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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
þQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 29, 201730, 2022
or
oTRANSITION 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

lulu-20221030_g1.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)(Zip Code)
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (of for such shorter period that the registrant was required to submit and post such files).    Yes þ No o
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 FilerþAccelerated filero
Non-accelerated filer
o (Do not check if a smaller reporting company)
Smaller reporting companyo
Emerging growth companyo
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes o No þ
AtAs of December 1, 2017,2, 2022, there were 125,599,066122,398,776 shares of the registrant's common stock, par value $0.005 per share, outstanding.
Exchangeable and Special Voting Shares:
AtAs of December 1, 2017,2, 2022, there were outstanding 9,780,9275,115,961 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, atas of December 1, 2017,2, 2022, the registrant had outstanding 9,780,9275,115,961 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.



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TABLE OF CONTENTS
 
Page
Item 1.Page
Item 2.
Item 3.
Item 4.
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 6.

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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
lululemon athletica inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited; Amounts in thousands, except per share amounts)
 October 29,
2017
 January 29,
2017
October 30,
2022
January 30,
2022
ASSETS
Current assets    Current assets
Cash and cash equivalents $650,054
 $734,846
Cash and cash equivalents$352,624 $1,259,871 
Accounts receivable 21,281
 9,200
Accounts receivable96,179 77,001 
Inventories 396,892
 298,432
Inventories1,741,716 966,481 
Prepaid and receivable income taxes 77,625
 81,190
Prepaid and receivable income taxes196,385 118,928 
Other prepaid expenses and other current assets 42,496
 39,069
Prepaid expenses and other current assetsPrepaid expenses and other current assets247,277 192,572 
 1,188,348
 1,162,737
2,634,181 2,614,853 
Property and equipment, net 440,403
 423,499
Property and equipment, net1,122,490 927,710 
Goodwill and intangible assets, net 24,476
 24,557
Right-of-use lease assetsRight-of-use lease assets946,687 803,543 
GoodwillGoodwill386,515 386,880 
Intangible assets, netIntangible assets, net64,719 71,299 
Deferred income tax assets 37,583
 26,256
Deferred income tax assets5,587 6,091 
Other non-current assets 29,639
 20,492
Other non-current assets149,257 132,102 
 $1,720,449
 $1,657,541
$5,309,436 $4,942,478 
LIABILITIES AND STOCKHOLDERS' EQUITY    LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities    Current liabilities
Accounts payable $14,113
 $24,846
Accounts payable$300,870 $289,728 
Accrued inventory liabilities 23,420
 8,601
Accrued liabilities and otherAccrued liabilities and other357,365 330,800 
Accrued compensation and related expenses 62,387
 55,238
Accrued compensation and related expenses184,122 204,921 
Income taxes payable 4,403
 30,290
Current lease liabilitiesCurrent lease liabilities188,110 188,996 
Current income taxes payableCurrent income taxes payable80,947 133,852 
Unredeemed gift card liability 52,500
 70,454
Unredeemed gift card liability171,659 208,195 
Lease termination liabilities 12,164
 
Other current liabilities 71,590
 52,561
Other current liabilities39,762 48,842 
 240,577
 241,990
1,322,835 1,405,334 
Non-current lease liabilitiesNon-current lease liabilities850,373 692,056 
Non-current income taxes payableNon-current income taxes payable28,555 38,074 
Deferred income tax liabilities 
 7,262
Deferred income tax liabilities50,884 53,352 
Other non-current liabilities 58,596
 48,316
Other non-current liabilities17,585 13,616 
 299,173
 297,568
2,270,232 2,202,432 
Commitments and contingenciesCommitments and contingencies
Stockholders' equity    Stockholders' equity
Undesignated preferred stock, $0.01 par value: 5,000 shares authorized; none issued and outstanding 
 
Undesignated preferred stock, $0.01 par value: 5,000 shares authorized; none issued and outstanding— — 
Exchangeable stock, no par value: 60,000 shares authorized; 9,781 and 9,781 issued and outstanding 
 
Special voting stock, $0.000005 par value: 60,000 shares authorized; 9,781 and 9,781 issued and outstanding 
 
Common stock, $0.005 par value: 400,000 shares authorized; 125,592 and 127,304 issued and outstanding 628
 637
Exchangeable stock, no par value: 60,000 shares authorized; 5,203 and 5,203 issued and outstandingExchangeable stock, no par value: 60,000 shares authorized; 5,203 and 5,203 issued and outstanding— — 
Special voting stock, $0.000005 par value: 60,000 shares authorized; 5,203 and 5,203 issued and outstandingSpecial voting stock, $0.000005 par value: 60,000 shares authorized; 5,203 and 5,203 issued and outstanding— — 
Common stock, $0.005 par value: 400,000 shares authorized; 122,318 and 123,297 issued and outstandingCommon stock, $0.005 par value: 400,000 shares authorized; 122,318 and 123,297 issued and outstanding612 616 
Additional paid-in capital 275,871
 266,622
Additional paid-in capital455,444 422,507 
Retained earnings 1,336,216
 1,294,214
Retained earnings2,874,955 2,512,840 
Accumulated other comprehensive loss (191,439) (201,500)Accumulated other comprehensive loss(291,807)(195,917)
 1,421,276
 1,359,973
3,039,204 2,740,046 
 $1,720,449
 $1,657,541
$5,309,436 $4,942,478 
See accompanying notes to the unaudited interim consolidated financial statements

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lululemon athletica inc.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited; Amounts in thousands, except per share amounts)
 Quarter Ended Three Quarters EndedQuarter EndedThree Quarters Ended
 October 29, 2017 October 30, 2016 October 29, 2017 October 30, 2016October 30,
2022
October 31,
2021
October 30,
2022
October 31,
2021
Net revenue $619,018
 $544,416
 $1,720,379
 $1,554,452
Net revenue$1,856,889 $1,450,421 $5,338,680 $4,127,504 
Cost of goods sold 297,056
 265,990
 844,100
 782,734
Cost of goods sold818,037 621,028 2,373,959 1,755,111 
Gross profit 321,962
 278,426
 876,279
 771,718
Gross profit1,038,852 829,393 2,964,721 2,372,393 
Selling, general and administrative expenses 215,367
 185,451
 640,032
 547,195
Selling, general and administrative expenses684,236 545,124 1,954,340 1,583,075 
Asset impairment and restructuring costs 21,007
 
 36,524
 
Amortization of intangible assetsAmortization of intangible assets2,189 2,195 6,579 6,585 
Acquisition-related expensesAcquisition-related expenses— 24,127 — 39,934 
Gain on disposal of assetsGain on disposal of assets— — (10,180)— 
Income from operations 85,588
 92,975
 199,723
 224,523
Income from operations352,427 257,947 1,013,982 742,799 
Other income (expense), net 1,052
 628
 2,771
 720
Other income (expense), net331 15 454 338 
Income before income tax expense 86,640
 93,603
 202,494
 225,243
Income before income tax expense352,758 257,962 1,014,436 743,137 
Income tax expense 27,696
 25,318
 63,593
 57,997
Income tax expense97,288 70,174 279,447 202,319 
Net income $58,944
 $68,285
 $138,901
 $167,246
Net income$255,470 $187,788 $734,989 $540,818 
        
Other comprehensive (loss) income:        
Other comprehensive income (loss), net of tax:Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment (31,018) (24,748) 10,061
 20,762
Foreign currency translation adjustment$(105,016)$17,481 $(122,149)$48,708 
Net investment hedge gains (losses)Net investment hedge gains (losses)25,492 (7,207)26,259 (18,318)
Other comprehensive income (loss), net of taxOther comprehensive income (loss), net of tax$(79,524)$10,274 $(95,890)$30,390 
Comprehensive income $27,926
 $43,537
 $148,962
 $188,008
Comprehensive income$175,946 $198,062 $639,099 $571,208 
        
Basic earnings per share $0.44
 $0.50
 $1.02
 $1.22
Basic earnings per share$2.00 $1.45 $5.75 $4.16 
Diluted earnings per share $0.43
 $0.50
 $1.02
 $1.22
Diluted earnings per share$2.00 $1.44 $5.74 $4.14 
Basic weighted-average number of shares outstanding 135,364
 137,033
 136,191
 137,095
Basic weighted-average number of shares outstanding127,511 129,684 127,736 130,019 
Diluted weighted-average number of shares outstanding 135,578
 137,237
 136,357
 137,321
Diluted weighted-average number of shares outstanding127,820 130,189 128,089 130,557 
See accompanying notes to the unaudited interim consolidated financial statements

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lululemon athletica inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited; Amounts in thousands)
Quarter Ended October 30, 2022
 Exchangeable StockSpecial Voting StockCommon StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTotal
 SharesSharesPar ValueSharesPar Value
Balance as of July 31, 20225,203 5,203 $— 122,334 $612 $433,092 $2,636,377 $(212,283)$2,857,798 
Net income255,470 255,470 
Other comprehensive income (loss), net of tax(79,524)(79,524)
Stock-based compensation expense20,312 20,312 
Common stock issued upon settlement of stock-based compensation45 — 4,057 4,057 
Shares withheld related to net share settlement of stock-based compensation(6)— (1,917)(1,917)
Repurchase of common stock(55)— (100)(16,892)(16,992)
Balance as of October 30, 20225,203 5,203 $— 122,318 $612 $455,444 $2,874,955 $(291,807)$3,039,204 

Quarter Ended October 31, 2021
 Exchangeable StockSpecial Voting StockCommon StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTotal
 SharesSharesPar ValueSharesPar Value
Balance as of August 1, 20215,203 5,203 $— 124,644 $623 $381,737 $2,445,845 $(157,039)$2,671,166 
Net income187,788 187,788 
Other comprehensive income (loss), net of tax10,274 10,274 
Stock-based compensation expense21,657 21,657 
Common stock issued upon settlement of stock-based compensation83 — 7,907 7,907 
Shares withheld related to net share settlement of stock-based compensation(9)— (3,914)(3,914)
Repurchase of common stock(583)(2)(974)(235,447)(236,423)
Balance as of October 31, 20215,203 5,203 $— 124,135 $621 $406,413 $2,398,186 $(146,765)$2,658,455 
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Three Quarters Ended October 30, 2022
 Exchangeable Stock Special Voting Stock Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Total Exchangeable StockSpecial Voting StockCommon StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTotal
 Shares Shares Par Value Shares Par Value  SharesSharesPar ValueSharesPar Value
Balance at January 29, 2017 9,781
 9,781
 $
 127,304
 $637
 $266,622
 $1,294,214
 $(201,500) $1,359,973
Balance as of January 30, 2022Balance as of January 30, 20225,203 5,203 $— 123,297 $616 $422,507 $2,512,840 $(195,917)$2,740,046 
Net income             138,901
   138,901
Net income734,989 734,989 
Foreign currency translation adjustment               10,061
 10,061
Other comprehensive income (loss), net of taxOther comprehensive income (loss), net of tax(95,890)(95,890)
Stock-based compensation expense           13,048
     13,048
Stock-based compensation expense59,487 59,487 
Common stock issued upon settlement of stock-based compensation       194
 1
 1,647
     1,648
Common stock issued upon settlement of stock-based compensation308 10,241 10,243 
Shares withheld related to net share settlement of stock-based compensation       (58) 
 (3,086)     (3,086)Shares withheld related to net share settlement of stock-based compensation(104)— (34,695)(34,695)
Repurchase of common stock       (1,848) (10) (2,360) (96,899)   (99,269)Repurchase of common stock(1,183)(6)(2,096)(372,874)(374,976)
Balance at October 29, 2017 9,781
 9,781
 $
 125,592
 $628
 $275,871
 $1,336,216
 $(191,439) $1,421,276
Balance as of October 30, 2022Balance as of October 30, 20225,203 5,203 $— 122,318 $612 $455,444 $2,874,955 $(291,807)$3,039,204 

Three Quarters Ended October 31, 2021
 Exchangeable StockSpecial Voting StockCommon StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTotal
 SharesSharesPar ValueSharesPar Value
Balance as of January 31, 20215,203 5,203 $— 125,150 $626 $388,667 $2,346,428 $(177,155)$2,558,566 
Net income540,818 540,818 
Other comprehensive income (loss), net of tax30,390 30,390 
Stock-based compensation expense51,878 51,878 
Common stock issued upon settlement of stock-based compensation495 17,618 17,620 
Shares withheld related to net share settlement of stock-based compensation(152)(1)(49,480)(49,481)
Repurchase of common stock(1,358)(6)(2,270)(489,060)(491,336)
Balance as of October 31, 20215,203 5,203 $— 124,135 $621 $406,413 $2,398,186 $(146,765)$2,658,455 
See accompanying notes to the unaudited interim consolidated financial statements

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lululemon athletica inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Amounts in thousands)
 Three Quarters EndedThree Quarters Ended
 October 29, 2017 October 30, 2016October 30,
2022
October 31,
2021
Cash flows from operating activities    Cash flows from operating activities
Net income $138,901
 $167,246
Net income$734,989 $540,818 
Adjustments to reconcile net income to net cash provided by operating activities:    
Adjustments to reconcile net income to net cash provided by (used in) operating activities:Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 80,129
 63,641
Depreciation and amortization211,629 162,086 
Deferred income taxes (18,385) 
Gain on disposal of assetsGain on disposal of assets(10,180)— 
Stock-based compensation expense 13,048
 12,939
Stock-based compensation expense59,487 51,878 
Asset impairment for ivivva restructuring 11,593
 
Settlement of derivatives not designated in a hedging relationship 4,178
 
Settlement of derivatives not designated in a hedging relationship(19,202)30,427 
Changes in operating assets and liabilities:    Changes in operating assets and liabilities:
Inventories (95,475) (73,660)Inventories(832,024)(288,821)
Prepaid and receivable income taxes 3,565
 (30,580)Prepaid and receivable income taxes(77,458)(883)
Other prepaid expenses and other current assets (14,885) (13,471)
Prepaid expenses and other current assetsPrepaid expenses and other current assets(90,512)(43,395)
Other non-current assets 8,126
 (8,804)Other non-current assets(25,725)(8,792)
Accounts payable (11,141) (1,558)Accounts payable26,537 50,903 
Accrued inventory liabilities 14,602
 5,270
Accrued liabilities and otherAccrued liabilities and other31,767 87,879 
Accrued compensation and related expenses 6,579
 8,835
Accrued compensation and related expenses(13,694)50,437 
Income taxes payable (26,420) (17,563)
Current and non-current income taxes payableCurrent and non-current income taxes payable(54,354)29,862 
Unredeemed gift card liability (18,272) (14,123)Unredeemed gift card liability(33,481)(18,969)
Lease termination liabilities 12,164
 
