lululemon athletica inc.

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

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

Net Revenue

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

Gross Profit

The decrease in gross margin was primarily due to:

•a net decrease in product margin of 70 basis points, comprised of:

–a net decrease of 80 basis points from higher markdowns, tariffs, and other costs, partially offset by higher pricing and lower product costs; and

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

•a net increase in other cost of sales as a percentage of net revenue of 40 basis points, comprised of:

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

–an increase in distribution center and product department costs 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 $62.8 million, comprised of:

–an increase in employee costs of $23.7 million primarily due to increased salaries and wages expense for retail employees, partially offset by decreased incentive compensation;

–an increase in variable costs of $13.3 million primarily due to increased distribution costs, credit card fees, and packaging costs as a result of higher net revenue;

–an increase in other operating costs of $11.7 million primarily due to increased depreciation and occupancy costs;

–an increase in digital marketing costs of $11.1 million; and

–an increase in technology costs of $3.0 million.

•a net increase in head office costs of $17.2 million, comprised of:

–an increase in technology costs, including cloud computing amortization, of $9.0 million;

–an increase in depreciation of $5.4 million;

–an increase in brand and community costs of $4.0 million;

–an increase in contractor, advisory, and professional services of $3.6 million;

–an increase in other head office costs of $5.3 million; and

–a net decrease in employee costs of $10.1 million primarily due to a reversal of stock-based compensation expense due to change in the probability of achieving performance conditions, 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 $0.3 million.

Amortization of Intangible Assets

The amortization of intangible assets in 2025 was primarily the result of the amortization of intangible assets recognized upon the September 2024 acquisition of the Mexico operations.

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 $56.6 million increase from new or expanded company-operated stores and our other channels. We added 26 net new company-operated stores in the Americas since the second quarter of 2024, including 14 company-operated stores from the acquisition of the Mexico operations. Americas comparable sales decreased 4%, or 3% on a constant dollar basis, driven by lower conversion rates and reduced store traffic, partially offset by higher e-commerce traffic and an increase in average order value.

The decrease in gross margin was primarily due to lower product margin and higher occupancy costs and depreciation as a percentage of net revenue.

The increase in selling, general and administrative expenses was primarily due to higher employee costs, increased digital marketing expenses, and increased depreciation.

China Mainland

The increase in China Mainland net revenue was primarily due to an increase in comparable sales, which increased 17%, or 16% on a constant dollar basis. The increase in comparable sales was primarily a result of increased e-commerce traffic, partially offset by a decrease in average order value. The increase in China Mainland net revenue was also driven by a $37.4 million increase in net revenue from new or expanded company-operated stores and our other channels. We have opened 27 new company-operated stores in China Mainland since the second quarter of 2024.

The increase in gross margin was primarily due to lower occupancy costs as a percentage of net revenue, partially offset by lower product margin.

The increase in selling, general and administrative expenses was primarily due to higher employee costs, increased digital marketing expenses, and increased technology costs.

Rest of World

The increase in Rest of World net revenue was primarily due to a $31.1 million increase in net revenue from new or expanded company-operated stores and our other channels. We have opened 10 new company-operated stores in Rest of World since the second quarter of 2024. The increase in Rest of World net revenue was also driven by an increase in comparable sales, which increased 12%, or 9% on a constant dollar basis. The increase in comparable sales was primarily a result of increased traffic, partially offset by a decrease in average order value.

The decrease in gross margin was primarily due to higher occupancy costs as a percentage of net revenue as well as lower 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 increased $7.0 million to $329.3 million in the second quarter of 2025 compared to the second quarter of 2024. The net increase was primarily due to higher technology costs and depreciation. The increase in corporate expenses was partially offset by lower employee costs driven by decreased incentive compensation as well as an increase in net foreign currency exchange and derivative gains of $0.3 million.

Other Income (Expense), Net

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.

Income Tax Expense

The increase in the effective tax rate was primarily due to an increase in non-deductible expenses in international jurisdictions.

Net Income

The decrease in net income was primarily due to an increase in selling, general and administrative expenses of $79.7 million, and a decrease in other income (expense), net of $8.3 million, partially offset by an increase in gross profit of $65.0 million, and a decrease in income tax expense of $2.7 million.