort and functionality into our products through our vertical retail strategy.

Although we were founded to address the unique needs of women, we are also successfully designing products for men and athletic female youth who also appreciate the technical rigor and premium quality of our products. We also believe longer-term growth in athletic participation will be reinforced as the aging Baby Boomer generation focuses more on longevity. In

addition, we believe consumer purchase decisions are driven by both an actual need for functional products and a desire to create a particular lifestyle perception. As such, we believe the credibility and authenticity of our brand expands our potential market beyond just athletes to those who desire to lead an active, healthy, and balanced life.

Our Segments

We primarily conduct our business through two channels: corporate-owned stores, and direct to consumer.

We also generate net revenue from our corporate-owned outlets and showrooms, through sales to wholesale accounts, from warehouse sales, and from sales from temporary locations. The net revenue we generate from these sources is combined in our other segment.

As of February 1, 2015, we operated 302 corporate-owned stores located in the United States, Canada, Australia, New Zealand, the United Kingdom, and Singapore. We believe our vertical retail strategy allows us to interact more directly with, and gain feedback from, our customers, whom we call guests, while providing us with greater control of our brand.

Our direct to consumer segment includes the net revenue which we generate from our lululemon and ivivva e-commerce websites, www.lululemon.com and www.ivivva.com and other country and region specific websites.

Our Stores

As of February 1, 2015, our retail footprint included 211 stores in the United States, 57 stores in Canada, 26 stores in Australia, five in New Zealand, two in the United Kingdom, and one in Singapore. While most of our corporate-owned stores are branded lululemon athletica, 22 of our corporate-owned stores are branded ivivva athletica and specialize in dance-inspired apparel for female youth. Our retail stores are located primarily on street locations, in lifestyle centers, and in malls.

Our corporate-owned stores by brand and by country as of February 1, 2015 and February 2, 2014, are summarized in the table below:

		February 1, 2015			February 2, 2014
lululemon athletica
United States		200			168
Canada		46			45
Australia		26			25
New Zealand		5			4
United Kingdom		2			—
Singapore		1			—
		280			242
ivivva athletica
United States		11			3
Canada		11			9
		22			12
Total		302			254

We opened 48 net new corporate-owned stores in North America, Australia, Europe and Asia in fiscal 2014. Over the next fiscal year, our new store growth will be primarily focused on corporate-owned stores in the United States. Over the next few years we intend to expand our presence outside of North America and Australia, as part of our long-term business strategy.

We believe that partnering with companies and individuals with significant experience and proven success in certain target countries is to our advantage. On January 11, 2015, we entered into a license and supply agreement with a partner in the Middle East which grants it the right to operate lululemon athletica branded retail locations in the United Arab Emirates, Kuwait, Qatar, Oman and Bahrain for an initial term of five years. We retain the rights to sell lululemon products through our e-commerce websites in these countries. Under this arrangement we will be supplying the partner with lululemon products, training and other support. As of February 1, 2015 there were no franchised retail locations in operation.

We perform ongoing evaluations of our portfolio of corporate-owned store locations. In fiscal 2014 we closed one of our corporate-owned stores. As we continue our evaluation we may in future periods close additional corporate-owned store locations.

We believe that our innovative retail concept and guest experience contribute to the success of our stores. During fiscal 2014 our corporate-owned stores open at least one year, which average approximately 2,950 square feet, averaged sales of $1,678 per square foot.

Direct to Consumer

Direct to consumer is an increasingly substantial part of our business, representing approximately 17.9% of our net revenue in fiscal 2014, compared to 16.5% of our net revenue in fiscal 2013 and 14.4% of our net revenue in fiscal 2012. We believe that a direct to consumer channel is convenient for our core customer and enhances the image of our brand. Our direct to consumer channel makes our product accessible to more markets than our corporate-owned store channel alone. We believe this channel is effective in building brand awareness, especially in new markets.

Other Channels

Other net revenue accounted for 7.1% of total net revenue in fiscal 2014 compared to 6.2% in fiscal 2013 and 6.0% of total net revenue in fiscal 2012. Other net revenue includes sales made through the following channels:

•

Wholesale - Our wholesale accounts include premium yoga studios, health clubs and fitness centers. We believe these premium wholesale locations offer an alternative distribution channel that is convenient for our core consumer and enhances the image of our brand. We do not intend wholesale to be a significant contributor to overall sales. Instead, we intend to use the channel to build brand awareness, especially in new markets, including those outside of North America.

•	Outlets and warehouse sales - We utilize outlets as well as warehouse sales, which are typically held one or more times a year, to sell slow moving inventory and inventory from prior seasons to retail customers at discounted prices.

•	Showrooms - Our showrooms are typically small locations that we open from time to time when we enter new markets and feature a limited selection of our product offering.

•	Temporary locations - Our temporary locations are typically opened for a short period of time in markets in which we may not already have a presence.