Other accrued and non-current liabilities 23,002
 487
Net cash provided by operating activities 131,309
 98,659
Right-of-use lease assets and current and non-current lease liabilitiesRight-of-use lease assets and current and non-current lease liabilities15,285 6,318 
Other current and non-current liabilitiesOther current and non-current liabilities(2,865)8,376 
Net cash provided by (used in) operating activitiesNet cash provided by (used in) operating activities(79,801)658,124 
Cash flows from investing activities    Cash flows from investing activities
Purchase of property and equipment (107,128) (106,168)Purchase of property and equipment(431,677)(266,991)
Settlement of net investment hedges (4,599) 
Settlement of net investment hedges29,158 (36,447)
Other investing activities (8,324) 
Other investing activities15,657 (10,000)
Net cash used in investing activities (120,051) (106,168)Net cash used in investing activities(386,862)(313,438)
Cash flows from financing activities    Cash flows from financing activities
Proceeds from settlement of stock-based compensation 1,648
 5,959
Proceeds from settlement of stock-based compensation10,243 17,620 
Taxes paid related to net share settlement of stock-based compensation (3,086) (2,691)
Shares withheld related to net share settlement of stock-based compensationShares withheld related to net share settlement of stock-based compensation(34,695)(49,481)
Repurchase of common stock (99,269) (28,556)Repurchase of common stock(374,976)(491,336)
Net cash used in financing activities (100,707) (25,288)Net cash used in financing activities(399,428)(523,197)
Effect of exchange rate changes on cash and cash equivalents 4,657
 11,701
(Decrease) increase in cash and cash equivalents (84,792) (21,096)
Effect of foreign currency exchange rate changes on cash and cash equivalentsEffect of foreign currency exchange rate changes on cash and cash equivalents(41,156)21,585 
Increase (decrease) in cash and cash equivalentsIncrease (decrease) in cash and cash equivalents(907,247)(156,926)
Cash and cash equivalents, beginning of period $734,846
 $501,482
Cash and cash equivalents, beginning of period$1,259,871 $1,150,517 
Cash and cash equivalents, end of period $650,054
 $480,386
Cash and cash equivalents, end of period$352,624 $993,591 
See accompanying notes to the unaudited interim consolidated financial statements



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lululemon athletica inc.
INDEX FOR NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS
Note 1
Note 2
Note 3
Note 4
Note 5
Note 6
Note 47
Note 58
Note 69
Note 7
Note 8
Note 910
Note 1011
Note 1112
Note 1213



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lululemon athletica inc.
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS
NOTENote 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATIONNature 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 healthy lifestyle inspiredtechnical athletic apparel, footwear, and accessories, which isare sold through a chain of company-operated stores, direct to consumer through e-commerce, outlets, showrooms,sales from temporary locations, sales to wholesale accounts, license and supply arrangements, and through warehouse sales. Its apparelrecommerce. Recommerce is marketed under the lululemon and ivivva brand names.sale of repurchased product via the Company's "Like New" program. The Company operates stores in the United States, the People's Republic of China ("PRC"), Canada, Australia, the United Kingdom, China, New Zealand, Hong Kong, Singapore, South Korea, Germany, New Zealand, Singapore, Japan, Ireland, Japan, Puerto Rico, Switzerland,France, Malaysia, Spain, Sweden, the Netherlands, Norway, and Taiwan.Switzerland. There were a total of 388623 and 406574 company-operated stores in operation as of October 29, 201730, 2022 and January 29, 2017,30, 2022, respectively.
On June 1, 2017, The Company also engages in the Company announced a plan to restructure its ivivva operations. On August 20, 2017, as partdesign and retail of this plan, the Company closed 48 of its 55 ivivva branded company-operated stores. The seven remaining ivivva branded stores remain in operationin-home connected fitness equipment and are not expected to close. All ofassociated content subscriptions through lululemon Studio, which evolved from the Company's ivivva branded showrooms and other temporary locations have been closed. The Company continues to offer ivivva branded products on its e-commerce websites. Please refer to Note 6former MIRROR brand during the third quarter of these unaudited interim consolidated financial statements for further details regarding the ivivva restructuring.fiscal 2022.
Basis of presentation
The unaudited interim consolidated financial statements as of October 29, 201730, 2022 and for the quarters and three quarters ended October 29, 201730, 2022 and October 30, 201631, 2021 are presented in United StatesU.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 29, 201730, 2022 is derived from the Company's audited consolidated financial statements and related notes for the fiscal year ended January 29, 2017,30, 2022, which are included in Item 8 in the Company's fiscal 20162021 Annual Report on Form 10-K filed with the SEC on March 29, 2017.2022. 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 20162021 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 20172022 will end on January 28, 201829, 2023 and will be a 52-week year. Fiscal 2021 was a 52-week year and ended on January 30, 2022. Fiscal 2022 and fiscal 2021 are referred to as "2022," and "2021," respectively. The first three quarters of 2022 and 2021 ended on October 30, 2022 and October 31, 2021, 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.
Certain comparative figures have been reclassified to conform to the financial presentation adopted for the current year.
NOTENote 2. RECENT ACCOUNTING PRONOUNCEMENTSRecent Accounting Pronouncements
In May 2014,Recently adopted accounting pronouncements
The Company considers the Financialapplicability and impact of all Accounting Standards BoardStandard Updates ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers ("ASC 606"ASUs"). This ASU supersedes the revenue recognition requirements in ASC Topic 605 Revenue Recognition, including most industry-specific revenue recognition guidance. ASU 2014-09 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, and expands the related disclosure requirements. In 2015, the FASB deferred the effective date for this guidance, and in 2016, the FASB issued several updates that clarify the guidance in this topic. ASC 606 may be adopted either on a full retrospective basis or using a modified retrospective method with a cumulative adjustment to equity. This guidance will beASUs adopted by the Company beginning in itsduring the first quarterthree quarters of fiscal 2018. The Company continues2022 not listed below were assessed, and determined to evaluate thebe either not applicable or are expected to have minimal impact that this new guidance may have on its consolidated financial statements, and the methodposition or results of retrospective adoption that it will elect, but does not expect ASC 606 to materiallyoperations.

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impact the amount, or timing, of its revenue recognition. Under the new requirements, the Company expects to recognize its provision for sales returns on a gross basis, rather than a net basis on the consolidated balance sheets.
In July 2015,November 2021, the FASB amendedissued ASC Topic 330, Inventory832, Government Assistance to simplifyrequire annual disclosures about the measurementnature of inventory. The amendments require that an entity measure inventory atcertain government assistance received, the lower of cost and net realizable value instead of the lower of cost and market. This guidance became effectiveaccounting policy used to account for the transactions, the location in the financial statements where such transactions were recorded and significant terms and conditions associated with such transactions. The Company adopted this update prospectively during the first quarter of fiscal 20172022 and the adoptionit did not have a material impact on the Company's consolidated financial statements.
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Recently issued accounting pronouncements
ASUs recently issued not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on its consolidated financial statements.position or results of operations.
In February 2016,September 2022, the FASB issued ASC Topic 842, Leases ("ASC 842")405-50, Liabilities - Supplier Finance Programs, to increase transparencyrequire annual and comparability among organizations by recognizing lease assetsinterim disclosures about the key terms of supplier finance programs used in connection with the purchase of goods and lease liabilities on the balance sheet and disclosing keyservices along with information about leasing arrangements. Under the new guidance, lessees are required to recognize a lease liability, which representsobligations under these programs, including the discounted obligation to make future minimum lease payments,amount outstanding at the end of each reporting period and a corresponding right-of-use asset on the balance sheet for most leases. Thisrollforward of those obligations. The guidance will beis effective for the Companyfiscal years beginning after December 15, 2022, including interim periods in its first quarter ofthose fiscal 2019,years, with early application permitted. The Company will adopt ASC 842 in its first quarter of fiscal 2019. While the Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements, it is expected that the primary impact upon adoption will be the recognition, on a discounted basis, of the Company's minimum commitments under noncancelable operating leases as right of use assets and obligations on the consolidated balance sheets. It is expected that this will result in a significant increase in assets and liabilities on the consolidated balance sheets.
In March 2016, the FASB amended ASC Topic 718, Stock Compensation simplifying the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The new guidance also allows an entity to account for forfeitures when they occur. The Company adopted this amendment in the first quarter of fiscal 2017 and elected to continue to estimate expected forfeitures. The Company is now required to include excess tax benefits and deficiencies as a component of income tax expense, rather than a component of stockholders' equity. Additionally, the Company retrospectively adjusted its consolidated statement of cash flows for the three quarters ended October 30, 2016 to reclassify excess tax benefits of $1.3 million from financing activities to operating activities.
In August 2017, the FASB amended ASC 815, Derivatives and Hedging to more closely align hedge accounting with companies' risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. It will make more financial and nonfinancial hedging strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess effectiveness. This guidance will be effective for the Company beginning in its first quarter of fiscal 2019, with early application permitted. The Company is currently evaluating the impact that this new guidance may have on its consolidated financial statements.
Note 3. Acquisition-Related Expenses
On July 7, 2020, the Company acquired all of the outstanding shares of MIRROR, an in-home fitness company with an interactive workout platform that features live and on-demand classes. In connection with the acquisition, the Company recognized certain acquisition-related expenses which were expensed within acquisition-related expenses in the consolidated statements of operations. The third quarter of 2021 included accelerated compensation expense related to the transition of the former MIRROR Chief Executive Officer to a temporary advisory role with the Company. The following table summarizes the acquisition-related expenses recognized:
Third QuarterFirst Three Quarters
2022202120222021
(In thousands)
Acquisition-related expenses:
Transaction and integration costs$— $328 $— $1,859 
Acquisition-related compensation— 23,799 — 38,075 
$— $24,127 $— $39,934 
Income tax effects of acquisition-related expenses$— $(611)$— $(1,417)
Note 4. Gain on Disposal of Assets
During the second quarter of 2022, the Company completed the sale of an administrative office building, which resulted in a pre-tax gain of $10.2 million. The income tax effect of the gain on disposal of assets was an expense of $1.7 million. The building's carrying value of $5.4 million was first classified as held for sale and recognized within other current assets as of May 1, 2022.
Note 5. Revolving Credit Facilities
North America 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 October 30, 2022, aside from letters of credit of $5.2 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.
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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 October 30, 2022, the Company was in compliance with the covenants of the credit facility.
China Mainland revolving credit facility
In December 2019, the Company entered into an uncommitted and unsecured 130.0 million Chinese Yuan ($18.1 million) revolving credit facility with terms that are reviewed on an annual basis. The credit facility was increased to 230.0 million Chinese Yuan ($32.1 million) during 2020. It is comprised of a revolving loan of up to 200.0 million Chinese Yuan ($27.9 million) and a financial guarantee facility of up to 30.0 million Chinese Yuan ($4.2 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 October 30, 2022, the Company was in compliance with the covenants and, aside from letters of credit of 11.7 million Chinese Yuan ($1.6 million), there were no other borrowings or guarantees outstanding under this credit facility.
NOTE 3. STOCK-BASED COMPENSATION AND BENEFIT PLANSNote 6. Stock-Based Compensation and Benefit Plans
Stock-based compensation plans
The Company's eligible employees participate in various stock-based compensation plans, which are provided directly by the Company directly.Company.
Stock-based compensation expense charged to income for the plans was $13.0$58.8 million and $12.9$49.6 million for the first three quarters ended October 29, 2017of 2022 and October 30, 2016,2021, respectively. Total unrecognized compensation cost for all stock-based compensation plans was $40.2$132.8 million atas of October 29, 2017,30, 2022, which is expected to be recognized over a weighted-average period of 2.32.2 years.

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Company stock options, performance-based restricted stock units, restricted shares, and restricted stock units
A summary of the balances of the Company's stock option, performance-based restricted stock unit, restricted share, and restricted stock unit activitystock-based compensation plans as of October 29, 2017,30, 2022, and changes during the first three quarters then ended, is presented below:
  Stock Options Performance-Based Restricted Stock Units Restricted Shares Restricted Stock Units
  Number Weighted-Average Exercise Price Number Weighted-Average Grant Date Fair Value Number Weighted-Average Grant Date Fair Value Number Weighted-Average Grant Date Fair Value
  (In thousands, except per share amounts)
Balance at January 29, 2017 918
 $59.20
 390
 $61.05
 14
 $70.54
 360
 $62.99
Granted 614
 52.16
 191
 52.21
 24
 52.38
 332
 52.65
Exercised/released 40
 40.70
 
 
 14
 70.29
 131
 60.74
Forfeited 247
 58.18
 224
 54.72
 3
 51.72
 111
 57.18
Balance at October 29, 2017 1,245
 $56.53
 357
 $60.30
 21
 $52.45
 450
 $57.46
Exercisable at October 29, 2017 350
 $56.14
            
The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes 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 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 assumptions were used in calculating the fair value of stock options granted in the first three quarters of fiscal 2017:
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 30, 2022789 $186.10 167 $225.27 $326.70 238 $265.90 
Granted188 371.92 117 274.63 307.77 105 369.91 
Exercised/released82 126.13 114 170.04 326.70 108 237.88 
Forfeited/expired20 282.29 304.22 — — 13 313.90 
Balance as of October 30, 2022875 $229.53 166 $295.93 $307.77 222 $325.95 
Exercisable as of October 30, 2022403 $155.62 
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Three Quarters Ended
 October 29, 2017
Expected term4.00 years
Expected volatility38.28%
Risk-free interest rate1.72%
Dividend yield%
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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 awardgrant 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 awardgrant date.
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 three quarters of 2022:
First Three Quarters
2022
Expected term3.75 years
Expected volatility40.00 %
Risk-free interest rate2.51 %
Dividend yield— %
Employee share purchase plan
The Company's board of directors and stockholders approved the Company's Employee Share Purchase Plan ("ESPP") in September 2007. 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 third quarter ended October 29, 2017,of 2022, there were 34.225.6 thousand shares purchased.
Defined contribution pension plans
During the second quarter of fiscal 2016, theThe Company began offeringoffers defined contribution pension plans to its eligible employees in Canada and the United States.employees. Participating employees may elect to defer and contribute a portion of their eligible

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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 $3.9$10.1 million and $1.6$8.8 million in the first three quarters of fiscal 20172022 and fiscal 2016,2021, respectively.
NOTE 4. FAIR VALUE MEASUREMENTNote 7. 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 October 29, 2017,30, 2022 and January 30, 2022, the Company held certain assets and liabilities that are required to be measured at fair value on a recurring basis:
October 30,
2022
Level 1Level 2Level 3Balance Sheet Classification
(In thousands)
Money market funds$19,600 $19,600 $— $— Cash and cash equivalents
Term deposits— — Cash and cash equivalents
Forward currency contract assets46,813 — 46,813 — Prepaid expenses and other current assets
Forward currency contract liabilities24,857 — 24,857 — Other current liabilities
  October 29, 2017 Level 1 Level 2 Level 3
  (In thousands)
Net forward currency contract (liabilities) assets $(583) $
 $(583) $

January 30,
2022
Level 1Level 2Level 3Balance Sheet Classification
(In thousands)
Money market funds$38,475 $38,475 $— $— Cash and cash equivalents
Term deposits318,698 — 318,698 — Cash and cash equivalents
Forward currency contract assets19,077 — 19,077 — Prepaid expenses and other current assets
Forward currency contract liabilities18,985 — 18,985 — Other current liabilities
The Company records cash, and cash equivalents, 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.
In addition toThe Company has short-term, highly liquid investments classified as cash equivalents, which are invested in money market funds and term deposits. 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 that are recordeddetermined 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 on a recurring basis, the Company has impaired certain long-livedand does not offset derivative assets and recorded them at their estimated fair value on a non-recurring basis. The fair value of these long-lived assets was determined using Level 3 inputs, principally the present value of the estimated future cash flows expected from their use and eventual disposition.liabilities.
As a result of the ivivva restructuring, the Company recorded lease termination liabilities of $12.2 million, determined using Level 3 inputs based on remaining lease rentals and reduced by estimated sublease income.
NOTE 5. DERIVATIVE FINANCIAL INSTRUMENTSNote 8. 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 foreigninternational subsidiaries' balance sheets into U.S. dollars. These gains and losses are recorded as a foreign currency translation adjustmentother 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 during the three quarters ended October 29, 2017, it enteredenters 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 effective portions of the hedges are reported in accumulated other comprehensive income or loss and will subsequently be reclassified to net earnings in the period in which the hedged investment is either sold or substantially liquidated. The Company assesses hedge effectiveness based on
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changes in forward rates. The Company recorded no ineffectiveness from net investment hedges forduring the first three quarters ended October 29, 2017.

