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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 28, 2024
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number 001-33608

lululemon Yogo.jpg
lululemon athletica inc.
(Exact name of registrant as specified in its charter)
Delaware20-3842867
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1818 Cornwall Avenue, Vancouver, British Columbia V6J 1C7
(Address of principal executive offices)

Registrant's telephone number, including area code:
604-732-6124
Former name, former address and former fiscal year, if changed since last report:
N/A
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, par value $0.005 per shareLULUNasdaq Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated FilerAccelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes No ☑
As of May 30, 2024, there were 119,886,401 shares of the registrant's common stock, par value $0.005 per share, outstanding.
Exchangeable and Special Voting Shares:
As of May 30, 2024, there were outstanding 5,115,961 exchangeable shares of Lulu Canadian Holding, Inc., a wholly-owned subsidiary of the registrant. Exchangeable shares are exchangeable for an equal number of shares of the registrant's common stock.
In addition, as of May 30, 2024, the registrant had outstanding 5,115,961 shares of special voting stock, through which the holders of exchangeable shares of Lulu Canadian Holding, Inc. may exercise their voting rights with respect to the registrant. The special voting stock and the registrant's common stock generally vote together as a single class on all matters on which the common stock is entitled to vote.


TABLE OF CONTENTS
 
2

PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
lululemon athletica inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited; Amounts in thousands, except per share amounts)
April 28,
2024
January 28,
2024
ASSETS
Current assets
Cash and cash equivalents$1,900,672 $2,243,971 
Accounts receivable, net126,349 124,769 
Inventories1,345,267 1,323,602 
Prepaid and receivable income taxes192,955 183,733 
Prepaid expenses and other current assets202,844 184,502 
3,768,087 4,060,577 
Property and equipment, net1,561,185 1,545,811 
Right-of-use lease assets1,263,749 1,265,610 
Goodwill23,992 24,083 
Deferred income tax assets9,099 9,176 
Other non-current assets202,383 186,684 
$6,828,495 $7,091,941 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable$261,605 $348,441 
Accrued liabilities and other374,446 348,555 
Accrued compensation and related expenses132,911 326,110 
Current lease liabilities254,443 249,270 
Current income taxes payable53,087 12,098 
Unredeemed gift card liability268,296 306,479 
Other current liabilities38,783 40,308 
1,383,571 1,631,261 
Non-current lease liabilities1,147,631 1,154,012 
Non-current income taxes payable15,864 15,864 
Deferred income tax liabilities29,150 29,522 
Other non-current liabilities32,471 29,201 
2,608,687 2,859,860 
Commitments and contingencies
Stockholders' equity
Undesignated preferred stock, $0.01 par value: 5,000 shares authorized; none issued and outstanding
  
Exchangeable stock, no par value: 60,000 shares authorized; 5,116 and 5,116 issued and outstanding
  
Special voting stock, $0.000005 par value: 60,000 shares authorized; 5,116 and 5,116 issued and outstanding
  
Common stock, $0.005 par value: 400,000 shares authorized; 120,470 and 121,106 issued and outstanding
602 606 
Additional paid-in capital570,286 575,369 
Retained earnings3,944,000 3,920,362 
Accumulated other comprehensive loss(295,080)(264,256)
4,219,808 4,232,081 
$6,828,495 $7,091,941 
See accompanying notes to the unaudited interim consolidated financial statements
3

lululemon athletica inc.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited; Amounts in thousands, except per share amounts)
Quarter Ended
April 28,
2024
April 30,
2023
Net revenue$2,208,891 $2,000,792 
Cost of goods sold933,823 849,987 
Gross profit1,275,068 1,150,805 
Selling, general and administrative expenses842,426 747,513 
Amortization of intangible assets 1,878 
Income from operations432,642 401,414 
Other income (expense), net23,283 8,025 
Income before income tax expense455,925 409,439 
Income tax expense134,504 119,034 
Net income$321,421 $290,405 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment$(44,305)$(42,750)
Net investment hedge gains13,481 17,720 
Other comprehensive income (loss), net of tax$(30,824)$(25,030)
Comprehensive income$290,597 $265,375 
Basic earnings per share$2.55 $2.28 
Diluted earnings per share$2.54 $2.28 
Basic weighted-average number of shares outstanding125,989 127,246 
Diluted weighted-average number of shares outstanding126,336 127,621 
See accompanying notes to the unaudited interim consolidated financial statements
4

lululemon athletica inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited; Amounts in thousands)
Quarter Ended April 28, 2024
 Exchangeable StockSpecial Voting StockCommon StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTotal Stockholders' Equity
 SharesSharesPar ValueSharesPar Value
Balance as of January 28, 20245,116 5,116 $ 121,106 $606 $575,369 $3,920,362 $(264,256)$4,232,081 
Net income321,421 321,421 
Other comprehensive income (loss), net of tax(30,824)(30,824)
Stock-based compensation expense25,758 25,758 
Common stock issued upon settlement of stock-based compensation200 — 3,393 3,393 
Shares withheld related to net share settlement of stock-based compensation(85)— (32,542)(32,542)
Repurchase of common stock, including excise tax(751)(4)(1,692)(297,783)(299,479)
Balance as of April 28, 20245,116 5,116 $ 120,470 $602 $570,286 $3,944,000 $(295,080)$4,219,808 

Quarter Ended April 30, 2023
 Exchangeable StockSpecial Voting StockCommon StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTotal Stockholders' Equity
 SharesSharesPar ValueSharesPar Value
Balance as of January 29, 20235,116 5,116 $ 122,205 $611 $474,645 $2,926,127 $(252,584)$3,148,799 
Net income290,405 290,405 
Other comprehensive income (loss), net of tax(25,030)(25,030)
Stock-based compensation expense21,301 21,301 
Common stock issued upon settlement of stock-based compensation274 — 11,873 11,873 
Shares withheld related to net share settlement of stock-based compensation(88)— (28,793)(28,793)
Repurchase of common stock, including excise tax(292)(1)(530)(97,948)(98,479)
Balance as of April 30, 20235,116 5,116 $ 122,099 $610 $478,496 $3,118,584 $(277,614)$3,320,076 
See accompanying notes to the unaudited interim consolidated financial statements
5

lululemon athletica inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Amounts in thousands)
Quarter Ended
April 28,
2024
April 30,
2023
Cash flows from operating activities
Net income$321,421 $290,405 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization95,759 84,116 
Stock-based compensation expense25,758 21,301 
Settlement of derivatives not designated in a hedging relationship(316)(721)
Changes in operating assets and liabilities:
Inventories(36,425)(155,174)
Prepaid and receivable income taxes(10,104)3,249 
Prepaid expenses and other current assets(22,532)27,511 
Other non-current assets(17,969)(7,222)
Accounts payable(82,366)116,935 
Accrued liabilities and other37,534 (53,685)
Accrued compensation and related expenses(190,513)(120,699)
Current and non-current income taxes payable41,116 (141,237)
Unredeemed gift card liability(37,172)(26,506)
Right-of-use lease assets and current and non-current lease liabilities1,097 5,255 
Other current and non-current liabilities2,236 1,975 
Net cash provided by operating activities127,524 45,503 
Cash flows from investing activities
Purchase of property and equipment(130,681)(136,942)
Settlement of net investment hedges(856)(1,277)
Net cash used in investing activities(131,537)(138,219)
Cash flows from financing activities
Proceeds from settlement of stock-based compensation3,393 11,873 
Shares withheld related to net share settlement of stock-based compensation(32,542)(28,793)
Repurchase of common stock(299,479)(98,479)
Net cash used in financing activities(328,628)(115,399)
Effect of foreign currency exchange rate changes on cash and cash equivalents(10,658)3,855 
Decrease in cash and cash equivalents(343,299)(204,260)
Cash and cash equivalents, beginning of period$2,243,971 $1,154,867 
Cash and cash equivalents, end of period$1,900,672 $950,607 
See accompanying notes to the unaudited interim consolidated financial statements

6

lululemon athletica inc.
INDEX FOR NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS

