lululemon athletica inc

Previous wording

This information should be read in conjunction with the unaudited interim consolidated financial statements and the notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes, and Management's Discussion and Analysis of Financial Condition and Results of Operations, contained in our fiscal 2023 Annual Report on Form 10-K filed with the SEC on March 21, 2024.

Current wording

This Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the unaudited interim consolidated financial statements and related notes in Item 1 of this Quarterly Report on Form 10-Q, as well as the audited consolidated financial statements and MD&A in our Annual Report on Form 10-K for fiscal 2024.

Previous wording

Our 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.

Current wording

Our 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 2025 will end on February 1, 2026 and will be a 52-week year. Fiscal 2024 was a 53-week year and ended on February 2, 2025. Fiscal 2025 and fiscal 2024 are referred to as "2025," and "2024," respectively. The first quarter of 2025 and 2024 ended on May 4, 2025 and April 28, 2024, respectively.

Previous wording

We use comparable sales as a metric to evaluate the performance of our business. Refer to the Comparable Sales section of this management's discussion and analysis of financial condition and results of operations for further information.

Current wording

We use comparable sales as a metric to evaluate the performance of our business. Due to the 53rd week in 2024, comparable sales are calculated on a one week shifted basis such that the 13 weeks ended May 4, 2025 is compared to the 13 weeks ended May 5, 2024 rather than April 28, 2024. Refer to the Comparable Sales section of this MD&A for further information.

Previous wording

We provide constant dollar changes and adjusted financial results, which are non-GAAP financial measures, as supplemental information that enable evaluation of the underlying trend in our operating performance, and enable a comparison to our historical financial information. Refer to the Non-GAAP Financial Measures section of this management's discussion and analysis of financial condition and results of operations for reconciliations between the adjusted non-GAAP financial measures and the most directly comparable measures calculated in accordance with GAAP.

Current wording

We provide constant dollar changes, which is a non-GAAP financial measure, as supplemental information to help investors understand the underlying growth rate of net revenue excluding the impact of changes in foreign currency exchange rates. Refer to the Non-GAAP Financial Measures section of this MD&A for reconciliations between the non-GAAP financial measures and the most directly comparable measures calculated in accordance with GAAP.

Previous wording

The summary below compares the third quarter of 2024 to the third quarter of 2023, and provides both GAAP and non-GAAP financial measures. The adjusted financial measures for 2023 exclude $72.1 million of post-tax asset impairment and other charges recognized in relation to lululemon Studio.

Current wording

The summary below compares the first quarter of 2025 to the first quarter of 2024:

Previous wording

•Net revenue increased 9% to $2.4 billion. On a constant dollar basis, net revenue increased 8%.

Current wording

•Net revenue increased 7% to $2.4 billion. On a constant dollar basis, net revenue increased 8%.

Previous wording

–Americas comparable sales decreased 2%.

Current wording

–Americas comparable sales decreased 2%, or 1% on a constant dollar basis.

Previous wording

–China Mainland comparable sales increased 27%, or 24% on a constant dollar basis.

Current wording

–China Mainland comparable sales increased 7%, or 8% on a constant dollar basis.

Previous wording

–Rest of World comparable sales increased 23%, or 20% on a constant dollar basis.

Current wording

–Rest of World comparable sales increased 6%, or 7% on a constant dollar basis.

Previous wording

•Gross profit increased 12% to $1.4 billion. Adjusted gross profit increased 9%.

Current wording

•Gross profit increased 8% to $1.4 billion.

Previous wording

•Income tax expense increased 54% to $152.5 million. Our effective tax rate for the third quarter of 2024 was 30.2% compared to 28.5% for the third quarter of 2023. The adjusted effective tax rate was 28.1% for the third quarter of 2023.

Current wording

•Income tax expense increased 1% to $135.8 million. Our effective tax rate for the first quarter of 2025 was 30.2% compared to 29.5% for the first quarter of 2024.

Previous wording

Foreign currency fluctuations have adversely impacted our financial results. Foreign currency fluctuations reduced the growth of our net revenue by $25.7 million when comparing the first three quarters of 2024 to the first three quarters of 2023, primarily due to the overall appreciation of the US dollar. We expect future exchange rate volatility to impact our results.

Current wording

Foreign currency fluctuations negatively impacted our financial results during the first quarter of 2025, reducing net revenue growth by $21.3 million compared to the first quarter of 2024, primarily due to the overall appreciation of the US dollar. We expect ongoing exchange rate volatility to continue affecting our financial results.

Previous wording

Net revenue increased $562.5 million, or 9%, to $7.0 billion for the first three quarters of 2024 from $6.4 billion for the first three quarters of 2023. Comparable sales increased 4%. The increase in net revenue was primarily due to increased China Mainland and Rest of World net revenue. Americas net revenue also increased.

Current wording

The increase in net revenue was primarily due to increased China Mainland net revenue. Americas and Rest of World net revenue also increased and global comparable sales increased 1%.

