lululemon athletica (LULU) 10-K risk factor changes: FY2019 vs FY2019

[removed: In] [added: *In] addition to the other information contained in this Form 10-K, the following risk factors should be considered carefully in evaluating our business.

Our business, financial [removed: condition] [added: condition,] or results of operations could be materially adversely affected by any of these risks.

Please note that additional risks not presently known to us or that we currently deem immaterial could also impair our business and [removed: operations.][added: operations.*]

[removed: Our] [added: Our] success depends on our ability to maintain the value and reputation of our [removed: brand.][added: brand.]

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, [added: 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.

[removed: Negative] [added: 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 [removed: manufacturers could adversely affect] [added: manufacturers, even if unfounded or not material to] our [added: supply chain, our] reputation and sales [removed: and force us] [added: could be adversely affected, we could be subject] to [added: legal liability, or we could be forced to] locate alternative suppliers or manufacturing sources.

Additionally, while we devote considerable efforts and resources to protecting [added: our intellectual property, if these efforts are not successful the value of our brand may be harmed.]

[removed: If] [added: If] any of our products are unacceptable to us or our guests, our business could be [removed: harmed.][added: harmed.]

[removed: We] [added: We] operate in a highly competitive market and the size and resources of some of our competitors may allow them to compete more effectively than we can, resulting in a loss of our market share and a decrease in our net revenue and [removed: profitability.][added: profitability.]

In contrast to our [removed: "grassroots"] [added: grassroots community-based] marketing approach, many of our competitors promote their brands through traditional forms of advertising, such as print media and television commercials, and through celebrity endorsements, and have substantial resources to devote to such efforts.

[removed: Our] [added: Our] reliance on suppliers to provide fabrics for and to produce our products could cause problems in our supply [removed: chain.][added: chain.]

We work with a group of approximately [removed: 65] [added: 76] suppliers to provide the fabrics for our products.

In fiscal [removed: 2018,] [added: 2019,] approximately [removed: 60%] [added: 59%] of our fabrics were produced by our top five fabric suppliers, and the largest single manufacturer produced approximately [removed: 35%] [added: 32%] of [removed: raw materials] [added: fabric] used.

We work with a group of approximately [removed: 44] [added: 39] vendors that manufacture our products, five of which produced approximately [removed: 60%] [added: 56%] of our products in fiscal [removed: 2018.][added: 2019.]

During fiscal [removed: 2018,] [added: 2019,] the largest single manufacturer produced approximately [removed: 21%] [added: 17%] of our [removed: product offerings.][added: products.]

We have no long-term contracts with any of our suppliers or [removed: manufacturing sources] [added: manufacturers] for the production and supply of our [removed: fabrics] [added: raw materials] and [removed: garments,] [added: products,] and we compete with other companies for fabrics, [added: other] raw materials, and production.

[removed: 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 to 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 [added: ethical practices.]

[removed: An] [added: An] economic downturn or economic uncertainty in our key markets may adversely affect consumer discretionary spending and demand for our [removed: products.][added: products.]

[removed: Unfavorable economic conditions may] lead consumers to delay or reduce purchases of our products.

[removed: Our] [added: Our] sales and profitability may decline as a result of increasing product costs and decreasing selling [removed: prices.][added: prices.]

[removed: If] [added: If] we are unable to anticipate consumer preferences and successfully develop and introduce new, innovative, and updated products, we may not be able to maintain or increase our sales and [removed: profitability.][added: profitability.]

[removed: Our] [added: Our] results of operations could be materially harmed if we are unable to accurately forecast guest demand for our [removed: products.][added: 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 [removed: conditions,] [added: conditions (for example, because of unexpected effects on inventory supply] and [added: consumer demand caused by the current COVID-19 coronavirus pandemic), and] weakening of economic conditions or consumer confidence in future economic conditions.

[removed: Our] [added: Our] inability to safeguard against security breaches or our failure to comply with data privacy laws could damage our customer relationships and result in significant legal and financial [removed: exposure.][added: exposure.]

However, despite our safeguards and security processes and protections, security breaches could expose us to a risk of [removed: loss] [added: theft] or misuse of this information, and could result in litigation and potential liability.

In addition, [removed: even if we take appropriate] [added: despite taking] measures to safeguard our information security and privacy environment from security breaches, [removed: we could still expose] our customers and our business [added: could still be exposed] to risk.

[removed: Advances in 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.

Additionally, [added: we are subject to laws and regulations such as] the European [removed: Union has adopted a comprehensive] [added: Union's] General Data Privacy Regulation [removed: (the "GDPR").][added: ("GDPR") and the California Consumer Privacy Act ("CCPA").]

[removed: The GDPR requires] [added: These regulations require] companies to satisfy new requirements regarding the handling of personal and sensitive data, including its use, [removed: protection] [added: protection,] and the ability of persons whose data is stored to correct or delete such data about themselves.

The [removed: GDPR] [added: GDPR, CCPA,] and other similar laws and regulations, as well as any associated inquiries or investigations or any other government actions, may be costly to comply with, increase our operating costs, require significant management time and attention, and subject us to remedies that may harm our business, including fines, negative publicity, or demands or orders that we modify or cease existing business practices.

[removed: Any] [added: Any] material disruption of our information technology systems or unexpected network interruption could disrupt our business and reduce our [removed: sales.][added: sales.]

[removed: If] [added: If] the technology-based systems that give our customers the ability to shop with us online do not function effectively, our operating results, as well as our ability to grow our e-commerce business globally, could be materially adversely [removed: affected.][added: affected.]

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 [added: 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.]

[removed: Changes] [added: Changes] in consumer shopping preferences and shifts in distribution channels could materially impact our results of [removed: operations.][added: operations.]

[removed: We could have difficulty in] recreating the in-store experience through direct channels.

[removed: The] [added: The] fluctuating cost of raw materials could increase our cost of goods sold and cause our results of operations and financial condition to [removed: suffer.][added: suffer.]

[removed: Our] [added: Our] limited operating experience and limited brand recognition in new international markets may limit our expansion and cause our business and growth to [removed: suffer.][added: suffer.]

[removed: If] [added: If] we encounter problems with our distribution system, our ability to deliver our products to the market and to meet guest expectations could be [removed: harmed.][added: harmed.]

In addition, [removed: because substantially all of] our [removed: products are distributed from four locations, our] operations could also be interrupted by labor difficulties, extreme or severe weather conditions or by floods, fires, or other natural disasters near our distribution centers.

The recent COVID-19 coronavirus outbreak and related government, private sector, and individual consumer responsive actions may adversely affect our business operations, store traffic, employee availability, financial condition, liquidity, and cash flow.

The outbreak of the COVID-19 coronavirus disease has been declared a pandemic by the World Health Organization continues to spread in the United States, Canada, and in many other countries globally.

Related government and private sector responsive actions may adversely affect our business operations.

It is impossible to predict the effect and ultimate impact of the COVID-19 pandemic as the situation is rapidly evolving.

The spread of COVID-19 has caused public health officials to recommend precautions to mitigate the spread of the virus, especially when congregating in heavily populated areas, such as malls and lifestyle centers.

In February 2020, we temporarily

closed all of our retail locations in Mainland China.

All but one of these locations have since reopened.

In March 2020, we temporarily closed all of our retail locations in North America, Europe, Malaysia, New Zealand, and we temporarily closed our distribution center in Sumner, WA.

These locations currently remain closed.

There is significant uncertainty around the breadth and duration of our store closures and other business disruptions related to COVID-19, as well as its impact on the U.S., Canadian, and global economies, consumer willingness to visit stores, malls, and lifestyle centers, and employee willingness to staff our stores once they re-open.

The extent to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19 and the actions taken to contain it or treat its impact.

The following statistics are based on cost.

During fiscal 2019, approximately 33% of our products were manufactured in Vietnam, 16% in Cambodia, 15% in Sri Lanka, and 11% in the PRC, including 2% in Taiwan, PRC.

During fiscal 2019, approximately 46% of our fabrics originated from Taiwan, PRC, 14% from the rest of the PRC, 19% from Sri Lanka, 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 the Asia Pacific region.

In addition, if we experience significant increased demand, or if we need to replace an existing supplier or

Our supply of fabric or manufacture of our products could be disrupted or delayed by the impact of global health pandemics, including the current COVID-19 coronavirus pandemic, and the related government and private sector responsive actions such as border closures, restrictions on product shipments, and travel restrictions.

| • | the impact of health conditions, including the current COVID-19 coronavirus pandemic, and related government and private sector responsive actions, and other changes in local economic conditions in countries where our manufacturers, suppliers, or guests are located; |

| • | disruptions or delays in shipments whether due to port congestion, labor disputes, product regulations and/or inspections or other factors, natural disasters or health pandemics, or other transportation disruptions. |

Our business could be harmed if our suppliers and manufacturers do not comply with our Vendor Code of Ethics or applicable laws.

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 practices.

Some of the factors that may influence consumer spending on discretionary items include general economic conditions (particularly those in North America), high levels of unemployment, health pandemics (such as the impact of the current COVID-19 coronavirus pandemic, including reduced store traffic and widespread temporary store closures), 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 rates and credit availability, government austerity measures, fluctuating fuel and other energy costs, fluctuating commodity prices, tax rates and general uncertainty regarding the overall future economic environment.

Unfavorable economic conditions may

Advances in computer capabilities, new technological discoveries or other developments may

We could have difficulty in

Global economic and political conditions and global events such as health pandemics could adversely impact our results of operations.

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 could negatively impact our guests and employees, reduce consumer spending, and adversely impact our business and results of operations.

Health pandemics, such as the current COVID-19 coronavirus pandemic, and the related governmental, private sector and individual consumer responsive actions could reduce store traffic and consumer spending, result in temporary or permanent closures of stores, offices, and factories, and could negatively impact the flow of goods.

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.

The current political administrations in the United States and the PRC have proposed tariffs which increase the costs of our products.

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, or could require us to source our products from other countries.

On January 31, 2020, the United Kingdom ("UK") withdrew from the European Union ("EU"), commonly referred to as "Brexit".