7

lululemon athletica inc.
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS
Note 1. Nature of Operations and Basis of Presentation
Nature of operations
lululemon athletica inc., a Delaware corporation, ("lululemon" and, together with its subsidiaries unless the context otherwise requires, the "Company") is engaged in the design, distribution, and retail of technical athletic apparel, footwear, and accessories. The Company organizes its operations into four regional markets: Americas, China Mainland, Asia Pacific ("APAC"), and Europe and the Middle East ("EMEA"). It conducts its business through a number of different channels in each market, including company-operated stores, e-commerce, temporary locations, wholesale, outlets, a re-commerce program, and license and supply arrangements. There were 711 and 711 company-operated stores as of April 28, 2024 and January 28, 2024, respectively.
Basis of presentation
The unaudited interim consolidated financial statements, including the financial position as of April 28, 2024 and the results of operations and cash flows for the periods disclosed, are presented in U.S. dollars and have been prepared by the Company under the rules and regulations of the Securities and Exchange Commission ("SEC"). The financial information is presented in accordance with United States generally accepted accounting principles ("GAAP") for interim financial information and, accordingly, does not include all of the information and footnotes required by GAAP for complete financial statements. The financial information as of January 28, 2024 is derived from the Company's audited consolidated financial statements and related notes for the fiscal year ended January 28, 2024, which are included in Item 8 in the Company's fiscal 2023 Annual Report on Form 10-K filed with the SEC on March 21, 2024. These unaudited interim consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. These unaudited interim consolidated financial statements should be read in conjunction with the Company's consolidated financial statements and related notes included in Item 8 in the Company's fiscal 2023 Annual Report on Form 10-K. Note 2. Recent Accounting Pronouncements sets out the impact of recent accounting pronouncements.
The Company's 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 quarter of 2024 and 2023 ended on April 28, 2024 and April 30, 2023, respectively.
The Company's business is affected by the pattern of seasonality common to most retail apparel businesses. Historically, the Company has recognized a significant portion of its operating profit in the fourth fiscal quarter of each year as a result of increased net revenue during the holiday season.
Use of estimates
The preparation of financial statements in conformity with GAAP in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of net revenue and expenses during the reporting period. Actual results could differ from those estimates.
Note 2. Recent Accounting Pronouncements
The Company considers the applicability and impact of all Accounting Standard Updates ("ASUs"). ASUs recently issued not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on the Company's consolidated financial position or results of operations.
Recently issued accounting pronouncements
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. Entities will be required to provide disclosures of significant segmented expenses and other categories used by the Chief Operating Decision Maker ("CODM") in order to enhance disclosure at the segment level. This amendment is effective for annual periods beginning after December 15, 2023, and interim periods beginning after December 15, 2024,
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and is applied retrospectively for periods presented in the financial statements. The Company is currently evaluating the impact that this new guidance may have on its financial statement disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This disclosure requires expanded disclosure within the rate reconciliation as well as disaggregation of annual taxes paid. This amendment is effective for annual periods beginning after December 15, 2023, and is applied prospectively. The Company is currently evaluating the impact that this new guidance may have on its financial statement disclosures.
Note 3. Revolving Credit Facilities
Americas revolving credit facility
On December 14, 2021, the Company entered into an amended and restated credit agreement extending its existing credit facility, which provides for $400.0 million in commitments under an unsecured five-year revolving credit facility. The credit facility has a maturity date of December 14, 2026, subject to extension under certain circumstances. Borrowings under the credit facility may be prepaid and commitments may be reduced or terminated without premium or penalty (other than customary breakage costs).
As of April 28, 2024, aside from letters of credit of $6.3 million, the Company had no other borrowings outstanding under this credit facility.
Borrowings made under the credit facility bear interest at a rate per annum equal to, at the Company's option, either (a) a rate based on the Secured Overnight Financing Rate as administered by the Federal Reserve Bank of New York ("SOFR"), or (b) an alternate base rate, plus, in each case, an applicable margin. The applicable margin is determined by reference to a pricing grid, based on the ratio of indebtedness to earnings before interest, tax, depreciation, amortization, and rent ("EBITDAR") and ranges between 1.000%-1.375% for SOFR loans and 0.000%-0.375% for alternate base rate or Canadian prime rate loans. Additionally, a commitment fee of between 0.100%-0.200%, also determined by reference to the pricing grid, is payable on the average daily unused amounts under the credit facility.
The applicable interest rates and commitment fees are subject to adjustment based on certain sustainability key performance indicators ("KPIs"). The two KPIs are based on greenhouse gas emissions intensity reduction and gender pay equity, and the Company's performance against certain targets measured on an annual basis could result in positive or negative sustainability rate adjustments of 2.50 basis points to its drawn pricing and positive or negative sustainability fee adjustments of 0.50 basis points to its undrawn pricing.
The credit agreement contains negative covenants that, among other things and subject to certain exceptions, limit the ability of the Company's subsidiaries to incur indebtedness, incur liens, undergo fundamental changes, make dispositions of all or substantially all of their assets, alter their businesses and enter into agreements limiting subsidiary dividends and distributions.
The Company's financial covenants include maintaining an operating lease adjusted leverage ratio of not greater than 3.25:1.00 and the ratio of consolidated EBITDAR to consolidated interest charges (plus rent) of not less than 2.00:1.00. The credit agreement also contains certain customary representations, warranties, affirmative covenants, and events of default (including, among others, an event of default upon the occurrence of a change of control). If an event of default occurs, the credit agreement may be terminated, and the maturity of any outstanding amounts may be accelerated. As of April 28, 2024, the Company was in compliance with the covenants of the credit facility.
China Mainland revolving credit facility
The Company has an uncommitted and unsecured 240.0 million Chinese Yuan ($33.1 million) revolving credit facility with terms that are reviewed on an annual basis. It is comprised of a revolving loan of up to 200.0 million Chinese Yuan ($27.6 million) and a financial guarantee facility of up to 40.0 million Chinese Yuan ($5.5 million), or its equivalent in another currency. Loans are available for a period not to exceed 12 months, at an interest rate equal to the loan prime rate plus a spread of 0.5175%. The Company is required to follow certain covenants. As of April 28, 2024, the Company was in compliance with the covenants and, aside from letters of credit of 33.2 million Chinese Yuan ($4.6 million), there were no other borrowings or guarantees outstanding under this credit facility.
Note 4. Supply Chain Financing Program
The Company facilitates a voluntary supply chain financing ("SCF") program that allows its suppliers to elect to sell the receivables owed to them by the Company to a third party financial institution. Participating suppliers negotiate arrangements
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directly with the financial institution. If a supplier chooses to participate in the SCF program it may request an invoice be paid earlier than it would by the Company, and the financial institution at its sole and absolute discretion, may elect to make an early payment to the supplier at a discount. The Company’s obligations to its suppliers, including amounts due and scheduled payment terms, are not impacted by a supplier's participation in the arrangement and the Company provides no guarantees to any third parties under the SCF program.
As of April 28, 2024 and January 28, 2024, $37.9 million and $42.1 million, respectively, were outstanding under the SCF program and presented within accounts payable.
Note 5. Stock-Based Compensation and Benefit Plans
Stock-based compensation plans
The Company's eligible employees participate in various stock-based compensation plans, provided directly by the Company.
Stock-based compensation expense charged to income for the plans was $25.4 million and $21.0 million for the first quarter of 2024 and 2023, respectively. Total unrecognized compensation cost for all stock-based compensation plans was $224.3 million as of April 28, 2024, which is expected to be recognized over a weighted-average period of 2.5 years.
A summary of the balances of the Company's stock-based compensation plans as of April 28, 2024, and changes during the first quarter then ended, is presented below:
Stock OptionsPerformance-Based Restricted Stock UnitsRestricted SharesRestricted Stock Units
NumberWeighted-Average Exercise PriceNumberWeighted-Average Grant Date Fair ValueNumberWeighted-Average Grant Date Fair ValueNumberWeighted-Average Grant Date Fair Value
(In thousands, except per share amounts)
Balance as of January 28, 2024783 $285.69 175 $349.84 4 $370.85 223 $359.12 
Granted216 388.90 120 356.47  388.90 115 388.90 
Exercised/released20 184.81 98 309.89   84 348.08 
Forfeited/expired4 366.87  362.00   3 373.94 
Balance as of April 28, 2024975 $310.26 197 $373.82 4 $371.33 251 $376.27 
Exercisable as of April 28, 2024475 $247.34 
The Company's performance-based restricted stock units are awarded to eligible employees and entitle the grantee to receive a maximum of two shares of common stock per performance-based restricted stock unit if the Company achieves specified performance goals and the grantee remains employed during the vesting period. The fair value of performance-based restricted stock units is based on the closing price of the Company's common stock on the grant date. Expense for performance-based restricted stock units is recognized when it is probable that the performance goal will be achieved.
The grant date fair value of the restricted shares and restricted stock units is based on the closing price of the Company's common stock on the grant date.
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The grant date fair value of each stock option granted is estimated on the date of grant using the Black-Scholes model. The closing price of the Company's common stock on the grant date is used in the model. The assumptions used to calculate the fair value of the options granted are evaluated and revised, as necessary, to reflect market conditions and the Company's historical experience. The expected term of the options is based upon the historical experience of similar awards, giving consideration to expectations of future employee exercise behavior. Expected volatility is based upon the historical volatility of the Company's common stock for the period corresponding with the expected term of the options. The risk-free interest rate is based on the U.S. Treasury yield curve for the period corresponding with the expected term of the options. The following are weighted averages of the assumptions that were used in calculating the fair value of stock options granted during the first quarter of 2024:
First Quarter
 2024
Expected term3.75 years
Expected volatility37.39 %
Risk-free interest rate4.30 %
Dividend yield %
Employee share purchase plan
The Company has an Employee Share Purchase Plan ("ESPP"). Contributions are made by eligible employees, subject to certain limits defined in the ESPP, and the Company matches one-third of the contribution. The maximum number of shares authorized to be purchased under the ESPP is 6.0 million shares. All shares purchased under the ESPP are purchased in the open market. During the first quarter of 2024, there were 28.0 thousand shares purchased. As of April 28, 2024, 4.4 million shares remain authorized to be purchased under the ESPP.
Defined contribution pension plans
The Company offers defined contribution pension plans to its eligible employees. Participating employees may elect to defer and contribute a portion of their eligible compensation to a plan up to limits stated in the plan documents, not to exceed the dollar amounts set by applicable laws. The Company matches 50% to 75% of the contribution depending on the participant's length of service, and the contribution is subject to a two year vesting period. The Company's net expense for the defined contribution plans was $5.8 million and $4.8 million in the first quarter of 2024 and 2023, respectively.
Note 6. Fair Value Measurement
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are made using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value:
Level 1 - defined as observable inputs such as quoted prices in active markets;
Level 2 - defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and
Level 3 - defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
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Assets and liabilities measured at fair value on a recurring basis
The fair value measurement is categorized in its entirety by reference to its lowest level of significant input. As of April 28, 2024 and January 28, 2024, the Company held certain assets and liabilities that are required to be measured at fair value on a recurring basis:
April 28,
2024
Level 1Level 2Level 3Balance Sheet Classification
(In thousands)
Money market funds$690,071 $690,071 $ $ Cash and cash equivalents
Term deposits8  8  Cash and cash equivalents
Forward currency contract assets21,620  21,620  Prepaid expenses and other current assets
Forward currency contract liabilities18,873  18,873  Other current liabilities

