Item 1. FINANCIAL STATEMENTS (UNAUDITED)

lululemon athletica inc.

CONSOLIDATED BALANCE SHEETS

(Unaudited; Amounts in thousands, except per share amounts)

						April 30, 2023						January 29, 2023
ASSETS
Current assets
Cash and cash equivalents						$	950,607					$	1,154,867
Accounts receivable, net						107,468						132,906
Inventories						1,580,313						1,447,367
Prepaid and receivable income taxes						182,393						185,641
Prepaid expenses and other current assets						232,521						238,672
						3,053,302						3,159,453
Property and equipment, net						1,312,793						1,269,614
Right-of-use lease assets						993,471						969,419
Goodwill						24,041						24,144
Intangible assets, net						20,082						21,961
Deferred income tax assets						6,130						6,402
Other non-current assets						161,725						156,045
						$	5,571,544					$	5,607,038
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable						$	287,464					$	172,732
Accrued liabilities and other						342,751						399,223
Accrued compensation and related expenses						125,053						248,167
Current lease liabilities						210,506						207,972
Current income taxes payable						30,213						174,221
Unredeemed gift card liability						223,970						251,478
Other current liabilities						36,814						38,405
						1,256,771						1,492,198
Non-current lease liabilities						888,582						862,362
Non-current income taxes payable						28,555						28,555
Deferred income tax liabilities						54,533						55,084
Other non-current liabilities						23,027						20,040
						2,251,468						2,458,239
Commitments and contingencies
Stockholders' equity
Undesignated preferred stock, $0.01 par value: 5,000 shares authorized; none issued and outstanding						—						—
Exchangeable stock, no par value: 60,000 shares authorized; 5,116 and 5,116 issued and outstanding						—						—
Special voting stock, $0.000005 par value: 60,000 shares authorized; 5,116 and 5,116 issued and outstanding						—						—
Common stock, $0.005 par value: 400,000 shares authorized; 122,099 and 122,205 issued and outstanding						610						611
Additional paid-in capital						478,496						474,645
Retained earnings						3,118,584						2,926,127
Accumulated other comprehensive loss						(277,614)						(252,584)
						3,320,076						3,148,799
						$	5,571,544					$	5,607,038

See accompanying notes to the unaudited interim consolidated financial statements

lululemon athletica inc.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited; Amounts in thousands, except per share amounts)

						Quarter Ended
						April 30, 2023						May 1, 2022
Net revenue						$	2,000,792					$	1,613,463
Cost of goods sold						849,987						743,070
Gross profit						1,150,805						870,393
Selling, general and administrative expenses						747,513						607,851
Amortization of intangible assets						1,878						2,195
Income from operations						401,414						260,347
Other income (expense), net						8,025						(22)
Income before income tax expense						409,439						260,325
Income tax expense						119,034						70,327
Net income						$	290,405					$	189,998
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment						$	(42,750)					$	(25,848)
Net investment hedge gains						17,720						5,056
Other comprehensive income (loss), net of tax						$	(25,030)					$	(20,792)
Comprehensive income						$	265,375					$	169,206
Basic earnings per share						$	2.28					$	1.48
Diluted earnings per share						$	2.28					$	1.48
Basic weighted-average number of shares outstanding						127,246						128,077
Diluted weighted-average number of shares outstanding						127,621						128,541

See accompanying notes to the unaudited interim consolidated financial statements

lululemon athletica inc.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited; Amounts in thousands)

						Quarter Ended April 30, 2023
						Exchangeable Stock						Special Voting Stock												Common Stock												Additional Paid-in Capital						Retained Earnings						Accumulated Other Comprehensive Loss						Total Stockholders' Equity
						Shares						Shares						Par Value						Shares						Par Value
Balance as of January 29, 2023						5,116						5,116						$	—					122,205						$	611					$	474,645					$	2,926,127					$	(252,584)					$	3,148,799
Net income																																										290,405												290,405
Other comprehensive income (loss), net of tax																																																(25,030)						(25,030)
Stock-based compensation expense																																				21,301																		21,301
Common stock issued upon settlement of stock-based compensation																								274						—						11,873																		11,873
Shares withheld related to net share settlement of stock-based compensation																								(88)						—						(28,793)																		(28,793)
Repurchase of common stock, including excise tax																								(292)						(1)						(530)						(97,948)												(98,479)
Balance as of April 30, 2023						5,116						5,116						$	—					122,099						$	610					$	478,496					$	3,118,584					$	(277,614)					$	3,320,076