There is significant uncertainty related to how the UK's trade, duties, and customs arrangements with the EU will be impacted by Brexit after the transition period, as well as the impact on the movement of goods, people, and capital between the UK and the EU.

There could be changes in economic conditions in the UK or EU, including foreign exchange rates and consumer markets.

Our business could be adversely affected by these changes, including by additional duties on the importation of our products into the UK from the EU and as a result of shipping delays or congestion.

our intellectual property, if these efforts are not successful the value of our brand may be harmed.

ethical practices.

Factors affecting the level of consumer spending for such discretionary items include general economic conditions, particularly those in North America, and other factors such as consumer confidence in future economic conditions, fears of recession, the availability and cost of consumer credit, levels of unemployment, and tax rates.

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.

to manufacture and sell products based on our fabrics and manufacturing technology at lower prices than we can.

We have expanded our relationships with suppliers outside of China, which among other things has resulted in increased costs and shipping times for some products.

If the United States were to withdraw from or materially modify certain international trade agreements, our business could be adversely affected.

There are also uncertainties related to the implementation of the United Kingdom's referendum to withdraw membership from the European Union (referred to as "Brexit").

We could

A labor strike or other transportation disruption affecting these ports could significantly disrupt our business.

During fiscal 2018, approximately 58% of our products were manufactured in South East Asia, approximately 21% in South Asia, approximately 12% in China, approximately 8% in the Americas, and the remainder in other regions.

As a result of our international suppliers, we are subject to risks associated with doing business abroad, including:

| • | disruptions or delays in shipments; and |

| • | changes in local economic conditions in countries where our manufacturers, suppliers, or guests are located. |

Successful new store openings may also be affected by our ability to initiate our grassroots marketing efforts in advance of opening our first store in a new market.

We typically rely on our grassroots marketing efforts to build awareness of our brand and demand for our products.

Our grassroots marketing efforts are often lengthy and must be tailored to each new market based on our emerging understanding of the market.

We may not be able to successfully implement our grassroots marketing efforts in a particular market in a timely manner, if at all.

Additionally, we may be unsuccessful in identifying new markets where our technical athletic apparel and other products and brand image will be accepted, or the performance of our stores will be considered successful.

legal fees.

Fiscal [added: 2019 was a 52 week year and fiscal] 2018 was a 53 week year.

[removed: Net revenue includes results from the 53rd week; however,] [added: Constant dollar changes in] total comparable sales, comparable store sales, and [removed: changes in] direct to consumer net [removed: revenue exclude the 53rd week.][added: revenue]

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 [removed: set forth] [added: 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 [removed: set forth] [added: described] in the "Item 1A.

[removed: Overview][added: Overview]

Net revenue grew [removed: 24%,] [added: 21%] and total comparable sales increased [removed: 18%.][added: 17%.]

Fueling our performance this year was strength across our product assortment, [removed: 13%] [added: 18%] square footage growth driven by new stores and our remodel program, and a robust e-commerce business.

In addition, our [removed: brand activations,] local community [removed: events,] [added: events] and educators [removed: continue] [added: continued] to connect us with our guests in a truly unique manner.

During the year, we opened [removed: 36] [added: 51] net new company-operated stores, including [removed: 15] [added: 19] in North America, [removed: 13] [added: 24] in Asia Pacific, and eight in Europe.

We also expanded our seasonal store strategy [removed: this year] [added: in fiscal 2019] with approximately [removed: 45] [added: 80] seasonal stores in operation [added: for some period of time] during the [removed: holiday season.][added: year.]

These stores [removed: allow] [added: allowed] us to better cater to our guests in select [removed: markets] [added: markets, particularly] during the holidays, while also helping introduce new guests [removed: into] [added: to] our brand.

We expanded into two new markets in Europe [removed: this year - France] [added: during the year, the Netherlands] and [removed: Sweden.][added: Norway.]

[removed: Financial Highlights][added: Financial Highlights]

The adjusted financial measures for fiscal 2018 [removed: and 2017] exclude the amounts recognized in connection with U.S. tax [removed: reform,] [added: reform and] taxes on the repatriation of foreign [removed: earnings, and the restructuring of our ivivva operations and its related tax effects.][added: earnings.]

For the fiscal year ended February [removed: 3, 2019,] [added: 2, 2020,] compared to the fiscal year ended [removed: January 28, 2018:][added: February 3, 2019:]

| • | Net revenue increased [removed: 24%] [added: 21%] to [removed: $3.3] [added: $4.0] billion. On a constant dollar basis, net revenue increased [removed: 25%.] [added: 22%.] |

| • | [removed: Excluding net revenue from the 53rd week of fiscal 2018, total] [added: Total] comparable sales, which includes comparable store sales and direct to consumer, increased [removed: 18%.] [added: 17%.] On a constant dollar basis, total comparable sales increased 18%. |

| – | Comparable store sales increased [removed: 7%,] [added: 9%,] or increased [removed: 8%] [added: 10%] on a constant dollar basis. |

| – | Direct to consumer net revenue increased [removed: 45%,] [added: 35%,] or increased [removed: 46%] [added: 35%] on a constant dollar basis. |

[removed: | • |] Operating margin increased [removed: 430] [added: 80] basis points to [removed: 21.5%. It increased 250 basis points] [added: 22.3%] compared to [removed: adjusted operating margin] [added: 21.5%] in fiscal [removed: 2017. |][added: 2018.]

| • | Income tax expense increased [removed: 15%] [added: 9%] to [removed: $231.4] [added: $251.8] million. Our effective tax rate for fiscal [removed: 2018] [added: 2019] was [removed: 32.4%] [added: 28.1%] compared to [removed: 43.8%] [added: 32.4%] for fiscal [removed: 2017.] [added: 2018.] The adjusted effective tax rate was 28.0% [removed: compared to 30.5%] for fiscal [removed: 2017.] [added: 2018.] |

| • | Diluted earnings per share were [removed: $3.61] [added: $4.93] for fiscal [removed: 2018] [added: 2019] compared to [removed: $1.90] [added: $3.61] in fiscal [removed: 2017.] [added: 2018.] Adjusted diluted earnings per share were $3.84 [removed: compared to $2.59] for fiscal [removed: 2017.] [added: 2018.] |

Management's Discussion and Analysis of Financial Condition and Results of Operations" for reconciliations between constant dollar changes in net revenue, total comparable sales, comparable store sales, and direct to consumer net revenue, and adjusted [removed: gross profit, gross margin,] income [removed: from operations, operating margin, income] tax expense, effective tax rates, and diluted earnings per share, and the most directly comparable measures calculated in accordance with GAAP.

[removed: General][added: General]

[removed: Net revenue] [added: *Net revenue*] is comprised of company-operated store sales, direct to consumer sales through www.lululemon.com, other country and region specific websites, and mobile apps, including mobile apps on in-store devices that allow demand to be fulfilled via our distribution centers, and other net revenue, which includes outlet sales, sales from temporary locations, sales to wholesale accounts, [removed: showroom sales,] license and supply arrangement net revenue which consists of royalties as well as sales of our products to licensees, and warehouse sales.

[removed: Cost] [added: *Cost] of goods [removed: sold] [added: sold*] includes the cost of purchased merchandise, including freight, duty, and nonrefundable taxes incurred in delivering the goods to our distribution centers.

[removed: Selling,] [added: *Selling,] general and administrative [removed: expenses] [added: expenses*] consist of all operating costs not otherwise included in cost of goods [removed: sold or asset impairment and restructuring costs.][added: sold.]

[removed: Income] [added: *Income] tax [removed: expense] [added: expense*] depends on the statutory tax rates in the countries where we sell our products and the proportion of taxable income earned in those jurisdictions.

[added: We also anticipate that, in] the future, we may start to sell our products through retail locations in countries in which we have not yet operated, in which case, we would become subject to taxation based on the foreign statutory rates in the countries where these sales take place and our effective tax rate could fluctuate accordingly.

[removed: Results] [added: Results] of [removed: Operations][added: Operations]

| | | [removed: Fiscal] [added: Fiscal] Year [removed: Ended] [added: Ended] | | | | | | | | | | | [added: | |]

| | | [removed: February 3, 2019] [added: 2019] | | | | [removed: January 28, 2018] [added: 2018] | | | | [removed: January 29, 2017] [added: 2019] | | | [added: 2018 | |]

| | | [removed: (In thousands) | | | |] [added: *(In thousands)*] | | | | | | |

| Selling, general and administrative expenses | | [removed: 1,110,451] [added: 1,334,276] | | | | [removed: 904,264] [added: 1,110,451] | | | | [removed: 778,465] [added: 33.5] | | | [added: 33.8 | |]

| Income from operations | | [removed: 705,836] [added: $] | [added: 889,110] | | | [removed: 456,001] [added: $] | [added: 705,836] | | | [removed: 421,152] | | | [added: | |]

[removed: | Other income (expense), net | | 9,414 | | | | 3,997 | | | | 1,577 | | |][added: Other Income (Expense), Net]

| Income before income tax expense | | [removed: 715,250] [added: 897,393] | | | | [removed: 459,998] [added: 715,250] | | | | [removed: 422,729] [added: 22.6] | | | [added: 21.8 | |]

| | | [removed: Fiscal] [added: Fiscal] Year [removed: Ended |] [added: Ended] | | | | | | |

| | | [removed: February 3, 2019] [added: 2019] | | | [removed: January 28, 2018] | [added: 2018] | | [removed: January 29, 2017] | | [added: 2019 | | | 2018 | |]

| | | [removed: (Percentages)] [added: *(In thousands)*] | | | | | | | | [added: *(Percentages)* | | | | |]

[removed: | Net revenue | | 100.0 | % | | 100.0 | % | | 100.0 | % |][added: Net Revenue]

Net revenue includes results from the 53rd week, however, comparable sales are calculated on a one week shifted basis such that the 52 weeks ended February 2, 2020 are compared to the 52 weeks ended February 3, 2019 rather than January 27, 2019.

We have omitted the results of operations and cash flows for fiscal 2017, and the comparison of fiscal 2018 to fiscal 2017.

