lululemon(LULU) - 2026 Q2 - Quarterly Report

General Information This section provides general administrative details about the document, including the company's filing status and stock information - The document is a Quarterly Report on Form 10-Q for lululemon athletica inc., covering the quarterly period ended August 3, 2025[1][2] - The registrant is a Large Accelerated Filer[4] Trading and Stock Information | Metric | Value | | :--- | :--- | | Trading Symbol | LULU | | Exchange | Nasdaq Global Select Market | | Common Stock Outstanding (as of Aug 29, 2025) | 113,468,082 shares | PART I. FINANCIAL INFORMATION This section presents the unaudited interim consolidated financial statements and management's discussion and analysis of the company's financial condition and results of operations Item 1. Financial Statements (Unaudited) This section presents the unaudited interim consolidated financial statements, offering a snapshot of the company's financial position, performance, and cash movements Consolidated Balance Sheets This statement provides a detailed overview of the company's assets, liabilities, and stockholders' equity at specific points in time | Metric (in thousands) | August 3, 2025 | February 2, 2025 | | :--- | :--- | :--- | | Total Assets | $7,523,439 | $7,603,292 | | Total Liabilities | $3,136,160 | $3,279,245 | | Total Stockholders' Equity | $4,387,279 | $4,324,047 | | Cash and Cash Equivalents | $1,155,794 | $1,984,336 | | Inventories | $1,722,570 | $1,442,081 | Consolidated Statements of Operations and Comprehensive Income This statement details the company's revenues, expenses, and net income, along with other comprehensive income, for the reported periods | Metric (in thousands) | Quarter Ended Aug 3, 2025 | Quarter Ended Jul 28, 2024 | Two Quarters Ended Aug 3, 2025 | Two Quarters Ended Jul 28, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Revenue | $2,525,219 | $2,371,078 | $4,895,879 | $4,579,969 | | Gross Profit | $1,477,202 | $1,412,185 | $2,860,328 | $2,687,253 | | Income from Operations | $523,814 | $540,226 | $962,439 | $972,868 | | Net Income | $370,905 | $392,922 | $685,477 | $714,343 | | Diluted Earnings Per Share | $3.10 | $3.15 | $5.70 | $5.69 | - Net revenue increased by 6.5% for the quarter and 6.9% for the two quarters ended August 3, 2025, compared to the prior year periods[12] - Net income decreased by 5.6% for the quarter and 4.0% for the two quarters ended August 3, 2025, compared to the prior year periods[12] Consolidated Statements of Stockholders' Equity This statement tracks changes in the company's equity accounts, including net income, other comprehensive income, and stock repurchases | Metric (in thousands) | Quarter Ended Aug 3, 2025 | Two Quarters Ended Aug 3, 2025 | | :--- | :--- | :--- | | Balance as of Beginning of Period | $4,289,570 (May 4, 2025) | $4,324,047 (Feb 2, 2025) | | Net Income | $370,905 | $685,477 | | Other Comprehensive Income (Loss), net of tax | $5,497 | $93,216 | | Repurchase of Common Stock, including excise tax | $(281,233) | $(715,672) | | Balance as of End of Period | $4,387,279 | $4,387,279 | Consolidated Statements of Cash Flows This statement reports the cash generated and used by operating, investing, and financing activities over specific periods | Cash Flow Activity (in thousands) | Two Quarters Ended Aug 3, 2025 | Two Quarters Ended Jul 28, 2024 | Change (YoY) | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $209,722 | $570,664 | $(360,942) | | Net cash used in investing activities | $(319,960) | $(266,625) | $(53,335) | | Net cash used in financing activities | $(744,823) | $(916,543) | $171,720 | | Decrease in cash and cash equivalents | $(828,542) | $(633,859) | $(194,683) | | Cash and cash equivalents, end of period | $1,155,794 | $1,610,112 | $(454,318) | Notes to the Unaudited Interim Consolidated Financial Statements This section provides detailed explanations and additional information supporting the interim consolidated financial statements Note 1. Nature of Operations and Basis of Presentation This note describes lululemon's core business, operational markets, sales channels, recent Mexico acquisition, fiscal year structure, and seasonality - lululemon operates in four regional markets: Americas, China Mainland, Asia Pacific (APAC), and Europe and the Middle East (EMEA)[22] - The company conducts business through company-operated stores, e-commerce, outlets, wholesale, and a re-commerce program[22] Company-operated Stores | Metric | August 3, 2025 | February 2, 2025 | | :--- | :--- | :--- | | Company-operated stores | 784 | 767 | - On September 10, 2024, lululemon acquired its branded retail locations and operations in Mexico from a third party[24] - Fiscal 2025 will be a 52-week year, ending February 1, 2026, while Fiscal 2024 was a 53-week year[25] - The company's business is seasonal, with a significant portion of operating profit recognized in the fourth fiscal quarter due to the holiday season[26] Note 2. Recent Accounting Pronouncements This note outlines recently issued Accounting Standard Updates (ASUs) regarding income tax disclosures and disaggregation of income statement expenses, which the company is evaluating - ASU 2023-09 (Income Taxes) requires expanded disclosure within the rate reconciliation and disaggregation of annual taxes paid; effective for annual periods beginning after December 15, 2024[29] - ASU 