						Quarter Ended May 1, 2022
						Exchangeable Stock						Special Voting Stock												Common Stock												Additional Paid-in Capital						Retained Earnings						Accumulated Other Comprehensive Loss						Total Stockholders' Equity
						Shares						Shares						Par Value						Shares						Par Value
Balance as of January 30, 2022						5,203						5,203						$	—					123,297						$	616					$	422,507					$	2,512,840					$	(195,917)					$	2,740,046
Net income																																										189,998												189,998
Other comprehensive income (loss), net of tax																																																(20,792)						(20,792)
Stock-based compensation expense																																				18,358																		18,358
Common stock issued upon settlement of stock-based compensation																								239						2						5,141																		5,143
Shares withheld related to net share settlement of stock-based compensation																								(96)						—						(32,059)																		(32,059)
Repurchase of common stock																								(708)						(4)						(1,234)						(231,406)												(232,644)
Balance as of May 1, 2022						5,203						5,203						$	—					122,732						$	614					$	412,713					$	2,471,432					$	(216,709)					$	2,668,050

See accompanying notes to the unaudited interim consolidated financial statements

lululemon athletica inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; Amounts in thousands)

						Quarter Ended
						April 30, 2023						May 1, 2022
Cash flows from operating activities
Net income						$	290,405					$	189,998
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization						84,116						64,470
Stock-based compensation expense						21,301						18,358
Settlement of derivatives not designated in a hedging relationship						(721)						(10,378)
Changes in operating assets and liabilities:
Inventories						(155,174)						(320,607)
Prepaid and receivable income taxes						3,249						2,646
Prepaid expenses and other current assets						27,511						4,296
Other non-current assets						(7,222)						(4,523)
Accounts payable						116,935						20,630
Accrued liabilities and other						(53,685)						28,113
Accrued compensation and related expenses						(120,699)						(84,123)
Current and non-current income taxes payable						(141,237)						(119,959)
Unredeemed gift card liability						(26,506)						(23,816)
Right-of-use lease assets and current and non-current lease liabilities						5,255						7,115
Other current and non-current liabilities						1,975						(15,476)
Net cash provided by (used in) operating activities						45,503						(243,256)
Cash flows from investing activities
Purchase of property and equipment						(136,942)						(111,352)
Settlement of net investment hedges						(1,277)						10,024
Net cash used in investing activities						(138,219)						(101,328)
Cash flows from financing activities
Proceeds from settlement of stock-based compensation						11,873						5,143
Shares withheld related to net share settlement of stock-based compensation						(28,793)						(32,059)
Repurchase of common stock						(98,479)						(232,644)
Net cash used in financing activities						(115,399)						(259,560)
Effect of foreign currency exchange rate changes on cash and cash equivalents						3,855						(6,711)
Increase (decrease) in cash and cash equivalents						(204,260)						(610,855)
Cash and cash equivalents, beginning of period						$	1,154,867					$	1,259,871
Cash and cash equivalents, end of period						$	950,607					$	649,016

See accompanying notes to the unaudited interim consolidated financial statements

lululemon athletica inc.

INDEX FOR NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL

STATEMENTS

Note 1			Nature of Operations and Basis of Presentation			8
Note 2			Recent Accounting Pronouncements			8
Note 3			Revolving Credit Facilities and Supply Chain Financing Program			9
Note 4			Stock-Based Compensation and Benefit Plans			10
Note 5			Fair Value Measurement			11
Note 6			Derivative Financial Instruments			12
Note 7			Earnings Per Share			14
Note 8			Supplementary Financial Information			15
Note 9			Segmented Information			17
Note 10			Net Revenue by Geography and Category			18
Note 11			Legal Proceedings and Other Contingencies			18

lululemon athletica inc.

