Item 1. FINANCIAL STATEMENTS (UNAUDITED)

90K characters. Original on sec.gov · Markdown

Item 1. FINANCIAL STATEMENTS (UNAUDITED)

lululemon athletica inc.

CONSOLIDATED BALANCE SHEETS

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


	October 27, 2024		January 28, 2024
ASSETS
Current assets
Cash and cash equivalents	$	1,188,419	$	2,243,971
Accounts receivable, net	143,418		124,769
Inventories	1,800,893		1,323,602
Prepaid and receivable income taxes	257,388		183,733
Prepaid expenses and other current assets	215,171		184,502
	3,605,289		4,060,577
Property and equipment, net	1,697,759		1,545,811
Right-of-use lease assets	1,360,589		1,265,610
Goodwill	164,462		24,083
Intangible assets, net	13,723		—
Deferred income tax assets	9,253		9,176
Other non-current assets	232,594		186,684
	$	7,083,669	$	7,091,941
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	385,960	$	348,441
Accrued liabilities and other	561,615		348,555
Accrued compensation and related expenses	190,169		326,110
Current lease liabilities	290,368		249,270
Current income taxes payable	96,808		12,098
Unredeemed gift card liability	238,327		306,479
Other current liabilities	40,286		40,308
	1,803,533		1,631,261
Non-current lease liabilities	1,223,733		1,154,012
Non-current income taxes payable	—		15,864
Deferred income tax liabilities	33,231		29,522
Other non-current liabilities	37,440		29,201
	3,097,937		2,859,860
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; 117,046 and 121,106 issued and outstanding	585		606
Additional paid-in capital	610,402		575,369
Retained earnings	3,694,547		3,920,362
Accumulated other comprehensive loss	(319,802)		(264,256)
	3,985,732		4,232,081
	$	7,083,669	$	7,091,941

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				Three Quarters Ended
	October 27, 2024		October 29, 2023		October 27, 2024		October 29, 2023
Net revenue	$	2,396,660	$	2,204,218	$	6,976,629	$	6,414,175
Cost of goods sold	995,054		947,554		2,887,770		2,708,195
Gross profit	1,401,606		1,256,664		4,088,859		3,705,980
Selling, general and administrative expenses	909,827		842,795		2,624,212		2,407,683
Impairment of assets and restructuring costs	—		74,501		—		74,501
Amortization of intangible assets	1,118		1,253		1,118		5,010

Income from operations	490,661		338,115		1,463,529		1,218,786
Other income (expense), net	13,743		9,842		55,020		25,229
Income before income tax expense	504,404		347,957		1,518,549		1,244,015
Income tax expense	152,534		99,243		452,336		363,293
Net income	$	351,870	$	248,714	$	1,066,213	$	880,722

Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment	$	(22,277)	$	(96,478)	$	(92,153)	$	(84,442)
Net investment hedge gains (losses)	12,292		20,490		36,607		21,196
Other comprehensive income (loss), net of tax	$	(9,985)	$	(75,988)	$	(55,546)	$	(63,246)
Comprehensive income	$	341,885	$	172,726	$	1,010,667	$	817,476

Basic earnings per share	$	2.87	$	1.97	$	8.57	$	6.94
Diluted earnings per share	$	2.87	$	1.96	$	8.55	$	6.92
Basic weighted-average number of shares outstanding	122,697		126,460		124,471		126,892
Diluted weighted-average number of shares outstanding	122,803		126,770		124,668		127,218

See accompanying notes to the unaudited interim consolidated financial statements

lululemon athletica inc.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited; Amounts in thousands)


	Quarter Ended October 27, 2024
	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 July 28, 2024	5,116	5,116	$	—	118,610	$	593	$	589,156	$	3,751,713	$	(309,817)	$	4,031,645
Net income										351,870				351,870
Other comprehensive income (loss), net of tax												(9,985)		(9,985)

Stock-based compensation expense								24,169						24,169
Common stock issued upon settlement of stock-based compensation					15	—		1,514						1,514
Shares withheld related to net share settlement of stock-based compensation					(3)	—		(888)						(888)
Repurchase of common stock, including excise tax					(1,576)	(8)		(3,549)		(409,036)				(412,593)
Balance as of October 27, 2024	5,116	5,116	$	—	117,046	$	585	$	610,402	$	3,694,547	$	(319,802)	$	3,985,732