January 28,
2024
Level 1Level 2Level 3Balance Sheet Classification
(In thousands)
Money market funds$1,102,119 $1,102,119 $ $ Cash and cash equivalents
Term deposits8  8  Cash and cash equivalents
Forward currency contract assets647  647  Prepaid expenses and other current assets
Forward currency contract liabilities2,872  2,872  Other current liabilities
The Company records cash, accounts receivable, accounts payable, and accrued liabilities at cost. The carrying values of these instruments approximate their fair value due to their short-term maturities.
The Company has short-term, highly liquid investments classified as cash equivalents, which are invested in money market funds and short-term deposits with original maturities of three months or less. The Company records cash equivalents at their original purchase prices plus interest that has accrued at the stated rate.
The fair values of the forward currency contract assets and liabilities are determined using observable Level 2 inputs, including foreign currency spot exchange rates, forward pricing curves, and interest rates. The fair values consider the credit risk of the Company and its counterparties. The Company's Master International Swap Dealers Association, Inc., Agreements and other similar arrangements allow net settlements under certain conditions. However, the Company records all derivatives on its consolidated balance sheets at fair value and does not offset derivative assets and liabilities.
Note 7. Derivative Financial Instruments
Foreign currency exchange risk
The Company is exposed to risks associated with changes in foreign currency exchange rates and uses derivative financial instruments to manage its exposure to certain of these foreign currency exchange rate risks. The Company does not enter into derivative contracts for speculative or trading purposes.
The Company currently hedges against changes in the Canadian dollar and Chinese Yuan to the U.S. dollar exchange rate and changes in the Euro and Australian dollar to the Canadian dollar exchange rate using forward currency contracts.
Net investment hedges
The Company is exposed to foreign currency exchange gains and losses which arise on translation of its international subsidiaries' balance sheets into U.S. dollars. These gains and losses are recorded as other comprehensive income (loss), net of tax in accumulated other comprehensive income or loss within stockholders' equity.
The Company holds a significant portion of its assets in Canada and enters into forward currency contracts designed to hedge a portion of the foreign currency exposure that arises on translation of a Canadian subsidiary into U.S. dollars. These forward currency contracts are designated as net investment hedges. The Company assesses hedge effectiveness based on
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changes in forward rates. The Company recorded no ineffectiveness from net investment hedges during the first quarter of 2024.
The Company classifies the cash flows at settlement of its net investment hedges within investing activities in the consolidated statements of cash flows.
Derivatives not designated as hedging instruments
The Company is exposed to gains and losses arising from changes in foreign currency exchange rates associated with transactions which are undertaken by its subsidiaries in currencies other than their functional currency. Such transactions include intercompany transactions and inventory purchases. These transactions result in the recognition of certain foreign currency denominated monetary assets and liabilities which are remeasured to the quarter-end or settlement date foreign currency exchange rate. The resulting foreign currency gains and losses are recorded in selling, general and administrative expenses.
During the first quarter of 2024, the Company entered into certain forward currency contracts designed to economically hedge the foreign currency exchange revaluation gains and losses that are recognized by its Canadian and Chinese subsidiaries on specific monetary assets and liabilities denominated in currencies other than the functional currency of the entity. The Company has not applied hedge accounting to these instruments and the change in fair value of these derivatives is recorded within selling, general and administrative expenses.
The Company classifies the cash flows at settlement of its forward currency contracts which are not designated in hedging relationships within operating activities in the consolidated statements of cash flows.
Quantitative disclosures about derivative financial instruments
The Company presents its derivative assets and derivative liabilities at their gross fair values within prepaid expenses and other current assets and other current liabilities on the consolidated balance sheets. However, the Company's Master International Swap Dealers Association, Inc., Agreements and other similar arrangements allow net settlements under certain conditions. As of April 28, 2024, there were derivative assets of $21.6 million and derivative liabilities of $18.9 million subject to enforceable netting arrangements.
The notional amounts and fair values of forward currency contracts were as follows:
April 28, 2024January 28, 2024
Gross NotionalAssetsLiabilitiesGross NotionalAssetsLiabilities
(In thousands)
Derivatives designated as net investment hedges:
Forward currency contracts$1,029,000 $18,735 $ $1,242,000 $ $258 
Derivatives not designated in a hedging relationship:
Forward currency contracts1,368,789 2,885 18,873 1,543,351 647 2,614 
Net derivatives recognized on consolidated balance sheets:
Forward currency contracts$21,620 $18,873 $647 $2,872 
The forward currency contracts designated as net investment hedges outstanding as of April 28, 2024 mature on different dates between May 2024 and September 2024.
The forward currency contracts not designated in a hedging relationship outstanding as of April 28, 2024 mature on different dates between May 2024 and October 2024.
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The pre-tax gains and losses on foreign currency exchange forward contracts recorded in accumulated other comprehensive income or loss were as follows:
First Quarter
20242023
(In thousands)
Gains (losses) recognized in net investment hedge gains (losses):
Derivatives designated as net investment hedges$18,137 $24,127 
No gains or losses have been reclassified from accumulated other comprehensive income or loss into net income for derivative financial instruments in a net investment hedging relationship, as the Company has not sold or liquidated (or substantially liquidated) its hedged subsidiary.
The pre-tax net foreign currency exchange and derivative gains and losses recorded in the consolidated statement of operations were as follows:
First Quarter
20242023
(In thousands)
Gains (losses) recognized in selling, general and administrative expenses:
Foreign currency exchange gains (losses)$14,935 $8,328 
Derivatives not designated in a hedging relationship(14,327)(9,707)
Net foreign currency exchange and derivative gains (losses) $608 $(1,379)
Credit risk
The Company is exposed to credit-related losses in the event of nonperformance by the counterparties to the forward currency contracts. The credit risk amount is the Company's unrealized gains on its derivative instruments, based on foreign currency rates at the time of nonperformance.
The Company's forward currency contracts are generally entered into with what the Company believes are investment grade credit worthy and reputable financial institutions that are monitored by the Company for counterparty risk.
The Company's derivative contracts contain certain credit risk-related contingent features. Under certain circumstances, including an event of default, bankruptcy, termination, and cross default under the Company's revolving credit facility, the Company may be required to make immediate payment for outstanding liabilities under its derivative contracts.
Note 8. Earnings Per Share
The details of the computation of basic and diluted earnings per share are as follows:
First Quarter
20242023
(In thousands, except per share amounts)
Net income$321,421 $290,405 
Basic weighted-average number of shares outstanding125,989 127,246 
Assumed conversion of dilutive stock options and awards347 375 
Diluted weighted-average number of shares outstanding126,336 127,621 
Basic earnings per share$2.55 $2.28 
Diluted earnings per share$2.54 $2.28 
The Company's calculation of weighted-average shares includes the common stock of the Company as well as the exchangeable shares. Exchangeable shares are the economic equivalent of common shares in all material respects. All classes of stock have, in effect, the same economic rights and share equally in undistributed net income. For the first quarter of 2024 and 2023, 0.1 million and 0.1 million stock options and awards, respectively, were anti-dilutive to earnings per share and therefore have been excluded from the computation of diluted earnings per share.
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On March 23, 2022, the Company's board of directors approved a stock repurchase program for up to $1.0 billion of the Company's common shares on the open market or in privately negotiated transactions. During the first quarter of 2024, the Company completed the remaining stock repurchases under this program.
On November 29, 2023, the Company's board of directors approved an additional stock repurchase program for up to $1.0 billion of the Company's common shares on the open market or in privately negotiated transactions. The repurchase plan has no time limit and does not require the repurchase of a minimum number of shares. Common shares repurchased on the open market are at prevailing market prices, including under plans complying with the provisions of Rule 10b5-1 and Rule 10b-18 of the Securities Exchange Act of 1934. The timing and actual number of common shares to be repurchased will depend upon market conditions, eligibility to trade, and other factors, in accordance with Securities and Exchange Commission requirements. The authorized value of shares available to be repurchased under this program excludes the cost of commissions and excise taxes and as of April 28, 2024, the remaining authorized value was $892.3 million.
During the first quarter of 2024 and 2023, 0.8 million and 0.3 million shares, respectively, were repurchased at a total cost including commissions and excise taxes of $299.5 million and $98.5 million, respectively.
Subsequent to April 28, 2024, and up to May 30, 2024, 0.6 million shares were repurchased at a total cost including commissions and excise taxes of $201.1 million.
Note 9. Supplementary Financial Information
A summary of certain consolidated balance sheet accounts is as follows:
April 28,
2024
January 28,
2024
(In thousands)
Inventories:
Inventories, at cost$1,435,492 $1,465,076 
Provision to reduce inventories to net realizable value(90,225)(141,474)
$1,345,267 $1,323,602 
Prepaid expenses and other current assets:
Prepaid expenses$146,651 $137,203 
Forward currency contract assets21,620 647 
Other current assets34,573 46,652 
$202,844 $184,502 
Property and equipment, net:
Land$79,062 $79,498 
Buildings28,739 29,032 
Leasehold improvements1,096,822 1,006,926 
Furniture and fixtures160,041 156,656 
Computer hardware184,630 176,597 
Computer software1,100,899 1,032,567 
Equipment and vehicles46,058 34,017 
Work in progress148,026 247,943 
Property and equipment, gross2,844,277 2,763,236 
Accumulated depreciation(1,283,092)(1,217,425)
$1,561,185 $1,545,811 
Other non-current assets:
Cloud computing arrangement implementation costs$144,070 $133,597 
Security deposits34,557 31,825 
Other23,756 21,262 
$202,383 $186,684 
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April 28,
2024
January 28,
2024
(In thousands)
Accrued liabilities and other:
Accrued operating expenses$163,726 $147,215 
Sales return allowances54,622 61,634 
Accrued freight41,226 41,241 
Accrued capital expenditures22,689 31,936 
Accrued duty27,163 25,817 
Accrued rent16,579 12,522 
Accrued inventory liabilities3,410 4,783 
Sales tax collected8,885 3,088 
Forward currency contract liabilities18,873 2,872 
Other17,273 17,447 
$374,446 $348,555 
Note 10. Segmented Information
The Company's operating segments are based on the financial information the CODM, who is the Chief Executive Officer, uses to evaluate performance and allocate resources.
During the fourth quarter of 2023, the financial information the CODM regularly uses to evaluate performance and allocate resources was revised. As the Company has further executed on its omni-channel retail strategy, and with the continued expansion of its international operations, the CODM has shifted resource allocation decisions to be focused by regional market, rather than by selling channel. This resulted in a change in the Company's operating segments.
As of January 28, 2024, the Company reports three segments: Americas, China Mainland, and Rest of World, which is APAC and EMEA on a combined basis. The Company does not report capital expenditures and assets by segment as that information is not reviewed by the CODM.
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Previously, the Company's operating segments were comprised of company-operated stores, direct to consumer (or "e-commerce"), and other. The Company has recast the prior period information to reflect its new operating segments.
First Quarter
20242023
(In thousands)
Net revenue:
Americas$1,622,264 $1,567,738 
China Mainland303,786 210,068 
Rest of World282,841 222,986 
$2,208,891 $2,000,792 
Segmented income from operations:
Americas$564,840 $581,222 
China Mainland119,778 73,885 
Rest of World66,681 43,794 
751,299 698,901 
General corporate expense318,657 295,609 
Amortization of intangible assets 1,878 
Income from operations432,642 401,414 
Other income (expense), net23,283 8,025 
Income before income tax expense$455,925 $409,439 
Depreciation and amortization:
Americas$44,326 $35,136 
China Mainland8,025 5,965 
Rest of World6,506 5,298 
Corporate36,902 37,717 
$95,759 $84,116 
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Note 11. Disaggregated Net Revenue
In addition to the disaggregation of net revenue by reportable segment in Note 10. Segmented Information, the following table disaggregates the Company's net revenue by geographic area.
First Quarter
20242023
(In thousands)
United States$1,340,400 $1,314,391 
Canada281,864 253,347 
China Mainland303,786 210,068 
Hong Kong SAR, Taiwan, and Macau SAR
42,264 39,617 
People's Republic of China346,050 249,685 
Other geographic areas240,577 183,369 
$2,208,891 $2,000,792 
The following table disaggregates the Company's net revenue by category. Other categories is primarily composed of accessories, footwear, and lululemon Studio.
First Quarter
20242023
(In thousands)
Women's product$1,435,241 $1,308,828 
Men's product505,698 438,165 
Other categories267,952 253,799 
$2,208,891 $2,000,792 
The following table disaggregates the Company's net revenue by channel.
First Quarter
20242023
(In thousands)
Company-operated stores$1,070,525 $958,087 
E-commerce905,787 834,942 
Other channels232,579 207,763 
$2,208,891 $2,000,792 
Note 12. Legal Proceedings and Other Contingencies
The Company is, from time to time, involved in routine legal matters, and audits and inspections by governmental agencies and other third parties which are incidental to the conduct of its business. This includes legal matters such as initiation and defense of proceedings to protect intellectual property rights, employment claims, product liability claims, personal injury claims, and similar matters. The Company believes the ultimate resolution of any such legal proceedings, audits, and inspections will not have a material adverse effect on its consolidated balance sheets, results of operations or cash flows. The Company has recognized immaterial provisions related to the expected outcome of legal proceedings.
Note 13. Subsequent Events
Subsequent to April 28, 2024, the Company entered into an agreement to acquire the operations and lululemon branded retail locations being run by a third party under a license and supply arrangement in Mexico for approximately $160.0 million in cash. The Company had previously granted this third party the right to operate lululemon branded retail locations and to sell lululemon products in Mexico. The transaction is subject to customary closing conditions and regulatory approval.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Some of the statements contained in this Form 10-Q and any documents incorporated herein by reference constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, included or incorporated in this Form 10-Q are forward-looking statements, particularly statements which relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts, such as statements regarding our future financial condition or results of operations, our prospects and strategies for future growth, the development and introduction of new products, and the implementation of our marketing and branding strategies. In many cases, you can identify forward-looking statements by terms such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "intends," "predicts," "potential" or the negative of these terms or other comparable terminology.
The forward-looking statements contained in this Form 10-Q and any documents incorporated herein by reference reflect our current views about future events and are subject to risks, uncertainties, assumptions, and changes in circumstances that may cause events or our actual activities or results to differ significantly from those expressed in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, actions, levels of activity, performance, or achievements. Readers are cautioned not to place undue reliance on these forward-looking statements. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements, including, but not limited to, those factors described in "Risk Factors" and elsewhere in this report.
The forward-looking statements contained in this Form 10-Q reflect our views and assumptions only as of the date of this Form 10-Q and are expressly qualified in their entirety by the cautionary statements included in this Form 10-Q. Except as required by applicable securities law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.
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.
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 quarter of 2024 and 2023 ended on April 28, 2024 and April 30, 2023, respectively.
Components of management's discussion and analysis of financial condition and results of operations include:
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.
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 management's discussion and analysis of financial condition and results of operations for reconciliations between the non-GAAP financial measures and the most directly comparable measures calculated in accordance with GAAP.
We disclose material non-public information through one or more of the following channels: our investor relations website (http://corporate.lululemon.com/investors), the social media channels identified on our investor relations website, press releases, SEC filings, public conference calls, and webcasts. Information contained on or accessible through our websites
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is not incorporated into, and does not form a part of, this Quarterly Report or any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only.
As reported in the fiscal 2023 Annual Report on Form 10-K filed with the SEC on March 21, 2024, we changed our operating segments during the fourth quarter of fiscal 2023. We report three segments: Americas, China Mainland, and Rest of World, which is Asia Pacific (“APAC”) and Europe and the Middle East (“EMEA”) on a combined basis. Previously, our segments were based on selling channel. We have recast our previously reported amounts for segmented net revenue and segmented income from operations to reflect the current presentation.
Overview
lululemon athletica inc. is principally a designer, distributor, and retailer of technical athletic apparel, footwear, and accessories. We have a vision to create transformative products and experiences that build meaningful connections, unlocking greater possibility and wellbeing for all. Since our inception, we have fostered a distinctive corporate culture; we promote a set of core values in our business which include taking personal responsibility, acting with courage, valuing connection and inclusion, and choosing to have fun. These core values attract passionate and motivated employees who are driven to achieve personal and professional goals, and share our purpose "to elevate human potential by helping people feel their best."
We offer a comprehensive line of technical athletic apparel, footwear, and accessories marketed under the lululemon brand. Our apparel assortment includes items such as pants, shorts, tops, and jackets designed for a healthy lifestyle including athletic activities such as yoga, running, training, and most other activities. We also offer apparel designed for being on the move and fitness-inspired accessories. We expect to continue to broaden our merchandise offerings through expansion across these product areas.
Financial Highlights
The summary below compares the first quarter of 2024 to the first quarter of 2023:
Net revenue increased 10% to $2.2 billion. On a constant dollar basis, net revenue increased 11%.
Comparable sales increased 6%, or 7% on a constant dollar basis.
Americas comparable sales were flat compared to the first quarter of 2023.
China Mainland comparable sales increased 26%, or 33% on a constant dollar basis.