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL

STATEMENTS

Note 1. Nature of Operations and Basis of Presentation

Nature of operations

lululemon athletica inc., a Delaware corporation, ("lululemon" and, together with its subsidiaries unless the context otherwise requires, the "Company") is engaged in the design, distribution, and retail of technical athletic apparel, footwear, and accessories, which are sold through a chain of company-operated stores, direct to consumer through e-commerce, outlets, sales to wholesale accounts, license and supply arrangements, recommerce, and sales from temporary locations. Recommerce is the sale of repurchased product via the Company's "Like New" program. The Company operates stores in the United States, the People's Republic of China ("PRC"), Canada, Australia, the United Kingdom, South Korea, Germany, New Zealand, Singapore, Japan, France, Ireland, Spain, Malaysia, Sweden, the Netherlands, Norway, and Switzerland. There were 662 and 655 company-operated stores as of April 30, 2023 and January 29, 2023, respectively. The Company also offers in-home connected fitness and associated content subscriptions through lululemon Studio.

Basis of presentation

The unaudited interim consolidated financial statements as of April 30, 2023 and for the quarters ended April 30, 2023 and May 1, 2022 are presented in U.S. dollars and have been prepared by the Company under the rules and regulations of the Securities and Exchange Commission ("SEC"). The financial information is presented in accordance with United States generally accepted accounting principles ("GAAP") for interim financial information and, accordingly, does not include all of the information and footnotes required by GAAP for complete financial statements. The financial information as of January 29, 2023 is derived from the Company's audited consolidated financial statements and related notes for the fiscal year ended January 29, 2023, which are included in Item 8 in the Company's fiscal 2022 Annual Report on Form 10-K filed with the SEC on March 28, 2023. These unaudited interim consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. These unaudited interim consolidated financial statements should be read in conjunction with the Company's consolidated financial statements and related notes included in Item 8 in the Company's fiscal 2022 Annual Report on Form 10-K. Note 2. Recent Accounting Pronouncements sets out the impact of recent accounting pronouncements.

The Company's fiscal year ends on the Sunday closest to January 31 of the following year, typically resulting in a 52-week year, but occasionally giving rise to an additional week, resulting in a 53-week year. Fiscal 2023 will end on January 28, 2024 and will be a 52-week year. Fiscal 2022 was a 52-week year and ended on January 29, 2023. Fiscal 2023 and fiscal 2022 are referred to as "2023," and "2022," respectively. The first quarter of 2023 and 2022 ended on April 30, 2023 and May 1, 2022, respectively.

The Company's business is affected by the pattern of seasonality common to most retail apparel businesses. Historically, the Company has recognized a significant portion of its operating profit in the fourth fiscal quarter of each year as a result of increased net revenue during the holiday season.

Use of estimates

The preparation of financial statements in conformity with GAAP in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of net revenue and expenses during the reporting period. Actual results could differ from those estimates.

Note 2. Recent Accounting Pronouncements

Recently adopted accounting pronouncements

The Company considers the applicability and impact of all Accounting Standard Updates ("ASUs"). ASUs adopted by the Company during the first quarter of 2023 not listed below were assessed, and determined to be either not applicable or are expected to have minimal impact on its consolidated financial position or results of operations.

In September 2022, the FASB issued ASC 405-50, Liabilities - Supplier Finance Programs, to require annual and interim disclosures about the key terms of supplier finance programs used in connection with the purchase of goods and services along with information about the obligations under these programs, including the amount outstanding at the end of each

reporting period and a rollforward of those obligations. The Company adopted this update during the first quarter of 2023 and the related disclosures are included in Note 3. Revolving Credit Facilities and Supply Chain Financing Program.

Recently issued accounting pronouncements

ASUs recently issued were assessed and determined to be either not applicable or are expected to have minimal impact on its consolidated financial position or results of operations.

Note 3. Revolving Credit Facilities and Supply Chain Financing Program

North America revolving credit facility

On December 14, 2021, the Company entered into an amended and restated credit agreement extending its existing credit facility, which provides for $400.0 million in commitments under an unsecured five-year revolving credit facility. The credit facility has a maturity date of December 14, 2026, subject to extension under certain circumstances. Borrowings under the credit facility may be prepaid and commitments may be reduced or terminated without premium or penalty (other than customary breakage costs).

As of April 30, 2023, aside from letters of credit of $6.5 million, the Company had no other borrowings outstanding under this credit facility.