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2022.
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 three quarters ended October 29, 2017of 2022, 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 U.S. dollar denominatedspecific monetary assets and liabilities.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.
Outstanding notional amounts
The Company had foreign exchange forward contracts outstanding with the following notional amounts:
  October 29, 2017 October 30, 2016
  (In thousands)
Derivatives designated as net investment hedges $50,000
 $
Derivatives not designated in a hedging relationship 40,000
 
The forward currency contracts designated as net investment hedges mature in January 2018.
The forward currency contracts not designated in a hedging relationship mature on different dates between November 2017 and December 2017.
Quantitative disclosures about derivative financial instruments
The Company presents its derivative assets and derivative liabilities at their gross fair values within other 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 October 29, 2017,30, 2022, there were derivative assets of $1.2$46.8 million and derivative liabilities of $1.5$24.9 million subject to enforceable netting arrangements.
The notional amounts and fair values of forward currency contracts were as follows:
October 30, 2022January 30, 2022
Gross NotionalAssetsLiabilitiesGross NotionalAssetsLiabilities
(In thousands)
Derivatives designated as net investment hedges:
Forward currency contracts$710,000 $24,868 $— $1,502,000 $18,468 $— 
Derivatives not designated in a hedging relationship:
Forward currency contracts1,177,116 21,945 24,857 1,597,878 609 18,985 
Net derivatives recognized on consolidated balance sheets:
Forward currency contracts$46,813 $24,857 $19,077 $18,985 
  October 29, 2017 October 30, 2016
  (In thousands)
Derivatives designated as net investment hedges, recognized within:    
Other current liabilities $2,902
 $
Derivatives not designated in a hedging relationship, recognized within:    
Other prepaid expenses and other current assets 2,319
 
The forward currency contracts designated as net investment hedges outstanding as of October 30, 2022 mature on different dates between November 2022 and August 2023.

The forward currency contracts not designated in a hedging relationship outstanding as of October 30, 2022 mature on different dates between November 2022 and May 2023.
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The pre-tax gains and losses on foreign currency exchange forward contracts recorded in accumulated other comprehensive income and in the consolidated statement of operations, areor loss were as follows:
  Quarter Ended Three Quarters Ended
  October 29, 2017 October 30, 2016 October 29, 2017 October 30, 2016
  (In thousands)
Derivatives designated as net investment hedges:        
Gain (loss) recognized in other comprehensive income $1,424
 $
 $(7,501) $
Derivatives not designated in a hedging relationship:        
(Loss) gain recognized in selling, general and administrative expenses (1,137) 
 6,497
 
Third QuarterFirst Three Quarters
2022202120222021
(In thousands)
Gains (losses) recognized in net investment hedge gains (losses):
Derivatives designated as net investment hedges$34,519 $(9,766)$35,558 $(24,822)
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:
Third QuarterFirst Three Quarters
2022202120222021
(In thousands)
Gains (losses) recognized in selling, general and administrative expenses:
Foreign currency exchange gains (losses)$4,845 $(8,161)$(11,395)$(28,296)
Derivatives not designated in a hedging relationship(11,033)6,511 (3,325)18,758 
Net foreign currency exchange and derivative gains (losses)$(6,188)$(1,650)$(14,720)$(9,538)
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 entered into with large, 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 6. ASSET IMPAIRMENT AND RESTRUCTURING
On June 1, 2017, the Company announced a plan to restructure its ivivva operations. On August 20, 2017, as part of this plan, the Company closed 48 of its 55 ivivva branded company-operated stores. The seven remaining ivivva branded stores remain in operation and are not expected to close. All of the Company's ivivva branded showrooms and other temporary locations have been closed. The Company continues to offer ivivva branded products on its e-commerce websites.
As a result of the closures, the Company recognized aggregate pre-tax charges of $45.4 million during the three quarters ended October 29, 2017. The restructuring was substantially completed during the third quarter of fiscal 2017.

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A summary of the pre-tax charges recognized during the third quarter and the first three quarters of fiscal 2017 in connection with the Company's restructuring of its ivivva operations is as follows:
  Quarter Ended
 October 29, 2017
 Three Quarters Ended
 October 29, 2017
  (In thousands)
Costs recorded in cost of goods sold:    
Provision to reduce inventories to net realizable value $1,934
 $4,838
Loss (reversal of loss) on committed inventory purchases (2,286) 250
Accelerated depreciation 1,530
 3,753
  1,178
 8,841
Costs recorded in operating expenses:    
Lease termination costs 19,441
 19,884
Impairment of property and equipment 
 11,593
Employee related costs 804
 4,000
Other restructuring costs 762
 1,047
Asset impairment and restructuring costs 21,007
 36,524
Restructuring and related costs $22,185
 $45,365
Income tax recoveries of $5.8 million and $11.9 million were recorded on the above items in the third quarter and the first three quarters of fiscal 2017, respectively. These income tax recoveries are based on the expected annual tax rate of the applicable tax jurisdictions.
Costs recorded in cost of goods sold
During the first three quarters of fiscal 2017, the Company recognized expenses of $8.8 million in cost of goods sold as a result of the restructuring of its ivivva operations. This included $4.8 million to reduce inventories to their estimated net realizable value, and $0.3 million for the losses the Company expects to incur on certain firm inventory and fabric purchase commitments. The liability for the expected losses is included within accrued inventory liabilities on the consolidated balance sheets.
During the second and third quarters of fiscal 2017, the Company took delivery of inventory that it had previously committed to purchase. As a result, there was a reduction in the Company's liability for expected losses on committed inventory purchases and a corresponding increase in its provision to reduce inventories to net realizable value.
The Company also recorded accelerated depreciation charges of $3.8 million during the first three quarters of fiscal 2017, primarily related to leasehold improvements and furniture and fixtures for stores that closed during the third quarter of fiscal 2017.
Costs recorded in operating expenses
The Company recognized asset impairment and restructuring costs of $36.5 million during the first three quarters of fiscal 2017 as a result of the restructuring of its ivivva operations.
As a result of the plan to close the majority of the ivivva branded locations, the long-lived assets of each ivivva branded location were tested for impairment as of April 30, 2017. For impaired locations, a loss was recognized representing the difference between the net book value of the long-lived assets and their estimated fair value. Impairment losses totaling $11.6 million were recognized during the first quarter of fiscal 2017. These losses primarily relate to leasehold improvements and furniture and fixtures of the company-operated stores segment. These assets were retired during the third quarter of fiscal 2017 in conjunction with the closures of the company-operated stores.
The fair value of the long-lived assets for each store was determined using Level 3 inputs, principally the present value of the estimated future cash flows expected from their use and eventual disposition.
During the first three quarters of fiscal 2017, the Company recognized employee related expenses as a result of the restructuring of $4.0 million.

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The Company recognized lease termination costs of $19.9 million during the first three quarters of fiscal 2017. As of October 29, 2017, the Company had lease termination liabilities of $12.2 million. During the first three quarters of fiscal 2017, the Company also recognized other restructuring costs of $1.0 million.
NOTE 7. INCOME TAXES
As disclosed in Note 15 to the audited consolidated financial statements included in Item 8 of the Company's fiscal 2016 Annual Report on Form 10-K filed with the SEC on March 29, 2017, the Company finalized a bilateral Advance Pricing Arrangement ("APA") with the Internal Revenue Service ("IRS") and the Canada Revenue Agency ("CRA") during fiscal 2016.
The results for the quarter and three quarters ended October 29, 2017 did not include any discrete items or adjustments related to the APA.
The results for the quarter and three quarters ended October 30, 2016 included net interest expenses of $0.2 million and $1.7 million, respectively, that were recorded in other income (expense), net, and net income tax recoveries of $4.0 million and $11.6 million, respectively, related to the expected outcome of the APA and taxes associated with the anticipated repatriation of foreign earnings.
NOTE 8. EARNINGS PER SHARENote 9. Earnings Per Share
The details of the computation of basic and diluted earnings per share are as follows:
 Quarter Ended Three Quarters EndedThird QuarterFirst Three Quarters
 October 29, 2017 October 30, 2016 October 29, 2017 October 30, 20162022202120222021
 (In thousands, except per share amounts)(In thousands, except per share amounts)
Net income $58,944
 $68,285
 $138,901
 $167,246
Net income$255,470 $187,788 $734,989 $540,818 
Basic weighted-average number of shares outstanding 135,364
 137,033
 136,191
 137,095
Basic weighted-average number of shares outstanding127,511 129,684 127,736 130,019 
Assumed conversion of dilutive stock options and awards 214
 204
 166
 226
Assumed conversion of dilutive stock options and awards309 505 353 538 
Diluted weighted-average number of shares outstanding 135,578
 137,237
 136,357
 137,321
Diluted weighted-average number of shares outstanding127,820 130,189 128,089 130,557 
Basic earnings per share $0.44
 $0.50
 $1.02
 $1.22
Basic earnings per share$2.00 $1.45 $5.75 $4.16 
Diluted earnings per share $0.43
 $0.50
 $1.02
 $1.22
Diluted earnings per share$2.00 $1.44 $5.74 $4.14 
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 equivalent of common shares in all material respects. All classes of stock have, in effect, the same rights and share equally in undistributed net income. For the first three quarters ended October 29, 2017of 2022 and October 30, 2016, 0.2 million2021, 50.1 thousand and 0.1 million48.0 thousand 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 June 11, 2014,January 31, 2019, the Company's board of directors approved a stock repurchase program for up to repurchase shares$500.0 million of the Company's common stock up to an aggregate value of $450.0 million. This stock repurchase program was completed during the second quarter of fiscal 2016.
shares. On December 1, 2016,2020, it approved an increase in the remaining authorization from $263.6 million to $500.0 million, and on October 1, 2021, it approved an increase in the remaining authorization from $141.2 million to $641.2 million. During the first quarter of 2022, the Company completed the remaining stock repurchases under this program.
On March 23, 2022, the Company's board of directors approved a stock repurchase program for up to repurchase shares$1.0 billion of the Company's common stock up to an aggregate value of $100.0 million. The common stock was repurchased inshares 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, with the1934. The timing and actual number of common shares to be repurchased dependingwill depend upon market conditions, eligibility to trade, and other factors. This stock repurchasefactors, in accordance with Securities and Exchange Commission requirements. As of October 30, 2022, the remaining authorized value of shares available to be repurchased under this program was completed during the third quarter of fiscal 2017.$812.5 million.
During the first three quarters ended October 29, 2017of 2022 and October 30, 2016, 1.82021, 1.2 million and 0.41.4 million shares, respectively, were repurchased under the program at a total cost of $99.3$375.0 million and $28.6$491.3 million, respectively.
Subsequent to October 30, 2022, and up to December 2, 2022, 9.2 thousand shares were repurchased at a total cost of $3.4 million.
NOTE 9. SUPPLEMENTARY FINANCIAL INFORMATION
For the quarters ended October 29, 2017 and October 30, 2016, there were net foreign exchange and derivative revaluation gains of $2.7 million and $4.3 million, respectively, included within selling, general and administrative expenses.
For the three quarters ended October 29, 2017 and October 30, 2016, there were net foreign exchange and derivative revaluation gains of $6.9 million and losses of $4.1 million, respectively, included within selling, general and administrative expenses.

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Note 10. Supplementary Financial Information
A summary of certain consolidated balance sheet accounts is as follows:
October 30,
2022
January 30,
2022
(In thousands)
Inventories:
Inventories, at cost$1,815,410 $1,004,526 
Provision to reduce inventories to net realizable value(73,694)(38,045)
$1,741,716 $966,481 
Prepaid expenses and other current assets:
Prepaid inventories$18 $42,691 
Other prepaid expenses136,608 98,254 
Forward currency contract assets46,813 19,077 
Other current assets63,838 32,550 
$247,277 $192,572 
Property and equipment, net:
Land$69,244 $74,297 
Buildings26,834 30,880 
Leasehold improvements743,770 676,762 
Furniture and fixtures133,120 125,213 
Computer hardware148,933 130,393 
Computer software682,674 532,819 
Equipment and vehicles27,734 23,060 
Work in progress208,631 163,420 
Property and equipment, gross2,040,940 1,756,844 
Accumulated depreciation(918,450)(829,134)
$1,122,490 $927,710 
  October 29,
2017
 January 29,
2017
  (In thousands)
Inventories:    
Finished goods $412,648
 $306,087
Provision to reduce inventories to net realizable value (15,756) (7,655)
  $396,892
 $298,432
Property and equipment, net:    
Land $79,852
 $78,561
Buildings 38,144
 32,174
Leasehold improvements 289,775
 273,801
Furniture and fixtures 88,545
 84,479
Computer hardware 63,882
 58,270
Computer software 199,601
 160,835
Equipment and vehicles 14,858
 13,704
Accumulated depreciation and impairment (334,254) (278,325)
  $440,403
 $423,499
Goodwill and intangible assets, net:    
Goodwill $25,496
 $25,496
Changes in foreign currency exchange rates (1,156) (1,263)
  24,340
 24,233
Intangibles - reacquired franchise rights 10,150
 10,150
Accumulated amortization (10,009) (9,807)
Changes in foreign currency exchange rates (5) (19)
  136
 324
  $24,476
 $24,557
Other non-current assets:    
Security deposits $10,484
 $9,009
Deferred lease assets 10,099
 10,560
Other 9,056
 923
  $29,639
 $20,492
Other current liabilities:    
Accrued duty, freight, and other operating expenses $42,923
 $27,477
Sales tax collected 11,686
 10,182
Accrued rent 5,620
 5,562
Other 11,361
 9,340
  $71,590
 $52,561
Other non-current liabilities:    
Deferred lease liabilities $26,763
 $26,648
Tenant inducements 26,199
 21,668
Other 5,634
 
  $58,596
 $48,316
As of October 29, 2017, as a result of the restructuring of its ivivva operations, the Company had a provision of $4.8 million to reduce the carrying value of certain ivivva branded finished goods inventories to their estimated net realizable value. In addition, the Company had a liability for the losses it expects to incur on certain firm inventory and fabric purchase commitments of $0.3 million. This liability is included within accrued inventory liabilities on the consolidated balance sheets.