2024-03 (Income Statement Expenses) requires disaggregated disclosures for certain income statement expense line items; effective for annual periods beginning after December 15, 2026[30] - The Company is currently evaluating the impact of these new guidances on its financial statement disclosures[29][30] Note 3. Revolving Credit Facilities This note details the company's two revolving credit facilities, an Americas facility and a China Mainland facility, and confirms compliance with covenants Revolving Credit Facilities Summary | Facility | Total Commitments | Maturity Date | Outstanding Borrowings (Aug 3, 2025) | | :--- | :--- | :--- | :--- | | Americas Revolving Credit Facility | $400.0 million | December 14, 2026 | $6.8 million (letters of credit/guarantee) | | China Mainland Revolving Credit Facility | 300.0 million CNY ($41.6 million) | Annual Review | $7.3 million (letters of credit) | - The Americas facility's interest rates and commitment fees are subject to adjustment based on sustainability key performance indicators (greenhouse gas emissions intensity reduction and gender pay equity)[34] - As of August 3, 2025, the Company was in compliance with the covenants of both credit facilities[36][37] Note 4. Supply Chain Financing Program This note describes the company's voluntary supply chain financing program, which allows suppliers early payment without impacting the company's obligations - The Company facilitates a voluntary supply chain financing (SCF) program for suppliers to sell receivables to a third-party financial institution[38] - The Company's obligations to its suppliers are not impacted, and it provides no guarantees under the SCF program[38] SCF Program Outstanding | Metric (in millions) | August 3, 2025 | February 2, 2025 | | :--- | :--- | :--- | | Outstanding under SCF program | $46.3 | $36.3 | Note 5. Stock-Based Compensation and Benefit Plans This note details the company's stock-based compensation plans and benefit plans, including PSUs, RSUs, stock options, and ESPP Stock-Based Compensation Expense | Metric (in millions) | First Two Quarters 2025 | First Two Quarters 2024 | | :--- | :--- | :--- | | Stock-based compensation expense | $21.1 | $46.7 | - Total unrecognized compensation cost for all stock-based compensation plans was $144.2 million as of August 3, 2025, expected to be recognized over a weighted-average period of 2.4 years[41] - The Employee Share Purchase Plan (ESPP) allows eligible employees to contribute, with the Company matching one-third of the contribution; 4.2 million shares remain authorized for purchase under the ESPP as of August 3, 2025[45] Defined Contribution Plans Net Expense | Metric (in millions) | First Two Quarters 2025 | First Two Quarters 2024 | | :--- | :--- | :--- | | Net expense for defined contribution plans | $12.2 | $11.1 | Note 6. Fair Value Measurement This note defines the three-tier fair value hierarchy and classifies the company's money market funds and forward currency contracts within it - Fair value measurements are categorized into a three-tier hierarchy: Level 1 (observable inputs like quoted prices in active markets), Level 2 (inputs other than quoted prices that are directly or indirectly observable), and Level 3 (unobservable inputs)[47] Fair Value Measurements | Asset/Liability (in thousands) | August 3, 2025 | Fair Value Level | | :--- | :--- | :--- | | Money market funds | $107,601 | Level 1 | | Forward currency contract assets | $714 | Level 2 | | Forward currency contract liabilities | $4,895 | Level 2 | - The fair values of 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[50] Note 7. Derivative Financial Instruments This note explains the company's use of derivative financial instruments, primarily forward currency contracts, to manage foreign currency exchange risks and mitigate credit risk - The Company uses derivative financial instruments to manage foreign currency exchange rate risks and does not enter into derivative contracts for speculative or trading purposes[51] - Forward currency contracts are used to hedge against changes in the Canadian dollar, Chinese Yuan, Euro, and Australian dollar exchange rates[52] - Forward currency contracts designated as net investment hedges for the Canadian subsidiary resulted in a $57.3 million reduction in other comprehensive loss for the first two quarters of 2025[181] Net Derivatives Recognized on Consolidated Balance Sheets | Derivative Type | August 3, 2025 (in thousands) | February 2, 2025 (in thousands) | | :--- | :--- | :--- | | Net derivatives recognized on consolidated balance sheets (Forward currency contracts) | Assets: $714, Liabilities: $4,895 | Assets: $76,848, Liabilities: $74,638 | - The Company is exposed to credit-related losses from counterparties but mitigates this risk by transacting with investment-grade financial institutions[64][65] Note 8. Earnings Per Share This note details the computation of basic and diluted earnings per share and provides an update on the company's stock repurchase program Earnings Per Share | Metric | Second Quarter 2025 | Second Quarter 2024 | First Two Quarters 2025 | First Two Quarters 2024 | | :--- | :--- | :--- | :--- | :--- | | Basic earnings per share | $3.10 | $3.15 | $5.71 | $5.70 | | Diluted earnings per share | $3.10 | $3.15 | $5.70 | $5.69 | | Diluted weighted-average number of shares outstanding (in thousands) | 119,680 | 124,857 | 