Borrowings made under the credit facility bear interest at a rate per annum equal to, at the Company's option, either (a) a rate based on the Secured Overnight Financing Rate as administered by the Federal Reserve Bank of New York ("SOFR"), or (b) an alternate base rate, plus, in each case, an applicable margin. The applicable margin is determined by reference to a pricing grid, based on the ratio of indebtedness to earnings before interest, tax, depreciation, amortization, and rent ("EBITDAR") and ranges between 1.000%-1.375% for SOFR loans and 0.000%-0.375% for alternate base rate or Canadian prime rate loans. Additionally, a commitment fee of between 0.100%-0.200%, also determined by reference to the pricing grid, is payable on the average daily unused amounts under the credit facility.

The applicable interest rates and commitment fees are subject to adjustment based on certain sustainability key performance indicators ("KPIs"). The two KPIs are based on greenhouse gas emissions intensity reduction and gender pay equity, and the Company's performance against certain targets measured on an annual basis could result in positive or negative sustainability rate adjustments of 2.50 basis points to its drawn pricing and positive or negative sustainability fee adjustments of 0.50 basis points to its undrawn pricing.

The credit agreement contains negative covenants that, among other things and subject to certain exceptions, limit the ability of the Company's subsidiaries to incur indebtedness, incur liens, undergo fundamental changes, make dispositions of all or substantially all of their assets, alter their businesses and enter into agreements limiting subsidiary dividends and distributions.

The Company's financial covenants include maintaining an operating lease adjusted leverage ratio of not greater than 3.25:1.00 and the ratio of consolidated EBITDAR to consolidated interest charges (plus rent) of not less than 2.00:1.00. The credit agreement also contains certain customary representations, warranties, affirmative covenants, and events of default (including, among others, an event of default upon the occurrence of a change of control). If an event of default occurs, the credit agreement may be terminated, and the maturity of any outstanding amounts may be accelerated. As of April 30, 2023, the Company was in compliance with the covenants of the credit facility.

China Mainland revolving credit facility

In December 2019, the Company entered into an uncommitted and unsecured 130.0 million Chinese Yuan ($18.8 million) revolving credit facility with terms that are reviewed on an annual basis. The credit facility was increased to 230.0 million Chinese Yuan ($33.3 million) during 2020. It is comprised of a revolving loan of up to 200.0 million Chinese Yuan ($28.9 million) and a financial guarantee facility of up to 30.0 million Chinese Yuan ($4.3 million), or its equivalent in another currency. Loans are available for a period not to exceed 12 months, at an interest rate equal to the loan prime rate plus a spread of 0.5175%. The Company is required to follow certain covenants. As of April 30, 2023, the Company was in compliance with the covenants and, aside from letters of credit of 25.1 million Chinese Yuan ($3.6 million), there were no other borrowings or guarantees outstanding under this credit facility.

Supply Chain Financing Program

The Company facilitates a voluntary supply chain financing ("SCF") program that allows its suppliers to elect to sell the receivables owed to them by the Company to a third party financial institution. Participating suppliers negotiate arrangements

directly with the financial institution. If a supplier chooses to participate in the SCF program it may request an invoice be paid earlier than it would by the Company, and the financial institution at its sole and absolute discretion, may elect to make an early payment to the supplier at a discount. The Company’s obligations to its suppliers, including amounts due and scheduled payment terms, are not impacted by a supplier’s participation in the arrangement and the Company provides no guarantees to any third parties under the SCF program.

As of April 30, 2023 and January 29, 2023, $65.2 million and $17.6 million, respectively, was outstanding under the SCF program and presented within accounts payable.

Note 4. Stock-Based Compensation and Benefit Plans

Stock-based compensation plans

The Company's eligible employees participate in various stock-based compensation plans, provided directly by the Company.

Stock-based compensation expense charged to income for the plans was $21.0 million and $18.2 million for the first quarter of 2023 and 2022, respectively. Total unrecognized compensation cost for all stock-based compensation plans was $206.6 million as of April 30, 2023, which is expected to be recognized over a weighted-average period of 2.5 years.

