lululemon athletica inc.

Year-to-Date Results of Operations: First Two Quarters Results

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

Net Revenue

The decrease in net revenue was primarily due to decreased Americas net revenue, partially offset by increased China Mainland and Rest of World net revenue. Global comparable sales decreased 4%, or 6% on a constant dollar basis, primarily as a result of lower conversion rates as well as a decrease in average order value and reduced store traffic, partially offset by higher e-commerce traffic.

Gross Margin

The decrease in gross margin was primarily due to a net increase in other cost of sales as a percentage of net revenue of 190 basis points, comprised of:

•an increase in occupancy and depreciation costs of 160 basis points, driven by new and expanded company-operated stores, as well as increased penetration in China Mainland and Rest of World; and

•an increase in costs related to our distribution centers and product departments of 30 basis points.

The decrease in gross margin was partially offset by a net increase in product margin of 80 basis points, comprised of:

•an increase of 280 basis points related to IEEPA tariff refunds;

•a net decrease of 240 basis points primarily from higher tariffs as well as markdowns including credit card affiliate programs, partially offset by higher pricing and lower product costs; and

•a favorable impact of foreign currency exchange rates of 40 basis points.

Selling, General and Administrative Expenses

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

•a net increase in head office costs of $109.0 million, comprised of:

–an increase in employee costs of $37.3 million primarily due to higher wage rates and the reversal of stock-based compensation recorded in the second quarter of 2025. The increase was partially offset by lower bonus expense due to business performance;

–an increase in brand and community expenses of $36.7 million;

–an increase in contractor, advisory, and professional services of $15.7 million, which includes costs associated with proxy contest matters of $24.8 million in the first two quarters of 2026, partially offset by lower other advisory and professional fees;

–an increase in technology costs, including cloud computing amortization, of $13.4 million;

–an increase in depreciation of $10.9 million; and

–a decrease in other head office costs of $5.0 million.

•an increase in costs related to our operating channels of $64.1 million, comprised of:

–an increase in employee costs of $36.2 million primarily due to increased salaries and wages expense for retail employees;

–an increase in variable costs of $10.1 million primarily due to increased distribution costs, partially offset by lower packaging costs;

–an increase in technology costs of $4.6 million;

–an increase in digital marketing expenses of $4.4 million; and

–an increase in other operating costs of $8.8 million primarily due to increased repairs and maintenance costs and occupancy costs.

The increase in selling, general and administrative expenses was partially offset by a decrease in net foreign currency exchange and derivative revaluation losses of $1.3 million.

Selling, general and administrative expenses as a percentage of net revenue increased 360 basis points due to an increase in head office costs of 230 basis points and an increase in costs related to our operating channels of 130 basis points.

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 8%, or 9% on a constant dollar basis. The decrease in comparable sales was primarily a result of lower conversion rates as well as reduced store traffic and a decrease in average order value, partially offset by higher e-commerce traffic. The decrease in net revenue was partially offset by a $45.3 million increase from new or expanded company-operated stores and our other channels, including from outlets and sales to wholesale accounts. We opened 16 net new company-operated stores in the Americas since the second quarter of 2025.

The decrease in gross margin was primarily due to higher occupancy, depreciation, and distribution center costs as a percentage of net revenue. The decrease in gross margin was partially offset by higher product margin driven by an increase of 420 basis points related to IEEPA tariff refunds, partially offset by higher other tariffs.

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

China Mainland

The increase in net revenue was primarily due to a $68.2 million increase in net revenue from new or expanded company-operated stores and our other channels. We have opened 15 new company-operated stores in China Mainland since the second quarter of 2025. The increase in net revenue was also driven by an increase in comparable sales, which increased 8%, or 2% on a constant dollar basis. The increase in comparable sales was primarily a result of higher traffic, partially offset by lower conversion rates.

The increase in gross margin was primarily due to higher product margin driven by a favorable impact of foreign currency exchange rates, as well as lower distribution center costs as a percentage of net revenue, partially offset by higher depreciation and occupancy 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.

Rest of World

The increase in net revenue was primarily due to a $59.7 million increase in net revenue from new or expanded company-operated stores and our other channels, including from outlets and an increased number of locations operated by third parties under license and supply arrangements. We have opened 10 net new company-operated stores in Rest of World since the second quarter of 2025. Comparable sales were flat, or decreased 1% on a constant dollar basis, compared to the first two quarters of 2025. This was primarily a result of lower conversion rates, partially offset by higher e-commerce traffic and an increase in average order value.

The decrease in gross margin was primarily due to higher occupancy, depreciation, and 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.

Corporate

Corporate expenses increased $64.5 million to $771.0 million in the first two quarters of 2026 compared to the first two quarters of 2025. The net increase was primarily due to higher employee costs, as well as higher technology costs and depreciation. The increase in corporate expenses was partially offset by a decrease in net foreign currency exchange and derivative losses of $1.3 million.

Other Income (Expense), Net

A net increase in interest income contributed to the increase in other income (expense), net. The net increase in interest income was primarily due to $4.1 million in interest associated with IEEPA tariff refunds, partially offset by lower average cash balances and lower 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, partially offset by a decrease 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 $171.8 million and a decrease in gross profit of $59.6 million, which included $134.5 million of IEEPA tariff refunds. The decrease in net income was partially offset by a decrease in income tax expense of $69.3 million and an increase in other income (expense), net of $1.3 million.