lululemon athletica inc.

Net Revenue

The increase in net revenue was primarily due to increased China Mainland net revenue. Americas and Rest of World net revenue also increased. We had total net revenue of $163.2 million during the 53rd week of 2024 which contributed to the total increase in net revenue in 2024. Comparable sales, which excludes net revenue from the 53rd week of 2024, increased 4%.

Gross Profit

Gross margin increased 90 basis points. As a result of our decision to cease selling the lululemon Studio Mirror, we recognized an inventory obsolescence provision of $23.7 million during 2023, which reduced gross margin by 30 basis points. Adjusted gross margin increased 60 basis points. Please refer to Note 9. Impairment of Goodwill and Other Assets, Restructuring Costs included in Item 8 of Part II of this report.

The increase in gross margin was primarily the result of a net increase in product margin of 120 basis points, comprised of:

•a net increase of 120 basis points from lower product costs and lower inventory provision expense, partially offset by higher freight costs;

•an increase of 30 basis points due to the lululemon Studio obsolescence provision recognized during 2023; and

•an unfavorable impact of foreign currency exchange rates of 30 basis points.

The increase in product margin was partially offset by a net increase in other cost of sales as a percentage of net revenue of 30 basis points, comprised of:

•an increase in occupancy and depreciation costs of 60 basis points;

•an increase in distribution center costs of 30 basis points;

•a decrease in costs related to our product departments of 50 basis points; and

•a favorable impact of foreign currency exchange rates of 10 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 $196.0 million, comprised of:

–an increase in employee costs of $84.2 million primarily due to increased salaries and wages expense and benefit costs for retail employees primarily from the growth in our business, partially offset by decreased incentive compensation;

–an increase in brand and community costs of $54.2 million primarily due to increased digital marketing expenses;

–an increase in other operating costs of $41.9 million primarily due to increased depreciation costs and repairs and maintenance costs; and

–an increase in technology costs of $18.7 million.

The increase in costs related to our operating channels was partially offset by a decrease in variable costs of $2.9 million primarily due to decreased distribution costs driven by lower rates, partially offset by increased credit card fees as a result of increased net revenue.

•an increase in head office costs of $179.0 million, comprised of:

–an increase in brand and community costs of $64.5 million primarily due to increased marketing expenses as well as increased charitable donations;

–an increase in advisory and professional fees of $42.9 million;

–an increase in technology costs, including cloud computing amortization, of $27.6 million;

–an increase in other head office costs of $25.7 million; and

–an increase in depreciation of $20.2 million.

The increase in costs related to our head office was partially offset by a net decrease in employee costs of $1.9 million primarily due to decreased incentive compensation, partially offset by increased salaries and wages expense.

The increase in selling, general and administrative expenses was partially offset by an increase in net foreign currency exchange and derivative revaluation gains of $9.9 million.

Impairment of Goodwill and Other Assets, Restructuring Costs

During 2023, we recognized certain asset impairments and restructuring costs related to lululemon Studio. Please refer to Note 9. Impairment of Goodwill and Other Assets, Restructuring Costs included in Item 8 of Part II of this report for further information.

Amortization of Intangible Assets

The amortization of intangible assets in 2024 was primarily the result of the amortization of intangible assets recognized upon the acquisition of the Mexico operations. The amortization of intangible assets in 2023 was primarily the result of the amortization of intangible assets recognized upon the acquisition of MIRROR, which we rebranded as lululemon Studio.

Segment Results

On a segment basis, we determine income from operations without taking into account corporate expenses and certain other expenses. Corporate expenses include the cost of centrally managed support functions including product design, raw material development, product innovation, sourcing, supply chain, and global merchandising which are included in other cost of sales. Administrative corporate expenses include technology, brand and marketing, finance, human resources, legal, and other head office costs.