	Quarter Ended October 29, 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 July 30, 2023	5,116	5,116	$	—	121,613	$	608	$	505,127	$	3,267,589	$	(239,842)	$	3,533,482
Net income										248,714				248,714
Other comprehensive income (loss), net of tax												(75,988)		(75,988)

Stock-based compensation expense								24,573						24,573
Common stock issued upon settlement of stock-based compensation					67	2		8,834						8,836
Shares withheld related to net share settlement of stock-based compensation					(5)	—		(1,142)						(1,142)
Repurchase of common stock, including excise tax					(553)	(4)		(1,002)		(211,620)				(212,626)
Balance as of October 29, 2023	5,116	5,116	$	—	121,122	$	606	$	536,390	$	3,304,683	$	(315,830)	$	3,525,849


	Three Quarters Ended October 27, 2024
	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 28, 2024	5,116	5,116	$	—	121,106	$	606	$	575,369	$	3,920,362	$	(264,256)	$	4,232,081
Net income										1,066,213				1,066,213
Other comprehensive income (loss), net of tax												(55,546)		(55,546)

Stock-based compensation expense								71,494						71,494
Common stock issued upon settlement of stock-based compensation					239	—		7,277						7,277
Shares withheld related to net share settlement of stock-based compensation					(90)	—		(34,259)						(34,259)
Repurchase of common stock, including excise tax					(4,209)	(21)		(9,479)		(1,292,028)				(1,301,528)
Balance as of October 27, 2024	5,116	5,116	$	—	117,046	$	585	$	610,402	$	3,694,547	$	(319,802)	$	3,985,732


	Three Quarters Ended October 29, 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										880,722				880,722
Other comprehensive income (loss), net of tax												(63,246)		(63,246)

Stock-based compensation expense								70,157						70,157
Common stock issued upon settlement of stock-based compensation					374	2		24,935						24,937
Shares withheld related to net share settlement of stock-based compensation					(95)	—		(30,877)						(30,877)
Repurchase of common stock, including excise tax					(1,362)	(7)		(2,470)		(502,166)				(504,643)
Balance as of October 29, 2023	5,116	5,116	$	—	121,122	$	606	$	536,390	$	3,304,683	$	(315,830)	$	3,525,849

See accompanying notes to the unaudited interim consolidated financial statements

lululemon athletica inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; Amounts in thousands)


	Three Quarters Ended
	October 27, 2024		October 29, 2023
Cash flows from operating activities
Net income	$	1,066,213	$	880,722
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	312,931		276,094
lululemon Studio obsolescence provision	—		23,709
Impairment of assets and restructuring costs	—		74,501


Stock-based compensation expense	71,494		70,157
Settlement of derivatives not designated in a hedging relationship	(19,645)		29,499
Changes in operating assets and liabilities:
Inventories	(477,682)		(301,801)
Prepaid and receivable income taxes	(74,915)		(114,616)
Prepaid expenses and other current assets	(50,935)		41,202
Other non-current assets	(60,638)		(30,513)
Accounts payable	45,579		141,685
Accrued liabilities and other	171,566		(16,238)
Accrued compensation and related expenses	(133,630)		(1,496)
Current and non-current income taxes payable	70,615		(153,539)
Unredeemed gift card liability	(66,623)		(35,927)
Right-of-use lease assets and current and non-current lease liabilities	16,234		19,898
Other current and non-current liabilities	759		8,729
Net cash provided by operating activities	871,323		912,066
Cash flows from investing activities
Purchase of property and equipment	(454,250)		(445,353)
Settlement of net investment hedges	15,041		686
Acquisition, net of cash acquired	(130,996)		—
Other investing activities	(5,009)		(658)
Net cash used in investing activities	(575,214)		(445,325)
Cash flows from financing activities
Proceeds from settlement of stock-based compensation	7,277		24,937
Shares withheld related to net share settlement of stock-based compensation	(34,259)		(30,877)
Repurchase of common stock	(1,301,528)		(504,643)