For the omitted results and comparisons please refer to "Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations" of our fiscal 2018 Annual Report on Form 10-K filed with the SEC on March 27, 2019.

Our business momentum continued in fiscal 2019.

In addition, we expanded our operating margin 80 basis points to 22.3% and grew earnings per share 37%, or 28% excluding certain discrete tax items which were recognized in fiscal 2018.

The Power of Three

We believe the first year of our Power of Three growth plan proved to be particularly successful.

The strategic pillars of this plan are product innovation, omni-guest experience, and market expansion.

*Product Innovation*

Throughout fiscal 2019, response to our product offerings was strong as we continued to grow our core product categories, expand our merchandise range, and deliver new innovation through our Science of Feel development platform.

Momentum continued in both our men's and women's pant category, and we continued to expand the important categories of bras and outerwear.

In men's, one of our key growth areas, revenue increased 34% in 2019.

We also moved beyond test phase with our new assortment of selfcare personal-care products.

We rolled out our initial assortment to 50 stores and online.

*Omni-Guest Experience*

Performance was strong across both our company-operated store and direct to consumer channels in fiscal 2019, with comparable store sales increasing 9% and direct to consumer net revenue growing 35%, each based on a shifted calendar.

In fiscal 2019 we began to engage with our guests in new ways.

We began testing a new membership program, with four markets tested in fiscal 2019.

We also opened and began testing our first two fully experiential stores in 2019, one in the Lincoln Park neighborhood of Chicago and the second at the Mall of America near Minneapolis.

These stores were designed to offer dedicated studio space for sweat classes and meditation, locker rooms, healthy foods, and an elevated shopping experience.

In fiscal 2019 we continued to host unique events in North America and in our international markets.

In addition to our SeaWheeze half marathon and festival in Vancouver, we hosted 10K races in Toronto, Edmonton, and San Diego, our first in the United States.

In Europe, we held Sweatlife festivals in London, Paris, and Berlin, and in Mainland China, we hosted our 4th annual Unroll China event.

These festivals and events brought together guests, educators, ambassadors, and other members of the local community to engage in sweat classes, yoga, personal development, and meditation.

*Market Expansion*

In fiscal 2019, we continued to expand our presence both in North America and in our international markets.

We also launched local market e-commerce sites in Germany and France.

In Asia, we opened our first stores in Malaysia and launched a local e-commerce site in Japan.

For fiscal 2019, our business in North America grew 20%, while total growth in our international markets was 32%.

Coronavirus (COVID-19)

The outbreak of the COVID-19 coronavirus has been declared a pandemic by the World Health Organization and continues to spread in the United States, Canada, and in many other countries globally.

The spread of COVID-19 has caused public health officials to recommend precautions to mitigate the spread of the virus, especially when congregating in heavily populated areas, such as malls and lifestyle centers.

Government authorities in certain markets in which we operate have also issued orders that require the closure of non-essential businesses and people to remain at home.

We have taken actions to close certain retail locations and to reduce operating hours, and we continue to monitor the situation and work closely with local authorities to prioritize the safety of our people and guests.

In February 2020, we temporarily closed all of our retail locations in Mainland China.

All but one of these locations have since reopened.

In March 2020, we temporarily closed all of our retail locations in North America, Europe, Malaysia, New Zealand, and we temporarily closed our distribution center in Sumner, WA.

These locations currently remain closed.

There is significant uncertainty regarding the extent and duration of the impact that the COVID-19 coronavirus pandemic will have on the demand for our products and our supply chain.

Fiscal 2017 and fiscal 2016 were 52 week years.

Fiscal 2018 was a particularly strong year for our company.

In addition, we were happy to welcome our new CEO, Calvin McDonald.

We leveraged investments made across the enterprise over the last several years, while at the same time continuing to invest in our future.

We surpassed several of our fiscal 2020 goals in fiscal 2018, two years ahead of schedule.

These include achieving operating margin of 21.5%, gross margin of 55.2%, and e-commerce becoming 26.1% of our global business.

Our product design and development teams successfully launched new product innovations, while also leveraging our core product collections and expanding our Office/Travel/Commute category.

We took several steps toward expanding our bra category by launching the Speed Up and Fine Form styles and also the Like Nothing bra, our first bra developed for all day wear.

For men, we launched our Out-of-Mind short liner in our three core styles, rolled out the City Sweat collection, and further expanded our ABC pant offering with a new slim silhouette.

We also expanded our outerwear assortment with more cold weather styles including the Cloudscape jacket for women and Outpour parka for men.

We look forward to delivering on a strong pipeline of innovation and product roll-outs in fiscal 2019.

As of February 3, 2019, we had 70 stores in Asia Pacific and 21 stores in Europe.

In Asia, we opened seven new stores in China, in addition to growing our local e-commerce presence via Tmall and launching a store on the WeChat platform.

In fiscal 2018, we leveraged the improvements we made to our websites over the past 18 months while continuing to enhance the customer experience.

The sales performance of our e-commerce business was strong throughout the year, with direct to consumer revenues increasing by 45%, excluding the 53rd week of fiscal 2018.

In fiscal 2019, we plan to continue to develop our omni-channel experience to serve guests wherever and however they choose to shop.

We will continue to leverage our ship-from-store capabilities and build on the early success of our new buy online, pick-up in store initiative.

Our grassroots approach to brand-building - locally led by our stores, enables us to connect with and uniquely understand our guest.

In fiscal 2018, we continued to hold our marquee events including our annual SeaWheeze half marathon in Vancouver, The Ghost Race in 12 cities in North America, the Sweatlife Festival in London, and Unroll China events across multiple cities.

We are also particularly pleased with our brand activations this year including our 20th birthday celebration, our donations to local community-based organizations via our Here to Be program, including on International Day of Yoga, and our announcement of 100% pay equity which closely followed International Women's Day.

We look forward to continuing this strong momentum into fiscal 2019 fueled by product innovations, new store openings, remodels, and further enhancements to our e-commerce sites and supply chain.

| | |

| --- | --- |

| • | Gross profit increased 30% to $1.8 billion. It increased 29% compared to adjusted gross profit in fiscal 2017. |

| • | Gross margin increased 240 basis points to 55.2%. It increased 210 basis points compared to adjusted gross margin in fiscal 2017. |

| • | Income from operations increased 55% to $705.8 million. It increased 40% compared to adjusted income from operations in fiscal 2017. |

We expect selling, general and administrative expenses to increase in fiscal 2019 as we incur additional operating expenses to support our store and direct to consumer growth, while also making strategic investments to support the long term growth of the business.

Asset impairment and restructuring costs consist of the lease termination, impairment of property and equipment, employee related costs, and other restructuring costs recognized in connection with the restructuring of our ivivva operations.

We also anticipate that, in

| | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Net revenue | | $ | 3,288,319 | | | $ | 2,649,181 | | | $ | 2,344,392 | |

| Cost of goods sold | | 1,472,032 | | | | 1,250,391 | | | | 1,144,775 | | |

| Gross profit | | 1,816,287 | | | | 1,398,790 | | | | 1,199,617 | | |

| Asset impairment and restructuring costs | | — | | | | 38,525 | | | | — | | |

| Income tax expense | | 231,449 | | | | 201,336 | | | | 119,348 | | |

| Net income | | $ | 483,801 | | | $ | 258,662 | | | $ | 303,381 | |

| Cost of goods sold | | 44.8 | | | 47.2 | | | 48.8 | |

| Asset impairment and restructuring costs | | — | | | 1.5 | | | — | |

| Income tax expense | | 7.0 | | | 7.6 | | | 5.1 | |

[removed: Foreign] [added: *Foreign] Currency Exchange [removed: Risk.][added: Risk*.]

As of February [removed: 3, 2019,] [added: 2, 2020,] we had certain forward currency contracts outstanding in order to hedge a portion of the foreign currency exposure that arises on translation of a Canadian subsidiary into U.S. dollars.

We also had certain forward currency contracts outstanding in an effort to reduce our exposure to the foreign exchange revaluation gains and losses that are recognized by our Canadian [added: and Chinese] subsidiaries on U.S. dollar denominated monetary assets and liabilities.

| – | [removed: an] [added: a] decrease in our selling, general and administrative expenses incurred by our Canadian operations upon translation into U.S. dollars for the purposes of consolidation; |

During fiscal [removed: 2017,] [added: 2019,] the change in the relative value of the U.S. dollar against the Canadian dollar resulted in a [removed: $58.2] [added: $4.6] million [removed: reduction] [added: increase] in accumulated other comprehensive loss within stockholders' equity.

A 10% appreciation in the relative value of the U.S. dollar against the Canadian dollar compared to the exchange rates in effect for fiscal [removed: 2018] [added: 2019] would have resulted in lower income from operations of approximately [removed: $5.6] [added: $4.6] million in fiscal [removed: 2018.][added: 2019.]

[removed: Interest] [added: *Interest] Rate [removed: Risk.][added: Risk*.]

Our [added: committed] revolving credit facility provides us with available borrowings in an amount up to $400.0 million in the aggregate.

Because our revolving credit [removed: facility bears] [added: 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 [removed: 3, 2019,] [added: 2, 2020,] aside from letters of credit of [removed: $1.5] [added: $1.8] million, we had no other borrowings outstanding under [removed: this] [added: these] credit [removed: facility.][added: facilities.]

[removed: Inflation][added: Inflation]

Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin [added: and selling, general and administrative expenses as a percentage of net revenue if the selling prices of our products do not increase with these increased costs.]

*Credit Risk*.

Credit Risk.

and selling, general and administrative expenses as a percentage of net revenue if the selling prices of our products do not increase with these increased costs.

[removed: General][added: General]

In this Annual Report on Form 10-K ("10-K" or "Report") for the fiscal year ended February [removed: 3, 2019] [added: 2, 2020] ("fiscal [removed: 2018"),] [added: 2019"),] lululemon athletica inc. (together with its subsidiaries) is referred to as "lululemon," "the Company," "we," "us" or "our."

[removed: Our Products][added: Our Products]

Our healthy lifestyle inspired athletic apparel and accessories are marketed under the lululemon [removed: and ivivva brand names.][added: brand.]