A summary of the balances of the Company's stock-based compensation plans as of April 30, 2023, and changes during the first quarter then ended, is presented below:

						Stock Options												Performance-Based Restricted Stock Units												Restricted Shares												Restricted Stock Units
						Number						Weighted-Average Exercise Price						Number						Weighted-Average Grant Date Fair Value						Number						Weighted-Average Grant Date Fair Value						Number						Weighted-Average Grant Date Fair Value
						(In thousands, except per share amounts)
Balance as of January 29, 2023						866						$	230.78					166						$	295.93					5						$	308.66					221						$	323.89
Granted						202						358.09						120						295.03						—						—						116						358.09
Exercised/released						84						140.75						104						200.37						—						—						86						281.70
Forfeited/expired						6						307.34						1						335.71						—						—						3						337.28
Balance as of April 30, 2023						978						$	264.40					181						$	349.71					5						$	308.66					248						$	354.36
Exercisable as of April 30, 2023						495						$	194.41

The Company's performance-based restricted stock units are awarded to eligible employees and entitle the grantee to receive a maximum of two shares of common stock per performance-based restricted stock unit if the Company achieves specified performance goals and the grantee remains employed during the vesting period. The fair value of performance-based restricted stock units is based on the closing price of the Company's common stock on the grant date. Expense for performance-based restricted stock units is recognized when it is probable that the performance goal will be achieved.

The grant date fair value of the restricted shares and restricted stock units is based on the closing price of the Company's common stock on the grant date.

The grant date fair value of each stock option granted is estimated on the date of grant using the Black-Scholes model. The closing price of the Company's common stock on the grant date is used in the model. The assumptions used to calculate the fair value of the options granted are evaluated and revised, as necessary, to reflect market conditions and the Company's historical experience. The expected term of the options is based upon the historical experience of similar awards, giving consideration to expectations of future employee exercise behavior. Expected volatility is based upon the historical volatility of the Company's common stock for the period corresponding with the expected term of the options. The risk-free interest rate is based on the U.S. Treasury yield curve for the period corresponding with the expected term of the options. The

following are weighted averages of the assumptions that were used in calculating the fair value of stock options granted during the first quarter of 2023:

						First Quarter
						2023
Expected term						3.75 years
Expected volatility						42.35		%
Risk-free interest rate						3.49		%
Dividend yield						—		%

Employee share purchase plan

The Company's board of directors and stockholders approved the Company's Employee Share Purchase Plan ("ESPP") in September 2007. Contributions are made by eligible employees, subject to certain limits defined in the ESPP, and the Company matches one-third of the contribution. The maximum number of shares authorized to be purchased under the ESPP is 6.0 million shares. All shares purchased under the ESPP are purchased in the open market. During the first quarter of 2023, there were 27.7 thousand shares purchased.

Defined contribution pension plans

The Company offers defined contribution pension plans to its eligible employees. Participating employees may elect to defer and contribute a portion of their eligible compensation to a plan up to limits stated in the plan documents, not to exceed the dollar amounts set by applicable laws. The Company matches 50% to 75% of the contribution depending on the participant's length of service, and the contribution is subject to a two year vesting period. The Company's net expense for the defined contribution plans was $4.8 million and $3.4 million in the first quarter of 2023 and 2022, respectively.

Note 5. Fair Value Measurement

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are made using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value:

• Level 1 - defined as observable inputs such as quoted prices in active markets;

• Level 2 - defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and

• Level 3 - defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

Assets and liabilities measured at fair value on a recurring basis

The fair value measurement is categorized in its entirety by reference to its lowest level of significant input. As of April 30, 2023 and January 29, 2023, the Company held certain assets and liabilities that are required to be measured at fair value on a recurring basis:

						April 30, 2023						Level 1						Level 2						Level 3						Balance Sheet Classification
						(In thousands)
Money market funds						$	362,740					$	362,740					$	—					$	—					Cash and cash equivalents
Term deposits						8						—						8						—						Cash and cash equivalents
Forward currency contract assets						17,388						—						17,388						—						Prepaid expenses and other current assets
Forward currency contract liabilities						9,993						—						9,993						—						Other current liabilities

						January 29, 2023						Level 1						Level 2						Level 3						Balance Sheet Classification
						(In thousands)
Money market funds						$	568,000					$	568,000					$	—					$	—					Cash and cash equivalents
Term deposits						8						—						8						—						Cash and cash equivalents
Forward currency contract assets						16,707						—						16,707						—						Prepaid expenses and other current assets
Forward currency contract liabilities						25,625						—						25,625						—						Other current liabilities

The Company records cash, accounts receivable, accounts payable, and accrued liabilities at cost. The carrying values of these instruments approximate their fair value due to their short-term maturities.