Americas

The increase in Americas net revenue was primarily due to a $263.5 million increase from new or expanded company-operated stores and our other channels. We added 24 net new company-operated stores in the Americas since 2023, including 14 company-operated stores from the acquisition of the Mexico operations. Americas net revenue during the 53rd week of 2024 was $118.0 million, which contributed to the increase in Americas net revenue in 2024. Americas comparable sales, which excludes net revenue from the 53rd week of 2024, decreased 1%. The decrease in comparable sales was primarily a result of decreased conversion rates, partially offset by an increase in traffic and a higher dollar value per transaction.

The decrease in gross margin was primarily due to deleverage on distribution center and occupancy costs, partially offset by higher product margin.

The increase in selling, general and administrative expenses was primarily due to increased marketing expenses, higher depreciation, and higher employee costs, partially offset by decreased distribution cost rates.

China Mainland

The increase in China Mainland net revenue was primarily due to an increase in comparable sales, which increased 25%, or 27% on a constant dollar basis. China Mainland comparable sales excludes net revenue from the 53rd week of 2024. 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 $156.5 million increase in in net revenue from new or expanded company-operated stores and our other channels. We have opened 24 net new company-operated stores since 2023. China Mainland net revenue during the 53rd week of 2024 was $23.6 million, which contributed to the increase in China Mainland net revenue in 2024.

The increase in gross margin was primarily due to higher product margin as well as leverage on occupancy and other costs.

The increase in selling, general and administrative expenses was primarily due to higher employee costs and increased marketing expenses, as well as increased distribution costs and packaging costs driven by higher net revenue.

Rest of World

The increase in Rest of World net revenue was primarily due to an increase in comparable sales, which increased 19%, or 20% on a constant dollar basis. Rest of World comparable sales excludes net revenue from the 53rd week of 2024. 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 $95.8 million increase in net revenue from new or expanded company-operated stores and our other channels. We have opened eight net new company-operated stores since 2023. Rest of World net revenue during the 53rd week of 2024 was $21.7 million, which contributed to the increase in Rest of World net revenue in 2024.

The increase in gross margin was primarily due to higher product margin.

The increase in selling, general and administrative expenses was primarily due to higher employee costs and increased marketing expenses, as well as increased distribution costs and credit card fees driven by higher net revenue.

Corporate

Corporate expenses decreased $9.0 million to $1.3 billion in 2024 compared to 2023. The net decrease was primarily due to an inventory obsolescence provision of $23.7 million and certain asset impairments and restructuring costs of $74.5 million in relation to lululemon Studio recognized in 2023. Please refer to Note 9. Impairment of Goodwill and Other Assets, Restructuring Costs included in Item 8 of Part II of this report for further information. Corporate expenses also decreased due to an increase in net foreign currency exchange and derivative gains of $9.9 million, as well as a decrease in employee costs. The decrease in corporate expenses was partially offset by increased professional fees and technology costs, as well as increased depreciation and marketing expenses.

Other Income (Expense), Net

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

Income Tax Expense

The increase in the effective tax rate was primarily due to an increase in non-deductible expenses in international jurisdictions, a decrease in tax benefits related to stock-based compensation, adjustments upon the filing of certain income tax returns, and an increase in net revenue outside of the United States. The increase in the effective tax rate was partially offset by an increase in tax credits, and the income tax impact of certain non-deductible impairment and other charges related to lululemon Studio, which increased the effective tax rate by 10 basis points in 2023.

Excluding the income tax effects of the impairment and other charges recognized in relation to lululemon Studio in 2023, the adjusted effective tax rate was 28.7% in 2023.

Net Income

The increase in net income in 2024 was primarily due to an increase in gross profit of $661.4 million, impairment and restructuring charges recognized in 2023 of $74.5 million, an increase in other income (expense), net of $27.3 million, partially offset by an increase in selling, general and administrative expenses of $365.2 million, and an increase in income tax expense of $135.9 million.

Excluding the impairment and other charges recognized in relation to lululemon Studio in 2023, and their tax effects, adjusted net income increased $192.3 million or 12%.