Net cash used in financing activities	(1,328,510)		(510,583)
Effect of foreign currency exchange rate changes on cash and cash equivalents	(23,151)		(19,887)
Decrease in cash and cash equivalents	(1,055,552)		(63,729)
Cash and cash equivalents, beginning of period	$	2,243,971	$	1,154,867
Cash and cash equivalents, end of period	$	1,188,419	$	1,091,138

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	9
Note 2	Recent Accounting Pronouncements	9
Note 3	Acquisition	10
Note 4	Impairment of Assets and Restructuring Costs	11
Note 5	Revolving Credit Facilities	12
Note 6	Supply Chain Financing Program	12
Note 7	Stock-Based Compensation and Benefit Plans	13
Note 8	Fair Value Measurement	14
Note 9	Derivative Financial Instruments	15
Note 10	Earnings Per Share	17
Note 11	Supplementary Financial Information	18
Note 12	Segmented Information	19
Note 13	Disaggregated Net Revenue	21
Note 14	Legal Proceedings and Other Contingencies	21

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. The Company organizes its operations into four regional markets: Americas, China Mainland, Asia Pacific ("APAC"), and Europe and the Middle East ("EMEA"). It conducts its business through a number of different channels in each market, including company-operated stores, e-commerce, temporary locations, wholesale, outlets, a re-commerce program, and license and supply arrangements. There were 749 and 711 company-operated stores as of October 27, 2024 and January 28, 2024, respectively.

Basis of presentation

The unaudited interim consolidated financial statements, including the financial position as of October 27, 2024 and the results of operations and cash flows for the periods disclosed, 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 28, 2024 is derived from the Company's audited consolidated financial statements and related notes for the fiscal year ended January 28, 2024, which are included in Item 8 in the Company's fiscal 2023 Annual Report on Form 10-K filed with the SEC on March 21, 2024. These unaudited interim consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for 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 2023 Annual Report on Form 10-K. Note 2. Recent Accounting Pronouncements sets out the impact of recent accounting pronouncements.

On September 10, 2024, the Company acquired the lululemon branded retail locations and operations run by a third party in Mexico. The Company had previously granted the third party the right to operate retail locations and to sell lululemon products in Mexico. The results of operations, financial position, and cash flows of the Mexico operations have been included in the Company's consolidated financial statements since the date of acquisition. Please refer to Note 3. Acquisition for further information.

The Company's fiscal year ends on the Sunday closest to January 31 of the following year, typically resulting in a 52-week year, but occasionally giving rise to an additional week, resulting in a 53-week year. Fiscal 2024 will end on February 2, 2025 and will be a 53-week year. Fiscal 2023 was a 52-week year and ended on January 28, 2024. Fiscal 2024 and fiscal 2023 are referred to as "2024," and "2023," respectively. The first three quarters of 2024 and 2023 ended on October 27, 2024 and October 29, 2023, 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 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

The Company considers the applicability and impact of all Accounting Standard Updates ("ASUs"). ASUs recently issued not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on the Company's consolidated financial position or results of operations.

Recently issued accounting pronouncements

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. Entities will be required to provide disclosures of significant segmented expenses and other categories used by the Chief Operating Decision Maker ("CODM") in order to enhance disclosure at the segment level. This amendment is effective for annual periods beginning after December 15, 2023, and interim periods beginning after December 15, 2024, and is applied retrospectively for periods presented in the financial statements. The Company is currently evaluating the impact that this new guidance may have on its financial statement disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This disclosure requires expanded disclosure within the rate reconciliation as well as disaggregation of annual taxes paid. This amendment is effective for annual periods beginning after December 15, 2024, and is applied prospectively. The Company is currently evaluating the impact that this new guidance may have on its financial statement disclosures.

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. Entities will be required to provide disaggregated disclosures for certain income statement expense line items. This amendment is effective for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027, and shall be applied retrospectively for periods presented in the financial statements. The Company is currently evaluating the impact that this new guidance may have on its financial statement disclosures.

Note 3. Acquisition

The following table summarizes the fair value of the consideration transferred, as well as the calculation of goodwill based on the excess of consideration over the provisional fair value of net assets acquired.