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October 30,
2022
January 30,
2022
(In thousands)
Other non-current assets:
Cloud computing arrangement implementation costs$105,217 $89,334 
Security deposits26,608 24,083 
Other17,432 18,685 
$149,257 $132,102 
Accrued liabilities and other:
Accrued operating expenses$146,342 $116,822 
Accrued freight50,256 71,390 
Sales return allowances45,929 41,690 
Accrued duty37,188 27,182 
Forward currency contract liabilities24,857 18,985 
Sales tax collected10,521 13,540 
Accrued rent11,687 11,254 
Accrued capital expenditures13,685 9,616 
Accrued inventory liabilities7,587 4,005 
Other9,313 16,316 
$357,365 $330,800 
Please refer to
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Note 6 of these unaudited interim consolidated financial statements for further details regarding the ivivva restructuring plans, including impairment of property and equipment, net which was recorded during the first quarter of fiscal 2017.11. Segmented Information
NOTE 10. SEGMENT REPORTING
The Company applies ASC Topic 280, Segment Reporting ("ASC 280"), in determining reportableCompany's segments for its financial statement disclosure. The Company reports segmentsare based on the financial information it uses in managing its business. The Company'sbusiness and comprise two reportable segments are comprised ofsegments: (i) company-operated stores and (ii) direct to consumer. Direct to consumer represents sales from the Company's e-commerce websites. Outlets, showrooms,The remainder of its operations which includes outlets, temporary locations, lululemon Studio, sales to wholesale accounts, license and supply arrangements, and warehouse sale net revenue have been combined into other. Information for these segments is detailed in the table below:recommerce are included within Other.
Third QuarterFirst Three Quarters
2022202120222021
(In thousands)
Net revenue:
Company-operated stores$903,060 $707,160 $2,537,741 $1,938,864 
Direct to consumer767,351 586,525 2,264,029 1,729,040 
Other186,478 156,736 536,910 459,600 
$1,856,889 $1,450,421 $5,338,680 $4,127,504 
Segmented income from operations:
Company-operated stores$242,733 $180,700 $660,246 $464,844 
Direct to consumer321,742 257,050 933,272 754,231 
Other24,911 27,450 74,064 64,196 
589,386 465,200 1,667,582 1,283,271 
General corporate expense234,770 180,931 657,201 493,953 
Amortization of intangible assets2,189 2,195 6,579 6,585 
Acquisition-related expenses— 24,127 — 39,934 
Gain on disposal of assets— — (10,180)— 
Income from operations352,427 257,947 1,013,982 742,799 
Other income (expense), net331 15 454 338 
Income before income tax expense$352,758 $257,962 $1,014,436 $743,137 
Capital expenditures:
Company-operated stores$96,509 $65,665 $182,360 $112,886 
Direct to consumer15,173 19,163 42,515 62,646 
Corporate and other63,925 37,669 206,802 91,459 
$175,607 $122,497 $431,677 $266,991 
Depreciation and amortization:
Company-operated stores$33,482 $30,135 $96,807 $85,239 
Direct to consumer9,805 8,084 27,281 20,668 
Corporate and other35,901 19,744 87,541 56,179 
$79,188 $57,963 $211,629 $162,086 
18
  Quarter Ended Three Quarters Ended
  October 29, 2017 October 30, 2016 October 29, 2017 October 30, 2016
  (In thousands)
Net revenue:        
Company-operated stores $425,084
 $393,506
 $1,218,127
 $1,133,599
Direct to consumer 131,181
 104,013
 341,453
 288,978
Other 62,753
 46,897
 160,799
 131,875
  $619,018
 $544,416
 $1,720,379
 $1,554,452
Income from operations before general corporate expense:        
Company-operated stores $97,015
 $91,497
 $267,178
 $245,056
Direct to consumer 52,201
 43,588
 127,746
 114,744
Other 9,319
 5,709
 19,076
 12,430
  158,535
 140,794
 414,000
 372,230
General corporate expense 50,762
 47,819
 168,912
 147,707
Restructuring and related costs 22,185
 
 45,365
 
Income from operations 85,588
 92,975
 199,723
 224,523
Other income (expense), net 1,052
 628
 2,771
 720
Income before income tax expense $86,640
 $93,603
 $202,494
 $225,243
         
Capital expenditures:        
Company-operated stores $29,747
 $18,932
 $53,549
 $47,197
Direct to consumer 7,582
 3,711
 16,423
 9,425
Corporate and other 19,910
 12,263
 37,156
 49,546
  $57,239
 $34,906
 $107,128
 $106,168
Depreciation and amortization:        
Company-operated stores $16,549
 $15,735
 $47,630
 $44,030
Direct to consumer 3,740
 1,854
 10,087
 4,908
Corporate and other 8,271
 6,370
 22,412
 14,703
  $28,560
 $23,959
 $80,129
 $63,641
The accelerated depreciation related to the restructuring of the ivivva operations is included in corporate and other in the above breakdown of depreciation and amortization.

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Note 12. Net Revenue by Geography and Category
NOTE 11. LEGAL PROCEEDINGSThe following table disaggregates the Company's net revenue by geographic area.
Third QuarterFirst Three Quarters
2022202120222021
(In thousands)
United States$1,268,512 $982,238 $3,645,202 $2,828,144 
Canada271,823 244,061 785,389 628,292 
Outside of North America316,554 224,122 908,089 671,068 
$1,856,889 $1,450,421 $5,338,680 $4,127,504 
In addition to the disaggregation of net revenue by reportable segment, the following table disaggregates the Company's net revenue by category. Other categories is primarily composed of accessories, lululemon Studio, and footwear.
Third QuarterFirst Three Quarters
2022202120222021
(In thousands)
Women's product$1,204,835 $984,952 $3,484,395 $2,803,548 
Men's product440,564 343,263 1,276,872 980,633 
Other categories211,490 122,206 577,413 343,323 
$1,856,889 $1,450,421 $5,338,680 $4,127,504 
Note 13. Legal Proceedings and Other Contingencies
In addition to the legal matterproceedings described below, 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, includingbusiness. This includes legal matters such as initiation and defense of proceedings to protect intellectual property rights, personal injury claims, product liability claims, employment claims, and similar matters. The Company believes the ultimate resolution of any such current proceedinglegal 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.
On October 9, 2015, certain currentIn April 2021, DISH Technologies L.L.C., and former hourly employees of the CompanySling TV L.L.C. (DISH) filed a class action lawsuitcomplaint in the Supreme Court of New York entitled Rebecca Gathmann-Landini et al v. lululemon USA inc. On December 2, 2015, the case was moved to the United States District Court for the Eastern District of New York. The lawsuit alleges thatDelaware and, along with DISH DBS Corporation, also with the United States International Trade Commission (ITC) under Section 337 of the Tariff Act of 1930 against the Company violatedand its Curiouser Products subsidiary (MIRROR), along with ICON Health & Fitness, Inc., FreeMotion Fitness, Inc., NordicTrack, Inc., and Peloton Interactive, Inc., alleging infringement of various New York labor codes by failingpatents related to pay all earned wages, including overtime compensation. The plaintiffs arefitness devices containing internet-streaming enabled video displays. In the ITC complaint, DISH seeks an exclusion order barring the importation of MIRROR fitness devices, streaming components and systems containing components that infringe one or more of the asserted patents as well as a cease and desist order preventing the Company from carrying out commercial activities within the United States related to those products. In the District of Delaware complaint, DISH is seeking an unspecified amountorder permanently enjoining the Company from infringing the asserted patents, an award of damages.damages for the infringement of the asserted patents, and an award of damages for lost sales. In the ITC investigation, an Administrative Law Judge has issued an Initial Determination recommending an Exclusion Order and Cease and Desist Order be entered against the Company. The Company intends to vigorously defend this matter.
NOTE 12. SUBSEQUENT EVENT
The Company evaluates events or transactions that occur after the balance sheet date throughhas filed a petition to the date whichITC contesting the financial statements are issued, for potential recognition or disclosure in its unaudited interim consolidated financial statements in accordance with ASC Topic 855, Subsequent Events ("ASC 855").Initial Determination. The Delaware litigation remains stayed pending resolution to the ITC investigation.
On November 29, 2017, the Company's board of directors approved a stock repurchase program for up to $200 million of its common shares 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. 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, and the repurchase program is expected to be completed in two years. Shares may be repurchased from time to time on the open market, through block trades or otherwise. Purchases may be started or stopped at any time without prior notice depending on market conditions and other factors.
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 Private Securities Litigation ReformExchange Act of 1995.1934. 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
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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 20162021 Annual Report on Form 10-K filed with the SEC on March 29, 2017.2022. Fiscal 2022 and fiscal 2021 are referred to as "2022," and "2021," respectively. The first three quarters of 2022 and 2021 ended on October 30, 2022 and October 31, 2021, respectively. Components of management's discussion and analysis of financial condition and results of operations include:

Overview
Financial Highlights and Market Conditions and Trends
18

TableQuarter-to-Date Results of ContentsOperations

Year-to-Date Results of Operations

Comparable Store Sales and Total Comparable Sales
Non-GAAP Financial Measures
Seasonality
Liquidity and Capital Resources
Critical Accounting Policies and Estimates
Operating Locations
We disclose material non-public information through one or more of the following channels: our investor relations website (http://investor.lululemon.com/)corporate.lululemon.com/investors), the social media channels identified on our investor relations website, press releases, SEC filings, public conference calls, and webcasts.
Overview
lululemon athletica inc. is principally a designer, distributor, and retailer of healthy lifestyle inspiredtechnical athletic apparel.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 developedfostered a distinctive corporate culture, andculture; we have a mission to produce products which create transformational experiences for people to live happy, healthy, fun lives. We promote a set of core values in our business which include taking personal responsibility, nurturing entrepreneurial spirit, acting with honesty and courage, valuing connection and inclusion, and choosing to have fun. These core values attract passionate and motivated employees who are driven to succeedachieve personal and professional goals, and share our purpose of "elevating"to elevate human potential by helping people feel their best."
Our performance apparel and footwear are marketed under the world from mediocrity to greatness."
lululemon brand. We offer a comprehensive line of apparel and accessories for women and men. We also offer activewear for girls under our ivivva brand name.accessories. Our apparel assortment includes items such as pants, shorts, tops, and jackets designed for a healthy lifestyle andincluding athletic activities such as yoga, running, training, and most other sweaty pursuits.activities. We also offer apparel designed for being On the Move and fitness-related accessories, including an array of items such as bags, socks, underwear, yoga mats,accessories. We expect to continue to broaden our merchandise offerings through expansion across these product areas. We also offer in-home connected fitness equipment and water bottles.
On June 1, 2017, we announced a plan to restructureassociated subscriptions through lululemon Studio, which evolved from our ivivva operations to a primarily e-commerce focusedformer business with a select number of stores remaining in key communities across North America. The restructuring was substantially completedunit called MIRROR during the third quarter of fiscal 2017. On August 20, 2017, as a part of the restructuring plan, we closed 48 of our 55 ivivva branded company-operated stores. The seven remaining ivivva branded stores remain in operation and are not expected to close. All of our ivivva branded showrooms and other temporary locations have been closed. We continue to offer ivivva branded products on our e-commerce websites.2022.
Financial Highlights
The summary below provides both GAAP and adjusted non-GAAP financial measures. In connection with the restructuring of our ivivva operations, we recognized pre-tax costs totaling $22.2 million in the third quarter of fiscal 2017. The adjusted financial measures exclude these charges and their related tax effects, and also exclude certain discrete items related to our transfer pricing arrangements and taxes on repatriation of foreign earnings which were recognized during the third quarter of fiscal 2016.
For the third quarter of fiscal 2017,2022, compared to the third quarter of fiscal 2016:2021:
Net revenue increased 14%28% to $619.0 million.$1.9 billion. On a constant dollar basis, net revenue increased 12%31%.
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Total comparable sales which includes comparable store sales and direct to consumer, increased 8%. On22%, or 25% on a constant dollar basis, total comparablebasis.
Comparable store sales increased 7%.14%, or 17% on a constant dollar basis.
Comparable store sales increased 2%, or increased 1% on a constant dollar basis.
Direct to consumer net revenue increased 26%, or increased 25% on a constant dollar basis.
Direct to consumer net revenue increased 31%, or 34% on a constant dollar basis.
Gross profit increased 16%25% to $322.0 million. Adjusted gross profit increased 16% to $323.1 million.$1.0 billion.
Gross margin increased 90decreased 130 basis points to 52.0%55.9%. Adjusted gross
Income from operations increased 37% to $352.4 million.
Operating margin increased 110120 basis points to 52.2%19.0%.
Income from operations decreased 8% to $85.6 million. Adjusted income from operations increased 16% to $107.8 million.
Operating margin decreased 330 basis points to 13.8%. Adjusted operating margin increased 30 basis points to 17.4%.
Income tax expense increased 9%39% to $27.7$97.3 million. Our effective tax rate for the third quarter of fiscal 20172022 was 32.0%27.6% compared to 27.0%27.2% for the third quarter of fiscal 2016. The adjusted effective tax rate was 30.8%2021.
Diluted earnings per share were $2.00 compared to $1.44 in the third quarter of fiscal 2017 compared to 31.3% in the2021. The third quarter of fiscal 2016.
Diluted earnings per share were $0.43 compared2021 includes $23.5 million of after-tax costs related to $0.50 in the third quarter of fiscal 2016. AdjustedMIRROR acquisition, which reduced diluted earnings per share were $0.56 for the third quarter of fiscal 2017 compared to $0.47 for the third quarter of fiscal 2016.by $0.18.
Refer to the non-GAAP reconciliation tables contained in the "Results of Operations""Non-GAAP Financial Measures" section of this "ItemItem 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" for reconciliations between constant dollar changes in net revenue, total comparable sales, comparable store sales, and direct to consumer net revenue and adjusted