We offer a comprehensive line of apparel and accessories for [removed: women, men,] [added: women] and [removed: female youth.][added: men.]

Our apparel assortment includes items such as pants, shorts, tops, and jackets designed for a healthy lifestyle [removed: and] [added: including] athletic activities such as yoga, running, training, and most other sweaty pursuits.

[removed: Our Market][added: Our Market]

Additionally, we are expanding internationally across [removed: Europe (including] [added: Europe,] the [removed: United Kingdom and Germany)] [added: People's Republic of China ("PRC"),] and [added: the rest of] Asia [removed: Pacific (including China, Japan, and South Korea).][added: Pacific.]

[removed: Our Segments][added: Our Segments]

We also generate net revenue from outlets, sales from temporary locations, sales to wholesale accounts, [removed: showrooms,] through license and supply arrangements, and warehouse sales.

At the end of fiscal [removed: 2018,] [added: 2019,] we had [removed: 440] [added: 491] stores in [removed: 14] [added: 17] countries across the globe.

[removed: Company-Operated Stores][added: Company-Operated Stores]

As of February [removed: 3, 2019,] [added: 2, 2020,] our retail footprint included [removed: 440] [added: 491] company-operated stores.

While most of our company-operated stores are branded lululemon, [removed: seven] [added: five] of our company-operated stores are branded ivivva and specialize in athletic wear for female youth.

Our company-operated stores by country as of February [added: 2, 2020 and February] 3, 2019 [removed: and January 28, 2018] are summarized in the table below:

| | | [removed: February 3, 2019] [added: February 2, 2020] | | | [removed: January 28, 2018] [added: February 3, 2019] | |

| United [removed: States(1)] [added: States] | | [removed: 285] [added: 305] | | | [removed: 274] [added: 285] | |

| Canada | | [removed: 64] [added: 63] | | | [removed: 60] [added: 64] | |

| Australia | | [removed: 29] [added: 31] | | | [removed: 28] [added: 29] | |

| United Kingdom | | [removed: 12] [added: 14] | | | [removed: 9] [added: 12] | |

| New Zealand | | 7 | | | [removed: 6] [added: 7] | |

| Germany | | [removed: 5] [added: 6] | | | [removed: 2] [added: 5] | |

| Japan | | [removed: 5] [added: 7] | | | [removed: 2] [added: 5] | |

| South Korea | | [removed: 4] [added: 5] | | | [removed: 3] [added: 4] | |

| Singapore | | [removed: 3] [added: 4] | | | 3 | |

| France | | [removed: 1] [added: 3] | | | [removed: —] [added: 1] | |

| Sweden | | [removed: 1] [added: 2] | | | [removed: —] [added: 1] | |

| Total company-operated stores | | [removed: 440] [added: 491] | | | [removed: 404] [added: 440] | |

| [removed: (2)] [added: (1)] | [removed: Included within China as of February 3, 2019, were five] [added: PRC included six] company-operated stores in [removed: the] Hong [removed: Kong] [added: Kong,] Special Administrative Region, [removed: one] [added: two] company-operated [removed: store] [added: stores] in [removed: the Macao] [added: Macao,] Special Administration Region, and one company-operated store in [removed: the Taiwan Province.] [added: Taiwan, PRC as of February 2, 2020.] As of [removed: January 28, 2018,] [added: February 3, 2019,] there were [removed: three] [added: five] company-operated stores in [removed: the] Hong [removed: Kong] [added: Kong,] Special Administrative Region, one company-operated store in [removed: the Taiwan Province,] [added: Macao, Special Administration Region,] and [removed: no] [added: one] company-operated [removed: stores] [added: store] in [removed: the Macao Special Administration Region.] [added: Taiwan, PRC.] |

We opened [removed: 36] [added: 51] net new company-operated stores in fiscal [removed: 2018,] [added: 2019,] including [removed: 21] [added: 32] net new stores outside of North America.

During fiscal [removed: 2018,] [added: 2019,] we closed [removed: three] [added: four] of our lululemon branded company-operated [added: stores and two of our ivivva branded company-operated] stores.

In fiscal [removed: 2019,] [added: 2020,] our new store growth will come primarily from [removed: new] company-operated [removed: stores in the United States and an acceleration in our company-operated] store openings in [removed: Asia.][added: Asia and in the United States.]

[removed: Direct] [added: Direct] to [removed: Consumer][added: Consumer]

Direct to consumer is a substantial part of our business, representing [removed: 26.1%] [added: 28.6%] of our net revenue in fiscal [removed: 2018.][added: 2019.]

[removed: Our direct to consumer channel] makes our product accessible to more markets than our company-operated store channel alone.

[removed: Other Channels][added: Other Channels]

Other net revenue accounted for [removed: 9.2%] [added: 8.6%] of total net revenue in fiscal [removed: 2018,] [added: 2019,] compared to [removed: 8.9%] [added: 9.2%] in fiscal [removed: 2017,] [added: 2018,] and [removed: 8.0%] [added: 8.9%] of total net revenue in fiscal [removed: 2016.][added: 2017.]

| • | [removed: Outlets] [added: *Outlets] and warehouse [removed: sales] [added: sales*] - We utilize outlets as well as physical warehouse sales, which are held from time to time, to sell slow moving inventory and inventory from prior seasons to retail customers at discounted prices. |

| • | [removed: Temporary locations] [added: *Temporary locations*] - Our temporary locations, including seasonal stores, are typically opened for a short period of time in markets in which we may not already have a presence. |

| • | [removed: Wholesale] [added: *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 use the channel to build brand awareness, including [removed: those] outside of North America. |

We also offer fitness-related accessories.

| People's Republic of China(1) | | 38 | | | 22 | |

| Malaysia | | 2 | | | — | |

| Netherlands | | 1 | | | — | |

| Norway | | 1 | | | — | |

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.

During fiscal 2019, our sales per square foot was $1,657.

Sales per square foot is calculated using total net revenue from company-operated stores that opened, or opened in their significantly expanded space, prior to the current fiscal year.

The total net revenue of these stores for the fiscal year is divided by the total square footage of these stores at the end of the year.

The fiscal 2019 sales per square foot metric is based on an average square footage of 3,127 per store as of February 2, 2020.

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, storage areas, and administrative space used by the store employees.

It excludes any space used for non-retail related activities.

The sales per square foot metric we report may not be equivalent to similarly titled metrics reported by other companies.

Our direct to consumer channel

The initial term of the agreement for the Middle East expired in January 2020 and we currently intend to stay in the market.

The following statistics are based on cost.

During fiscal 2019, the largest single manufacturer produced approximately 17% of our

products.

During fiscal 2019, approximately 33% of our products were manufactured in Vietnam, 16% in Cambodia, 15% in Sri Lanka, and 11% in the PRC, including 2% in Taiwan, PRC.

In fiscal 2019, approximately 59% of our fabrics were produced by our top five fabric suppliers, and the largest single manufacturer produced approximately 32% of fabric used.

During fiscal 2019, approximately 46% of our fabrics originated from Taiwan, PRC, 14% from the rest of the PRC, 19% from Sri Lanka, 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 the Asia Pacific region.

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.

We also offer fitness-related accessories, including items such as bags, socks, underwear, yoga mats and equipment, and water bottles.

| China(2) | | 22 | | | 15 | |

| | |

| --- | --- |

| (1) | Included within the United States as of January 28, 2018, was one company-operated store in the Commonwealth of Puerto Rico. This store permanently closed during the second quarter of fiscal 2018. |

During fiscal 2017, as part of the restructuring of our ivivva operations, we closed 48 of our 55 ivivva branded company-operated stores.

During fiscal 2018, our company-operated stores open at least one year, which average approximately 3,030 square feet, averaged sales of $1,579 per square foot.

The square footage of our company-operated stores excludes space used for non-retail activities such as yoga studios and office space.

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

a variety of grassroots initiatives.

During fiscal 2018, no single manufacturer produced more than 21% of our product offerings.

During fiscal 2018, approximately 58% of our products were manufactured in South East Asia, approximately 21% in South Asia, approximately 12% in China, approximately 8% in the Americas, and the remainder in other regions.

The approximate square footage of each facility is included in Item 2 of Part I of this report.

Excluding the costs we incurred in connection with the ivivva restructuring, we generated approximately 51% of our operating profit during the fourth quarter of fiscal 2017.

Please see the legal proceedings described in Note [removed: 16] [added: 17] to our audited consolidated financial statements included in Item 8 of Part II of this report.

[removed: PART II][added: PART II]

[removed: UNITED STATES][added: UNITED STATES]

[removed: SECURITIES] [added: SECURITIES] AND EXCHANGE [removed: COMMISSION][added: COMMISSION]

[removed: Washington,] [added: Washington,] D.C. [removed: 20549][added: 20549]

[removed: Form 10-K][added: Form 10-K]

| [removed: þ] [added: ☑] | [removed: ANNUAL] [added: ANNUAL] REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF [removed: 1934] [added: 1934] |

[removed: For] [added: For] the fiscal year [removed: ended February 3, 2019][added: ended February 2, 2020]

| [removed: o] [added: ☐] | [removed: TRANSITION] [added: TRANSITION] REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF [removed: 1934] [added: 1934] |

[removed: For] [added: For] the transition period from [removed: to][added: to]

[removed: Commission] [added: Commission] file [removed: number 001-33608][added: number 001-33608]

[removed: lululemon] [added: lululemon] athletica [removed: inc.][added: inc.]