	September 10, 2024
	(In thousands)
Fair value of consideration transferred:
Cash to shareholders	$	159,380
Contingent consideration	15,000
Settlement of intercompany balances	6,975
	181,355
Less cash acquired	(5,234)
Fair value of consideration transferred, net of cash and cash equivalents acquired	$	176,121
Less fair value of net assets acquired:
Assets acquired:
Inventories	$	15,275
Intangible assets	15,500
Other current and non-current assets	14,013
	44,788
Liabilities assumed	(15,668)
Net assets acquired	$	29,120
Goodwill	$	147,001

The purchase price allocation remains provisional as the Company is still obtaining all the information necessary to finalize the fair value of acquired intangibles, deferred taxes, certain contingencies, and the resulting amount of goodwill as of the date of acquisition. Goodwill relates to the assembled workforce and benefits expected as a result of the acquisition and has been allocated to the Americas segment. None of the goodwill is expected to be deductible for income tax purposes.

Reacquired franchise rights were valued using the future expected cash flows of the remaining contractual franchise period until November 2026. These intangible assets have a fair value of $15.5 million, which is expected to be amortized until

November 2026. Contingent consideration of $15.0 million relates to performance related conditions from the acquisition date to December 31, 2025, and has been recognized at fair value.

Of the net cash paid to shareholders, $131.0 million was paid during the third quarter of 2024, and $23.1 million was paid subsequent to October 27, 2024.

The Company has not disclosed pro forma information of the combined business as the transaction is not material to net revenue or net earnings.

During the first three quarters of 2024, the Company recognized $2.5 million in acquisition-related expenses within selling, general and administrative expenses primarily related to legal, accounting, valuation, and other professional services.

Note 4. Impairment of Assets and Restructuring Costs

During the third quarter of 2023, the Company decided to cease selling the lululemon Studio Mirror hardware. It also contracted with Peloton Interactive, Inc. to be the exclusive digital fitness content provider to existing lululemon Studio subscribers, and stopped producing its own digital fitness content. The Company ceased selling the lululemon Studio Mirror and new digital content subscriptions in December 2023.

During the third quarter of 2023, the Company recognized certain inventory provisions, asset impairments, and restructuring costs related to lululemon Studio. The following table summarizes the amounts recognized:


	Third Quarter
	2024		2023
	(In thousands)
Costs recorded in cost of goods sold:
lululemon Studio obsolescence provision	$	—	$	23,709

Costs recorded in operating expenses:
Impairment of assets:
Impairment of intangible assets	$	—	$	16,951
Impairment of cloud computing arrangement implementation costs	—		16,074
Impairment of property and equipment	—		11,161
	$	—	$	44,186
Restructuring costs	—		30,315
Impairment of assets and restructuring costs	$	—	$	74,501

Total pre-tax charges	$	—	$	98,210

Income tax effects of charges	$	—	$	(26,085)
Total after-tax charges	$	—	$	72,125

lululemon Studio obsolescence provision

As a result of the decision to cease selling the lululemon Studio Mirror, the Company recognized an inventory obsolescence provision of $23.7 million during the third quarter of 2023. The net realizable value of the lululemon Studio inventory was based on assumptions regarding liquidation value.

Impairment of assets

As a result of the Company's decision to no longer produce digital fitness content and to cease the sale of the lululemon Studio Mirror, the Company performed impairment testing for the lululemon Studio asset group as of October 29, 2023. The undiscounted cash flows of the lululemon Studio asset group were less than their carrying value, and therefore the Company calculated the fair value of the asset group, which was also less than its carrying value. As a result of the impairment test, the Company recognized asset impairments totaling $44.2 million during the third quarter of 2023. The fair value of long-lived

assets was based on a discounted cash flow model, and is a Level 3 non-recurring fair value measurement. The key assumptions used to estimate the fair value were subscriber churn rates and operating costs.

Restructuring costs

The Company recognized restructuring costs of $30.3 million for lululemon Studio primarily related to contract termination costs, employee severance costs, and professional fees during the third quarter of 2023.

Note 5. Revolving Credit Facilities

Americas 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 October 27, 2024, 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 October 27, 2024, the Company was in compliance with the covenants of the credit facility.