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gross profit, gross margin, income from operations, operating margin, effective tax rates, and diluted earnings per share, and the most directly comparable measures calculated in accordance with GAAP.
Market Conditions and Trends
Macroeconomic conditions, COVID-19, and supply chain disruption continue to impact our business and operating costs, with the impact varying by market.
Macroeconomic Conditions
Macroeconomic conditions, including foreign currency fluctuations and inflationary pressures have impacted our financial results. This includes higher air freight costs and increased wage rates during the first three quarters of 2022 compared to 2021. We have not increased the retail prices on the significant proportion of our products. Inflation and other macroeconomic factors could also impact consumer purchasing behaviors and sustained increases in costs may have an adverse effect on our operating margins.
COVID-19 Pandemic
Most of our retail locations were open throughout the first three quarters of 2022 and 2021, with certain locations temporarily closed due to COVID-19 resurgences, including certain closures during 2022 in the People's Republic of China ("PRC").
Supply chain disruption
In 2021 and 2022 we have experienced supply chain disruption, including delays in inbound delivery of our products as well as in manufacturing. This supply chain disruption caused us to use higher cost modes of transport, including increasing our use of air freight. The supply chain disruption we have experienced has contributed to the 85% increase in our inventory balance compared to October 31, 2021. We expect that the growth rate in our inventory balance will moderate in the fourth quarter of 2022 as a result of higher sales made during the holiday season, but expect the growth rate in our inventories to remain higher than the growth rate in our sales.
The use of air freight reduced our gross margin during the first three quarters of 2022, however we have begun to see improvement in the supply chain disruption and lower inbound freight costs.
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Quarter-to-Date Results of Operations
Operations: Third Quarter Results
The following table summarizes key components of our results of operations for the quarters ended October 29, 2017 and October 30, 2016. The percentages are presented as a percentage of net revenue.periods indicated:
 Quarter Ended Third Quarter
 October 29, 2017 October 30, 2016
October 29, 2017 October 30, 2016 2022202120222021
 (In thousands) (Percentages) (In thousands)(Percentage of net revenue)
Net revenue $619,018
 $544,416
 100.0% 100.0%Net revenue$1,856,889 $1,450,421 100.0 %100.0 %
Cost of goods sold 297,056
 265,990
 48.0
 48.9
Cost of goods sold818,037 621,028 44.1 42.8 
Gross profit 321,962
 278,426
 52.0
 51.1
Gross profit1,038,852 829,393 55.9 57.2 
Selling, general and administrative expenses 215,367
 185,451
 34.8
 34.1
Selling, general and administrative expenses684,236 545,124 36.8 37.6 
Asset impairment and restructuring costs 21,007
 
 3.4
 
Amortization of intangible assetsAmortization of intangible assets2,189 2,195 0.1 0.2 
Acquisition-related expensesAcquisition-related expenses— 24,127 — 1.7 
Income from operations 85,588
 92,975
 13.8
 17.1
Income from operations352,427 257,947 19.0 17.8 
Other income (expense), net 1,052
 628
 0.2
 0.1
Other income (expense), net331 15 — — 
Income before income tax expense 86,640
 93,603
 14.0
 17.2
Income before income tax expense352,758 257,962 19.0 17.8 
Income tax expense 27,696
 25,318
 4.5
 4.7
Income tax expense97,288 70,174 5.2 4.8 
Net income $58,944
 $68,285
 9.5% 12.5%Net income$255,470 $187,788 13.8 %12.9 %
Net Revenue
Net revenue increased $74.6$406.5 million, or 14%28%, to $619.0 million$1.9 billion for the third quarter of fiscal 20172022 from $544.4 million$1.5 billion for the third quarter of fiscal 2016.2021. On a constant dollar basis, assuming the average foreign currency exchange rates for the third quarter of fiscal 20172022 remained constant with the average foreign currency exchange rates for the third quarter of fiscal 2016,2021, net revenue increased $67.8$455.4 million, or 12%31%.
The increase in net revenue was primarily due to increased company-operated store net revenue, generated byincluding from new company-operated stores and increased comparable store sales, as well as due to increased direct to consumer net revenue. Other net revenue also increased.
Total comparable sales, which includes comparable store sales and direct to consumer net revenue, increased 8% in22% for the third quarter of fiscal 20172022 compared to the third quarter of fiscal 2016.2021. Total comparable sales increased 7%25% on a constant dollar basis.
Net revenue on a segment basis for the quarters ended October 29, 2017 and October 30, 2016 is summarized below. The percentages are presented as a percentage of total net revenue.
  Quarter Ended
  October 29, 2017 October 30, 2016 October 29, 2017 October 30, 2016
  (In thousands) (Percentages)
Company-operated stores $425,084
 $393,506
 68.7% 72.3%
Direct to consumer 131,181
 104,013
 21.2
 19.1
Other 62,753
 46,897
 10.1
 8.6
Net revenue $619,018
 $544,416
 100.0% 100.0%
Company-Operated Stores. Net revenue from our company-operated stores segment increased $31.6 million, or 8%, to $425.1 million in the third quarter of fiscal 2017 from $393.5 million in the third quarter of fiscal 2016.2022 and 2021 is summarized below.
 Third Quarter
 2022202120222021Year over year change
 (In thousands)(Percentages)(In thousands)(Percentages)
Company-operated stores$903,060 $707,160 48.6 %48.8 %$195,900 27.7 %
Direct to consumer767,351 586,525 41.3 40.4 180,826 30.8 
Other186,478 156,736 10.0 10.8 29,742 19.0 
Net revenue$1,856,889 $1,450,421 100.0 %100.0 %$406,468 28.0 %
Company-Operated Stores. The following contributed to the increase in net revenue from our company-operated stores segment:
Netwas driven by net revenue from company-operated stores that we opened or significantly expanded subsequent to October 30, 2016, and therefore not included in comparable store sales,since the third quarter of 2021 which contributed $33.7$112.8 million to the increase. We have opened 4671 net new lululemon branded company-operated stores since the third quarter of fiscal 2016,2021, including 3043 stores in Asia Pacific, 19 stores in North America, 13and nine stores in Asia Pacific, and threeEurope. The increase in net revenue from our company-operated stores in Europe.

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Awas also driven by increased comparable store sales increase of 2% in the third quarter of fiscal 2017 compared to the third quarter of fiscal 2016 resulted in a $6.6 million increase to net revenue.sales. Comparable store sales increased 1%14%, or $3.0 million17% on a constant dollar basis. The increase in comparable store sales was primarily a result of improved conversion ratesincreased store traffic and increased dollar value per transaction, partially offset by a decrease in conversion rates.
Direct to Consumer. Direct to consumer net revenue increased 31%, or 34% on a constant dollar basis. The increase in net revenue from our direct to consumer segment was primarily a result of increased traffic, partially offset by a decrease in conversion rates and a lower dollar value per transaction. This
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Other. The increase in other net revenue was primarily due to increased outlet sales, sales to wholesale accounts, recommerce revenue, license and supply arrangement revenue, and revenue from our pop up locations. The increase in net revenue was partially offset by a decrease in store traffic, due in part to shifting retail traffic trends from in-store to online.
The closure of 48 of our ivivva branded company-operated stores as part of the restructuring of our ivivva operations in the third quarter of fiscal 2017 reduced our net revenue from company-operated stores by $8.8 million compared to the third quarter of fiscal 2016.
Direct to Consumer. Net revenue from our direct to consumer segment increased $27.2 million, or 26%, to $131.2 million in the third quarter of fiscal 2017 from $104.0 million in the third quarter of fiscal 2016. Direct to consumer net revenue increased 25% on a constant dollar basis. This was primarily a result of increased website traffic, increased dollar value per transaction, and improved conversion rates.
Other. Net revenue from our other segment increased $15.9 million, or 34%, to $62.7 million in the third quarter of fiscal 2017 from $46.9 million in the third quarter of fiscal 2016. This increase was primarily the result of an increased number of outlets and increased net revenue at existing outlets during the third quarter of fiscal 2017 compared to the third quarter of fiscal 2016. There was also an increase in net revenue from warehouse sales and temporary locations. The increase in net revenue from our other segment was partially offset by lower net revenue from showrooms, primarily due to a decreased number of showrooms open during the third quarter of fiscal 2017 compared to the third quarter of fiscal 2016.lululemon Studio.
Gross Profit
Gross profit increased $43.5 million, or 16%, to $322.0 million for the third quarter of fiscal 2017 from $278.4 million for the third quarter of fiscal 2016.
Third Quarter
20222021Year over year change
(In thousands)(In thousands)(Percentage)
Gross profit$1,038,852 $829,393 $209,459 25.3 %
Gross margin55.9 %57.2 %(130) basis points
Gross profit as a percentage of net revenue, or gross margin, increased 90 basis points to 52.0% in the third quarter of fiscal 2017 from 51.1% in the third quarter of fiscal 2016. The increasedecrease in gross margin was primarily the result of:
an increase in product margin of 70 basis points which was primarily due to a favorable mix of higher margin product and lower product costs, partially offset by higher markdowns;
a decrease in fixed costs, including occupancy and depreciation costs and costs related to our product departments and supply chain departments,distribution centers as a percentage of 20net revenue of 70 basis points;
an unfavorable impact of foreign currency exchange rates of 60 basis points; and
a favorable impactnet decrease in product margin of foreign exchange rates of 2040 basis points.
points, primarily due to higher markdowns as well as higher damages, shrink and a reduction in inventory provisions in the prior year. This was partially offset by acceleratedlower air freight costs from rate reductions and reduced usage.
The decrease in gross margin was partially offset by a decrease in occupancy and depreciation charges related to the restructuring of our ivivva operations of 20 basis points.
During the third quarter of fiscal 2017,costs as a resultpercentage of the restructuringnet revenue of our ivivva operations, we recognized costs totaling $1.2 million within costs of goods sold, as outlined in Note 6 to the unaudited interim consolidated financial statements included in Item 1 of Part I of this report. These costs primarily related to accelerated depreciation on leasehold improvements and furniture and fittings for stores which were closed during the third quarter of fiscal 2017. Excluding these charges, adjusted gross profit increased 16% to $323.1 million, and adjusted gross margin increased 11040 basis points, to 52.2% compared todriven primarily by the third quarter of fiscal 2016.increase in net revenue.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $29.9 million, or 16%, to $215.4 million in the third quarter of fiscal 2017 from $185.5 million in the third quarter of fiscal 2016.
Third Quarter
20222021Year over year change
(In thousands)(In thousands)(Percentage)
Selling, general and administrative expenses$684,236 $545,124 $139,112 25.5 %
Selling, general and administrative expenses as a percentage of net revenue36.8 %37.6 %(80) basis points
The increase in selling, general and administrative expenses was primarily due to:
an increase in costs related to our operating channels of $25.3$72.0 million, comprised of:
an increase in employee costs of $7.7 million primarily from a growth in labor hours and benefits, mainly associated with new company-operated stores and other new operating locations;
an increase in variable costs of $3.7 million primarily due to an increase in credit card fees and packaging costs as a result of increased net revenue; and
an increase in other costs of $13.9 million primarily due to an increase in digital marketing expenses, website related costs including photography costs, brand and community costs, and other costs associated with our operating locations;

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Tablean increase in variable costs of Contents$27.6 million primarily due to an increase in distribution costs and credit card fees, as a result of increased net revenue;

an increase in employee costs of $26.9 million primarily due to an increase in salaries and wages expense and incentive compensation in our company-operated stores and direct to consumer channels, primarily from the growth in our business as well as increased wage rates;

an increase in brand and community costs of $12.8 million primarily due to an increase in digital marketing expenses related to our direct to consumer channel, partially offset by a decrease in marketing expenses related to lululemon Studio; and
an increase in other operating costs of $4.7 million primarily due to increased repairs and maintenance costs, depreciation, and technology costs, partially offset by a decrease in professional fees.
an increase in head office costs of $3.1$62.6 million, comprised of:
an increase in employee costs of $33.9 million primarily due to an increase in salaries and wages and incentive compensation, primarily as a result of headcount growth and increased wage rates, and due to increased travel costs; and
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an increase in other costs of $28.7 million primarily due to an increase in depreciation, technology costs, and professional fees, partially offset by lower charitable donations as a result of timing.
an increase in employee costs of $2.1 million primarily due to additional employees to support the growth in our business; and
an increase in other costs of $1.0 million primarily due to increases in information technology related costs, an increase in brand and community costs, partially offset by a decrease in professional fees; and
a decrease in net foreign currency exchange and derivative revaluation gainslosses of $1.6$4.5 million. There were net foreign exchange
Amortization of Intangible Assets
Third Quarter
20222021Year over year change
(In thousands)(In thousands)(Percentage)
Amortization of intangible assets$2,189 $2,195 $(6)(0.3)%
The amortization of intangible assets was primarily the result of the amortization of intangible assets recognized upon the acquisition of MIRROR.
Acquisition-Related Expenses
Third Quarter
20222021Year over year change
(In thousands)(In thousands)(Percentage)
Acquisition-related expenses$— $24,127 $(24,127)(100.0)%
In connection with our acquisition of MIRROR, we recognized acquisition-related compensation expenses of $23.8 million and derivative revaluation gainsintegration related costs of $2.7$0.3 million in the third quarter of fiscal 2017 compared to net foreign exchange revaluation gains of $4.3 million2021. There were no acquisition-related expenses in the third quarter of fiscal 2016. The net foreign exchange gains and losses primarily relate to the revaluation of U.S. dollar denominated monetary assets and liabilities held by Canadian subsidiaries, and the derivatives are designed to economically hedge these gains and losses.
As a percentage of net revenue, selling, general and administrative expenses increased 70 basis points, to 34.8% in the third quarter of fiscal 2017 from 34.1% in the third quarter of fiscal 2016.
Asset Impairment and Restructuring Costs
As a result of the restructuring of our ivivva operations, we recognized restructuring costs of $21.0 million in the third quarter of fiscal 2017. This included lease termination costs of $19.4 million, employee related costs of $0.8 million, and other restructuring costs of $0.8 million. We did not have any asset impairment and restructuring costs in the third quarter of fiscal 2016. Please refer to Note 6 to the unaudited interim consolidated financial statements included in Item 1 of Part I of this report.2022.
Income from Operations
Income from operations decreased $7.4 million, or 8%, to $85.6 million in the third quarter of fiscal 2017 from $93.0 million in the third quarter of fiscal 2016. Operating margin decreased 330 basis points to 13.8% compared to 17.1% in the third quarter of fiscal 2016.
In connection with the restructuring of our ivivva operations, we recognized pre-tax costs totaling $22.2 million in the third quarter of fiscal 2017. This includes restructuring costs of $21.0 million and costs recognized in cost of goods sold totaling $1.2 million. Excluding these charges, adjusted income from operations increased 16% to $107.8 million and adjusted operating margin increased 30 basis points to 17.4%.
On a segment basis, we determine income from operations without taking into account our general corporate expenses and the costs we incur in connection with the restructuring of our ivivva operations.
expenses. Segmented income from operations for the quarters ended October 29, 2017 and October 30, 2016 is summarized below.
 Third Quarter
 2022202120222021Year over year change
 (In thousands)(Percentage of net revenue of respective operating segment)(In thousands)(Percentage)
Segmented income from operations:
Company-operated stores$242,733 $180,700 26.9 %25.6 %$62,033 34.3 %
Direct to consumer321,742 257,050 41.9 43.8 64,692 25.2 
Other24,911 27,450 13.4 17.5 (2,539)(9.2)
$589,386 $465,200 $124,186 26.7 %
General corporate expense234,770 180,931 53,839 29.8 
Amortization of intangible assets2,189 2,195 (6)— 
Acquisition-related expenses— 24,127 (24,127)(100.0)
Income from operations$352,427 $257,947 $94,480 36.6 %
Operating margin19.0 %17.8 %120 basis points
Company-Operated Stores. The percentages are presented as a percentage of net revenue of the respective operating segments.
  Quarter Ended
  October 29, 2017 October 30, 2016 October 29, 2017 October 30, 2016
  (In thousands) (Percentages)
Company-operated stores $97,015
 $91,497
 22.8% 23.3%
Direct to consumer 52,201
 43,588
 39.8
 41.9
Other 9,319
 5,709
 14.9
 12.2
Segmented income from operations 158,535
 140,794
    