Community-Based Marketing

We utilize a community-based approach to building brand awareness and customer loyalty. We pursue a multi-faceted strategy which leverages our local ambassadors, social media, in-store community boards and a variety of grassroots initiatives.

Product Design and Development

Our product design efforts are led by a team of designers based in Vancouver, British Columbia partnering with international designers. Our team is comprised of dedicated athletes and users of our products who embody our design philosophy and dedication to premium quality. Our design 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 style, function and technical superiority.

As we strive to continue to provide our guests with technically advanced fabrics, our design team works closely with our suppliers to incorporate innovative fabrics that bring 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 collaborate with leading fabric suppliers to develop fabrics that we ultimately trademark for brand recognition whenever possible.

Sourcing and Manufacturing

We do not own or operate any manufacturing facilities. We rely on a limited number of suppliers to provide fabrics for and to produce our products. We work with a group of approximately 57 suppliers to provide the fabrics for our products. We use a wide variety of fabrics in our products, including our Luon fabric. We obtain substantially all of our Luon fabric, which represents approximately 30% of the fabric we use in our products, from two suppliers. We work with a group of approximately 30 suppliers that manufacture our products, five of which produced approximately 63% of our products in fiscal 2014. During fiscal 2014, no single manufacturer produced more than 30% of our product offering. During fiscal 2014, approximately 59%

of our products were produced in South East Asia, approximately 23% in South Asia, approximately 11% in China, approximately 1% in North America and the remainder in other countries. We believe our North American manufacturers provide us with the speed to market necessary to respond quickly to changing trends and increased demand.

We have developed long-standing relationships with a number of our vendors and take great care to ensure that they share our commitment to quality and ethics. We do not, however, have any long-term term contracts with any 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, production and import quota capacity. We require that all of our manufacturers adhere to a vendor code of ethics regarding social and environmental sustainability practices. We partner with leading inspection and verification firms to closely monitor each supplier's compliance with applicable laws and our vendor code of ethics.

Distribution Facilities

We operate and distribute finished products from our owned or leased distribution facilities in Vancouver, British Columbia, Sumner, Washington, Columbus, Ohio, and Melbourne, Victoria. During fiscal 2013 we purchased the distribution center in Columbus with approximately 307,000 square feet that we opened in fiscal 2014. The distribution facilities in Vancouver, Sumner and Melbourne are leased and are approximately 120,000, 167,000 and 54,000 square feet, respectively. We believe our distribution infrastructure will be sufficient to accommodate our expected store growth and expanded product offerings over the next several years.

We also utilize third-party logistic providers to store and distribute finished products from their warehouse locations in Hong Kong and the Netherlands.

Competition

Competition in the athletic apparel industry is principally on the basis of brand image and recognition as well as product quality, innovation, style, distribution and price. We believe that we successfully compete on the basis of our premium brand image, our focus on women and our technical product innovation. In addition, we believe our vertical retail distribution strategy differentiates us from our competitors and allows us to more effectively control our brand image.

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 wholesalers and direct sellers of athletic apparel, such as Nike, Inc., adidas AG and Under Armour, Inc. We also compete with retailers specifically focused on women's athletic apparel including The Gap, Inc. (including the Athleta brand), Lucy Activewear Inc., and bebe stores, inc. (including the BEBE SPORT collection).

Seasonality

Our business is affected by the general seasonal trends common to the retail apparel industry. Our annual net revenue is 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. As a result, a substantial portion of our operating profits are generated in the fourth quarter of our fiscal year. For example, we generated approximately 42%, 39% and 41% of our full year operating profit during the fourth quarters of fiscal 2014, fiscal 2013 and fiscal 2012, respectively.

Our Employees

As of February 1, 2015, we had 8,628 employees, of which 4,949 were employed in the United States, 2,822 were employed in Canada, and 857 were employed outside of North America. None of our employees are currently covered by a collective bargaining agreement. We have had no labor-related work stoppages by our employees and we believe our relations with our employees are excellent.

Intellectual Property

We believe we own the material trademarks used in connection with the marketing, distribution and sale of all of our products in the United States, Canada and in the other countries in which our products are currently or intended to be either sold or manufactured. Our major trademarks include lululemon athletica & design, the logo design (WAVE design) and lululemon as a word mark. We own trademark registrations for names of several of our fabrics and products including Luon, Silverescent, Pacebreaker, Rulu, Scuba, Wunder Under, VitaSea, Boolux, Luxtreme, Groove Pant, Light as Air, Booby Bracer, Ta Ta Tamer and Power Y. In addition to trademarks, we own 32 industrial design registrations in Canada that protect our

distinctive apparel and accessory designs, as well as a number of corresponding design patents in the United States and registered community designs in Europe.

Securities and Exchange Commission Filings

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 Code of Business Conduct and Ethics and charters of the Audit, Compensation, and Nominating and Governance Committees of our Board of Directors. Information on our website does not constitute part of this annual report on Form 10-K or any other report we file or furnish with the SEC.