[removed: (Exact] [added: (Exact] name of registrant as specified in its [removed: charter)][added: charter)]

| [removed: Delaware] [added: Delaware] | | [removed: 20-3842867] [added: 20-3842867] |

| [removed: (State] [added: (State] or other jurisdiction [removed: of incorporation] [added: of incorporation] or [removed: organization)] [added: organization)] | | [removed: (I.R.S. Employer Identification Number)] [added: (I.R.S. Employer Identification Number)] |

[removed: | 1818] [added: 1818] Cornwall [removed: Avenue Vancouver, British Columbia | | V6J 1C7 |][added: Avenue, Vancouver, British Columbia V6J 1C7]

[removed: | (Address] [added: *(Address] of principal executive [removed: offices) | | (Zip Code) |][added: offices)*]

[removed: Registrant's] [added: Registrant's] telephone number, including area code: [removed: (604) 732-6124][added: (604) 732-6124]

[removed: Securities] [added: Securities] registered pursuant to Section 12(b) of the [removed: Act:][added: Act:]

| [removed: Title] [added: Title] of [removed: Each Class] [added: each class] | | [removed: Name] [added: Trading symbol(s) | | Name] of [removed: Each Exchange] [added: each exchange] on [removed: Which Registered] [added: which registered] |

| Common Stock, par value $0.005 per share | | [added: LULU | |] Nasdaq Global Select Market |

Yes [removed: þ] [added: ☑] No [removed: o][added: ☐]

Yes [removed: o] [added: ☐] No [removed: þ][added: ☑]

| Large [removed: accelerated filer] [added: Accelerated Filer] | | [removed: þ] [added: ☑] | | Accelerated filer | | [removed: o] [added: ☐] |

| Non-accelerated filer | | [removed: o] [added: ☐] | | Smaller reporting company | | [removed: o] [added: ☐] |

| Emerging growth company | | [removed: o] [added: ☐] | | | | |

The aggregate market value of the voting stock held by non-affiliates of the registrant on [removed: July 27, 2018] [added: August 2, 2019] was approximately [removed: $11,537,000,000.][added: $20,011,000,000.]

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 [removed: July 27, 2018.][added: August 2, 2019.]

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 [removed: July 27, 2018.][added: August 2, 2019.]

[removed: Common Stock:][added: *Common Stock:*]

At March [removed: 21, 2019] [added: 20, 2020] there were [removed: 123,280,140] [added: 124,115,144] shares of the registrant's common stock, par value $0.005 per share, outstanding.

[removed: Exchangeable] [added: *Exchangeable] and Special Voting [removed: Shares:][added: Shares:*]

At March [removed: 21, 2019,] [added: 20, 2020,] there were outstanding [removed: 7,669,716] [added: 6,049,939] exchangeable shares of Lulu Canadian Holding, Inc., a wholly-owned subsidiary of the registrant.

In addition, at March [removed: 21, 2019,] [added: 20, 2020,] the registrant had outstanding [removed: 7,669,716] [added: 6,049,939] 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.

[removed: DOCUMENTS] [added: DOCUMENTS] INCORPORATED BY [removed: REFERENCE][added: REFERENCE]

Portions of the Proxy Statement for the [removed: 2019] [added: 2020] Annual Meeting of Stockholders have been incorporated by reference into Part III of this Annual Report on Form 10-K.

[removed: TABLE] [added: TABLE] OF [removed: CONTENTS][added: CONTENTS]

| | | [removed: Page] [added: Page] |

[removed: | [PART I](#sDEF864CC53C856DA9DB5F0F3276ACC0A) | | |][added: PART I]

| [removed: Item 1.] [added: Item 1.] | [removed: [BUSINESS](#sC885FC5FAD495AC4B4AB6807458B7650)] [added: [BUSINESS](#s125C75873E585A6E8412F4890FB74A25)] | [removed: [1](#sC885FC5FAD495AC4B4AB6807458B7650)] [added: [1](#s125C75873E585A6E8412F4890FB74A25)] |

| [removed: Item 1A.] [added: Item 1A.] | [removed: [RISK FACTORS](#s4FD6EFC126675D3AA292AF42F7F50859)] [added: [RISK FACTORS](#sA158E233892E5E8F81F222EF7146D97B)] | [removed: [5](#s4FD6EFC126675D3AA292AF42F7F50859)] [added: [6](#sA158E233892E5E8F81F222EF7146D97B)] |

| [removed: Item 2.] [added: Item 2.] | [removed: [PROPERTIES](#s2A4B1F0FDCEC579AABFDDEA91A4B7BA8)] [added: [PROPERTIES](#s5B06193EC71C5A518A7A72BF3DE9BF2D)] | [removed: [14](#s2A4B1F0FDCEC579AABFDDEA91A4B7BA8)] [added: [16](#s5B06193EC71C5A518A7A72BF3DE9BF2D)] |

_______________________________________

_______________________________________

OR

_______________________________________

_______________________________________

| | | | | |

| --- | --- | --- | --- | --- |

| | | | | |

_______________________________________

Yes ☑ No ☐

Yes ☑ No ☐

Yes ☐ No ☑

_______________________________________

| [PART II](#s4D3311A7BAF359E4AC47E41B9D6F9E0E) | | |

| [PART IV](#s72DAE0A93EA551B79560A06D49070B6E) | | |

10-K 1 lulu-20190203x10k.htm 10-K

_______________________________________

OR

| | | |

| --- | --- | --- |

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

| [PART II](#sE1C32534236D555083416C2F3197BBB6) | | |

| [PART IV](#s3041EAFC9B4D58F69DACA1967B27517E) | | |

The general location, use and approximate size of our principal owned properties as of February [removed: 3, 2019,] [added: 2, 2020,] are set forth below:

| [removed: Location] [added: Location] | | [removed: Use] [added: Use] | | [removed: Approximate] [added: Approximate] Square [removed: Feet] [added: Feet] | |

The general location, use, approximate size and lease renewal date of our principal non-retail leased properties as of February [removed: 3, 2019,] [added: 2, 2020,] are set forth below:

| [removed: Location] [added: Location] | | [removed: Use] [added: Use] | | [removed: Approximate] [added: Approximate] Square [removed: Feet] [added: Feet] | | | [removed: Lease] [added: Lease] Renewal [removed: Date] [added: Date] |

| Toronto, ON | | Distribution Center [removed: (Intended)] | | 250,000 | | | September 2033 |

| Sumner, WA | | Distribution Center | | 150,000 | | | [removed: May 2020] [added: July 2025] |

As of February 3, 2019, we operated four distribution centers located in the United States, Canada, and Australia.

During fiscal 2018, we entered into a new lease for an approximately 250,000 square foot distribution center in Toronto which expires in September 2033.

We expect this distribution center to be operational in fiscal 2019.

In addition to those distribution centers, we hold inventory at warehouses managed by third-parties in Hong Kong, Rotterdam, and Shanghai.

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.

| Vancouver, BC | | Executive and Administrative Offices | | 15,000 | |

| Vancouver, BC | | Executive and Administrative Offices | | 60,000 | | | May 2020 |

| Vancouver, BC | | Executive and Administrative Offices | | 35,000 | | | June 2023 |

| Melbourne, VIC | | Distribution Center | | 50,000 | | | October 2022 |

| Melbourne, VIC | | Executive and Administrative Offices | | 25,000 | | | August 2019 |

| Seattle, WA | | Executive and Administrative Offices | | 25,000 | | | December 2028 |

As of February 3, 2019, we leased approximately 1.4 million gross square feet relating to 438 of our 440 stores.

Our store leases generally have initial terms of between five and 10 years, and generally can be extended in five-year increments, if at all.

All of our leases require a fixed annual rent, and the majority require the payment of additional rent if store sales exceed a negotiated amount.

Generally, our leases are "net" leases, which require us to pay all of the cost of insurance, taxes, maintenance and utilities.

We generally cannot cancel these leases at our option.

[removed: Market] [added: Market] Information and [removed: Dividends][added: Dividends]

As of March [removed: 21, 2019,] [added: 20, 2020,] there were approximately [removed: 850] [added: 900] holders of record of our common stock.

[removed: Stock] [added: Stock] Performance [removed: Graph][added: Graph]

The graph set forth below compares the cumulative total stockholder return on our common stock between February [removed: 2, 2014] [added: 1, 2015] (the date of our fiscal year end five years ago) and February [removed: 3, 2019,] [added: 2, 2020,] 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 [removed: 2, 2014] [added: 1, 2015] at the closing sale price 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.

[removed: ][added: ]

| | | [removed: 02-Feb-14] [added: 01-Feb-15] | | | | [removed: 01-Feb-15] [added: 31-Jan-16] | | | | [removed: 31-Jan-16] [added: 29-Jan-17] | | | | [removed: 29-Jan-17] [added: 28-Jan-18] | | | | [removed: 28-Jan-18] [added: 03-Feb-19] | | | | [removed: 03-Feb-19] [added: 02-Feb-20] | | |

| S&P 500 Apparel, Accessories & Luxury Goods Index | | $ | 100.00 | | | $ | [removed: 102.59] [added: 82.75] | | | $ | [removed: 84.89] [added: 69.42] | | | $ | [removed: 71.22] [added: 90.37] | | | $ | [removed: 92.70] [added: 79.62] | | | $ | [removed: 81.68] [added: 71.89] | |

[removed: Issuer] [added: Issuer] Purchase of Equity [removed: Securities][added: Securities]

The following table provides information regarding our purchases of shares of our common stock during the [removed: fourteen] [added: thirteen] weeks ended February [removed: 3, 2019] [added: 2, 2020] related to our stock repurchase program:

| [removed: Period(1)] [added: Period(1)] | | [removed: Total] [added: Total] Number of Shares [removed: Purchased(2)] [added: Purchased(2)] | | | [removed: Average] [added: Average] Price Paid per [removed: Share] [added: Share] | | | | [removed: Total] [added: Total] Number of Shares Purchased as Part of Publicly Announced Plans or [removed: Programs(2)] [added: Programs(2)] | | | [removed: Maximum] [added: Maximum] Dollar Value of Shares that May Yet Be Purchased Under the Plans or [removed: Programs(2)] [added: Programs(2)] | | |

| (1) | Monthly information is presented by reference to our fiscal periods during our fourth quarter of fiscal [removed: 2018.] [added: 2019.] |

[added: | (2) | On January 31, 2019, our board of directors approved a stock repurchase program of up to $500 million of our common shares on the open market or in privately negotiated transactions.] 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. [added: The timing and actual number of common shares to be repurchased will depend upon market conditions, eligibility to trade, and other factors. The repurchases are expected to be completed by January 2021. |]