General corporate expense 50,762
 47,819
    
Restructuring and related costs 22,185
 
    
Income from operations $85,588
 $92,975
    
Company-Operated Stores. Incomeincrease in income from operations from our company-operated stores segment increased $5.5 million, or 6%, to $97.0 million for the third quarter of fiscal 2017 from $91.5 million for the third quarter of fiscal 2016. The increase was primarily the result of increased gross profit of $14.5$99.7 million, which was primarily due to increased net revenue. This was partially offsetdriven by an increase in selling, general and administrative expenses, including increased store employee costs, increased brand and community costs, and increased store operating expenses. Income from operations as a percentage of company-operated stores net revenue decreased 50 basis points primarily due to deleverage of selling, general and administrative expenses.

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Direct to Consumer. Income from operations from our direct to consumer segment increased $8.6 million, or 20%, to $52.2 million for the third quarter of fiscal 2017 from $43.6 million for the third quarter of fiscal 2016. The increase was primarily the result of increased gross profit of $21.3 million which was primarily due to increased net revenue and higher gross margin. This was partially offset by anThe increase in selling, generalgross margin was primarily due to leverage on occupancy and administrative expenses including higher digital marketing expenses and website relateddepreciation costs and higher variable costs such as packaging, distribution and credit card fees as a result of higherincreased net revenue. Income from operations as a percentage of direct to consumer net revenue, decreased 210 basis points primarily due to deleverage of selling, general and administrative expenses, partially offset by increased gross margin.
Other. Other incomedeleverage in costs from operations increased $3.6 million, or 63%, to $9.3 million for the third quarterour distribution centers and product teams and by an unfavorable impact of fiscal 2017 from $5.7 million for the third quarter of fiscal 2016. The increase was primarily the result of increased gross profit of $8.8 million which was primarily due to increased net revenue and higher gross margin.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 and operating costs. Employee costs increased primarily due to higher salaries and wages expense and higher incentive compensation as a result of the growth in our business and increased wage rates. Store operating costs increased primarily due to increases in credit card fees and distribution costs, as a result of higher net revenue, as well as increased repairs and maintenance. Income from operations as a percentage of company-operated stores net revenue increased due to leverage on selling, general and administrative expenses and higher gross margin.
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Direct to Consumer. The increase in income from operations from our direct to consumer segment was primarily the result of increased gross profit of $108.5 million, driven by increased net revenue, partially offset by lower gross margin. The decrease in gross margin was primarily due to lower product margin driven by higher markdowns and an unfavorable impact of 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 variable operating costs including increaseddistribution costs and credit card fees, as a result of higher net revenue, as well as higher digital marketing expenses, employee costs from the growth in our business and increased brand and communitywage rates, technology costs, and depreciation. Income from operations as a percentage of direct to consumer net revenue decreased primarily due to lower gross margin and deleverage on selling, general and administrative expenses.
Other. The decrease in income from operations from our other channels was the result of increased other operating costs.selling, general and administrative expenses, primarily due to higher employee costs from the growth in our business and increased wage rates, partially offset by reduced lululemon Studio marketing expenses. The increase in selling, general and administrative expenses was partially offset by increased gross profit of $1.3 million. Income from operations as a percentage of other net revenue decreased primarily due to lower gross margin, partially offset by leverage on selling, general and administrative expenses.
General Corporate Expense. The increase in general corporate expense was primarily due to increased 270 basis pointsemployee costs, primarily from headcount growth and increased wage rates, as well as technology costs, and depreciation, partially offset by decreased charitable donations as a result of timing. The increase in general corporate expense was also due to an increase in net foreign currency exchange and derivative revaluation losses of $4.5 million.
Other Income (Expense), Net
Third Quarter
20222021Year over year change
(In thousands)(In thousands)(Percentage)
Other income (expense), net$331 $15 $316 2,106.7 %
The increase in other income, net was primarily due to an increase in gross margin.interest income from higher interest rates.
General Corporate Expense. General corporate expenseIncome Tax Expense
Third Quarter
20222021Year over year change
(In thousands)(In thousands)(Percentage)
Income tax expense$97,288 $70,174 $27,114 38.6 %
Effective tax rate27.6 %27.2 %40 basis points
Certain non-deductible expenses incurred in connection with the MIRROR acquisition increased $2.9 million, or 6%, to $50.8 million for the third quarter of fiscal 2017 from $47.8 million for the third quarter of fiscal 2016. This increase was primarily due to increases in information technology costs, head office employee costs, and other brand and community costs, partially offset by decreased professional fees. There was also a decrease in net foreign exchange and derivative revaluation gains of $1.6 million. There were net foreign exchange and derivative revaluation gains of $2.7 millioneffective tax rate in the third quarter of fiscal 2017 compared to net foreign exchange revaluation gains of $4.3 million in the third quarter of fiscal 2016. The net foreign exchange gains and losses primarily relate to the revaluation of U.S. dollar denominated monetary assets and liabilities held2021 by Canadian subsidiaries, and the derivatives are designed to economically hedge these gains and losses.
Other Income (Expense), Net
Other income, net increased $0.4 million, or 68%, to $1.1 million for the third quarter of fiscal 2017 from income of $0.6 million for the third quarter of fiscal 2016. The third quarter of fiscal 2016 included a net interest expense of $0.2 million in relation to certain tax adjustments that are outlined in Note 7 to the unaudited interim consolidated financial statements included in Item 1 of Part I of this report.
Income Tax Expense
Income tax expense increased $2.4 million, or 9%, to $27.7 million for the third quarter of fiscal 2017 from $25.3 million for the third quarter of fiscal 2016.
The third quarters of fiscal 2017 and fiscal 2016 included certain adjustments which resulted in net income tax recoveries of $5.8 million and $4.0 million, respectively. As outlined in Notes 6 and 7 to the unaudited interim consolidated financial statements included in Item 1 of Part I of this report, the tax recovery recognized in the third quarter of fiscal 2017 relates to the tax effect of the costs recognized in connection with the ivivva restructuring, and the tax recovery recognized in the third quarter of fiscal 2016 relates to our transfer pricing arrangements and taxes on repatriation of foreign earnings.210 basis points.
The effective tax rate for the third quarter of fiscal 2017 was 32.0% compared to 27.0% for the third quarter of fiscal 2016. The adjusted effective tax rate was 30.8% for the third quarter of fiscal 2017 compared to 31.3% for the third quarter of fiscal 2016. The decrease in the adjusted effective tax rate2022 has increased compared to the third quarter of fiscal 2016 is2021 primarily due to the accrual of withholding taxes on unremitted foreign earnings and a decrease in deductions related to stock-based compensation. This was partially offset by favorable adjustments upon the filing of certain adjustments which were recorded during the third quarter of fiscal 2017 following the finalization of our U.S.income tax return.returns.
Net Income
Net
Third Quarter
20222021Year over year change
(In thousands)(In thousands)(Percentage)
Net income$255,470 $187,788 $67,682 36.0 %
The increase in net income decreased $9.3 million, or 14%, to $58.9 million for the third quarter of fiscal 2017 from $68.3 million for the third quarter of fiscal 2016. This was primarily due to an increase in gross profit of $209.5 million, and a decrease in acquisition-related expenses of $24.1 million, partially offset by an increase in selling, general and administrative expenses of $29.9$139.1 million asset impairment and restructuring costs of $21.0 million, an increase in income tax expense of $2.4 million, partially offset by an increase in gross profit of $43.5 million and an increase in other income (expense), net of $0.4$27.1 million.

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Year-to-Date Results of Operations: First Three Quarters Results
The following table summarizes key components of our results of operations for the first three quarters ended October 29, 2017 and October 30, 2016. The percentages are presented as a percentage of net revenue.periods indicated:
 Three Quarters Ended First Three Quarters
 October 29, 2017 October 30, 2016 October 29, 2017 October 30, 2016 2022202120222021
 (In thousands) (Percentages) (In thousands)(Percentages)
Net revenue $1,720,379
 $1,554,452
 100.0% 100.0%Net revenue$5,338,680 $4,127,504 100.0 %100.0 %
Cost of goods sold 844,100
 782,734
 49.1
 50.4
Cost of goods sold2,373,959 1,755,111 44.5 42.5 
Gross profit 876,279
 771,718
 50.9
 49.6
Gross profit2,964,721 2,372,393 55.5 57.5 
Selling, general and administrative expenses 640,032
 547,195
 37.2
 35.2
Selling, general and administrative expenses1,954,340 1,583,075 36.6 38.4 
Asset impairment and restructuring costs 36,524
 
 2.1
 
Amortization of intangible assetsAmortization of intangible assets6,579 6,585 0.1 0.2 
Acquisition-related expensesAcquisition-related expenses— 39,934 — 1.0 
Gain on disposal of assetsGain on disposal of assets(10,180)— (0.2)— 
Income from operations 199,723
 224,523
 11.6
 14.4
Income from operations1,013,982 742,799 19.0 18.0 
Other income (expense), net 2,771
 720
 0.2
 0.1
Other income (expense), net454 338 — — 
Income before income tax expense 202,494
 225,243
 11.8
 14.5
Income before income tax expense1,014,436 743,137 19.0 18.0 
Income tax expense 63,593
 57,997
 3.7
 3.7
Income tax expense279,447 202,319 5.2 4.9 
Net income $138,901
 $167,246
 8.1% 10.8%Net income$734,989 $540,818 13.8 %13.1 %
Net Revenue
Net revenue increased $165.9 million,$1.2 billion, or 11%29%, to $1.720$5.3 billion for the first three quarters of fiscal 20172022 from $1.554$4.1 billion for the first three quarters of fiscal 2016.2021. On a constant dollar basis, assuming the average foreign currency exchange rates for the first three quarters of fiscal 20172022 remained constant with the average foreign currency exchange rates for the first three quarters of fiscal 2016,2021, net revenue increased $162.9 million,$1.3 billion, or 10%32%.
The increase in net revenue was primarily due to increased company-operated store net revenue, generated byincluding from new company-operated stores and increased comparable store sales, as well as due to increased direct to consumer net revenue. Other net revenue also increased.
Total comparable sales, which includes comparable store sales and direct to consumer net revenue, increased 5% in24% for the first three quarters of fiscal 20172022 compared to the first three quarters of fiscal 2016.2021. Total comparable sales increased 4%26% on a constant dollar basis.
Net revenue on a segment basis for the first three quarters ended October 29, 2017of 2022 and October 30, 20162021 is summarized below. The percentages are presented as a percentage of total net revenue.
 First Three Quarters
 2022202120222021Year over year change
 (In thousands)(Percentages)(In thousands)(Percentage)
Company-operated stores$2,537,741 $1,938,864 47.5 %47.0 %$598,877 30.9 %
Direct to consumer2,264,029 1,729,040 42.4 41.9 534,989 31.0 
Other536,910 459,600 10.1 11.1 77,310 16.8 
Net revenue$5,338,680 $4,127,504 100.0 %100.0 %$1,211,176 29.3 %
  Three Quarters Ended
  October 29, 2017 October 30, 2016 October 29, 2017 October 30, 2016
  (In thousands) (Percentages)
Company-operated stores $1,218,127
 $1,133,599
 70.8% 72.9%
Direct to consumer 341,453
 288,978
 19.8
 18.6
Other 160,799
 131,875
 9.4
 8.5
Net revenue $1,720,379
 $1,554,452
 100.0% 100.0%
Company-Operated Stores. Net revenue from our company-operated stores segment increased $84.5 million, or 7%, to $1.218 billion in the first three quarters of fiscal 2017 from $1.134 billion in the first three quarters of fiscal 2016. The following contributed to the increase in net revenue from our company-operated stores segment:
Netwas driven by net revenue from company-operated stores that we opened or significantly expanded subsequent to October 30, 2016, and therefore not included in comparable store sales,since the third quarter of 2021 which contributed $89.0$322.7 million to the increase. We have opened 4671 net new lululemon branded company-operated stores since the third quarter of fiscal 2016,2021, including 3043 stores in Asia Pacific, 19 stores in North America, 13and nine stores in Asia Pacific, and threeEurope. The increase in net revenue from our company-operated stores in Europe.
Awas also driven by increased comparable store sales increase of 1% in the first three quarters of fiscal 2017 compared to the first three quarters of fiscal 2016 which resulted in a $4.3 million increase to net revenue.sales. Comparable store sales increased 1%17%, or $2.3 million19% on a constant dollar basis. The increase in comparable store sales was primarily a result of increased store traffic, partially offset by a decrease in conversion rates. Dollar value per transaction was consistent year over year.
Direct to Consumer. Direct to consumer net revenue increased 31%, or 33% on a constant dollar basis. The increasein net revenue from our direct to consumer segment was primarily a result of increased traffic, partially offset by a decrease in conversion rates and a lower dollar value per transactiontransaction.
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Other. The increase in other net revenue was primarily due to increased outlet sales, sales to wholesale accounts, license and improved conversion rates. Thissupply arrangement revenue, recommerce revenue, and revenue from our pop up locations. The increase in net revenue was partially offset by a decrease in store traffic, due in part to shifting retail traffic trends from in-store to online.