Rest of World comparable sales increased 23%, or 26% on a constant dollar basis.
Gross profit increased 11% to $1.3 billion.
Gross margin increased 20 basis points to 57.7%.
Income from operations increased 8% to $432.6 million.
Operating margin decreased 50 basis points to 19.6%.
Income tax expense increased 13% to $134.5 million. Our effective tax rate for the first quarter of 2024 was 29.5% compared to 29.1% for the first quarter of 2023.
Diluted earnings per share were $2.54 compared to $2.28 in the first quarter of 2023.
Market Conditions and Trends
Macroeconomic conditions, including foreign currency fluctuations and consumer purchasing behaviors, impact our business and operating costs. Such factors are expected to continue to impact our business throughout 2024, with the impact varying by market.
Consumer purchasing behaviors and their propensity to spend in our sector have been impacted by uncertain economic conditions including inflation, higher interest rates, and other factors. While we experienced traffic and net revenue growth in the first quarter of 2024 in all markets, we saw continued moderation in our quarterly net revenue growth in the Americas,
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particularly in the United States. We continue to monitor macroeconomic conditions and the trends in consumer demand for our products.
Foreign currency fluctuations have impacted our financial results. Foreign currency fluctuations reduced the growth of our net revenue by $21.8 million when comparing the first quarter of 2024 to 2023, primarily due to the overall appreciation of the US dollar. We expect future exchange rate volatility to impact our results.
Quarter-to-Date Results of Operations: First Quarter Results
The following table summarizes key components of our results of operations for the periods indicated:
 First Quarter
 2024202320242023
 (In thousands)(Percentage of net revenue)
Net revenue$2,208,891 $2,000,792 100.0 %100.0 %
Cost of goods sold933,823 849,987 42.3 42.5 
Gross profit1,275,068 1,150,805 57.7 57.5 
Selling, general and administrative expenses842,426 747,513 38.1 37.4 
Amortization of intangible assets— 1,878 — 0.1 
Income from operations432,642 401,414 19.6 20.1 
Other income (expense), net23,283 8,025 1.1 0.4 
Income before income tax expense455,925 409,439 20.6 20.5 
Income tax expense134,504 119,034 6.1 5.9 
Net income$321,421 $290,405 14.6 %14.5 %
Net Revenue
Net revenue increased $208.1 million, or 10%, to $2.2 billion for the first quarter of 2024 from $2.0 billion for the first quarter of 2023. On a constant dollar basis, net revenue increased 11%. Comparable sales increased 6%, or 7% on a constant dollar basis. The increase in net revenue was primarily due to increased China Mainland net revenue. Rest of World and Americas net revenue also increased.
Net revenue for the first quarter of 2024 and 2023 is summarized below:
 First Quarter
 2024202320242023Year over year change
 (In thousands)(Percentage of net revenue)(In thousands)(Percentage)(Constant dollar change)
Americas$1,622,264 $1,567,738 73.4 %78.4 %$54,526 3.5 %4.0 %
China Mainland303,786 210,068 13.8 10.5 93,718 44.6 52.0 
Rest of World282,841 222,986 12.8 11.1 59,855 26.8 30.0 
Net revenue$2,208,891 $2,000,792 100.0 %100.0 %$208,099 10.4 %11.0 %
Americas. The increase in Americas net revenue was primarily due to a $50.9 million increase from new or expanded company-operated stores and our other channels. We have opened 14 net new stores in the Americas since the first quarter of 2023. Americas comparable sales were flat compared to the first quarter of 2023. This was primarily a result of increased traffic, offset by a decrease in conversion rates.
China Mainland. The increase in China Mainland net revenue was primarily due to an increase in comparable sales, which increased 26%, or 33% 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 $41.7 million increase in net revenue from new or expanded company-operated stores and our other channels. We have opened 26 net new stores in China Mainland since the first quarter of 2023.
Rest of World. The increase in Rest of World net revenue was primarily due to an increase in comparable sales, which increased 23%, or 26% 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
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revenue was also driven by a $19.9 million increase in net revenue from new or expanded company-operated stores and our other channels. We have opened nine net new stores in Rest of World since the first quarter of 2023.
Gross Profit
First Quarter
20242023Year over year change
(In thousands)(In thousands)(Percentage)
Gross profit
$1,275,068 $1,150,805 $124,263 10.8 %
Gross margin
57.7 %57.5 %
20 basis points
The increase in gross margin was primarily the result of:
a net increase in product margin of 120 basis points, primarily due to lower product costs including lower freight costs, as well as lower inventory provisions. This was partially offset by higher markdowns in the current year; and
a decrease in costs related to our product departments as a percentage of net revenue of 50 basis points.
The increase in gross margin was partially offset by an increase in occupancy costs as a percentage of net revenue of 70 basis points, an increase in distribution center costs as a percentage of net revenue of 50 basis points, and an unfavorable impact of foreign currency exchange rates of 30 basis points.
Selling, General and Administrative Expenses
First Quarter
20242023Year over year change
(In thousands)(In thousands)(Percentage)
Selling, general and administrative expenses
$842,426 $747,513 $94,913 12.7 %
Selling, general and administrative expenses as a percentage of net revenue
38.1 %37.4 %
70 basis points
The increase in selling, general and administrative expenses was primarily due to:
an increase in costs related to our operating channels of $49.6 million, comprised of:
an increase in variable costs of $17.6 million primarily due to increased distribution costs, packaging costs, and credit card fees, primarily as a result of increased net revenue;
an increase in other operating costs of $15.4 million primarily due to increased depreciation, technology costs, and repairs and maintenance costs;
an increase in employee costs of $14.1 million primarily due to increased salaries and wages expense, and benefit costs for retail employees, partially offset by decreased incentive compensation; and
an increase in brand and community costs of $2.5 million primarily due to increased digital marketing expenses and events.
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an increase in head office costs of $47.3 million, comprised of:
an increase in brand and community costs of $21.1 million primarily due to increased marketing expenses and brand campaigns;
an increase in other head office costs of $14.7 million, primarily due to increased advisory and professional fees;
an increase in employee costs of $5.5 million primarily due to increased salaries and wages expense as well as increased stock-based compensation and benefit costs, partially offset by decreased other incentive compensation;
an increase in technology costs, including cloud computing amortization, of $4.9 million; and
an increase in depreciation of $1.1 million.
The increase in selling, general and administrative expenses was partially offset by a decrease in net foreign currency exchange and derivative revaluation losses of $2.0 million.
Amortization of Intangible Assets
First Quarter
20242023Year over year change
(In thousands)(In thousands)(Percentage)
Amortization of intangible assets
$— $1,878 $(1,878)(100.0)%
The amortization of intangible assets was primarily the result of the amortization of intangible assets recognized upon the acquisition of MIRROR, which we rebranded as lululemon Studio.
Income from Operations
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.
 First Quarter
 2024202320242023Year over year change
 (In thousands)(Percentage of net revenue of respective operating segment)(In thousands)(Percentage)
Segmented income from operations:
Americas$564,840 $581,222 34.8 %37.1 %$(16,382)(2.8)%
China Mainland119,778 73,885 39.4 35.2 45,893 62.1 
Rest of World66,681 43,794 23.6 19.6 22,887 52.3 
$751,299 $698,901 $52,398 7.5 %
General corporate expense318,657 295,609 23,048 7.8 
Amortization of intangible assets— 1,878 (1,878)(100.0)
Income from operations$432,642 $401,414 $31,228 7.8 %
Operating margin19.6 %20.1 %
(50) basis points
Americas. The decrease in Americas income from operations was primarily the result of increased selling, general and administrative expenses. The increase in selling, general and administrative expenses was primarily due to increased marketing expenses, increased distribution costs and packaging costs driven by higher net revenue, and increased depreciation, technology costs, and repairs and maintenance costs. The increase in selling, general and administrative expenses was partially offset by increased gross profit of $23.7 million, which was driven by increased net revenue, partially offset by lower gross margin. The decrease in gross margin was primarily due to deleverage in distribution center and occupancy costs, partially offset by leverage on costs from our product teams and higher product margin. Income from operations as a percentage of Americas net revenue decreased due to deleverage on selling, general and administrative expenses and lower gross margin.
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China Mainland. The increase in China Mainland income from operations was primarily the result of increased gross profit of $61.3 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, increased packaging costs driven by higher net revenue, and increased marketing expenses. Income from operations as a percentage of China Mainland net revenue increased due to leverage on selling, general and administrative expenses and higher gross margin.
Rest of World. The increase in Rest of World income from operations was primarily the result of increased gross profit of $40.2 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 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 credit card fees and distribution costs driven by higher net revenue. Income from operations as a percentage of Rest of World net revenue increased due to higher gross margin and leverage on selling, general and administrative expenses.
General Corporate Expense. The increase in general corporate expense was primarily due to increased advisory and professional fees, employee costs, technology costs, and depreciation. The increase in general corporate expense was partially offset by a decrease in net foreign currency exchange and derivative revaluation losses of $2.0 million.
Other Income (Expense), Net
First Quarter
20242023Year over year change