China Mainland revolving credit facility

The Company has an uncommitted and unsecured 300.0 million Chinese Yuan ($42.1 million) revolving credit facility with terms that are reviewed on an annual basis. It is comprised of a revolving loan of up to 200.0 million Chinese Yuan ($28.1 million) and a guarantee facility of up to 100.0 million Chinese Yuan ($14.0 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 October 27, 2024, the Company was in compliance with the covenants and, aside from letters of credit of 44.1 million Chinese Yuan ($6.2 million), there were no other borrowings or guarantees outstanding under this credit facility.

Note 6. 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 October 27, 2024 and January 28, 2024, $49.9 million and $42.1 million, respectively, were outstanding under the SCF program and presented within accounts payable.

Note 7. 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 $70.5 million and $69.5 million for the first three quarters of 2024 and 2023, respectively. Total unrecognized compensation cost for all stock-based compensation plans was $156.8 million as of October 27, 2024, which is expected to be recognized over a weighted-average period of 2.1 years.

A summary of the balances of the Company's stock-based compensation plans as of October 27, 2024, and changes during the first three quarters 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 28, 2024	783	$	285.69	175	$	349.84	4	$	370.85	223	$	359.12
Granted	230	382.84		124	354.12		5	319.19		136	373.86
Exercised/released	39	180.86		100	310.86		4	371.33		95	349.40
Forfeited/expired	64	362.78		19	374.03		—	—		22	372.19
Balance as of October 27, 2024	910	$	309.62	180	$	371.76	5	$	317.86	242	$	370.02
Exercisable as of October 27, 2024	448	$	249.06

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 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 three quarters of 2024:


	First Three Quarters
	2024
Expected term	3.75 years
Expected volatility	37.39	%
Risk-free interest rate	4.30	%
Dividend yield	—	%

Employee share purchase plan

The Company has an Employee Share Purchase Plan ("ESPP"). Contributions are made by eligible employees, subject to certain limits defined in the ESPP, and the Company matches one-third of the contribution. The maximum number of shares authorized to be purchased under the ESPP is 6.0 million shares. All shares purchased under the ESPP are purchased in the open market. During the third quarter of 2024, there were 39.7 thousand shares purchased. As of October 27, 2024, 4.3 million shares remain authorized to be purchased under the ESPP.

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 $16.4 million and $14.6 million in the first three quarters of 2024 and 2023, respectively.

Note 8. 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 October 27, 2024 and January 28, 2024, the Company held certain assets and liabilities that are required to be measured at fair value on a recurring basis:


	October 27, 2024		Level 1		Level 2		Level 3		Balance Sheet Classification
	(In thousands)
Money market funds	$	37,510	$	37,510	$	—	$	—	Cash and cash equivalents

Term deposits	8		—		8		—		Cash and cash equivalents
Forward currency contract assets	36,076		—		36,076		—		Prepaid expenses and other current assets
Forward currency contract liabilities	33,768		—		33,768		—		Other current liabilities


	January 28, 2024		Level 1		Level 2		Level 3		Balance Sheet Classification
	(In thousands)
Money market funds	$	1,102,119	$	1,102,119	$	—	$	—	Cash and cash equivalents

Term deposits	8		—		8		—		Cash and cash equivalents
Forward currency contract assets	647		—		647		—		Prepaid expenses and other current assets
Forward currency contract liabilities	2,872		—		2,872		—		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 money market funds and short-term deposits with original maturities of three months or less. The Company records cash equivalents at their original purchase prices plus interest that has accrued at the stated rate.

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

Note 9. 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 three quarters of 2024.

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 three quarters of 2024, the Company entered into certain forward currency contracts designed to economically hedge the foreign currency exchange revaluation gains and losses that are recognized by its Canadian and Chinese subsidiaries on specific monetary assets and liabilities denominated in currencies other than the functional currency of the entity. The Company has not applied hedge accounting to these instruments and the change in fair value of these derivatives is recorded within selling, general and administrative expenses.

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 October 27, 2024, there were derivative assets of $36.1 million and derivative liabilities of $33.8 million subject to enforceable netting arrangements.

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


	October 27, 2024						January 28, 2024
	Gross Notional		Assets		Liabilities		Gross Notional		Assets		Liabilities
	(In thousands)
Derivatives designated as net investment hedges:
Forward currency contracts	$	1,632,500	$	33,952	$	—	$	1,242,000	$	—	$	258
Derivatives not designated in a hedging relationship:
Forward currency contracts	1,888,854		2,124		33,768		1,543,351		647		2,614
Net derivatives recognized on consolidated balance sheets:
Forward currency contracts			$	36,076	$	33,768			$	647	$	2,872

The forward currency contracts designated as net investment hedges outstanding as of October 27, 2024 mature on different dates between October 2024 and May 2025.