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The closure of 48 of our ivivva branded company-operated stores as part of the restructuring of our ivivva operations in the third quarter of fiscal 2017 reduced our net revenue from company-operated stores by $8.8 million compared to the first three quarters of fiscal 2016.
Direct to Consumer. Net revenue from our direct to consumer segment increased $52.5 million, or 18%, to $341.5 million in the first three quarters of fiscal 2017 from $289.0 million in the first three quarters of fiscal 2016. Direct to consumer net revenue increased 18% on a constant dollar basis. This was primarily a result of increased website traffic and increased dollar value per transaction, partially offset by lower conversion rates. During the second quarter of fiscal 2017, we held online warehouse sales in the United States and Canada which generated net revenue of $12.3 million. We did not hold any online warehouse sales during the first three quarters of fiscal 2016. Excluding the impact of the online warehouse sales, direct to consumer net revenue increased 14%.
Other. Net revenue from our other segment increased $28.9 million, or 22%, to $160.8 million in the first three quarters of fiscal 2017 from $131.9 million in the first three quarters of fiscal 2016. This increase was primarily the result of increased net revenue at existing outlets, and an increased number of outlets and temporary locations open during the first three quarters of fiscal 2017 compared to the first three quarters of fiscal 2016. The increase in net revenue from our other segment was partially offset by lower net revenue from showrooms, primarily due a decreased number of showrooms open during the first three quarters of fiscal 2017 compared to the first three quarters of fiscal 2016.lululemon Studio.
Gross Profit
Gross profit increased $104.6 million, or 14%, to $876.3 million for the first three quarters of fiscal 2017 from $771.7 million for the first three quarters of fiscal 2016.
First Three Quarters
20222021Year over year change
(In thousands)(In thousands)(Percentage)
Gross profit$2,964,721 $2,372,393 $592,328 25.0 %
Gross margin55.5 %57.5 %(200) basis points
Gross profit as a percentage of net revenue, or gross margin, increased 130 basis points, to 50.9% in the first three quarters of fiscal 2017 from 49.6% in the first three quarters of fiscal 2016. The increasedecrease in gross margin was primarily the result of:
an increasea decrease in product margin of 230180 basis points, which was primarily due to higher markdowns and higher air freight costs as a favorable mixresult of higher margin product and lower product costs, partially offset by higher markdowns; andglobal supply chain disruption;
a favorable impact of foreign exchange rates of 10 basis points.
This was partially offset by an increase in fixed costs, including occupancy and depreciation costs, and costs related to our product departments and supply chain departments,distribution centers as a percentage of net revenue of 40 basis points; and
an unfavorable impact of foreign currency exchange rates of 40 basis points.
The decrease in gross margin was partially offset by a decrease in occupancy and depreciation costs as a percentage of net revenue of 60 basis points, and costs incurreddriven primarily by the increase in connection with the restructuring of our ivivva operations of 50 basis points.
During the first three quarters of fiscal 2017, as a result of the restructuring of our ivivva operations, we recognized costs totaling $8.8 million within costs of goods sold, as outlined in Note 6 to the unaudited interim consolidated financial statements included in Item 1 of Part I of this report. Excluding these charges, adjusted gross profit increased 15% to $885.1 million and adjusted gross margin increased 180 basis points to 51.4% compared to the first three quarters of fiscal 2016.net revenue.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $92.8 million, or 17%, to $640.0 million in the first three quarters of fiscal 2017 from $547.2 million in the first three quarters of fiscal 2016.
First Three Quarters
20222021Year over year change
(In thousands)(In thousands)(Percentage)
Selling, general and administrative expenses$1,954,340 $1,583,075 $371,265 23.5 %
Selling, general and administrative expenses as a percentage of net revenue36.6 %38.4 %(180) basis points
The increase in selling, general and administrative expenses was primarily due to:
an increase in head office costs of $199.1 million, comprised of:
an increase in employee costs of $101.3 million primarily due to an increase in salaries and wages expense, incentive compensation, and stock-based compensation expense, primarily as a result of headcount growth and increased wage rates, as well as increased travel costs; and
an increase in costs of $97.8 million primarily due to an increase in depreciation, technology costs, brand and community costs, and professional fees.
an increase in costs related to our operating channels of $63.3$166.9 million, comprised of:
an increase in employee costs of $26.8 million, primarily from a growth in labor hours and benefits, mainly associated with new company-operated stores and other new operating locations;
an increase in variable costs of $6.8 million, primarily due to an increase in credit card fees and distribution costs as a result of increased net revenue; and
an increase in other costs of $29.7 million, primarily due to an increase in digital marketing expenses, website related costs, brand and community costs, and other costs associated with our operating locations; and
an increase in head officevariable costs of $40.6$73.9 million comprised of:primarily due to an increase in distribution costs and credit card fees, as a result of increased net revenue;
an increase in employee costs of $13.4 million primarily due to additional employees to support the growth in our business; and

an increase in employee costs of $73.4 million primarily due to an increase in salaries and wages expense and incentive compensation in our company-operated store and direct to consumer channels, primarily due to growth in our business and increased wage rates;
an increase in other operating costs of $17.1 million primarily due to an increase in depreciation, repairs and maintenance costs, and technology costs, partially offset by a decrease in professional fees; and
an increase in brand and community costs of $2.6 million primarily due to an increase in digital marketing expenses related to our direct to consumer channel, partially offset by a decrease in marketing expenses related to lululemon Studio.
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an increase in other costs of $27.2 million primarily due to a global brand campaign, increases in other brand and community costs, professional fees, depreciation, and information technology related costs.
The increase in selling, general and administrative expenses was partially offset by an increase in net foreign currency exchange and derivative revaluation gainslosses of $11.0$5.2 million. There were net foreign exchange
Amortization of Intangible Assets
First Three Quarters
20222021Year over year change
(In thousands)(In thousands)(Percentage)
Amortization of intangible assets$6,579 $6,585 $(6)(0.1)%
The amortization of intangible assets was primarily the result of the amortization of intangible assets recognized upon the acquisition of MIRROR.
Acquisition-Related Expenses
First Three Quarters
20222021Year over year change
(In thousands)(In thousands)(Percentage)
Acquisition-related expenses$— $39,934 $(39,934)(100.0)%
In connection with our acquisition of MIRROR, we recognized acquisition-related compensation expenses of $38.1 million and derivative revaluation gainsintegration related costs of $6.9$1.9 million in the first three quarters of fiscal 2017 compared to net foreign exchange revaluation losses of $4.1 million2021. There were no acquisition-related expenses in the first three quarters of fiscal 2016. The net foreign exchange gains and losses primarily relate to2022.
Gain on Disposal of Assets
First Three Quarters
20222021Year over year change
(In thousands)(In thousands)(Percentage)
Gain on disposal of assets$(10,180)$— $10,180 n/a
During the revaluationsecond quarter of U.S. dollar denominated monetary assets and liabilities held by Canadian subsidiaries, and2022, we completed the derivatives are designed to economically hedge these gains and losses.
Assale of an administrative office building, which resulted in a percentagepre-tax gain of net revenue, selling, general and administrative expenses increased 200 basis points, to 37.2% in the first three quarters of fiscal 2017 from 35.2% in the first three quarters of fiscal 2016.
Asset Impairment and Restructuring Costs
As a result of the restructuring of our ivivva operations, we recognized asset impairment and restructuring costs of $36.5 million in the first three quarters of fiscal 2017. This includes lease termination costs of $19.9 million, long-lived asset impairment charges of $11.6 million, employee related costs of $4.0 million, and other restructuring costs of $1.0$10.2 million. We did not have any asset impairment and restructuring costs in the first three quarters of fiscal 2016. Please refer to Note 6 to the unaudited interim consolidated financial statements included in Item 1 of Part I of this report.
Income from Operations
Income from operations decreased $24.8 million, or 11%, to $199.7 million in the first three quarters of fiscal 2017 from $224.5 million in the first three quarters of fiscal 2016. Operating margin decreased 280 basis points to 11.6% compared to 14.4% in the first three quarters of fiscal 2016.
In connection with the restructuring of our ivivva operations, we recognized pre-tax costs totaling $45.4 million in the first three quarters of fiscal 2017. This includes asset impairment and restructuring costs of $36.5 million and costs recognized in cost of goods sold totaling $8.8 million. Excluding these charges, adjusted income from operations increased 9% to $245.1 million and adjusted operating margin decreased 20 basis points to 14.2%.
On a segment basis, we determine income from operations without taking into account our general corporate expenses and the costs we incur in connection with the restructuring of our ivivva operations.
expenses. Segmented income from operations for the first three quarters ended October 29, 2017 and October 30, 2016 is summarized below.
 First Three Quarters
 2022202120222021Year over year change
 (In thousands)(Percentage of net revenue of respective operating segment)(In thousands)(Percentage)
Segmented income from operations:
Company-operated stores$660,246 $464,844 26.0 %24.0 %$195,402 42.0 %
Direct to consumer933,272 754,231 41.2 43.6 179,041 23.7 
Other74,064 64,196 13.8 14.0 9,868 15.4 
$1,667,582 $1,283,271 $384,311 29.9 %
General corporate expense657,201 493,953 163,248 33.0 
Amortization of intangible assets6,579 6,585 (6)— 
Acquisition-related expenses— 39,934 (39,934)(100.0)
Gain on disposal of assets(10,180)— 10,180 n/a
Income from operations$1,013,982 $742,799 $271,183 36.5 %
Operating margin19.0 %18.0 %100 basis points
Company-Operated Stores. The percentages are presented as a percentage of net revenue of the respective operating segments.
  Three Quarters Ended
  October 29, 2017 October 30, 2016 October 29, 2017 October 30, 2016
  (In thousands) (Percentages)
Company-operated stores $267,178
 $245,056
 21.9% 21.6%
Direct to consumer 127,746
 114,744
 37.4
 39.7
Other 19,076
 12,430
 11.9
 9.4
Segmented income from operations 414,000
 372,230
  
  
General corporate expense 168,912
 147,707
  
  
Restructuring and related costs 45,365
 
    
Income from operations $199,723
 $224,523
  
  
Company-Operated Stores. Incomeincrease in income from operations from our company-operated stores segment increased $22.1 million, or 9%, to $267.2 million for the first three quarters of fiscal 2017 from $245.1 million for the first three quarters of fiscal 2016. The increase was primarily the result of increased gross profit of $55.4$298.1 million, whichdriven by increased net revenue. The increase in gross profit was
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partially offset by an increase in selling, general and administrative expenses, primarily due to higher employee and operating costs. Employee costs increased primarily due to higher salaries and wages expense and higher incentive compensation as a result of the growth in our business and increased wage rates. Store operating costs increased primarily due to increases in credit card fees and distribution costs as a result of higher net revenue, as well as increased repairs and maintenance. Income from operations as a percentage of company-operated stores net revenue increased due to leverage on selling, general and administrative expenses.
Direct to Consumer. The increase in income from operations from our direct to consumer segment was primarily the result of increased gross profit of $290.1 million, driven by increased net revenue, partially offset by lower gross margin. The decrease in gross margin was primarily due to lower product margin driven by higher markdowns, increased net revenueair freight costs, and higher gross margin.an unfavorable impact of foreign currency exchange rates. The increase in gross profit was partially offset by an increase in selling, general and administrative expenses including increased store employee costs, increased brand and community costs, and increased operating expenses associated with higher net revenues and new stores. Income from operations as a percentage of company-operated stores net revenue increased by 30 basis points, primarily due to an increase in gross margin, partially offset by deleverage of selling, general and administrative expenses.