(In thousands)(In thousands)(Percentage)
Other income (expense), net
$23,283 $8,025 $15,258 190.1 %
The increase in other income, net was primarily due to an increase in interest income as a result of higher cash balances and higher interest rates.
Income Tax Expense
First Quarter
20242023Year over year change
(In thousands)(In thousands)(Percentage)
Income tax expense
$134,504 $119,034 $15,470 13.0 %
Effective tax rate
29.5 %29.1 %
40 basis points
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.
Net Income
First Quarter
20242023Year over year change
(In thousands)(In thousands)(Percentage)
Net income
$321,421 $290,405 $31,016 10.7 %
The increase in net income was primarily due to an increase in gross profit of $124.3 million and an increase in other income (expense), net of $15.3 million, partially offset by an increase in selling, general and administrative expenses of $94.9 million, and an increase in income tax expense of $15.5 million.
Comparable Sales
We use comparable sales to evaluate the performance of our company-operated store and e-commerce businesses from an omni-channel perspective. It allows us to monitor the performance of our business without the impact of recently opened or expanded stores. We believe investors would similarly find these metrics useful in assessing the performance of our business.
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Comparable sales includes comparable company-operated store and all e-commerce net revenue. E-commerce net revenue includes buy online pick-up in store, back-back room, and ship from store net revenue in addition to our websites, other region-specific websites, digital marketplaces, and mobile apps. Our back-back room capability allows our store educators to access inventory located at our other locations and have product shipped directly to a guest's address or a store. Comparable company-operated stores have been open, or open after being significantly expanded, for at least 12 full fiscal months. Net revenue from a company-operated store is included in comparable sales beginning with the first fiscal month for which the store has a full fiscal month of sales in the prior year. Comparable sales excludes sales from new stores that have not been open for at least 12 full fiscal months, from stores which have not been in their significantly expanded space for at least 12 full fiscal months, from stores which have been temporarily relocated for renovations or temporarily closed, and sales from company-operated stores that have closed. Comparable sales also excludes sales from our selling channels other than company-operated stores and e-commerce. The comparable sales measures we report may not be equivalent to similarly titled measures reported by other companies.
In fiscal years with 53 weeks, the 53rd week of net revenue is excluded from the calculation of comparable sales. In the year following a 53-week year, the prior year period is shifted by one week to compare similar calendar weeks.
Non-GAAP Financial Measures
Constant dollar changes are non-GAAP financial measures.
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.
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.
Constant Dollar Changes
The below changes in net revenue and comparable sales show the change compared to the corresponding period in the prior year.
First Quarter 2024 Compared to First Quarter 2023
ChangeForeign exchange changesChange in constant dollars
Net Revenue
Americas%%%
China Mainland45 52 
Rest of World27 30 
Total net revenue10 %%11 %
Comparable sales(1)
Americas— %— %— %
China Mainland26 33 
Rest of World23 26 
Total comparable sales%%%
__________
(1)Comparable sales includes comparable company-operated store and e-commerce net revenue.
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Seasonality
Our business is affected by the general seasonal trends common to the retail apparel industry. Our annual net revenue is typically weighted more heavily toward our fourth fiscal quarter, reflecting our historical strength in sales during the holiday season in the Americas, while our operating expenses are generally more equally distributed throughout the year. As a result, a substantial portion of our operating profits are typically generated in the fourth quarter of our fiscal year. For example, we generated approximately 43% of our full year operating profit during the fourth quarter of 2023.
Liquidity and Capital Resources
Our primary sources of liquidity are our current balances of cash and cash equivalents, cash flows from operations, and capacity under our committed revolving credit facility, including to fund short-term working capital requirements. Our primary cash needs are capital expenditures for opening new stores and remodeling or relocating existing stores, investing in our distribution centers, investing in technology and making system enhancements, funding working capital requirements, and making other strategic capital investments. We may also use cash to repurchase shares of our common stock. Cash and cash equivalents in excess of our needs are held in interest bearing accounts with financial institutions, as well as in money market funds and term deposits.
The following table summarizes our net cash flows provided by and used in operating, investing, and financing activities for the periods indicated:
First Quarter
20242023Year over year change
(In thousands)
Total cash provided by (used in):
Operating activities$127,524 $45,503 $82,021 
Investing activities(131,537)(138,219)6,682 
Financing activities(328,628)(115,399)(213,229)
Effect of foreign currency exchange rate changes on cash and cash equivalents(10,658)3,855 (14,513)
Increase (decrease) in cash and cash equivalents$(343,299)$(204,260)$(139,039)
Operating Activities
The increase in cash provided by operating activities was primarily as a result of:
an increase in cash flows from the changes in operating assets and liabilities of $34.5 million, primarily driven by changes in income taxes, inventories, and accrued liabilities, partially offset by changes in accounts payable, accrued compensation, and prepaid expenses and other current assets;
increased net income of $31.0 million; and
changes in adjusting items of $16.5 million, primarily driven by increased depreciation and stock-based compensation expense.
Investing Activities
The decrease in cash used in investing activities was primarily due to decreased capital expenditures. The decrease in capital expenditures was primarily due to a decrease in corporate capital expenditures and decreased investment in our distribution centers as well as other technology infrastructure and system initiatives, partially offset by an increase in company-operated store expenditures.
Financing Activities
The increase in cash used in financing activities was primarily the result of an increase in our stock repurchases. During the first quarter of 2024, 0.8 million shares were repurchased at a total cost including commissions and excise taxes of $299.5 million. During the first quarter of 2023, 0.3 million shares were repurchased at a total cost including commissions and excise taxes of $98.5 million. The common stock was repurchased in the open market at prevailing market prices, including under plans complying with the provisions of Rule 10b5-1 and Rule 10b-18 of the Securities Exchange Act of 1934, with the timing and actual number of shares repurchased depending upon market conditions, eligibility to trade, and other factors.
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Liquidity Outlook
We believe that our cash and cash equivalent balances, cash generated from operations, and borrowings available to us under our committed revolving credit facility will be adequate to meet our liquidity needs and capital expenditure requirements for at least the next 12 months. Our cash from operations may be negatively impacted by a decrease in demand for our products, as well as the other factors described in "Item 1A. Risk Factors". In addition, we may make discretionary capital improvements with respect to our stores, distribution facilities, headquarters, or systems, or we may repurchase shares under an approved stock repurchase program, which we would expect to fund through the use of cash, issuance of debt or equity securities or other external financing sources to the extent we were unable to fund such expenditures out of our cash and cash equivalents and cash generated from operations.
The following table includes certain measures of our liquidity:
April 28, 2024
(In thousands)
Cash and cash equivalents$1,900,672 
Working capital excluding cash and cash equivalents(1)
483,844 
Capacity under committed revolving credit facility393,750 
_________
(1)Working capital is calculated as current assets of $3.8 billion less current liabilities of $1.4 billion.
We enter into standby letters of credit and guarantee to secure certain of our obligations, including leases, taxes, and duties. As of April 28, 2024, letters of credit and guarantee totaling $10.1 million had been issued, including $6.3 million under our committed revolving credit facility.
Our existing Americas credit facility provides for $400.0 million in commitments under an unsecured five-year revolving credit facility. The credit facility has a maturity date of December 14, 2026, subject to extension under certain circumstances. As of April 28, 2024, aside from letters of credit and guarantee of $6.3 million, we had no other borrowings outstanding under this credit facility. Further information regarding our credit facilities and associated covenants is outlined in Note 3. Revolving Credit Facilities included in Item 1 of Part I of this report.
The timing and cost of our inventory purchases will vary depending on a variety of factors such as revenue growth, assortment and purchasing decisions, product costs including freight and duty, and the availability of production capacity and speed. Our inventory balance as of April 28, 2024 was $1.3 billion, a decrease of 15% from April 30, 2023.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions. Predicting future events is inherently an imprecise activity and, as such, requires the use of significant judgment. Actual results may vary from our estimates in amounts that may be material to the financial statements. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact our consolidated financial statements.
Our critical accounting policies, estimates, and judgements are discussed within "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 2023 Annual Report on Form 10-K filed with the SEC on March 21, 2024.
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Operating Locations
Our company-operated stores by market as of April 28, 2024 and January 28, 2024 are summarized in the table below.
Number of company-operated stores by marketApril 28,
2024
January 28,
2024
United States369 367 
