lululemon athletica inc.

Net Revenue

The increase in net revenue was primarily due to increased China Mainland and Rest of World net revenue. Comparable sales increased 2%. The increase in comparable sales was primarily a result of higher e-commerce traffic, partially offset by lower conversion rates and a decrease in average order value. We had total net revenue of $163.2 million during the 53rd week of 2024, which partially offset the increase in net revenue.

Gross Margin

The decrease in gross margin was primarily due to:

•a net decrease in product margin of 230 basis points, comprised of:

–a net decrease of 240 basis points primarily from higher tariffs, as well as increased markdowns and new credit card affiliate programs. This was partially offset by higher pricing, lower product costs, and lower damages; 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 30 basis points, comprised of:

–an increase in occupancy and depreciation costs of 40 basis points; and

–a decrease in costs related to our product departments 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 $204.8 million, comprised of:

–an increase in employee costs of $77.0 million primarily due to increased salaries and wages expense for retail employees primarily due to increased labor hours, partially offset by decreased incentive compensation and benefit costs;

–an increase in digital marketing expenses of $49.0 million;

–an increase in variable costs of $38.8 million primarily due to higher credit card fees, distribution costs, and packaging costs as a result of higher net revenue;

–an increase in occupancy and depreciation costs of $22.5 million;

–an increase in technology costs of $9.5 million; and

–an increase in other operating costs of $8.0 million.

•an increase in head office costs of $67.3 million, comprised of:

–an increase in technology costs, including software support and licensing, of $32.9 million;

–an increase in depreciation of $15.0 million;

–an increase in contractor, advisory, and professional fees of $12.4 million, which includes costs associated with proxy contest matters of $5.1 million in 2025;

–an increase in brand and community expenses of $7.8 million;

–an increase in other head office costs of $4.9 million; and

–a decrease in employee costs of $5.7 million primarily due to decreased incentive compensation, including a reversal of stock-based compensation expense during the second quarter of 2025 due to a change in the probability of achieving performance conditions, partially offset by increased salaries and wages expense and executive transition costs of $15.2 million in 2025.

•an increase in net foreign currency exchange and derivative revaluation losses of $32.1 million.

Selling, general and administrative expenses as a percentage of net revenue increased 110 basis points, primarily due to an increase in costs related to our operating channels of 90 basis points. Executive transition costs contributed 10 basis points to the increase.

Segment Results

On a segment basis, we determine income from operations without taking into account corporate 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 decrease in net revenue was primarily due to a decrease in comparable sales, which decreased 3%. The decrease in comparable sales was primarily a result of lower conversion rates, reduced store traffic, and a decrease in average order value, partially offset by higher e-commerce traffic, which was partially driven by the impact of credit card affiliate programs. Net revenue during the 53rd week of 2024 was $118.0 million, which also contributed to the decrease in net revenue. The decrease in net revenue was partially offset by a $192.4 million increase from new or expanded company-operated stores and our other channels. We have opened 14 net new company-operated stores since 2024.

The decrease in gross margin was primarily due to lower product margin driven by higher tariffs and increased markdowns, as well as higher occupancy costs as a percentage of net revenue.

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

China Mainland

The increase in net revenue was primarily due to an increase in comparable sales, which increased 20%, or 19% on a constant dollar basis. The increase in comparable sales was primarily a result of higher e-commerce traffic, partially offset by a decrease in average order value. The increase in net revenue was also driven by a $166.9 million increase in net revenue from new or expanded company-operated stores and our other channels. We have opened 21 net new company-operated stores since 2024. Net revenue during the 53rd week of 2024 was $23.6 million, which partially offset the increase in net revenue.

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

The increase in selling, general and administrative expenses was primarily due to higher employee costs and marketing expenses, as well as higher variable costs.

Rest of World

The increase in net revenue was primarily due to a $121.4 million increase in net revenue from new or expanded company-operated stores and our other channels, including from an increased number of locations operated by third parties under license and supply arrangements. We have opened nine net new company-operated stores since 2024. The increase in net revenue was also driven by an increase in comparable sales, which increased 9%, or 7% on a constant dollar basis. The increase in comparable sales was primarily a result of higher traffic, partially offset by lower conversion rates and a decrease in average order value. Net revenue during the 53rd week of 2024 was $21.7 million, which partially offset the increase in net revenue.

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

The increase in selling, general and administrative expenses was primarily due to higher employee costs, as well as higher marketing expenses and variable costs.

Corporate

Corporate expenses increased $62.4 million to $1.4 billion in 2025 compared to 2024. The increase in corporate expenses is primarily due to an increase in net foreign currency exchange and derivative revaluation losses of $32.1 million and higher technology costs, as well as higher depreciation costs. The increase in corporate expenses was partially offset by lower employee costs and marketing expenses.

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 decrease in the effective tax rate was primarily due to lower tax rates on foreign-derived intangible income ("FDII") and tax benefits related to foreign exchange losses. The decrease in the effective tax rate was partially offset by an increase in nondeductible expenses in international jurisdictions.

Net Income

The decrease in net income in 2025 was primarily due to an increase in selling, general and administrative expenses of $304.2 million and a decrease in other income (expense), net of $42.0 million, partially offset by a decrease in income tax expense of $101.7 million and an increase in gross profit of $13.3 million.