The forward currency contracts not designated in a hedging relationship outstanding as of October 27, 2024 mature on different dates between October 2024 and May 2025.

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


	Third Quarter				First Three Quarters
	2024		2023		2024		2023
	(In thousands)
Gains (losses) recognized in net investment hedge gains (losses):
Derivatives designated as net investment hedges	$	16,538	$	27,898	$	49,250	$	28,859

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:


	Third Quarter				First Three Quarters
	2024		2023		2024		2023
	(In thousands)
Gains (losses) recognized in selling, general and administrative expenses:
Foreign currency exchange gains (losses)	$	13,423	$	18,154	$	44,194	$	(11,944)
Derivatives not designated in a hedging relationship	(20,260)		(17,962)		(49,298)		15,060
Net foreign currency exchange and derivative gains (losses)	$	(6,837)	$	192	$	(5,104)	$	3,116

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 generally entered into with what the Company believes are 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 10. Earnings Per Share

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


	Third Quarter				First Three Quarters
	2024		2023		2024		2023
	(In thousands, except per share amounts)
Net income	$	351,870	$	248,714	$	1,066,213	$	880,722
Basic weighted-average number of shares outstanding	122,697		126,460		124,471		126,892
Assumed conversion of dilutive stock options and awards	106		310		197		326
Diluted weighted-average number of shares outstanding	122,803		126,770		124,668		127,218
Basic earnings per share	$	2.87	$	1.97	$	8.57	$	6.94
Diluted earnings per share	$	2.87	$	1.96	$	8.55	$	6.92

The Company's calculation of weighted-average shares includes the common stock of the Company as well as the exchangeable shares. Exchangeable shares are the economic equivalent of common shares in all material respects. All classes of stock have, in effect, the same economic rights and share equally in undistributed net income. For the first three quarters of 2024 and 2023, 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 March 23, 2022, the Company's board of directors approved a stock repurchase program for up to $1.0 billion of the Company's common shares on the open market or in privately negotiated transactions. During the first quarter of 2024, the Company completed the remaining stock repurchases under this program.

On November 29, 2023, the Company's board of directors approved an additional stock repurchase program for up to $1.0 billion of the Company's common shares on the open market or in privately negotiated transactions. On May 29, 2024, the Company's board of directors approved a $1.0 billion increase to the existing stock repurchase program. The repurchase plan has no time limit and does not require the repurchase of a minimum number of shares. Common shares repurchased on the open market are at prevailing market prices, including under plans complying with the provisions of Rule 10b5-1 and Rule 10b-18 of the Securities Exchange Act of 1934. The timing and actual number of common shares to be repurchased will depend upon market conditions, eligibility to trade, and other factors, in accordance with Securities and Exchange Commission requirements. The authorized value of shares available to be repurchased under this program excludes the cost of commissions and excise taxes and as of October 27, 2024, the remaining authorized value was $900.1 million.

During the first three quarters of 2024 and 2023, 4.2 million and 1.4 million shares, respectively, were repurchased at a total cost including commissions and excise taxes of $1.3 billion and $504.6 million, respectively.

Subsequent to October 27, 2024, and up to November 29, 2024, 0.4 million shares were repurchased at a total cost including commissions and excise taxes of $120.6 million.

Note 11. Supplementary Financial Information

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


	October 27, 2024		January 28, 2024
	(In thousands)
Inventories:
Inventories, at cost	$	1,914,758	$	1,465,076
Inventory provisions and reserves	(113,865)		(141,474)
	$	1,800,893	$	1,323,602
Prepaid expenses and other current assets:
Prepaid expenses	$	146,692	$	137,203
Forward currency contract assets	36,076		647
Other current assets	32,403		46,652
	$	215,171	$	184,502
Property and equipment, net:
Land	$	77,839	$	79,498
Buildings	28,451		29,032
Leasehold improvements	1,204,260		1,006,926
Furniture and fixtures	169,082		156,656
Computer hardware	192,608		176,597
Computer software	1,237,123		1,032,567
Equipment and vehicles	49,870		34,017
Work in progress	165,045		247,943
Property and equipment, gross	3,124,278		2,763,236
Accumulated depreciation	(1,426,519)		(1,217,425)
	$	1,697,759	$	1,545,811
Other non-current assets:
Cloud computing arrangement implementation costs	$	155,457	$	133,597
Security deposits	45,386		31,825
Other	31,751		21,262
	$	232,594	$	186,684