Canada71 71 
Americas440 438 
China Mainland127 127 
Australia32 33 
South Korea19 19 
Hong Kong SAR
Japan
New Zealand
Taiwan
Singapore
Malaysia
Macau SAR
Thailand
APAC97 98 
United Kingdom19 20 
Germany
France
Ireland
Spain
Netherlands
Sweden
Norway
Switzerland
EMEA47 48 
Total company-operated stores711 711 
Our retail locations operated by third parties by market as of April 28, 2024 and January 28, 2024 are summarized in the table below.
Number of retail locations operated by third parties by marketApril 28,
2024
January 28,
2024
Mexico15 15 
United Arab Emirates
Saudi Arabia
Israel
Kuwait
Qatar
Bahrain
Total locations operated by third parties under license and supply arrangements41 39 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Exchange Risk
Translation Risk. The functional currency of our international subsidiaries is generally the applicable local currency. Our consolidated financial statements are presented in U.S. dollars. Therefore, the net revenue, expenses, assets, and liabilities of our international subsidiaries are translated from their functional currencies into U.S. dollars. Fluctuations in the value of the U.S. dollar affect the reported amounts of net revenue, expenses, assets, and liabilities. As a result of the fluctuation in exchange rates compared to the U.S. dollar our revenue was $21.8 million lower in the first quarter of 2024 in comparison to the first quarter of 2023.
Foreign currency exchange differences which arise on translation of our international subsidiaries' balance sheets into U.S. dollars are recorded as other comprehensive income (loss), net of tax in accumulated other comprehensive income or loss within stockholders' equity. A significant portion of our net assets are held by our Canadian dollar subsidiary. We enter into forward currency contracts in order to hedge a portion of the foreign currency exposure associated with the translation of our net investment in our Canadian subsidiary. The impact to other comprehensive loss of translation of our Canadian subsidiaries was an increase in the loss of $22.8 million, inclusive of net investment hedge gains.
Transaction Risk. We also have exposure to changes in foreign currency exchange rates associated with transactions which are undertaken by our subsidiaries in currencies other than their functional currency. Such transactions include intercompany transactions and inventory purchases denominated in currencies other than the functional currency of the purchasing entity. We also hold cash and cash equivalents and other monetary assets in currencies that are different to the functional currency of our subsidiaries. As of April 28, 2024, we had certain forward currency contracts outstanding in order to economically hedge the foreign currency revaluation gains and losses recognized by our foreign subsidiaries, including our Canadian and Chinese subsidiaries, on their monetary assets and liabilities denominated in currencies other than their functional currency.
We perform a sensitivity analysis to determine the market risk exposure associated with the fair values of our forward currency contracts. The net fair value of outstanding derivatives as of April 28, 2024 was an asset of $2.7 million. As of April 28, 2024, a 10% depreciation in the U.S. dollar against the hedged currencies would have resulted in the net fair value of outstanding derivatives depreciating by $29.8 million. The hypothetical change in the fair value of the forward currency contracts would have been substantially offset by a corresponding but directionally opposite change in the underlying hedged items.
In the future, in an effort to reduce foreign currency exchange risks, we may enter into further derivative financial instruments including hedging additional currency pairs. We do not, and do not intend to, engage in the practice of trading derivative securities for profit.
Please refer to Note 7. Derivative Financial Instruments included in Item 1 of Part I of this report for further details on the nature of our financial instruments.
Interest Rate Risk 
Our committed revolving credit facility provides us with available borrowings in an amount up to $400.0 million. Because our revolving credit facilities bear interest at a variable rate, we will be exposed to market risks relating to changes in interest rates, if we have a meaningful outstanding balance. As of April 28, 2024, aside from letters of credit of $6.3 million, there were no borrowings outstanding under these credit facilities. We currently do not engage in any interest rate hedging activity and currently have no intention to do so. However, in the future, if we have a meaningful outstanding balance under our revolving facility, in an effort to mitigate losses associated with these risks, we may at times enter into derivative financial instruments, although we have not historically done so. These may take the form of forward contracts, option contracts, or interest rate swaps. We do not, and do not intend to, engage in the practice of trading derivative securities for profit.
Our cash and cash equivalent balances are held in the form of cash on hand, bank balances, and short-term deposits with original maturities of three months or less, and in money market funds. As of April 28, 2024, we held cash and cash equivalents of $1.9 billion. Interest generated on cash balances is subject to variability as interest rates increase or decrease.
Credit Risk. We have cash on deposit with various large, reputable financial institutions and have invested in AAA-rated money market funds. The amount of cash and cash equivalents held with certain financial institutions exceeds government-insured limits. We are also exposed to credit-related losses in the event of nonperformance by the financial institutions that are counterparties to our forward currency contracts. The credit risk amount is our unrealized gains on our derivative instruments, based on foreign currency rates at the time of nonperformance. We have not experienced any losses related to
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these items, and we believe credit risk to be minimal. We seek to minimize our credit risk by entering into transactions with investment grade credit worthy and reputable financial institutions and by monitoring the credit standing of the financial institutions with whom we transact. We seek to limit the amount of exposure with any one counterparty.
Inflation
Inflationary factors such as increases in the cost of our product, as well as overhead costs and capital expenditures may adversely affect our operating results.
Sustained increases in transportation costs, wages, and raw material costs, or other inflationary pressures in the future may have an adverse effect on our ability to maintain current levels of operating margin if the selling prices of our products do not increase with these increased costs, or we cannot identify cost efficiencies.
ITEM 4. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial and accounting officer, to allow timely decisions to be made regarding required disclosure. We have established a Disclosure Committee, consisting of certain members of management, to assist in this evaluation. The Disclosure Committee meets on a quarterly basis, and as needed.
Our management, including our principal executive officer and principal financial and accounting officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of April 28, 2024. Based on that evaluation, our principal executive officer and principal financial and accounting officer concluded that, as of April 28, 2024, our disclosure controls and procedures were effective.
There were no changes in our internal control over financial reporting during the quarter ended April 28, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In addition to the legal matters described in Note 12. Legal Proceedings and Other Contingencies included in Item 1 of Part I of this report and in our 2023 Annual Report on Form 10-K, we are, from time to time, involved in routine legal matters incidental to the conduct of our business, including legal matters such as initiation and defense of proceedings to protect intellectual property rights, employment claims, product liability claims, personal injury claims, and similar matters. We believe the ultimate resolution of any such current proceeding will not have a material adverse effect on our financial position, results of operations or cash flows.
ITEM 1A. RISK FACTORS
In addition to the other information contained in this Form 10-Q and in our 2023 Annual Report on Form 10-K, the following risk factors should be considered in evaluating our business. Our business, financial condition, or results of operations could be materially adversely affected as a result of any of these risks.
Risks related to our business and industry
Our success depends on our ability to maintain the value and reputation of our brand.
The lululemon name is integral to our business as well as to the implementation of our expansion strategies. Maintaining, promoting, and positioning our brand will depend largely on the success of our marketing and merchandising efforts and our ability to provide a consistent, high quality product, and guest experience. We rely on social media, as one of our marketing strategies, to have a positive impact on both our brand value and reputation. Our brand and reputation could be adversely affected if we fail to achieve these objectives, if our public image was to be tarnished by negative publicity, which could be amplified by social media, if we fail to deliver innovative and high quality products acceptable to our guests, or if we face or mishandle a product recall. Our reputation could also be impacted by adverse publicity, whether or not valid, regarding allegations that we, or persons associated with us or formerly associated with us, have violated applicable laws or regulations, including but not limited to those related to safety, employment, discrimination, harassment, whistle-blowing, privacy, corporate citizenship, improper business practices, or cybersecurity. Certain activities on the part of stakeholders, including nongovernmental organizations and governmental institutions, could cause reputational damage, distract senior management, and disrupt our business. Additionally, while we devote considerable effort and resources to protecting our intellectual property, if these efforts are not successful the value of our brand may be harmed. Any harm to our brand and reputation could have a material adverse effect on our financial condition.
Changes in consumer shopping preferences, and shifts in distribution channels could materially impact our results of operations.