120,262 | 125,600 | - The Company's board of directors approved a stock repurchase program authorizing up to $3.0 billion in aggregate, with $0.9 billion remaining authorized as of August 3, 2025[69][70] Stock Repurchases | Metric | First Two Quarters 2025 | First Two Quarters 2024 | | :--- | :--- | :--- | | Shares repurchased (in millions) | 2.5 | 2.6 | | Total cost of repurchases (in millions) | $715.7 | $888.9 | Note 9. Supplementary Financial Information This note provides a detailed breakdown of selected consolidated balance sheet accounts, offering granular insights into asset and liability composition Selected Consolidated Balance Sheet Accounts | Account (in thousands) | August 3, 2025 | February 2, 2025 | | :--- | :--- | :--- | | Inventories, at cost | $1,823,547 | $1,526,055 | | Inventory provisions and reserves | $(100,977) | $(83,974) | | Property and equipment, gross | $3,574,814 | $3,241,666 | | Accumulated depreciation | $(1,657,453) | $(1,461,049) | | Accrued liabilities and other | $423,933 | $559,463 | Note 10. Segmented Information This note presents financial information segmented by Americas, China Mainland, and Rest of World, detailing net revenue and income from operations, with corporate expenses unallocated Segment Net Revenue | Segment Net Revenue (in thousands) | Second Quarter 2025 | Second Quarter 2024 | First Two Quarters 2025 | First Two Quarters 2024 | | :--- | :--- | :--- | :--- | :--- | | Americas | $1,758,217 | $1,741,433 | $3,432,775 | $3,363,697 | | China Mainland | $392,898 | $314,189 | $760,999 | $617,975 | | Rest of World | $374,104 | $315,456 | $702,105 | $598,297 | Segment Income from Operations | Segment Income from Operations (in thousands) | Second Quarter 2025 | Second Quarter 2024 | First Two Quarters 2025 | First Two Quarters 2024 | | :--- | :--- | :--- | :--- | :--- | | Americas | $619,394 | $669,427 | $1,208,725 | $1,234,267 | | China Mainland | $152,490 | $119,085 | $306,125 | $238,863 | | Rest of World | $81,243 | $74,000 | $154,099 | $140,681 | - Corporate expenses, including product design, raw material development, sourcing, supply chain, global merchandising, technology, brand and marketing, finance, human resources, and legal, are centrally managed and not allocated to segments[78] Note 11. Disaggregated Net Revenue This note provides a detailed breakdown of net revenue by geographic area, product category, and sales channel, offering granular insights into revenue streams Net Revenue by Geographic Area | Geographic Area (in thousands) | Second Quarter 2025 | Second Quarter 2024 | First Two Quarters 2025 | First Two Quarters 2024 | | :--- | :--- | :--- | :--- | :--- | | United States | $1,415,002 | $1,421,980 | $2,777,526 | $2,762,380 | | Canada | $321,293 | $319,453 | $614,113 | $601,317 | | Mexico | $21,922 | $0 | $41,136 | $0 | | China Mainland | $392,898 | $314,189 | $760,999 | $617,975 | Net Revenue by Product Category | Product Category (in thousands) | Second Quarter 2025 | Second Quarter 2024 | First Two Quarters 2025 | First Two Quarters 2024 | | :--- | :--- | :--- | :--- | :--- | | Women's apparel | $1,547,321 | $1,476,121 | $3,082,493 | $2,911,362 | | Men's apparel | $624,598 | $587,525 | $1,169,386 | $1,093,223 | | Accessories and other categories | $353,300 | $307,432 | $644,000 | $575,384 | Net Revenue by Sales Channel | Sales Channel (in thousands) | Second Quarter 2025 | Second Quarter 2024 | First Two Quarters 2025 | First Two Quarters 2024 | | :--- | :--- | :--- | :--- | :--- | | Company-operated stores | $1,254,952 | $1,215,613 | $2,408,059 | $2,286,138 | | E-commerce | $993,093 | $910,637 | $1,953,983 | $1,816,424 | | Other channels | $277,174 | $244,828 | $533,837 | $477,407 | Note 12. Legal Proceedings and Other Contingencies This note addresses the company's routine legal matters, including a securities class action and stockholder derivative complaints, which are not expected to materially affect financial statements - The Company is involved in routine legal matters and audits, believing their ultimate resolution will not have a material adverse effect on its consolidated balance sheets, results of operations, or cash flows[84] - A securities class action (Patel v. Lululemon Athletica Inc., et al.) was filed on August 8, 2024, alleging false and misleading public statements and omissions, which the Company intends to defend vigorously[85] - Six stockholder derivative complaints were consolidated on August 1, 2025, asserting claims against current and former directors and officers for alleged breaches of fiduciary duty and violations of the Exchange Act[86] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on lululemon's financial performance, condition, and outlook, covering operations, liquidity, and critical accounting policies Overview This section provides a general description of lululemon's business, its mission, and its product offerings - lululemon athletica inc. is a designer, distributor, and retailer of technical athletic apparel, footwear, and accessories, aiming to create transformative products and experiences[95] - The company offers a comprehensive line of technical athletic apparel, footwear, and accessories under the lululemon brand, designed for activities like yoga, running, and training, and plans to broaden its merchandise offerings[95] Financial Highlights and Market Conditions and Trends This section summarizes key financial performance indicators and discusses the macroeconomic and market trends influencing the company's business Key Financial Highlights | Metric | Q2 2025 | Q2 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Net revenue | $2.5 billion | $2.37 billion | +7% (+6% constant dollar) | | Comparable sales | +1% | N/A | N/A | | Gross profit | $1.5 billion | $1.41 billion | +5% | | Gross margin | 58.5% | 59.6% | -110 basis points | | Income from operations | $523.8 million | $540.2 million | -3% | | Operating margin | 20.7% | 22.8% | -210 basis points | | Diluted earnings per share | $3.10 | $3.15 | -1.6% | - Macroeconomic conditions, including trade policies, shifting consumer demand, inflation, foreign currency fluctuations, and geopolitical instability, are negatively influencing the business[99] - Americas comparable sales decreased 4% (-3% constant dollar) due to lower conversion rates, store traffic, economic uncertainty, and lower demand for certain product offerings[100] - New U.S. import tariffs and the removal of the de minimis exemption are expected to have a significant adverse effect, increasing product costs and reducing gross margin and operating margin[103] - Increased tariffs and the de minimis exemption removal are estimated to reduce gross profit for 2025 by approximately $240 million, net of mitigation efforts[104] - Foreign currency fluctuations negatively impacted net revenue growth by $10.7 million during the first two quarters of 2025, primarily due to the appreciation of the US dollar relative to the Canadian dollar[107][109] Quarter-to-Date Results of Operations: Second Quarter Results This section provides a detailed analysis of the company's financial performance for the second fiscal quarter Second Quarter Financial Performance | Metric (in thousands) | Q2 2025 | Q2 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Net revenue | $2,525,219 | $2,371,078 | +7% | | Cost of goods sold | $1,048,017 | $958,893 | +9.3% | | Gross profit | $1,477,202 | $1,412,185 | +4.6% | | Gross margin | 58.5% | 59.6% | -110 bps | | Selling, general and administrative expenses | $951,658 | $871,959 | +9.1% | | Income from operations | $523,814 | $540,226 | -3.0% | | Net income | $370,905 | $392,922 | -5.6% | - The decrease in gross margin was primarily due to a net decrease in product margin of 70 basis points (higher markdowns, tariffs, other costs, partially offset by pricing and lower product costs) and a net increase in other cost of sales of 40 basis points (occupancy, depreciation, distribution, and product department costs)[112][116] - The increase in selling, general and administrative expenses was primarily driven by increased costs related to operating channels ($62.8 million) and head office costs ($17.2 million)[117] - Amortization of intangible assets of $1.73 million in Q2 2025 was primarily due to the acquisition of Mexico operations in September 2024[115] - Other income (expense), net decreased by 45.9% primarily due to lower interest income from reduced average cash balances and interest rates[127] - The effective tax rate increased to 30.5% from 29.6% due to an increase in non-deductible expenses in international jurisdictions[128] Year-to-Date Results of Operations: First Two Quarters Results This section provides a detailed analysis of the company's financial performance for the first two fiscal quarters First Two Quarters Financial Performance | Metric (in thousands) | First Two Quarters 2025 | First Two Quarters 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Net revenue | $4,895,879 | $4,579,969 | +7% | | Cost of goods sold | $2,035,551 | $1,892,716 | +7.6% | | Gross profit | $2,860,328 | $2,687,253 | +6.4% | | Gross margin | 58.4% | 58.7% | -30 bps | | Selling, general and administrative expenses | $1,894,529 | $1,714,385 | +10.5% | | Income from operations | $962,439 | $972,868 | -1.1% | | Net income | $685,477 | $714,343 | -4.0% | - The decrease in gross margin was primarily due to a net increase in other cost of sales of 40 basis points (occupancy, depreciation, product department costs), partially offset by a net increase in product margin of 10 basis points (lower damages, product costs, higher pricing, offset by markdowns, freight, tariffs)[133] - The increase in selling, general and administrative expenses was primarily due to increased costs related to operating channels ($100.9 million), head office costs ($68.7 million), and net foreign currency exchange and derivative revaluation losses ($10.5 million)[134][139] - Other income (expense), net decreased by 47.9% primarily due to lower interest income from reduced average cash balances and interest rates[147] - The effective tax rate increased to 30.3% from 29.6% due to a decrease in tax benefits related to stock-based compensation and an increase in non-deductible expenses in international jurisdictions[148] Comparable Sales This section defines and analyzes comparable sales, a key metric for evaluating the performance of company-operated store and e-commerce businesses - Comparable sales is a metric used to evaluate the performance of company-operated store and e-commerce businesses from an omni-channel perspective, excluding new or significantly expanded stores, temporarily relocated/closed stores, and other selling channels[150][151][152] - For fiscal years with 53 weeks, the 53rd week of net revenue is excluded from comparable sales calculation; in the following year, the prior year period is shifted by one week[154] Comparable Sales Change (First Two Quarters 2025) | Comparable Sales Change (First Two Quarters 2025) | Reported | Constant Dollar | | :--- | :--- | :--- | | Americas | (3)% | (2)% | | China Mainland | 12% | 12% | | Rest of World | 9% | 8% | | Total comparable sales | 1% | 1% | Non-GAAP Financial Measures This section explains the company's use of non-GAAP financial measures, such as constant dollar basis, to provide additional insights into financial performance - The Company reports certain financial metrics on a constant dollar basis, a non-GAAP financial measure, to help investors understand the underlying growth rate of net revenue by excluding foreign currency exchange rate impacts[155][156] - Management uses these constant currency metrics internally when reviewing and assessing financial performance[156] - These non-GAAP financial measures are provided in addition to, and not a substitute for, the corresponding financial measures calculated in accordance with GAAP[157] Seasonality This section discusses the impact of seasonal trends, particularly the holiday season, on the company's annual net revenue and operating profit - The Company's business is affected by general seasonal trends common to the retail apparel industry[160] - Annual net revenue is typically weighted more heavily toward the fourth fiscal quarter due to increased sales during the holiday season, while operating expenses are generally more equally distributed throughout the year[162] - Approximately 42% of the full year operating profit was generated during the fourth quarter of 2024[162] Liquidity and Capital Resources This section analyzes the company's primary sources of liquidity, cash needs, and cash flow activities from operations, investing, and financing - Primary sources of liquidity include cash and cash equivalents, cash flows from operations, and capacity under the committed revolving credit facility[163] - Primary cash needs are capital expenditures for new/remodeling stores, distribution centers, technology, working capital, and share repurchases[163] Cash Flow Activities | Cash Flow Activity (in thousands) | First Two Quarters 2025 | First Two Quarters 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Operating activities | $209,722 | $570,664 | $(360,942) | | Investing activities | $(319,960) | $(266,625) | $(53,335) | | Financing activities | $(744,823) | $(916,543) | $171,720 | - The decrease in cash provided by operating activities was primarily due to a $341.8 million decrease in cash flows from changes in operating assets and liabilities, driven by timing of income tax payments, accrued liabilities, and inventory purchases[165] - The increase in cash used in investing activities was primarily due to increased capital expenditures for company-operated stores in the Americas[166] - The decrease in cash used in financing activities was primarily due to a decrease in stock repurchases ($715.7 million in 2025 vs. $888.9 million in 2024)[167] Liquidity Measures | Liquidity Measure (in thousands) | August 3, 2025 | | :--- | :--- | | Cash and cash equivalents | $1,155,794 | | Working capital (excluding cash and cash equivalents) | $815,588 | | Capacity under committed revolving credit facility | $393,242 | | Inventory balance | $1,700,000 (approx.) | Critical Accounting Policies and Estimates This section highlights the significant estimates and assumptions management makes in preparing financial statements, which could materially impact reported results - The preparation of financial statements requires management to make significant estimates and assumptions about matters that are highly uncertain, where different estimates could materially impact consolidated financial statements[173] - The Company's critical accounting policies, estimates, and judgments are discussed in Item 7 of its 2024 Annual Report on Form 10-K[174] Operating Locations This section provides a breakdown of the company's company-operated stores and third-party retail locations by geographic market Company-Operated Stores by Market | Market | Company-Operated Stores (Aug 3, 2025) | Company-Operated Stores (Feb 2, 2025) | | :--- | :--- | :--- | | United States | 377 | 374 | | Canada | 72 | 71 | | Mexico | 18 | 17 | | Americas Total | 467 | 462 | | China Mainland | 159 | 151 | | APAC Total | 109 | 107 | | EMEA Total | 49 | 47 | | Total Company-Operated Stores | 784 | 767 | Retail Locations Operated by Third Parties | Market | Retail Locations Operated by Third Parties (Aug 3, 2025) | Retail Locations Operated by Third Parties (Feb 2, 2025) | | :--- | :--- | :--- | | United Arab Emirates | 11 | 10 | | Saudi Arabia | 9 | 8 | | Israel | 8 | 7 | | Total Third-Party Locations | 41 | 34 | Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to market risks, including foreign currency, interest rate, credit, and inflation, and outlines strategies to manage these exposures Foreign Currency Exchange Risk This section discusses the company's exposure to foreign currency exchange rate fluctuations, including translation and transaction risks, and its hedging strategies - The Company is exposed to translation risk from converting international subsidiaries' financial statements into U.S. dollars, which reduced revenue by $10.7 million in the first two quarters of 2025[180] - Forward currency contracts are used as net investment hedges for the Canadian subsidiary, reducing the impact to other comprehensive loss by $57.3 million in the first two quarters of 2025[181] - Transaction risk arises from intercompany transactions and inventory purchases in non-functional currencies, economically hedged by forward currency contracts[182] - A 10% depreciation in the U.S. dollar against hedged currencies would result in a $19.0 million depreciation in the net fair value of outstanding derivatives, substantially offset by the underlying hedged items[183] Interest Rate Risk This section addresses the company's exposure to market risks related to changes in interest rates, particularly concerning its variable-rate revolving credit facility - The Company is exposed to market risks relating to changes in interest rates due to its $400.0 million variable-rate revolving credit facility[186] - As of August 3, 2025, there were no borrowings outstanding under the facility, other than $6.8 million in letters of credit and guarantee[186] - The Company does not currently engage in interest rate hedging but may consider it in the future if outstanding balances become meaningful[186] - Interest generated on the $1.2 billion cash and cash equivalents balance is subject to variability as interest rates change[187] Credit Risk This section discusses the company's exposure to credit risk from cash deposits and nonperformance by counterparties to derivative contracts - The Company is exposed to credit risk from cash deposits with financial institutions (exceeding government-insured limits) and from nonperformance by counterparties to forward currency contracts[188] - Credit risk is minimized by entering into transactions with investment-grade, reputable financial institutions and monitoring their credit standing[188] - The Company has not experienced any losses related to these items and believes credit risk to be minimal[188] Inflation This section addresses the potential adverse effects of inflationary pressures on the company's operating results and consumer demand - Inflationary pressures, including higher product, transportation, labor, and raw material costs, may adversely affect operating results if not offset by pricing or operating efficiencies[189] - Inflation could also reduce consumer discretionary spending and negatively impact demand for the Company's products[189] Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures, with no material changes to internal control over financial reporting during the quarter - The Company maintains disclosure controls and procedures designed to ensure timely and accurate reporting of information required under the Securities Exchange Act of 1934[190] - Management, including the principal executive officer and principal financial and accounting officer, concluded that disclosure controls and procedures were effective as of August 3, 2025[191] - There were no changes in internal control over financial reporting during the quarter ended August 3, 2025, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[192] PART II. OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings This section refers to Note 12 for details on legal proceedings, including routine matters and specific class action lawsuits, which are not expected to materially affect financial results - The Company is involved in routine legal matters incidental to its business, such as intellectual property, employment, product liability, and personal injury claims[194] - The Company believes the ultimate resolution of any current legal proceeding will not have a material adverse effect on its financial position, results of operations, or cash flows[194] - For specific legal matters, refer to Note 12. Legal Proceedings and Other Contingencies in Item 1 of Part I of this report[194] Item 1A. Risk Factors This section outlines various risks that could materially and adversely affect lululemon's business, financial condition, or results of operations across multiple categories Risks related to our business and industry This section details risks inherent to the company's business model and the competitive retail apparel industry, including brand reputation and market competition - The Company's success depends on maintaining its brand value and reputation, which can be harmed by ineffective marketing, negative publicity (amplified by social media), product recalls, or failure to deliver innovative and high-quality products[196][197] - Operating in a highly competitive market may result in pricing pressures, reduced profit margins, or lost market share, especially given competitors' strong brand recognition and similar product offerings due to limited patent protection[198][200] - Failure to anticipate consumer preferences, successfully develop and introduce new products, or accurately forecast guest demand could lead to lower sales, excess inventory, or product shortages, harming gross margin and brand reputation[201][205][206][207] - Expansion into new international markets and product categories carries risks due to limited operating experience, brand recognition, and the challenges of managing new suppliers and business models[208][209] - The inability to effectively manage growth, maintain efficiency and scalability, or attract and retain highly qualified individuals could strain resources, erode brand image, and negatively