Previous wording

•a net increase in product margin of 50 basis points, primarily due to lower inventory provisions, as well as lower product costs, partially offset by higher freight costs in the current year; and

Current wording

•a net increase of 130 basis points from lower product costs and higher average unit retail, as well as lower damages, partially offset by higher freight costs; and

Previous wording

•a favorable impact of foreign currency exchange rates of 10 basis points.

Current wording

•an unfavorable impact of foreign currency exchange rates of 20 basis points.

Previous wording

The increase in adjusted gross margin was partially offset by an increase in occupancy and depreciation costs as a percentage of net revenue of 70 basis points, an increase in distribution center costs as a percentage of net revenue of 30 basis points, and an unfavorable impact of foreign currency exchange rates of 10 basis points.

Current wording

•an increase in occupancy and depreciation costs of 30 basis points; and

Previous wording

•a decrease in costs related to our product departments as a percentage of net revenue of 70 basis points;

Current wording

•an increase in costs related to our product departments of 20 basis points.

Previous wording

•an increase in head office costs of $22.7 million, comprised of:

Current wording

•an increase in head office costs of $51.6 million, comprised of:

Previous wording

–an increase in technology costs, including cloud computing amortization, of $7.4 million;

Current wording

–an increase in technology costs, including cloud computing amortization, of $11.0 million;

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–an increase in depreciation of $5.3 million; and

Current wording

–an increase in depreciation of $7.3 million; and

Previous wording

–an increase in employee costs of $13.9 million primarily due to increased salaries and wages expense for retail employees primarily from the growth in our business, partially offset by decreased incentive compensation;

Current wording

–an increase in employee costs of $25.4 million primarily due to increased salaries and wages expense for retail employees;

Previous wording

–an increase in other operating costs of $7.5 million primarily due to increased depreciation and security costs; and

Current wording

–an increase in other operating costs of $9.5 million primarily due to increased depreciation and occupancy costs;

Previous wording

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 cost rates, partially offset by increased credit card fees and packaging costs as a result of higher net revenue.

Current wording

The increase in costs related to our operating channels was partially offset by a decrease in variable costs of $8.8 million primarily due to decreased distribution cost rates, partially offset by increased credit card fees as a result of higher net revenue.

Previous wording

–an increase in depreciation of $10.8 million; and

Current wording

•an increase in net foreign currency exchange and derivative revaluation losses of $10.8 million.

Previous wording

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.

Current wording

The amortization of intangible assets in 2025 was primarily the result of the amortization of intangible assets recognized upon the acquisition of the Mexico operations.

Previous wording

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.

Current wording

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.

Previous wording

Americas. The increase in Americas net revenue was primarily due to a $180.2 million increase from new or expanded company-operated stores and our other channels. We added 28 net new company-operated stores in the Americas since the third quarter of 2023, including 14 company-operated stores from the acquisition of the Mexico operations. Americas comparable sales decreased 2%, or 1% on a constant dollar basis. 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.

Current wording

The increase in Americas net revenue was primarily due to a $57.1 million increase from new or expanded company-operated stores and our other channels. We added 22 net new company-operated stores in the Americas since the first quarter of 2024, including 14 company-operated stores from the acquisition of the Mexico operations. Americas comparable sales decreased 2%, or 1% on a constant dollar basis. The decrease in comparable sales was primarily a result of decreased conversion rates and a decrease in store traffic, partially offset by a higher dollar value per transaction and an increase in e-commerce traffic.

Previous wording

China Mainland. The increase in China Mainland income from operations was primarily the result of increased gross profit of $61.8 million, driven by increased net revenue and higher gross margin. The increase in gross margin was primarily due to leverage on occupancy costs, favorable foreign currency exchange rates, as well as higher product margin. The increase in gross profit was partially offset by an increase in selling, general and administrative expenses, primarily due to increased marketing expenses and higher employee costs, as well as increased technology costs. Income from operations as a percentage of China Mainland net revenue increased primarily due to higher gross margin, partially offset by deleverage on selling, general and administrative expenses.

Current wording

The increase in gross margin was primarily due to higher product margin partially offset by deleverage on occupancy and depreciation costs.

Previous wording

Americas. The increase in Americas income from operations was primarily the result of increased gross profit of $45.3 million, driven by increased net revenue, partially offset by lower gross margin. 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 gross profit was partially offset by an increase in selling, general and administrative expenses, primarily due to increased marketing expenses and higher depreciation, partially offset by decreased distribution cost rates and lower employee costs. Income from operations as a percentage of Americas net revenue decreased due to lower gross margin and deleverage on selling, general and administrative expenses.

Current wording

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

Previous wording

China Mainland. The increase in China Mainland net revenue was primarily due to an increase in comparable sales, which increased 27%, or 24% 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 $35.7 million increase in net revenue from new or expanded company-operated stores and our other channels. We have opened 24 net new company-operated stores in China Mainland since the third quarter of 2023.