	October 27, 2024		January 28, 2024
	(In thousands)
Accrued liabilities and other:
Accrued operating expenses	$	225,305	$	147,215
Sales return allowances	76,365		61,634
Accrued freight	79,985		41,241
Accrued capital expenditures	31,497		31,936
Accrued duty	50,998		25,817
Accrued rent	21,039		12,522
Accrued inventory liabilities	10,093		4,783
Sales tax collected	14,928		3,088
Forward currency contract liabilities	33,768		2,872
Other	17,637		17,447
	$	561,615	$	348,555

Note 12. Segmented Information

The Company's operating segments are based on the financial information the CODM, who is the Chief Executive Officer, uses to evaluate performance and allocate resources.

During the fourth quarter of 2023, the financial information the CODM regularly uses to evaluate performance and allocate resources was revised. As the Company further executed on its omni-channel retail strategy, and with the continued expansion of its international operations, the CODM has shifted resource allocation decisions to be focused by regional market, rather than by selling channel. This resulted in a change in the Company's operating segments.

Since January 28, 2024, the Company has reported three segments: Americas, China Mainland, and Rest of World, which is APAC and EMEA on a combined basis. The Company does not report capital expenditures and assets by segment as that information is not reviewed by the CODM. Previously, the Company's operating segments were comprised of company-operated stores, direct to consumer (or "e-commerce"), and other. The Company has recast the prior period information to reflect its new operating segments.


	Third Quarter				First Three Quarters
	2024		2023		2024		2023
	(In thousands)
Net revenue:
Americas	$	1,770,382	$	1,732,398	$	5,134,079	$	5,019,909
China Mainland	318,338		228,595		936,313		673,108
Rest of World	307,940		243,225		906,237		721,158
	$	2,396,660	$	2,204,218	$	6,976,629	$	6,414,175
Segmented income from operations:
Americas	$	654,939	$	636,714	$	1,889,206	$	1,878,506
China Mainland	110,600		76,792		349,463		234,158
Rest of World	68,762		45,552		209,443		140,638
	834,301		759,058		2,448,112		2,253,302
General corporate expense	342,522		321,480		983,465		931,296
lululemon Studio obsolescence provision	—		23,709		—		23,709
Impairment of assets and restructuring costs	—		74,501		—		74,501
Amortization of intangible assets	1,118		1,253		1,118		5,010

Income from operations	490,661		338,115		1,463,529		1,218,786
Other income (expense), net	13,743		9,842		55,020		25,229
Income before income tax expense	$	504,404	$	347,957	$	1,518,549	$	1,244,015

Depreciation and amortization:
Americas	$	51,726	$	45,074	$	143,876	$	124,724
China Mainland	8,136		6,521		23,923		18,280
Rest of World	8,151		5,911		22,064		16,964
Corporate	45,586		40,463		123,068		116,126
	$	113,599	$	97,969	$	312,931	$	276,094

Note 13. Disaggregated Net Revenue

In addition to the disaggregation of net revenue by reportable segment in Note 12. Segmented Information, the following table disaggregates the Company's net revenue by geographic area.

Prior to the acquisition of the Mexico operations on September 10, 2024, wholesale sales to the third party under the license and supply arrangement by lululemon athletica canada inc. were disclosed as net revenue recognized within Canada.