The following table provides information regarding our purchases of shares of our common stock during the [removed: fourteen] [added: thirteen] weeks ended February [removed: 3, 2019] [added: 2, 2020] related to our Employee Share Purchase Plan:

| [removed: Period(1)] [added: Period(1)] | | [removed: Total] [added: Total] Number of Shares [removed: Purchased(2)] [added: Purchased(2)] | | | [removed: Average] [added: Average] Price Paid per [removed: Share] [added: Share] | | | | [removed: Total] [added: Total] Number of Shares Purchased as Part of Publicly Announced Plans or [removed: Programs(2)] [added: Programs(2)] | | | [removed: Maximum] [added: Maximum] Number of Shares that May Yet Be Purchased Under the Plans or [removed: Programs(2)] [added: Programs(2)] | |

| lululemon athletica inc. | | $ | 100.00 | | | $ | 93.70 | | | $ | 100.88 | | | $ | 119.38 | | | $ | 220.59 | | | $ | 361.40 | |

| S&P 500 Index | | $ | 100.00 | | | $ | 97.26 | | | $ | 115.02 | | | $ | 144.00 | | | $ | 135.67 | | | $ | 161.68 | |

| November 4, 2019 - December 1, 2019 | | 1,584 | | | $ | 194.10 | | | 1,584 | | | $ | 327,302,004 | |

| December 2, 2019 - January 5, 2020 | | — | | | — | | | | — | | | 327,302,004 | | |

| January 6, 2020 - February 2, 2020 | | — | | | — | | | | — | | | 327,302,004 | | |

| Total | | 1,584 | | | | | | | 1,584 | | | | | |

| November 4, 2019 - December 1, 2019 | | 5,644 | | | $ | 221.41 | | | 5,644 | | | 4,737,749 | |

| December 2, 2019 - January 5, 2020 | | 5,629 | | | 227.93 | | | | 5,629 | | | 4,732,120 | |

| January 6, 2020 - February 2, 2020 | | 5,474 | | | 238.34 | | | | 5,474 | | | 4,726,646 | |

| Total | | 16,747 | | | | | | | 16,747 | | | | |

| (1) | Monthly information is presented by reference to our fiscal periods during our fourth quarter of fiscal 2019. |

| lululemon athletica inc. | | $ | 100.00 | | | $ | 144.98 | | | $ | 135.85 | | | $ | 146.25 | | | $ | 173.08 | | | $ | 319.81 | |

| S&P 500 Index | | $ | 100.00 | | | $ | 111.92 | | | $ | 108.84 | | | $ | 128.73 | | | $ | 161.16 | | | $ | 151.83 | |

| October 29, 2018 - November 25, 2018 | | 15,687 | | | $ | 129.96 | | | 15,687 | | | $ | 182,635,986 | |

| November 26, 2018 - December 30, 2018 | | 914,577 | | | 116.32 | | | | 914,577 | | | 76,254,474 | | |

| December 31, 2018 - February 3, 2019 | | 590,261 | | | 128.00 | | | | 590,261 | | | 500,700,020 | | |

| Total | | 1,520,525 | | | | | | | 1,520,525 | | | | | |

| (2) | A stock repurchase program was approved by our board of directors in November 2017 for the repurchase of up to $200 million common shares and in June 2018, our board of directors approved an increase to this stock repurchase program, authorizing the repurchase of up to a total of $600 million of our common shares. |

On January 31, 2019, our board of directors approved a new stock repurchase program of up to $500 million of our common shares on the open market or in privately negotiated transactions.

The timing and actual number of common shares to be repurchased will depend upon market conditions, eligibility to trade, and other factors.

The repurchases are expected to be completed by January 2021.

| October 29, 2018 - November 25, 2018 | | 6,379 | | | $ | 138.75 | | | 6,379 | | | 4,822,523 | |

| November 26, 2018 - December 30, 2018 | | 10,708 | | | 124.13 | | | | 10,708 | | | 4,811,815 | |

| December 31, 2018 - February 3, 2019 | | 6,692 | | | 140.66 | | | | 6,692 | | | 4,805,123 | |

| Total | | 23,779 | | | | | | | 23,779 | | | | |

| | | [removed: Fiscal] [added: Fiscal] Year [removed: Ended] [added: Ended] | | | | | | | | | | | | | | | | | | |

| | | [removed: February 3, 2019] [added: February 2, 2020] | | | | [removed: January 28, 2018] [added: February 3, 2019] | | | | [removed: January 29, 2017] [added: January 28, 2018] | | | | [removed: January 31, 2016] [added: January 29, 2017] | | | | [removed: February 1, 2015] [added: January 31, 2016] | | |

| | | [removed: (In] [added: *(In] thousands, except per share [removed: data)] [added: data)*] | | | | | | | | | | | | | | | | | | |

| [removed: Consolidated] [added: Consolidated] statement of operations and comprehensive income [removed: data:] [added: data:] | | | | | | | | | | | | | | | | | | | | |

| Net revenue | | $ | [removed: 3,288,319] [added: 3,979,296] | | | $ | [removed: 2,649,181] [added: 3,288,319] | | | $ | [removed: 2,344,392] [added: 2,649,181] | | | $ | [removed: 2,060,523] [added: 2,344,392] | | | $ | [removed: 1,797,213] [added: 2,060,523] | |

| Cost of goods sold | | [removed: 1,472,032] [added: 1,755,910] | | | | [removed: 1,250,391] [added: 1,472,032] | | | | [removed: 1,144,775] [added: 1,250,391] | | | | [removed: 1,063,357] [added: 1,144,775] | | | | [removed: 883,033] [added: 1,063,357] | | |

| Gross profit | | [removed: 1,816,287] [added: 2,223,386] | | | | [removed: 1,398,790] [added: 1,816,287] | | | | [removed: 1,199,617] [added: 1,398,790] | | | | [removed: 997,166] [added: 1,199,617] | | | | [removed: 914,180] [added: 997,166] | | |

| Selling, general and administrative expenses | | [removed: 1,110,451] [added: 1,334,276] | | | | [removed: 904,264] [added: 1,110,451] | | | | [removed: 778,465] [added: 904,264] | | | | [removed: 628,090] [added: 778,465] | | | | [removed: 538,147] [added: 628,090] | | |

| Asset impairment and restructuring costs | | — | | | | [removed: 38,525] [added: —] | | | | [removed: —] [added: 38,525] | | | | — | | | | — | | |

| Income from operations | | [removed: 705,836] [added: 889,110] | | | | [removed: 456,001] [added: 705,836] | | | | [removed: 421,152] [added: 456,001] | | | | [removed: 369,076] [added: 421,152] | | | | [removed: 376,033] [added: 369,076] | | |

| Other income (expense), net | | [added: 8,283 | | | |] 9,414 | | | | 3,997 | | | | 1,577 | | | | (581 | | ) | [removed: | 7,102 | | |]

| Income before income tax expense | | [removed: 715,250] [added: 897,393] | | | | [removed: 459,998] [added: 715,250] | | | | [removed: 422,729] [added: 459,998] | | | | [removed: 368,495] [added: 422,729] | | | | [removed: 383,135] [added: 368,495] | | |

| Income tax expense | | [removed: 231,449] [added: 251,797] | | | | [removed: 201,336] [added: 231,449] | | | | [removed: 119,348] [added: 201,336] | | | | [removed: 102,448] [added: 119,348] | | | | [removed: 144,102] [added: 102,448] | | |

| Net income | | $ | [removed: 483,801] [added: 645,596] | | | $ | [removed: 258,662] [added: 483,801] | | | $ | [removed: 303,381] [added: 258,662] | | | $ | [removed: 266,047] [added: 303,381] | | | $ | [removed: 239,033] [added: 266,047] | |

| Foreign currency translation adjustment | | [removed: (73,885] [added: (7,773] | | ) | | [removed: 58,577] [added: (73,885] | | [added: )] | | [removed: 36,703] [added: 58,577] | | | | [removed: (64,796] [added: 36,703] | | [removed: )] | | [removed: (105,339] [added: (64,796] | | ) |

| Comprehensive income | | $ | [removed: 409,916] [added: 637,823] | | | $ | [removed: 317,239] [added: 409,916] | | | $ | [removed: 340,084] [added: 317,239] | | | $ | [removed: 201,251] [added: 340,084] | | | $ | [removed: 133,694] [added: 201,251] | |

| Basic earnings per share | | $ | [removed: 3.63] [added: 4.95] | | | $ | [removed: 1.90] [added: 3.63] | | | $ | [removed: 2.21] [added: 1.90] | | | $ | [removed: 1.90] [added: 2.21] | | | $ | [removed: 1.66] [added: 1.90] | |

| Diluted earnings per share | | $ | [removed: 3.61] [added: 4.93] | | | $ | [removed: 1.90] [added: 3.61] | | | $ | [removed: 2.21] [added: 1.90] | | | $ | [removed: 1.89] [added: 2.21] | | | $ | [removed: 1.66] [added: 1.89] | |

| Basic weighted-average number of shares outstanding | | [removed: 133,413] [added: 130,393] | | | | [removed: 135,988] [added: 133,413] | | | | [removed: 137,086] [added: 135,988] | | | | [removed: 140,365] [added: 137,086] | | | | [removed: 143,935] [added: 140,365] | | |

| Diluted weighted-average number of shares outstanding | | [removed: 133,971] [added: 130,955] | | | | [removed: 136,198] [added: 133,971] | | | | [removed: 137,302] [added: 136,198] | | | | [removed: 140,610] [added: 137,302] | | | | [removed: 144,298] [added: 140,610] | | |

| | | [removed: (In thousands)] [added: *(In thousands)*] | | | | | | | | | | | | | | | | | | |

| [removed: Consolidated] [added: Consolidated] balance sheet [removed: data:] [added: data1:] | | | | | | | | | | | | | | | | | | | | |

| Cash and cash equivalents | | $ | [removed: 881,320] [added: 1,093,505] | | | $ | [removed: 990,501] [added: 881,320] | | | $ | [removed: 734,846] [added: 990,501] | | | $ | [removed: 501,482] [added: 734,846] | | | $ | [removed: 664,479] [added: 501,482] | |

| Inventories | | [removed: 404,842] [added: 518,513] | | | | [removed: 329,562] [added: 404,842] | | | | [removed: 298,432] [added: 329,562] | | | | [removed: 284,009] [added: 298,432] | | | | [removed: 208,116] [added: 284,009] | | |

| Total assets | | [removed: 2,084,711] [added: 3,281,354] | | | | [removed: 1,998,483] [added: 2,084,711] | | | | [removed: 1,657,541] [added: 1,998,483] | | | | [removed: 1,314,077] [added: 1,657,541] | | | | [removed: 1,296,213] [added: 1,314,077] | | |

| Total stockholders' equity | | [removed: 1,445,975] [added: 1,952,218] | | | | [removed: 1,596,960] [added: 1,445,975] | | | | [removed: 1,359,973] [added: 1,596,960] | | | | [removed: 1,027,482] [added: 1,359,973] | | | | [removed: 1,089,568] [added: 1,027,482] | | |

| | | As of | | | | | | | | | | | | | | | | | | |

| | | February 2, 2020 | | | | February 3, 2019 | | | | January 28, 2018 | | | | January 29, 2017 | | | | January 31, 2016 | | |

| Total liabilities | | 1,329,136 | | | | 638,736 | | | | 401,523 | | | | 297,568 | | | | 286,595 | | |