Current wording

The increase in China Mainland net revenue was primarily due to a $38.3 million increase in net revenue from new or expanded company-operated stores and our other channels. We have opened 27 net new company-operated stores in China Mainland since the first quarter of 2024. The increase in China Mainland net revenue was also driven by an increase in comparable sales, which increased 7%, or 8% 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.

Previous wording

China Mainland. The increase in China Mainland income from operations was primarily the result of increased gross profit of $180.6 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 and increased marketing expenses, as well as increased distribution costs and packaging costs driven by higher net revenue. Income from operations as a percentage of China Mainland net revenue increased primarily due to higher gross margin.

Current wording

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

Previous wording

Rest of World. The increase in Rest of World net revenue was primarily due to an increase in comparable sales, which increased 23%, or 20% 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 $19.6 million increase in net revenue from new or expanded company-operated stores and our other channels. We have opened 11 net new company-operated stores in Rest of World since the third quarter of 2023.

Current wording

The increase in Rest of World net revenue was primarily due to a $25.5 million increase in net revenue from new or expanded company-operated stores and our other channels. We have opened 10 net new company-operated stores in Rest of World since the first quarter of 2024. The increase in Rest of World net revenue was also driven by an increase in comparable sales, which increased 6%, or 7% on a constant dollar basis. The increase in comparable sales was primarily a result of increased traffic.

Previous wording

Rest of World. The increase in Rest of World income from operations was primarily the result of increased gross profit of $121.0 million, driven by increased net revenue and higher gross margin. The increase in gross margin was primarily due to higher product margin, 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 distribution costs and credit card fees driven by higher net revenue. Income from operations as a percentage of Rest of World net revenue increased primarily due to higher gross margin and leverage on selling, general and administrative expenses.

Current wording

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.

Previous wording

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

Current wording

The decrease in other income, net was primarily due to a decrease in interest income as a result of lower average cash balances and lower interest rates.

Previous wording

The increase in the effective tax rate was primarily due to a decrease in tax benefits related to stock-based compensation, an increase in non-deductible expenses in international jurisdictions, and adjustments upon the filing of certain income tax returns. 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.

Current wording

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.

Previous wording

The increase in net income was primarily due to an increase in gross profit of $382.9 million, impairment and other charges recognized in 2023 of $74.5 million, and an increase in other income (expense), net of $29.8 million, partially offset by an increase in selling, general and administrative expenses of $216.5 million, and an increase in income tax expense of $89.0 million.

Current wording

The decrease in net income was primarily due to an increase in selling, general and administrative expenses of $100.4 million, a decrease in other income (expense), net of $11.5 million, and an increase in income tax expense of $1.3 million, partially offset by an increase in gross profit of $108.1 million.

Previous wording

Company-operated stores acquired as a result of the acquisition of the Mexico operations will be considered comparable beginning after 12 full fiscal months of sales from the date of acquisition. Prior to the acquisition, wholesale sales were made to a third party under a license and supply arrangement.

Current wording

Company-operated stores acquired as a result of the acquisition of the Mexico operations will be considered comparable beginning October 2025 after 12 full fiscal months of sales from the date of acquisition. Prior to the acquisition, wholesale sales were made to a third party under a license and supply arrangement.

Previous wording

A constant dollar basis assumes the average foreign currency exchange rates for the period remained constant with the average foreign currency exchange rates for the same period of the prior year. We provide constant dollar changes in our results to help investors understand the underlying growth rate of net revenue excluding the impact of changes in foreign currency exchange rates.

Current wording

A constant dollar basis assumes the average foreign currency exchange rates for the period remained constant with the average foreign currency exchange rates for the same period of the prior year. We use constant dollar metrics to facilitate comparison of underlying performance excluding the impact of changes in foreign currency exchange rates. Management uses these constant currency metrics internally when reviewing and assessing financial performance.

Previous wording

The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or with greater prominence to, the financial information prepared and presented in accordance with GAAP. A reconciliation of the non-GAAP financial measures follows, which includes more detail on the GAAP financial measure that is most directly comparable to each non-GAAP financial measure, and the related reconciliations between these financial measures. Our non-GAAP financial measures may be calculated differently from, and therefore may not be directly comparable to, similarly titled measures reported by other companies.

Current wording

These non-GAAP financial measures are provided in addition to, and not a substitute for, or with greater prominence than, the corresponding financial measures calculated in accordance with GAAP. A reconciliation of the non-GAAP financial measures follows, which includes more detail on the GAAP financial measure that is most directly comparable to each non-GAAP financial measure, and the related reconciliations between these financial measures. Our non-GAAP financial measures may be calculated differently from, and therefore may not be directly comparable to, similarly titled measures reported by other companies.

Previous wording

The below changes in net revenue and comparable sales show the change compared to the corresponding period in the prior year.

Current wording

The below changes in net revenue show the change compared to the corresponding period in the prior year. Due to the 53rd week in 2024, the below changes in comparable sales are calculated on a one week shifted basis such that the 13 weeks ended May 4, 2025 is compared to the 13 weeks ended May 5, 2024 rather than April 28, 2024.