The Company has short-term, highly liquid investments classified as cash equivalents, which are invested in AAA-rated money market funds, which include investments in government bonds, and term deposits. The Company records cash equivalents at their original purchase prices plus interest that has accrued at the stated rate.

The fair values of the forward currency contract assets and liabilities are determined using observable Level 2 inputs, including foreign currency spot exchange rates, forward pricing curves, and interest rates. The fair values consider the credit risk of the Company and its counterparties. The Company's Master International Swap Dealers Association, Inc., Agreements and other similar arrangements allow net settlements under certain conditions. However, the Company records all derivatives on its consolidated balance sheets at fair value and does not offset derivative assets and liabilities.

Note 6. Derivative Financial Instruments

Foreign currency exchange risk

The Company is exposed to risks associated with changes in foreign currency exchange rates and uses derivative financial instruments to manage its exposure to certain of these foreign currency exchange rate risks. The Company does not enter into derivative contracts for speculative or trading purposes.

The Company currently hedges against changes in the Canadian dollar and Chinese Yuan to the U.S. dollar exchange rate and changes in the Euro and Australian dollar to the Canadian dollar exchange rate using forward currency contracts.

Net investment hedges

The Company is exposed to foreign currency exchange gains and losses which arise on translation of its international subsidiaries' balance sheets into U.S. dollars. These gains and losses are recorded as other comprehensive income (loss), net of tax in accumulated other comprehensive income or loss within stockholders' equity.

The Company holds a significant portion of its assets in Canada and enters into forward currency contracts designed to hedge a portion of the foreign currency exposure that arises on translation of a Canadian subsidiary into U.S. dollars. These forward currency contracts are designated as net investment hedges. The Company assesses hedge effectiveness based on changes in forward rates. The Company recorded no ineffectiveness from net investment hedges during the first quarter of 2023.

The Company classifies the cash flows at settlement of its net investment hedges within investing activities in the consolidated statements of cash flows.

Derivatives not designated as hedging instruments

The Company is exposed to gains and losses arising from changes in foreign currency exchange rates associated with transactions which are undertaken by its subsidiaries in currencies other than their functional currency. Such transactions include intercompany transactions and inventory purchases. These transactions result in the recognition of certain foreign currency denominated monetary assets and liabilities which are remeasured to the quarter-end or settlement date foreign currency exchange rate. The resulting foreign currency gains and losses are recorded in selling, general and administrative expenses.

During the first quarter of 2023, the Company entered into certain forward currency contracts designed to economically hedge the foreign currency exchange revaluation gains and losses that are recognized by its Canadian and Chinese subsidiaries on specific monetary assets and liabilities denominated in currencies other than the functional currency of the entity. The

Company has not applied hedge accounting to these instruments and the change in fair value of these derivatives is recorded within selling, general and administrative expenses.

The Company classifies the cash flows at settlement of its forward currency contracts which are not designated in hedging relationships within operating activities in the consolidated statements of cash flows.

Quantitative disclosures about derivative financial instruments

The Company presents its derivative assets and derivative liabilities at their gross fair values within prepaid expenses and other current assets and other current liabilities on the consolidated balance sheets. However, the Company's Master International Swap Dealers Association, Inc., Agreements and other similar arrangements allow net settlements under certain conditions. As of April 30, 2023, there were derivative assets of $17.4 million and derivative liabilities of $10.0 million subject to enforceable netting arrangements.

The notional amounts and fair values of forward currency contracts were as follows:

						April 30, 2023																		January 29, 2023
						Gross Notional						Assets						Liabilities						Gross Notional						Assets						Liabilities
						(In thousands)
Derivatives designated as net investment hedges:
Forward currency contracts						$	1,215,000					$	8,194					$	—					$	1,070,000					$	—					$	17,211
Derivatives not designated in a hedging relationship:
Forward currency contracts						1,760,191						9,194						9,993						1,605,284						16,707						8,414
Net derivatives recognized on consolidated balance sheets:
Forward currency contracts												$	17,388					$	9,993											$	16,707					$	25,625

The forward currency contracts designated as net investment hedges outstanding as of April 30, 2023 mature on different dates between May 2023 and August 2023.