__________

| | |

| --- | --- |

| (1) | We adopted ASC 842 on February 4, 2019 using the modified retrospective approach with no restatement of comparative periods. See Note 2 to the audited consolidated financial statements included in Item 8 of Part II of this report for additional information. |

| | | As of | | | | | | | | | | | | | | | | | | |

[removed: lululemon] [added: lululemon] athletica [removed: inc.][added: inc.]

[removed: INDEX] [added: INDEX] TO CONSOLIDATED FINANCIAL [removed: STATEMENTS][added: STATEMENTS]

[removed: | [Report of Independent Registered Public Accounting Firm](#s9CC6D2E963B85E9084CE899B0556DD6B) | [42](#s9CC6D2E963B85E9084CE899B0556DD6B) |][added: REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM]

[removed: | [Consolidated Balance Sheets](#sE5E71B068173598BB5E4BB43AD03CD8B) | [44](#sE5E71B068173598BB5E4BB43AD03CD8B) |][added: CONSOLIDATED BALANCE SHEETS]

[removed: | [Consolidated Statements of Operations and Comprehensive Income](#s4AB03FF2C47756DD9637E3B87F805CE3) | [45](#s4AB03FF2C47756DD9637E3B87F805CE3) |][added: CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME]

[removed: | [Consolidated Statements of Stockholders' Equity](#s21B7389291745FA9AF0341908CFBC8AB) | [46](#s21B7389291745FA9AF0341908CFBC8AB) |][added: CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY]

[removed: | [Consolidated Statements of Cash Flows](#sDF926981EE6B5E94A0DB23AFA978E8B5) | [48](#sDF926981EE6B5E94A0DB23AFA978E8B5) |][added: CONSOLIDATED STATEMENTS OF CASH FLOWS]

[removed: | [Index for Notes to the Consolidated Financial Statements](#sAD9201DB2C2F56828F5106A845B6A8F6) | [49](#sAD9201DB2C2F56828F5106A845B6A8F6) |][added: INDEX FOR NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS]

[removed: REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM][added: | [Report of Independent Registered Public Accounting Firm](#s5610FF7F006B59598FE1FDDA8DB78717) | [36](#s5610FF7F006B59598FE1FDDA8DB78717) |]

[removed: Opinions] [added: Opinions] on the Financial Statements and Internal Control over Financial [removed: Reporting][added: Reporting]

We have audited the [added: accompanying] consolidated balance sheets of lululemon athletica inc. and its subsidiaries (together, the Company) as of February [removed: 3, 2019] [added: 2, 2020] and [removed: January 28, 2018,] [added: February 3, 2019,] and the related consolidated statements of operations and comprehensive income, stockholders' equity and cash flows for [added: each of] the [added: 52 week period ended February 2, 2020, the] 53 week period ended February 3, [removed: 2019] [added: 2019,] and [removed: each of] the 52 week [removed: periods] [added: period] ended January 28, [removed: 2018 and January 29, 2017,] [added: 2018,] including the related notes, [removed: listed in the index appearing under Item 15(a)(1)] and the financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the consolidated financial statements).

We also have audited the Company's internal control over financial reporting as of February [removed: 3, 2019,] [added: 2, 2020,] based on criteria established in [removed: Internal] [added: *Internal] Control - Integrated [removed: Framework] [added: 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 [removed: 3, 2019] [added: 2, 2020] and [removed: January 28, 2018,] [added: February 3, 2019,] and [removed: their] [added: the] results of [added: its] operations and [removed: their] [added: its] cash flows for the [added: 52 week period ended February 2, 2020, the] 53 week period ended February 3, [removed: 2019] [added: 2019,] and [removed: each of] the 52 week [removed: periods] [added: period] ended January 28, 2018 [removed: and January 29, 2017,] in conformity with accounting principles generally accepted in the United States of [removed: America (US GAAP).][added: America.]

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February [removed: 3, 2019,] [added: 2, 2020,] based on criteria established in [removed: Internal] [added: *Internal] Control - Integrated [removed: Framework] [added: Framework*] (2013) issued by the COSO.

[removed: Basis] [added: Basis] for [removed: Opinions][added: Opinions]

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 [removed: the accompanying] Management's Annual Report on Internal Control over Financial [removed: Reporting,] [added: Reporting] appearing under Item [removed: 9A.][added: 9A of the Company's 2020 Annual Report on Form 10-K.]

[removed: Definition] [added: Definition] and Limitations of Internal Control over Financial [removed: Reporting][added: Reporting]

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 [removed: 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.]

| [removed: Chartered] [added: Chartered] Professional [removed: Accountants] [added: Accountants] |

[removed: CONSOLIDATED BALANCE SHEETS][added: | [Consolidated Balance Sheets](#s8A929793B174531AB0A8CC21D0FD7FCF) | [38](#s8A929793B174531AB0A8CC21D0FD7FCF) |]

[removed: (Amounts] [added: *(Amounts] in thousands, except per share [removed: amounts)][added: amounts)*]

| | | [removed: February] [added: February] 3, [removed: 2019] [added: 2019] | | | | [removed: January] [added: January] 28, [removed: 2018] [added: 2018] | | |

| [removed: ASSETS] [added: ASSETS] | | | | | | | | |

| Cash and cash [removed: equivalents] [added: equivalents, beginning of period] | | $ | 881,320 | | | $ | 990,501 | | [added: | $ | 734,846 | |]

| Accounts receivable | | [removed: 35,786] [added: 40,219] | | | | [removed: 19,173] [added: 35,786] | | |

| Inventories | | [removed: 404,842] [added: 518,513] | | | | [removed: 329,562] [added: 404,842] | | |

| Prepaid and receivable income taxes | | [removed: 49,385] [added: 85,159] | | | | [removed: 48,948] [added: 49,385] | | |

| Other prepaid expenses and other current assets | | [removed: 57,949] [added: 70,542] | | | | [removed: 48,098] [added: 57,949] | | |

| | | [removed: 1,429,282] [added: 1,807,938] | | | | [removed: 1,436,282] [added: 1,429,282] | | |

| Property and equipment, net | | [removed: 567,237] [added: 671,693] | | | | [removed: 473,642] [added: 567,237] | | |

| Goodwill and intangible assets, net | | [removed: 24,239] [added: 24,423] | | | | [removed: 24,679] [added: 24,239] | | |

| Deferred income tax assets | | [removed: 26,549] [added: 31,435] | | | | [removed: 32,491] [added: 26,549] | | |

| Other non-current assets | | [removed: 37,404] [added: 56,201] | | | | [removed: 31,389] [added: 37,404] | | |

| [removed: LIABILITIES] [added: LIABILITIES] AND STOCKHOLDERS' [removed: EQUITY] [added: EQUITY] | | | | | | | | |

| Accounts payable | | $ | [removed: 95,533] [added: 79,997] | | | $ | [removed: 24,646] [added: 95,533] | |

| Accrued inventory liabilities | | [removed: 16,241] [added: 6,344] | | | | [removed: 13,027] [added: 16,241] | | |

| Accrued compensation and related expenses | | [removed: 109,181] [added: 133,688] | | | | [removed: 70,141] [added: 109,181] | | |

| Current income taxes payable | | [removed: 67,412] [added: 26,436] | | | | [removed: 15,700] [added: 67,412] | | |

| Unredeemed gift card liability | | [removed: 99,412] [added: 120,413] | | | | [removed: 82,668] [added: 99,412] | | |

| Other current liabilities | | [removed: 112,698] [added: 125,043] | | | | [removed: 86,416] [added: 112,698] | | |

*Change in Accounting Principle*

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases as of February 4, 2019.

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.

Critical Audit Matters

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.

*Inventory provision*

As described in Note 2 and Note 3 to the consolidated financial statements, inventory is 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, 2020, the Company's consolidated net inventories balance was $518.5 million and the inventory provision was $22.1 million.

The principal considerations for our determination that performing procedures relating to the inventory provision is a critical audit matter are (i) management identified the matter as a critical accounting estimate; and (ii) significant judgment was required 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 increased audit effort and a higher degree of subjectivity in evaluating audit evidence relating to the estimate.