We operate an omni-channel retail model and aim to efficiently and effectively serve our guests in the ways most convenient to them. We operate a combination of physical retail locations and e-commerce services via our websites, other region-specific websites, digital marketplaces, and mobile apps. Our physical retail locations remain a key part of our growth strategy and we view them as a valuable tool in helping us build our brand and product line as well as enabling our omni-channel capabilities. We plan to continue to expand square footage and open new company-operated stores to support our growth objectives. The diversion of sales from our company-operated stores could adversely impact our return on investment and could lead to impairment charges and store closures, including lease exit costs. We could have difficulty in recreating the in-store experience through direct channels. Our failure to successfully integrate our digital and physical channels and respond to these risks might adversely impact our business and results of operations, as well as damage our reputation and brand.
If any of our products have manufacturing or design defects or are otherwise unacceptable to us or our guests, our business could be harmed.
We have occasionally received, and may in the future receive, shipments of products that fail to comply with our technical specifications or that fail to conform to our quality control standards. We have also received, and may in the future receive, products that are otherwise unacceptable to us or our guests. Under these circumstances, unless we are able to obtain replacement products in a timely manner, we risk the loss of net revenue resulting from the inability to sell those products and related increased administrative and shipping costs. Additionally, if the unacceptability of our products is not
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discovered until after such products are sold, our guests could lose confidence in our products or we could face a product recall and our results of operations could suffer and our business, reputation, and brand could be harmed.
Our lululemon Studio subsidiary offers complex hardware and software products and services that can be affected by design and manufacturing defects. Sophisticated operating system software and applications, such as those offered by lululemon Studio, often have issues that can unexpectedly interfere with the intended operation of hardware or software products. Defects may also exist in components and products that we source from third parties. Any defects could make our products and services unsafe and create a risk of environmental or property damage or personal injury and we may become subject to the hazards and uncertainties of product liability claims and related litigation. The occurrence of real or perceived defects in any of our products, now or in the future, could result in additional negative publicity, regulatory investigations, or lawsuits filed against us, particularly if guests or others who use or purchase our lululemon Studio products are injured. Even if injuries are not the result of any defects, if they are perceived to be, we may incur expenses to defend or settle any claims and our brand and reputation may be harmed.
We operate in a highly competitive market and our competitors may compete more effectively than we can, resulting in a loss of our market share and a decrease in our net revenue and profitability.
The market for technical athletic apparel is highly competitive. Competition may result in pricing pressures, reduced profit margins or lost market share, or a failure to grow or maintain our market share, any of which could substantially harm our business and results of operations. We compete directly against wholesalers and direct retailers of athletic apparel, including large, diversified apparel companies with substantial market share, and established companies expanding their production and marketing of technical athletic apparel, as well as against retailers specifically focused on women's athletic apparel. We also face competition from wholesalers and direct retailers of traditional commodity athletic apparel, such as cotton T-shirts and sweatshirts. Many of our competitors are large apparel and sporting goods companies with strong worldwide brand recognition. Because of the fragmented nature of the industry, we also compete with other apparel sellers, including those specializing in yoga apparel and other activewear. Many of our competitors have significant competitive advantages, including longer operating histories, larger and broader customer bases, more established relationships with a broader set of suppliers, greater brand recognition and greater financial, research and development, store development, marketing, distribution, and other resources than we do. Our competitors may be able to achieve and maintain brand awareness and market share more quickly and effectively than we can.
We may fail to acknowledge or react appropriately to the entry or growth of a viable competitor or disruptive force, and could struggle to continue to innovate, differentiate, and sustain the growth of our brand. The increasing dominance and presence of our brand may also drive guests towards alternative emerging competitors.
In addition, because we hold limited patents and exclusive intellectual property rights in the technology, fabrics or processes underlying our products, our current and future competitors are able to manufacture and sell products with performance characteristics, fabrication techniques, and styling similar to our products.
Our sales and profitability may decline as a result of increasing costs and decreasing selling prices.
Our business is subject to significant pressure on costs and pricing caused by many factors, including intense competition, constrained sourcing capacity and related inflationary pressure, the availability of qualified labor and wage inflation, pressure from consumers to reduce the prices we charge for our products, and changes in consumer demand. These and other factors have, and may in the future, cause us to experience increased costs, reduce our prices to consumers or experience reduced sales in response to increased prices, any of which could cause our operating margin to decline if we are unable to offset these factors with reductions in operating costs and could have a material adverse effect on our financial condition, operating results, and cash flows. Unionization efforts or other employee organizing activities could lead to higher people costs or reduce our flexibility to manage our employees which may negatively disrupt our operations.
If we are unable to anticipate consumer preferences and successfully develop and introduce new, innovative, and differentiated products, we may not be able to maintain or increase our sales and profitability.
Our success depends on our ability to identify and originate product trends as well as to anticipate and react to changing consumer demands in a timely manner. All of our products are subject to changing consumer preferences that cannot be predicted with certainty. If we are unable to introduce new products or novel technologies in a timely manner or our new products or technologies are not accepted by our guests, our competitors may introduce similar products in a more timely fashion, which could hurt our goal to be viewed as a leader in technical athletic apparel innovation. Our new products may not receive consumer acceptance as consumer preferences could shift rapidly to different types of athletic apparel or away from these types of products altogether, and our future success depends in part on our ability to anticipate and respond to these changes. Our failure to anticipate and respond in a timely manner to changing consumer preferences could lead to,
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among other things, lower sales and excess inventory levels. We may not have relevant data to effectively understand and react to consumer preferences and expectations. Even if we are successful in anticipating consumer preferences, our ability to adequately react to and address those preferences will in part depend upon our continued ability to develop and introduce innovative, high-quality products. Our failure to effectively introduce new products that are accepted by consumers could result in a decrease in net revenue and excess inventory levels, which could have a material adverse effect on our financial condition.
Our results of operations could be materially harmed if we are unable to accurately forecast guest demand for our products.
To ensure adequate inventory supply, we must forecast inventory needs and place orders with our manufacturers based on our estimates of future demand for particular products. Our ability to accurately forecast demand for our products could be affected by many factors, including an increase or decrease in guest demand for our products or for products of our competitors, our failure to accurately forecast guest acceptance of new products, product introductions by competitors, unanticipated changes in general market conditions (for example, because of global economic concerns such as inflation, an economic downturn, or delays and disruptions resulting from local and international shipping delays and labor shortages), and weakening of economic conditions or consumer confidence in future economic conditions (for example, because of inflationary pressures, or because of sanctions, restrictions, and other responses related to geopolitical events). If we fail to accurately forecast guest demand, we may experience excess inventory levels or a shortage of products available for sale in our stores or for delivery to guests.
Inventory levels in excess of guest demand may result in inventory write-downs or write-offs and the sale of excess inventory at discounted prices, which would cause our gross margin to suffer and could impair the strength and exclusivity of our brand. Conversely, if we underestimate guest demand for our products, our manufacturers may not be able to deliver products to meet our requirements, and this could result in damage to our reputation and guest relationships.
Our limited operating experience and limited brand recognition in new international markets and new product categories may limit our expansion and cause our business and growth to suffer.
Our future growth depends in part on our expansion efforts outside of the Americas. We have limited experience with regulatory environments and market practices internationally, and we may not be able to penetrate or successfully operate in any new market. In connection with our expansion efforts we may encounter obstacles we did not face in the Americas, including cultural and linguistic differences, differences in regulatory environments, labor practices and market practices, difficulties in keeping abreast of market, business and technical developments, and international guests' tastes and preferences. We