The forward currency contracts not designated in a hedging relationship outstanding as of April 30, 2023 mature on different dates between May 2023 and August 2023.

The pre-tax gains and losses on foreign currency exchange forward contracts recorded in accumulated other comprehensive income or loss were as follows:

						First Quarter
						2023						2022
						(In thousands)
Gains (losses) recognized in net investment hedge gains (losses):
Derivatives designated as net investment hedges						$	24,127					$	6,847

No gains or losses have been reclassified from accumulated other comprehensive income or loss into net income for derivative financial instruments in a net investment hedging relationship, as the Company has not sold or liquidated (or substantially liquidated) its hedged subsidiary.

The pre-tax net foreign currency exchange and derivative gains and losses recorded in the consolidated statement of operations were as follows:

						First Quarter
						2023						2022
						(In thousands)
Gains (losses) recognized in selling, general and administrative expenses:
Foreign currency exchange gains (losses)						$	8,328					$	(1,743)
Derivatives not designated in a hedging relationship						(9,707)						(892)
Net foreign currency exchange and derivative gains (losses)						$	(1,379)					$	(2,635)

Credit risk

The Company is exposed to credit-related losses in the event of nonperformance by the counterparties to the forward currency contracts. The credit risk amount is the Company's unrealized gains on its derivative instruments, based on foreign currency rates at the time of nonperformance.

The Company's forward currency contracts are entered into with investment grade credit worthy and reputable financial institutions that are monitored by the Company for counterparty risk.

The Company's derivative contracts contain certain credit risk-related contingent features. Under certain circumstances, including an event of default, bankruptcy, termination, and cross default under the Company's revolving credit facility, the Company may be required to make immediate payment for outstanding liabilities under its derivative contracts.

Note 7. Earnings Per Share

The details of the computation of basic and diluted earnings per share are as follows:

						First Quarter
						2023						2022
						(In thousands, except per share amounts)
Net income						$	290,405					$	189,998
Basic weighted-average number of shares outstanding						127,246						128,077
Assumed conversion of dilutive stock options and awards						375						464
Diluted weighted-average number of shares outstanding						127,621						128,541
Basic earnings per share						$	2.28					$	1.48
Diluted earnings per share						$	2.28					$	1.48

The Company's calculation of weighted-average shares includes the common stock of the Company as well as the exchangeable shares. Exchangeable shares are the equivalent of common shares in all material respects. All classes of stock have, in effect, the same rights and share equally in undistributed net income. For the first quarter of 2023 and 2022, 0.1 million and 0.1 million stock options and awards, respectively, were anti-dilutive to earnings per share and therefore have been excluded from the computation of diluted earnings per share.

On January 31, 2019, the Company's board of directors approved a stock repurchase program for up to $500.0 million of the Company's common shares. On December 1, 2020, it approved an increase in the remaining authorization from $263.6 million to $500.0 million, and on October 1, 2021, it approved an increase in the remaining authorization from $141.2 million to $641.2 million. During the first quarter of 2022, the Company completed the remaining stock repurchases under this program.

On March 23, 2022, the Company's board of directors approved a stock repurchase program for up to $1.0 billion of the Company's common shares on the open market or in privately negotiated transactions. The repurchase plan has no time limit and does not require the repurchase of a minimum number of shares. Common shares repurchased on the open market are at prevailing market prices, including under plans complying with the provisions of Rule 10b5-1 and Rule 10b-18 of the Securities Exchange Act of 1934. The timing and actual number of common shares to be repurchased will depend upon market conditions, eligibility to trade, and other factors, in accordance with Securities and Exchange Commission

requirements. The authorized value of shares available to be repurchased under this program excludes the cost of commissions and excise taxes and as of April 30, 2023, the remaining authorized value was $645.7 million.

During the first quarter of 2023, 0.3 million shares were repurchased at a total cost including commissions and excise taxes of $98.5 million. During the first quarter of 2022, 0.7 million shares were repurchased at a total cost including commissions of $232.6 million.

Subsequent to April 30, 2023, and up to May 26, 2023, 0.2 million shares were repurchased at a total cost including commissions and excise taxes of $57.1 million.