	Third Quarter				First Three Quarters
	2024		2023		2024		2023
	(In thousands)
United States	$	1,424,234	$	1,423,574	$	4,186,614	$	4,162,891
Canada	335,484		308,824		936,801		857,018
Mexico	10,664		—		10,664		—
Americas	1,770,382		1,732,398		5,134,079		5,019,909

China Mainland	318,338		228,595		936,313		673,108
Hong Kong SAR, Taiwan, and Macau SAR	41,050		38,296		125,349		120,968
People's Republic of China	359,388		266,891		1,061,662		794,076

Other geographic areas	266,890		204,929		780,888		600,190
	$	2,396,660	$	2,204,218	$	6,976,629	$	6,414,175

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


	Third Quarter				First Three Quarters
	2024		2023		2024		2023
	(In thousands)
Women's product	$	1,555,686	$	1,433,927	$	4,467,048	$	4,139,082
Men's product	551,430		504,828		1,644,653		1,473,716
Other categories	289,544		265,463		864,928		801,377
	$	2,396,660	$	2,204,218	$	6,976,629	$	6,414,175

The following table disaggregates the Company's net revenue by channel.


	Third Quarter				First Three Quarters
	2024		2023		2024		2023
	(In thousands)
Company-operated stores	$	1,210,523	$	1,073,973	$	3,496,661	$	3,128,999
E-commerce	944,777		908,127		2,761,201		2,636,742
Other channels	241,360		222,118		718,767		648,434
	$	2,396,660	$	2,204,218	$	6,976,629	$	6,414,175

Note 14. Legal Proceedings and Other Contingencies

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

On July 12, 2024, lululemon and its subsidiary, lululemon usa inc., were named as defendants in a putative consumer class action (Gyani v. Lululemon Athletica Inc., et al., No. 1:24-cv-22651-BB) in the United States District Court for the Southern District of Florida. The complaint asserts claims under the Florida Deceptive and Unfair Trade Practices Act and for unjust enrichment based on statements by the Company relating to the sustainability and environmental impact of the Company's products and actions during the period October 28, 2020 to present. The complaint seeks monetary damages, as well as non-monetary relief such as an injunction to end the alleged unlawful practices. The Company intends to defend the action vigorously.

On August 8, 2024, lululemon athletica inc. and certain officers of the Company were named as defendants in a purported securities class action (Patel v. Lululemon Athletica Inc., et al., No. 1:24-cv-06033) in the United States District Court for the Southern District of New York. The complaint asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 based on allegedly false and misleading public statements and omissions by Defendants during the period December 7, 2023 to July 24, 2024 relating to lululemon's business, product offerings, and inventory allocation that Plaintiff alleges artificially inflated the Company’s stock price. The complaint currently seeks unspecified monetary damages. The Company intends to defend the action vigorously.

On November 4, 2024, November 8, 2024, November 12, 2024, November 18, 2024, and November 20, 2024, stockholder derivative complaints were filed against certain of the Company's officers, and all of the Company's directors as of that date in the United States Court for the Southern District of New York: Bhavsar v. McDonald et al., No. 1:24-cv-08405 (the "Bhavsar Action"); Muszynski v. McDonald et al., No. 1:24-cv-08507 (the "Muszynski Action"); Holtz v. McDonald et al., No. 1:24-cv-08572 (the "Holtz Action"); Wong v. McDonald et al., No. 1:24-cv-08752 (the "Wong Action"); and Kanaly v. McDonald et al, No. 1:24-cv-08839 (the "Kanaly Action," and collectively with the Bhavsar Action, the Muszynski Action, the Holtz Action, and the Wong Action, the "Derivative Actions."). The Kanaly Action additionally names certain of the Company's former directors. The Derivative Actions assert claims for (a) violating Sections 10(b), 14(a) and 20(a) of the Exchange Act, (b) breach of fiduciary duties, and (c) unjust enrichment and waste of corporate assets on allegations substantially similar to the allegations in the securities action complaint. The Bhavsar Action further asserts claims for abuse of control, gross mismanagement, and contribution under Sections 10(b) and 21D of the Exchange Act. The Wong Action also asserts a claim for contribution under Sections 10(b) and 21D of the Exchange Act. The Kanaly Action also asserts claims for gross mismanagement and aiding and abetting breach of fiduciary duty. The Wong Action and the Kanaly Action further bring claims based on allegedly false and misleading public statements and omissions during the period October 28, 2020 to March 21, 2024 relating to lululemon's "Inclusion, Diversity, Equity, and Action" program. The complaints seek monetary damages, equitable relief, and attorneys' fees and costs on behalf of the company, as well as an order directing certain governance reforms.

Previous: Cover and table of contents · Next: Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS