lululemon athletica inc

Quarter-to-Date Results of Operations: First Quarter Results

The following table summarizes key components of our results of operations for the periods indicated:

Net Revenue

Net revenue increased $208.1 million, or 10%, to $2.2 billion for the first quarter of 2024 from $2.0 billion for the first quarter of 2023. On a constant dollar basis, net revenue increased 11%. Comparable sales increased 6%, or 7% on a constant dollar basis. The increase in net revenue was primarily due to increased China Mainland net revenue. Rest of World and Americas net revenue also increased.

Net revenue for the first quarter of 2024 and 2023 is summarized below:

Americas. The increase in Americas net revenue was primarily due to a $50.9 million increase from new or expanded company-operated stores and our other channels. We have opened 14 net new stores in the Americas since the first quarter of 2023. Americas comparable sales were flat compared to the first quarter of 2023. This was primarily a result of increased traffic, offset by a decrease in conversion rates.

China Mainland. The increase in China Mainland net revenue was primarily due to an increase in comparable sales, which increased 26%, or 33% on a constant dollar basis. The increase in comparable sales was primarily a result of increased traffic, partially offset by a lower dollar value per transaction. The increase in China Mainland net revenue was also driven by a $41.7 million increase in net revenue from new or expanded company-operated stores and our other channels. We have opened 26 net new stores in China Mainland since the first quarter of 2023.

Rest of World. The increase in Rest of World net revenue was primarily due to an increase in comparable sales, which increased 23%, or 26% on a constant dollar basis. The increase in comparable sales was primarily a result of increased traffic and a higher dollar value per transaction, partially offset by a decrease in conversion rates. The increase in Rest of World net revenue was also driven by a $19.9 million increase in net revenue from new or expanded company-operated stores and our other channels. We have opened nine net new stores in Rest of World since the first quarter of 2023.

Gross Profit

The increase in gross margin was primarily the result of:

•a net increase in product margin of 120 basis points, primarily due to lower product costs including lower freight costs, as well as lower inventory provisions. This was partially offset by higher markdowns in the current year; and

•a decrease in costs related to our product departments as a percentage of net revenue of 50 basis points.

The increase in gross margin was partially offset by an increase in occupancy costs as a percentage of net revenue of 70 basis points, an increase in distribution center costs as a percentage of net revenue of 50 basis points, and an unfavorable impact of foreign currency exchange rates of 30 basis points.

Selling, General and Administrative Expenses

The increase in selling, general and administrative expenses was primarily due to:

•an increase in costs related to our operating channels of $49.6 million, comprised of:

–an increase in variable costs of $17.6 million primarily due to increased distribution costs, packaging costs, and credit card fees, primarily as a result of increased net revenue;

–an increase in other operating costs of $15.4 million primarily due to increased depreciation, technology costs, and repairs and maintenance costs;

–an increase in employee costs of $14.1 million primarily due to increased salaries and wages expense, and benefit costs for retail employees, partially offset by decreased incentive compensation; and

–an increase in brand and community costs of $2.5 million primarily due to increased digital marketing expenses and events.

•an increase in head office costs of $47.3 million, comprised of:

–an increase in brand and community costs of $21.1 million primarily due to increased marketing expenses and brand campaigns;

–an increase in other head office costs of $14.7 million, primarily due to increased advisory and professional fees;

–an increase in employee costs of $5.5 million primarily due to increased salaries and wages expense as well as increased stock-based compensation and benefit costs, partially offset by decreased other incentive compensation;

–an increase in technology costs, including cloud computing amortization, of $4.9 million; and

–an increase in depreciation of $1.1 million.

The increase in selling, general and administrative expenses was partially offset by a decrease in net foreign currency exchange and derivative revaluation losses of $2.0 million.

Amortization of Intangible Assets

The amortization of intangible assets was primarily the result of the amortization of intangible assets recognized upon the acquisition of MIRROR, which we rebranded as lululemon Studio.

Income from Operations

On a segment basis, we determine income from operations without taking into account our general corporate expenses and certain other expenses. General corporate expenses include centrally managed support functions and other head office costs, including product design teams and brand costs which support all regions. Segmented income from operations is summarized below.

Americas. The decrease in Americas income from operations was primarily the result of increased selling, general and administrative expenses. The increase in selling, general and administrative expenses was primarily due to increased marketing expenses, increased distribution costs and packaging costs driven by higher net revenue, and increased depreciation, technology costs, and repairs and maintenance costs. The increase in selling, general and administrative expenses was partially offset by increased gross profit of $23.7 million, which was driven by increased net revenue, partially offset by lower gross margin. The decrease in gross margin was primarily due to deleverage in distribution center and occupancy costs, partially offset by leverage on costs from our product teams and higher product margin. Income from operations as a percentage of Americas net revenue decreased due to deleverage on selling, general and administrative expenses and lower gross margin.

China Mainland. The increase in China Mainland income from operations was primarily the result of increased gross profit of $61.3 million, driven by increased net revenue and higher gross margin. The increase in gross margin was primarily due to higher product margin as well as leverage on occupancy and other costs, partially offset by unfavorable foreign currency exchange rates. The increase in gross profit was partially offset by an increase in selling, general and administrative expenses, primarily due to higher employee costs, increased packaging costs driven by higher net revenue, and increased marketing expenses. Income from operations as a percentage of China Mainland net revenue increased due to leverage on selling, general and administrative expenses and higher gross margin.

Rest of World. The increase in Rest of World income from operations was primarily the result of increased gross profit of $40.2 million, driven by increased net revenue and higher gross margin. The increase in gross margin was primarily due to higher product margin as well as leverage on occupancy costs, partially offset by unfavorable foreign currency exchange rates. The increase in gross profit was partially offset by an increase in selling, general and administrative expenses primarily due to higher employee costs and increased marketing expenses, as well as increased credit card fees and distribution costs driven by higher net revenue. Income from operations as a percentage of Rest of World net revenue increased due to higher gross margin and leverage on selling, general and administrative expenses.

General Corporate Expense. The increase in general corporate expense was primarily due to increased advisory and professional fees, employee costs, technology costs, and depreciation. The increase in general corporate expense was partially offset by a decrease in net foreign currency exchange and derivative revaluation losses of $2.0 million.

Other Income (Expense), Net

The increase in other income, net was primarily due to an increase in interest income as a result of higher cash balances and higher interest rates.

Income Tax Expense

The increase in the effective tax rate was primarily due to a decrease in tax benefits related to stock-based compensation and an increase in non-deductible expenses in international jurisdictions.

Net Income

The increase in net income was primarily due to an increase in gross profit of $124.3 million and an increase in other income (expense), net of $15.3 million, partially offset by an increase in selling, general and administrative expenses of $94.9 million, and an increase in income tax expense of $15.5 million.