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 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 with historical trends and consistency with evidence obtained in other areas of the audit; and corroborating the assumptions with individuals within the product team.

| March 26, 2020 |

lululemon athletica inc.

| Cash and cash equivalents | | $ | 1,093,505 | | | $ | 881,320 | |

| Right-of-use lease assets | | 689,664 | | | | — | | |

| | | $ | 3,281,354 | | | $ | 2,084,711 | |

| Current lease liabilities | | 128,497 | | | | — | | |

| | | 620,418 | | | | 500,477 | | |

| Non-current lease liabilities | | 611,464 | | | | — | | |

| | | 1,329,136 | | | | 638,736 | | |

| | | 1,952,218 | | | | 1,445,975 | | |

| | | $ | 3,281,354 | | | $ | 2,084,711 | |

lululemon athletica inc.

lululemon athletica inc.

| Net income | | | | | | | | | | | | | | | | | | | | | | | 645,596 | | | | | | | | 645,596 | | |

| Repurchase of common stock | | | | | | | | | | | | (1,056 | ) | | (5 | | ) | | (1,545 | | ) | | (171,849 | | ) | | | | | | (173,399 | | ) |

| Balance at February 2, 2020 | | 6,227 | | | 6,227 | | | $ | — | | | 124,122 | | | $ | 621 | | | $ | 355,541 | | | $ | 1,820,637 | | | $ | (224,581 | ) | | $ | 1,952,218 | |

lululemon athletica inc.

*(Amounts in thousands)*

| | | February 2, 2020 | | | | February 3, 2019 | | | | January 28, 2018 | | |

| Net income | | $ | 645,596 | | | $ | 483,801 | | | $ | 258,662 | |

| Right-of-use lease assets and current and non-current lease liabilities | | 17,422 | | | | — | | | | — | | |

| Other current and non-current liabilities | | 23,409 | | | | 40,720 | | | | 37,237 | | |

lululemon athletica inc.

| Note 5 | [Other Non-Current Assets](#s0fdbf2fd123748808ccafbb1435f8a22) | [50](#s0fdbf2fd123748808ccafbb1435f8a22) |

| Note 13 | [Leases](#s48d2034c331842b4875fc8ea57f72906) | [57](#s48d2034c331842b4875fc8ea57f72906) |

| Note 21 | [Subsequent Events](#s7b866d3bde084686878de5da212e52c8) | [68](#s7b866d3bde084686878de5da212e52c8) |

lululemon athletica inc.

| March 27, 2019 |

| | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | $ | 2,084,711 | | | $ | 1,998,483 | |

| | | 500,477 | | | | 292,598 | | |

| | | 638,736 | | | | 401,523 | | |

| | | 1,445,975 | | | | 1,596,960 | | |

| | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Balance at January 31, 2016 | | 9,804 | | | 9,804 | | | $ | — | | | 127,482 | | | $ | 637 | | | $ | 245,533 | | | $ | 1,019,515 | | | $ | (238,203 | ) | | $ | 1,027,482 | |

| Net income | | | | | | | | | | | | | | | | | | | | | | | 303,381 | | | | | | | | 303,381 | | |

| Repurchase of common stock | | | | | | | | | | | | (455 | ) | | (2 | | ) | | (643 | | ) | | (28,682 | | ) | | | | | | (29,327 | | ) |

| Cash and cash equivalents, end of period | | $ | 881,320 | | | $ | 990,501 | | | $ | 734,846 | |

| Note 5 | [Goodwill and Intangible Assets](#sB4D2EA2ECEBC5CEC825C36E0B1E3471C) | [59](#sB4D2EA2ECEBC5CEC825C36E0B1E3471C) |

| Note 17 | [Related Party Balances and Transactions](#s5BB23B84E8C25EF799D9A28D2C5EA47A) | [72](#s5BB23B84E8C25EF799D9A28D2C5EA47A) |

On August 20, 2017, as part of this plan, the Company closed 48 of its 55 ivivva branded company-operated stores and all other ivivva branded temporary locations.

The Company continues to offer ivivva branded products on its e-commerce websites.

Goodwill and intangible assets

Intangible assets are recorded at cost.

Reacquired franchise rights are amortized on a straight-line basis over their estimated useful lives of 10 years.

The Company leases stores, distribution centers, and administrative offices.

Minimum rental payments, including any fixed escalation of rental payments and rent premiums, are amortized on a straight-line basis over the life of the lease beginning on the possession date.

Rental costs incurred during a construction period, prior to store opening, are recognized as rental expense.

Lease inducements, which include leasehold improvements paid for by the landlord and rent free periods, are recorded within other non-current liabilities on the consolidated balance sheets and recognized as a reduction of rent expense on a straight-line basis over the term of the lease.

The difference between the recognized rental expense and the total rental payments paid is reflected on the consolidated balance sheets within deferred lease liabilities or prepaid lease assets within other non-current liabilities and other non-current assets, respectively.

Contingent rental payments based on sales are recorded in the period in which the sales occur.

Given the judgments and estimates required and the sensitivity of the results to the significant assumptions used, the Company believes the accounting estimates used in relation to the valuation of deferred income tax assets are subject to measurement uncertainty and are susceptible to change if the underlying assumptions change.

The Company provides for taxes at the enacted rate applicable for the appropriate tax jurisdiction.

Management periodically assesses the need to utilize these undistributed earnings to finance foreign operations.

This assessment is based on the cash flow projections and operational and fiscal

objectives of each of the Company's foreign subsidiaries.

Such estimates are inherently imprecise since many assumptions utilized in the projections are subject to revision in the future.

Under the provisions of ASC 606, the Company is now required to present its provision for sales returns on a gross basis, rather than a net basis.

The Company's liability for sales return refunds is recognized within other current liabilities, and the Company now presents an asset for the value of inventory which is expected to be returned within other prepaid expenses and other current assets on the consolidated balance sheets.

Under the modified retrospective approach, the comparative prior period information has not been restated for this change.

The effect of adoption of ASC 606 on the Company's consolidated balance sheet as of February 3, 2019 was as follows:

| | | As Reported | | | | Adjustment for ASC 606 | | | | Balances Without Adoption of ASC 606 | | |

| Current assets | | 1,429,282 | | | | (3,719 | | ) | | 1,425,563 | | |

[removed: Evaluation] [added: Evaluation] of Disclosure Controls and [removed: Procedures][added: Procedures]

[removed: Inherent] [added: Inherent] Limitations over Internal [removed: Controls][added: Controls]

[removed: Management's] [added: Management's] Annual Report on Internal Control over Financial [removed: Reporting][added: Reporting]

[removed: Based on] this evaluation, management concluded that we maintained effective internal control over financial reporting as of February [removed: 3, 2019.][added: 2, 2020.]

The effectiveness of our internal control over financial reporting as of February [removed: 3, 2019] [added: 2, 2020] has been audited by PricewaterhouseCoopers LLP our independent registered public accounting firm, as stated in their report in Item 8 of Part II of this Form 10-K.

[removed: Changes] [added: Changes] in Internal Control over Financial [removed: Reporting][added: Reporting]

There were no changes in our internal control over financial reporting during the fourth quarter of the fiscal year ended February [removed: 3, 2019] [added: 2, 2020] that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

[removed: PART III][added: PART III]

Based on

The 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 [removed: 2019] [added: 2020] Annual Meeting of Stockholders under the captions "Election of Directors," "Section 16(a) Beneficial Ownership Reporting Compliance," "Executive [removed: Officers"] [added: Officers,"] and "Corporate [removed: Governance."][added: Governance," and, to the extent necessary, under the caption "Delinquent Section 16(a) Reports."]

The information required by this item is incorporated by reference to our [removed: 2019] [added: 2020] Proxy Statement under the captions "Executive Compensation" and "Executive Compensation Tables."

The information required by this item is incorporated by reference to our [removed: 2019] [added: 2020] Proxy Statement under the caption "Principal Stockholders and Stock Ownership by Management."

[removed: Equity] [added: Equity] Compensation Plan Information (as [removed: of February 3, 2019)][added: of February 2, 2020)]

| [removed: Plan Category] [added: Plan Category] | | [removed: Number] [added: Number] of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and [removed: Rights(1) (A)] [added: Rights(1) (A)] | | | [removed: Weighted-Average] [added: Weighted-Average] Exercise Price of Outstanding Options, Warrants and [removed: Rights(2) (B)] [added: Rights(2) (B)] | | | | [removed: Number] [added: Number] of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column [removed: (A))(3) (C)] [added: (A))(3) (C)] | |

| (1) | This amount represents the following: (a) [removed: 869,865] [added: 776,124] shares subject to outstanding options, (b) [removed: 279,697] [added: 238,280] shares subject to outstanding performance-based restricted stock units, (c) [removed: 440,020] [added: 333,481] shares subject to outstanding restricted stock units, and (d) [removed: 43,901] [added: 29,414] shares subject to outstanding restricted stock units that settle in cash or common stock at the election of the employee. The options, performance-based restricted stock units and restricted stock units are all under our 2007 Equity Incentive Plan or our 2014 Equity Incentive Plan. Restricted shares outstanding under our 2014 Equity Incentive Plan have already been reflected in our total outstanding common stock balance. |

| (3) | This includes (a) [removed: 13,514,997] [added: 13,291,047] shares of our common stock available for future issuance under our 2014 Equity Incentive Plan and (b) [removed: 4,805,123] [added: 4,726,646] 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 2014 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 2014 Equity Incentive Plan and shares that are withheld in satisfaction of tax withholding obligations for full value awards are also again available for issuance. No further awards may be issued under the predecessor plan, our 2007 Equity Incentive Plan. |

| Equity compensation plans approved by stockholders | | 1,377,299 | | | $ | 113.41 | | | 18,017,693 | |

| Total | | 1,377,299 | | | $ | 113.41 | | | 18,017,693 | |

| Equity compensation plans approved by stockholders | | 1,633,483 | | | $ | 73.34 | | | 18,320,120 | |

| Total | | 1,633,483 | | | $ | 73.34 | | | 18,320,120 | |

The information required by this item is incorporated by reference to our [removed: 2019] [added: 2020] Proxy Statement under the captions "Certain Relationships and Related Party Transactions" and "Corporate Governance."

The information required by this item is incorporated by reference to our [removed: 2019] [added: 2020] Proxy Statement under the caption "Fees for Professional Services."

[removed: PART IV][added: PART IV]

[added: *Financial Statements.*] The financial statements as set forth under Item 8 of this Annual Report on Form 10-K are incorporated herein.

[removed: Financial] [added: *Financial] Statement [removed: Schedule.][added: Schedule.*]