impact financial performance[211][217][218] - Changes in consumer shopping preferences and shifts in distribution channels (e.g., from stores to e-commerce) could adversely impact return on investment, lead to impairment charges, and affect overall operating margins[212][214] - The business is affected by seasonality, with annual net revenue typically weighted more heavily toward the fourth fiscal quarter, leading to potential fluctuations in operating results[219] Risks related to information security and technology This section addresses risks associated with cybersecurity breaches, data privacy regulations, technology system disruptions, and e-commerce platform effectiveness - Security breaches could expose the Company to theft or misuse of confidential information, leading to litigation, significant legal and financial exposure, and damage to its brand and reputation[220][224] - The Company is subject to an evolving cybersecurity and privacy regulatory environment, and failure to comply could result in regulatory enforcement and further financial or reputational harm[226][227] - Disruption of technology systems or unexpected network interruptions (e.g., system failures, viruses, natural disasters) could adversely affect e-commerce operations, transaction processing, inventory management, and timely delivery of products, harming reputation and financial results[228] - Failure to provide attractive, effective, reliable, and user-friendly e-commerce platforms could place the Company at a competitive disadvantage, result in lost sales, and harm its reputation[231] Risks related to global economic, political, and regulatory conditions This section covers risks stemming from changes in trade policies, macroeconomic volatility, geopolitical instability, tax laws, and compliance with international regulations - Changes to U.S. tariff and customs policy, including the elimination of the de minimis exemption, are expected to materially increase product costs and negatively affect margins, particularly for products sourced from certain countries and U.S. e-commerce orders fulfilled from Canada[232][233] - Macroeconomic volatility, inflationary pressures, and shifts in consumer sentiment may reduce demand for discretionary products, impairing growth targets and impacting net revenue, margins, and cash flows[234] - Global political and economic instability, trade disputes, and changes in customs treatment or duty levels could disrupt operations, increase costs, and require adjustments to sourcing or distribution strategies[235][237] - Changes in tax laws or unanticipated tax liabilities in various jurisdictions (U.S., Canada, China Mainland) could adversely affect the effective income tax rate and profitability, including issues related to Canadian withholding taxes and Advance Pricing Arrangement negotiations[238][243][244] - Failure to comply with trade and other regulations (e.g., labeling, anti-bribery laws) could lead to investigations, enforcement actions, significant penalties, negative publicity, and harm to business operations[245][247][248][249] - Fluctuations in foreign currency exchange rates, particularly given significant international operations, have affected and may continue to affect results of operations, and hedging measures may not fully offset negative impacts[250][251][252] - The occurrence or resurgence of global or regional health events (e.g., COVID-19) could disrupt consumer spending, supply chains, store traffic, and employee availability, potentially leading to closures and long-term changes in consumer behavior[253][254][256][257] Risks related to our supply chain This section outlines risks associated with supply chain disruptions, reliance on international suppliers, compliance failures, raw material costs, and distribution system issues - Disruptions to the supply chain due to trade restrictions, political instability, natural disasters, public health crises, war, labor shortages, or financial instability of key suppliers and carriers could materially impair the ability to procure or distribute products[258][260] - Reliance on international suppliers, predominantly in APAC and China Mainland, and a relatively small number of vendors for a significant portion of products and specialty fabrics, increases vulnerability to supply chain interruptions[259][261][263] - Failure of suppliers and manufacturers to comply with the Vendor Code of Ethics or applicable laws, or negative publicity regarding production methods, could adversely affect reputation and sales[266] - Fluctuating costs of raw materials (petroleum-based synthetic fabrics, silver, cotton) due to weather, demand, speculation, currency, climate change, and geopolitical conditions could significantly increase the cost of goods sold[267] - Problems with the distribution system, including equipment failures, cyber threats, natural disasters, or labor difficulties, could harm the ability to deliver products, manage inventory, and meet guest expectations[268] - Increasing labor costs and other operational factors in South Asia and South East Asia, where a significant portion of products are produced, could increase production costs and negatively impact earnings[269] Risks related to intellectual property This section addresses risks concerning the protection of the company's intellectual property, including patents, copyrights, trademarks, and trade