Note 8. Supplementary Financial Information

A summary of certain consolidated balance sheet accounts is as follows:

						April 30, 2023						January 29, 2023
						(In thousands)
Inventories:
Inventories, at cost						$	1,722,629					$	1,571,981
Provision to reduce inventories to net realizable value						(142,316)						(124,614)
						$	1,580,313					$	1,447,367
Prepaid expenses and other current assets:
Prepaid expenses						$	143,109					$	142,003
Forward currency contract assets						17,388						16,707
Other current assets						72,024						79,962
						$	232,521					$	238,672
Property and equipment, net:
Land						$	78,932					$	80,692
Buildings						28,898						28,850
Leasehold improvements						855,745						818,071
Furniture and fixtures						147,539						144,572
Computer hardware						166,810						166,768
Computer software						812,792						742,295
Equipment and vehicles						35,991						30,766
Work in progress						209,879						244,898
Property and equipment, gross						2,336,586						2,256,912
Accumulated depreciation						(1,023,793)						(987,298)
						$	1,312,793					$	1,269,614
Other non-current assets:
Cloud computing arrangement implementation costs						$	119,973					$	114,700
Security deposits						28,945						28,447
Other						12,807						12,898
						$	161,725					$	156,045

						April 30, 2023						January 29, 2023
						(In thousands)
Accrued liabilities and other:
Accrued operating expenses						$	144,501					$	169,429
Accrued freight						33,066						57,692
Sales return allowances						44,999						55,528
Forward currency contract liabilities						9,993						25,625
Accrued duty						29,782						21,046
Sales tax collected						19,639						20,183
Accrued capital expenditures						17,141						19,365
Accrued rent						13,725						12,223
Accrued inventory liabilities						16,728						4,345
Other						13,177						13,787
						$	342,751					$	399,223

Note 9. Segmented Information

The Company's segments are based on the financial information it uses in managing its business and comprise two reportable segments: (i) company-operated stores and (ii) direct to consumer. The remainder of its operations, which includes outlets, sales to wholesale accounts, license and supply arrangements, recommerce, temporary locations, and lululemon Studio, are included within Other.

						First Quarter
						2023						2022
						(In thousands)
Net revenue:
Company-operated stores						$	958,087					$	731,604
Direct to consumer						834,942						721,253
Other						207,763						160,606
						$	2,000,792					$	1,613,463
Segmented income from operations:
Company-operated stores						$	259,819					$	160,706
Direct to consumer						369,453						285,107
Other						44,083						19,527
						673,355						465,340
General corporate expense						270,063						202,798
Amortization of intangible assets						1,878						2,195
Income from operations						401,414						260,347
Other income (expense), net						8,025						(22)
Income before income tax expense						$	409,439					$	260,325
Capital expenditures:
Company-operated stores						$	41,711					$	24,946
Direct to consumer						26,890						20,339
Corporate and other						68,341						66,067
						$	136,942					$	111,352
Depreciation and amortization:
Company-operated stores						$	36,749					$	31,310
Direct to consumer						8,666						8,669
Corporate and other						38,701						24,491
						$	84,116					$	64,470

Note 10. Net Revenue by Geography and Category

In addition to the disaggregation of net revenue by reportable segment in Note 9. Segmented Information, the following table disaggregates the Company's net revenue by geographic area.

						First Quarter
						2023						2022
						(In thousands)
United States						$	1,314,391					$	1,098,329
Canada						253,347						244,944
People's Republic of China						249,685						139,427
Rest of world						183,369						130,763
						$	2,000,792					$	1,613,463

The following table disaggregates the Company's net revenue by category. Other categories is primarily composed of accessories, lululemon Studio, and footwear.

						First Quarter
						2023						2022
						(In thousands)
Women's product						$	1,308,828					$	1,073,924
Men's product						438,165						374,998
Other categories						253,799						164,541
						$	2,000,792					$	1,613,463

Note 11. Legal Proceedings and Other Contingencies

The Company is, from time to time, involved in routine legal matters, and audits and inspections by governmental agencies and other third parties which are incidental to the conduct of its business. This includes legal matters such as initiation and defense of proceedings to protect intellectual property rights, personal injury claims, product liability claims, employment claims, and similar matters. The Company believes the ultimate resolution of any such legal proceedings, audits, and inspections will not have a material adverse effect on its consolidated balance sheets, results of operations or cash flows. The Company has recognized immaterial provisions related to the expected outcome of legal proceedings.