secrets, and potential infringement claims - The Company's fabrics and manufacturing technology are generally not patented, allowing competitors to imitate products and potentially sell them at lower prices, which could harm net revenue and profitability[272] - Failure to adequately protect intellectual property rights (patents, copyrights, trademarks, trade dress, trade secrets) could diminish the value of the brand and weaken the competitive position, especially in international countries with weaker IP protection[273] - Trademarks, patents, and other proprietary rights could conflict with those of others, potentially leading to challenges, invalidation, or preventing the Company from selling certain products, incurring significant defense costs[274] - The Company faces a risk of being sued by third parties for alleged infringement of proprietary rights, which could result in substantial damages, ongoing royalty payments, or restrictions on product offerings, exhausting financial and management resources[275][277] Risks related to environmental, social, and governance issues This section discusses risks related to climate change (physical and transitional), increasing scrutiny of ESG practices, and evolving regulatory disclosure requirements - The Company is subject to physical risks (e.g., extreme weather, rising temperatures) and transitional risks (e.g., climate-related regulations, disclosure requirements) from climate change, which could disrupt its supply chain, increase costs, and affect consumer demand[278] - Increasing scrutiny and conflicting pressures from investors, regulators, and advocacy organizations regarding ESG practices and disclosures could lead to reputational, operational, or legal consequences[279][280][281] - Evolving regulatory requirements and divergent stakeholder expectations for ESG disclosures may increase compliance costs, activism, and legal exposure[281] Risks related to legal and governance matters This section addresses risks stemming from stockholder actions, litigation, and anti-takeover provisions that could impact business operations and shareholder value - Actions or proposals from stockholders, political or consumer activists could be costly, time-consuming, disrupt business operations, and divert management attention, potentially affecting the market price and volatility of securities[282] - The Company is subject to periodic claims and litigation (e.g., product liability, stockholder class action, intellectual property), which could result in significant settlement amounts, damages, fines, or other penalties, and negatively impact its reputation[283] - Anti-takeover provisions in Delaware law and the Company's certificate of incorporation and bylaws (e.g., classified board, no cumulative voting, restrictions on special meetings) could delay or discourage takeover attempts that stockholders might consider favorable[284][285][286] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's common stock repurchases under its stock repurchase program and shares purchased through the Employee Share Purchase Plan Stock Repurchase and ESPP Activity | Stock Repurchase Program (Q2 2025) | Value | | :--- | :--- | | Total Number of Shares Purchased | 1,127,958 | | Average Price Paid per Share | $260.00 | | Maximum Dollar Value Remaining | $858,910,584 | | Employee Share Purchase Plan (Q2 2025) | Value | | Total Number of Shares Purchased | 42,336 | | Average Price Paid per Share | $256.49 | | Maximum Number of Shares Remaining | 4,192,824 | Item 5. Other Information This section discloses the CEO's Rule 10b5-1 trading arrangement for stock option exercises, with no other similar arrangements by directors or officers - Calvin McDonald, CEO and Director, entered into a Rule 10b5-1 trading arrangement on June 20, 2025[288] - The plan allows for the potential sale of up to 55,957 shares of common stock in connection with the exercise of stock options expiring in March 2026[288] - The 10b5-1 Plan is scheduled to commence on September 22, 2025, and will terminate on the earlier of the date all shares are sold or March 27, 2026[288] - No other director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the second quarter of 2025[289] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including officer certifications, unaudited financial statements, and interactive data files - Exhibit 31.1 and 31.2 are Certifications of the principal executive officer and principal financial and accounting officer, respectively, pursuant to Exchange Act Rule 13a-14(a)[291] - Exhibit 32.1 is the Certification of principal executive officer and principal financial and accounting officer pursuant to 18 U.S.C. Section 1350[291] - Exhibit 101 contains the unaudited interim consolidated financial statements (Balance Sheets, Statements of Operations and Comprehensive Income, Statements of Stockholders' Equity, Statements of Cash Flows, and Notes) formatted in iXBRL[291] - Exhibit 104 is the Cover Page Interactive Data File, formatted in iXBRL and contained in Exhibit 101[291] Signatures This section contains the official signature block, confirming the report was duly signed by the Chief Financial Officer on September 4, 2025 - The report is signed on behalf of lululemon athletica inc. by Meghan Frank, Chief Financial Officer (principal financial and accounting officer)[294] - The report was dated September 4, 2025[294]