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Direct to Consumer. Income from operations from our direct to consumer segment increased $13.0 million, or 11%, to $127.7 million for the first three quarters of fiscal 2017 from $114.7 million for the first three quarters of fiscal 2016. The increase was primarily the result of increased gross profit of $40.6 million which was primarily due to increased net revenue and higher gross margin. The increase in gross profit was partially offset by an increase in selling, general and administrative expenses including higher digital marketing expenses, website related costs, and higher variable costs such as packaging andincluding distribution costs and credit card fees as a result of higher net revenue.revenue, as well as higher digital marketing expenses, employee costs from the growth in our business and increased wage rates, depreciation and technology costs. Income from operations as a percentage of direct to consumer net revenue decreased 230 basis points primarily due to deleverage of selling, general and administrative expenses, partially offset by increased gross margin.
Other. Other income from operations increased $6.6 million, or 53%, to $19.1 million for the first three quarters of fiscal 2017 from $12.4 million for2022, compared to the first three quarters of fiscal 2016.2021, primarily due to decreased gross margin, partially offset by leverage on selling, general and administrative expenses.
Other. The increase in income from operations from our other channels was primarily the result of decreased selling, general and administrative expenses driven by reduced lululemon Studio marketing expenses. The increase in income from operations from our other channels was also due to increased gross profit of $17.4$4.2 million, whichdriven by increased net revenue, partially offset by lower gross margin. Income from operations as a percentage of other net revenue decreased primarily due to lower gross margin, partially offset by lower selling, general and administrative expenses.
General Corporate Expense. The increase in general corporate expense was primarily due to increased employee costs, primarily from headcount growth and increased wage rates, as well as increased technology costs, brand and community costs, professional fees, and depreciation. The increase in general corporate expense was also due to an increase in net revenueforeign currency exchange and derivative revaluation losses of $5.2 million.
Other Income (Expense), Net
First Three Quarters
20222021Year over year change
(In thousands)(In thousands)(Percentage)
Other income (expense), net$454 $338 $116 34.3 %
The increase in other income, net was primarily due to an increase in interest income from higher gross margin. interest rates, partially offset by an increase in other expenses.
Income Tax Expense
First Three Quarters
20222021Year over year change
(In thousands)(In thousands)(Percentage)
Income tax expense$279,447 $202,319 $77,128 38.1 %
Effective tax rate27.5 %27.2 %30 basis points
Certain non-deductible expenses incurred in connection with the MIRROR acquisition increased the effective tax rate in the first three quarters of 2021 by 120 basis points.
A lower tax rate on the capital gain on the sale of an administrative building reduced our effective tax rate in the first three quarters of 2022 by 20 basis points
The increase in the effective tax rate was primarily due to the accrual of withholding taxes on unremitted foreign earnings and a decrease in deductions related to stock-based compensation. This was partially offset by a reduction in non-deductible expenses in international jurisdictions and favorable adjustments upon the filing of certain income tax returns.
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Net Income
First Three Quarters
20222021Year over year change
(In thousands)(In thousands)(Percentage)
Net income$734,989 $540,818 $194,171 35.9 %
The increase in net income was primarily due to an increase in gross profit wasof $592.3 million, a decrease in acquisition-related expenses of $39.9 million, and a gain on disposal of assets of $10.2 million in the current year, partially offset by an increase in selling, general and administrative expenses including increased employee costs, increased brand and community costs, and increased operating expenses associated with new locations and higher net revenues. Income from operations as a percentage of other net revenue increased 250 basis points primarily due to an increase in gross margin partially offset by deleverage of selling, general and administrative expenses as a percentage of other net revenue.
General Corporate Expense. General corporate expense increased $21.2$371.3 million, or 14%, to $168.9 million for the first three quarters of fiscal 2017 from $147.7 million for the first three quarters of fiscal 2016. This increase was primarily due to increased head office employee costs, a global brand campaign, increases in other brand and community costs, professional fees, depreciation, and information technology related costs. These increases were partially offset by an increase in net foreign exchange and derivative revaluation gains of $11.0 million. There were net foreign exchange and derivative revaluation gains of $6.9 million in the first three quarters of fiscal 2017 compared to net foreign exchange losses of $4.1 million in the first three quarters of fiscal 2016. The net foreign exchange gains and losses primarily relate to the revaluation of U.S. dollar denominated monetary assets and liabilities held by Canadian subsidiaries, and the derivatives are designed to economically hedge these gains and losses.
Other Income (Expense), Net
Other income, net increased $2.1 million, or 285%, to $2.8 million for the first three quarters of fiscal 2017 from income of $0.7 million for the first three quarters of fiscal 2016. The increase was primarily due to net interest expense of $1.7 million which was recorded in the first three quarters of fiscal 2016 in relation to certain tax adjustments that are outlined in Note 7 to the unaudited interim consolidated financial statements included in Item 1 of Part I of this report.
Income Tax Expense
Income tax expense increased $5.6 million, or 10%, to $63.6 million for the first three quarters of fiscal 2017 from $58.0 million for the first three quarters of fiscal 2016.
The first three quarters of fiscal 2017 and fiscal 2016 included certain tax adjustments which resulted in net income tax recoveries of $11.9 million and $11.6 million, respectively. As outlined in Notes 6 and 7 to the unaudited interim consolidated financial statements included in Item 1 of Part I of this report, the tax recovery recognized in the first three quarters of fiscal 2017 relates to the tax effect of the costs recognized in connection with the ivivva restructuring, and the tax recovery recognized in the first three quarters of fiscal 2016 relates to our transfer pricing arrangements and taxes on repatriation of foreign earnings.
The effective tax rate for the first three quarters of fiscal 2017 was 31.4% compared to 25.7% for the first three quarters of fiscal 2016. The adjusted effective tax rate was 30.5% for the first three quarters of fiscal 2017 compared to 30.7% for the first three quarters of fiscal 2016. The decrease in the adjusted effective tax rate compared to first three quarters of fiscal 2016 is primarily due to certain adjustments which were recorded during the first three quarters of fiscal 2017 following the finalization of our U.S. and Canadian tax returns.
Net Income
Net income decreased $28.3 million, or 17%, to $138.9 million for the first three quarters of fiscal 2017 from $167.2 million for the first three quarters of fiscal 2016. This was primarily due to an increase in selling, general and administrative expenses of $92.8 million, long-lived asset impairment and restructuring costs of $36.5 million, and an increase in income tax expense of $5.6 million, partially offset by an increase in gross profit of $104.6$77.1 million, and an increase in other income (expense), net of $2.1$0.1 million.

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Comparable Store Sales and Total Comparable Sales
We separately trackuse comparable store sales whichto assess the performance of our existing stores as it allows us to monitor the performance of our business without the impact of recently opened or expanded stores. We use total comparable sales to evaluate the performance of our business from an omni-channel perspective. We believe investors would similarly find these metrics useful in assessing the performance of our business.
Comparable store sales reflect net revenue from company-operated stores that have been open, or open after being significantly expanded, for at least 12 months, or open for at least 12 months after being significantly expanded.full fiscal months. Net revenue from a store is included in comparable store sales beginning with the first fiscal month for which the store has a full fiscal month of sales in the prior year. Comparable store sales exclude 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, and from stores which have been temporarily relocated for renovations.renovations or temporarily closed. Comparable store sales also exclude sales from direct to consumer outlets, showrooms, temporary locations, wholesale accounts, license and supply arrangements, warehouse sales, andour other operations, as well as sales from company-operated stores that we have closed.
Total comparable sales combines comparable store sales and direct to consumer sales.net revenue.
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.
Opening new stores and expanding existing stores is an important part of our growth strategy. Accordingly, total comparable sales is just one way of assessing the success of our growth strategy insofar as comparable sales do not reflect the performance of stores opened, or significantly expanded, within the last 12 full fiscal months. The comparable sales measures we report may not be equivalent to similarly titled measures reported by other companies.
Non-GAAP Financial Measures
Constant dollar changes in net revenue, total comparable sales, comparable store sales, and direct to consumer net revenue and the adjusted financial results 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 net revenue, total comparable sales, comparable store sales, and directour results to consumer net revenue because we use these measures tohelp investors understand the underlying growth rate of net revenue excluding the impact of changes in foreign currency exchange rates. We believe that disclosing these measures on a constant dollar basis is useful to investors because it enables them to better understand the level of growth of our business.
Adjusted gross profit, gross margin, income from operations, operating margin, effective tax rates, and diluted earnings per share exclude the costs recognized in connection with the restructuring of our ivivva operations, its related tax effects, and certain discrete items related to our transfer pricing arrangements and taxes on repatriation of foreign earnings. We believe these adjusted financial measures are useful to investors as the adjustments do not directly relate to our ongoing business operations and therefore do not contribute to a meaningful evaluation of the trend in our operating performance. Furthermore, we do not believe the adjustments are reflective of our expectations of our future operating performance and believe these non-GAAP measures are useful to investors because of their comparability to our historical information.
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.
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Constant Dollar Changes in Net Revenue
The below changes in net revenue show the change compared to the corresponding period in the prior year.
Third Quarter 2022First Three Quarters 2022
Net RevenueNet Revenue
(In thousands)(Percentages)(In thousands)(Percentages)
Change$406,468 28 %$1,211,176 29 %
Adjustments due to foreign currency exchange rate changes48,946 91,338 %
Change in constant dollars$455,414 31 %$1,302,514 32 %
Constant Dollar Changes in Total Comparable Sales, Comparable Store Sales, and Direct to Consumer Net Revenue
The below changes in total comparable sales, comparable store sales, and direct to consumer net revenue show the change compared to the corresponding period in the prior year.

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Constant dollar changes in net revenue, total comparable sales, comparable store sales, and direct to consumer net revenue
  Quarter Ended
 October 29, 2017
 Three Quarters Ended
 October 29, 2017
  (In thousands) (Percentages) (In thousands) (Percentages)
Change in net revenue $74,602
 14 % $165,927
 11 %
Adjustments due to foreign exchange rate changes (6,842) (2) (3,011) (1)
Change in net revenue in constant dollars $67,760
 12 % $162,916
 10 %

  Quarter Ended
 October 29, 2017
 Three Quarters Ended
 October 29, 2017
Change in total comparable sales1,2
 8 % 5 %
Adjustments due to foreign exchange rate changes (1) (1)
Change in total comparable sales in constant dollars1,2
 7 % 4 %

  Quarter Ended
 October 29, 2017
 Three Quarters Ended
 October 29, 2017
  (In thousands) (Percentages) (In thousands) (Percentages)
Change in comparable store sales2
 $6,611
 2 % $4,255
 1%
Adjustments due to foreign exchange rate changes (3,631) (1) (1,931) 
Change in comparable store sales in constant dollars2
 $2,980
 1 % $2,324
 1%

  Quarter Ended
 October 29, 2017
 Three Quarters Ended
 October 29, 2017
  (Percentages)
Change in direct to consumer net revenue 26 % 18%
Adjustments due to foreign exchange rate changes (1) 
Change in direct to consumer net revenue in constant dollars 25 % 18%
Third Quarter 2022First Three Quarters 2022
Total Comparable Sales1,2
Comparable Store Sales2
Direct to Consumer Net Revenue
Total Comparable Sales1,2
Comparable Store Sales2
Direct to Consumer Net Revenue
Change22 %14 %31 %24 %17 %31 %
Adjustments due to foreign currency exchange rate changes
Change in constant dollars25 %17 %34 %26 %19 %33 %
__________
1(1)Total comparable sales includes comparable store sales and direct to consumer sales.net revenue.
2(2)Comparable store sales reflects net revenue from company-operated stores that have been open for at least 12 full fiscal months, or open for at least 12 full fiscal months after being significantly expanded.


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Adjusted financial measures
The following tables reconcile adjusted financial measures with the most directly comparable measures calculated in accordance with GAAP. The amounts are in thousands, except for the per share amounts.
  Quarter Ended
 October 29, 2017
 Quarter Ended
 October 30, 2016
  GAAP Results Adjustments Adjusted Results
(Non-GAAP)
 GAAP Results Adjustments 
Adjusted Results
(Non-GAAP)
Gross profit1
 $321,962
 $1,178
 $323,140
 $278,426
 $
 $278,426
Gross margin1
 52.0% 0.2 % 52.2% 51.1% % 51.1%
Income from operations1,2
 85,588
 22,186
 107,774
 92,975
 
 92,975
Operating margin1,2
 13.8% 3.6 % 17.4% 17.1% % 17.1%
Income before income tax expense1,2,3
 86,640
 22,185
 108,825
 93,603
 186
 93,789
Income tax expense3,4
 27,696
 5,813
 33,509
 25,318
 4,005
 29,323
Effective tax rate3,4
 32.0% (1.2)% 30.8% 27.0% 4.3% 31.3%
Diluted earnings per share1,2,3,4
 $0.43
 $0.13
 $0.56
 $0.50
 $(0.03) $0.47

  Three Quarters Ended
 October 29, 2017
 Three Quarters Ended
 October 30, 2016
  GAAP Results Adjustments Adjusted Results
(Non-GAAP)
 GAAP Results Adjustments 
Adjusted Results
(Non-GAAP)
Gross profit1
 $876,279
 $8,841
 $885,120
 $771,718
 $
 $771,718
Gross margin1
 50.9% 0.5 % 51.4% 49.6% % 49.6%
Income from operations1,2
 199,723
 45,365
 245,088
 224,523
 
 224,523
Operating margin1,2
 11.6% 2.6 % 14.2% 14.4% % 14.4%
Income before income tax expense1,2,3
 202,494
 45,365
 247,859
 225,243
 1,696
 226,939
Income tax expense3,4
 63,593
 11,886
 75,479
 57,997
 11,576
 69,573
Effective tax rate3,4
 31.4% (0.9)% 30.5% 25.7% 5.0% 30.7%
Diluted earnings per share1,2,3,4
 $1.02
 $0.24
 $1.26
 $1.22
 $(0.07) $1.15
__________
1 During the quarter and three quarters ended October 29, 2017, we recognized costs totaling $1.2 million and $8.8 million, respectively, within cost of goods sold related to the restructuring of our ivivva operations.
2 During the quarter and three quarters ended October 29, 2017, we recognized asset impairment and restructuring costs related to the restructuring of our ivivva operations totaling $21.0 million and $36.5 million, respectively.
3 The adjustments in the quarter and three quarters ended October 30, 2016 relate to our transfer pricing arrangements and the associated repatriation of foreign earnings and were recorded in other income (expense), net and income tax expense.
4 The adjustment to income tax expense for the quarter and three quarters ended October 29, 2017 represents the tax effect of the ivivva related restructuring adjustments, calculated based on the expected annual tax rate of the applicable tax jurisdictions.
Please refer to Notes 6 and 7 to the unaudited interim consolidated financial statements included in Item 1 of Part I of this report for further information on these adjustments.
Seasonality
Our business is affected by the general seasonal trends common to the retail apparel industry. Our annual net revenue is weighted more heavily toward our fourth fiscal quarter, reflecting our historical strength in sales during the holiday season, while our operating expenses are more equally distributed throughout the year. As a result, a substantial portion of our operating profits are generated in the fourth quarter of our fiscal year. For example, we generated approximately 47%, 45%,44% and 42%56% of our full year operating profit during the fourth quarters of fiscal 2016, fiscal 2015,2021 and fiscal 2014,2020, respectively. Due to a significant number of our company-operated stores being temporarily closed due to COVID-19 during the first two quarters of 2020, we earned a higher proportion of our operating profit during the last two quarters of 2020 compared to 2021.

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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.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 information technology system enhancements, funding working capital requirements, and making other strategic capital investments both in North America and internationally. 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.institutions, as well as in money market funds and term deposits.
As
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Table of October 29, 2017, our working capital (excluding cash and cash equivalents) was $297.7 million, our cash and cash equivalents were $650.1 million and our capacity under our revolving facility was $148.9 million.Contents

The following table summarizes our net cash flows provided by and used in operating, investing, and financing activities for the periods indicated:
 Three Quarters EndedFirst Three Quarters
 October 29, 2017 October 30, 201620222021Year over year change
 (In thousands)(In thousands)
Total cash provided by (used in):    Total cash provided by (used in):
Operating activities $131,309
 $98,659
Operating activities$(79,801)$658,124 $(737,925)
Investing activities (120,051) (106,168)Investing activities(386,862)(313,438)(73,424)
Financing activities (100,707) (25,288)Financing activities(399,428)(523,197)123,769 
Effect of exchange rate changes on cash 4,657
 11,701
(Decrease) increase in cash and cash equivalents $(84,792) $(21,096)
Effect of foreign currency exchange rate changes on cashEffect of foreign currency exchange rate changes on cash(41,156)21,585 (62,741)
Increase (decrease) in cash and cash equivalentsIncrease (decrease) in cash and cash equivalents$(907,247)$(156,926)$(750,321)
Operating Activities
Cash flows provided byThe increase in cash used in operating activities consist primarily of net income adjusted for certain items including depreciation and amortization, stock-based compensation expense, and the effect of changes in operating assets and liabilities.
Cash provided by operating activities increased $32.7 million, to $131.3 million for the first three quarters of fiscal 2017 compared to $98.7 million for the first three quarters of fiscal 2016. This increase was primarily theas a result of of:
a decrease in net cash outflowsflows from the changes in operating assets and liabilities of $47.0$929.4 million. This decrease was primarily driven by $543.2 million anfrom inventories, as well as changes in income taxes, accrued compensation, accrued liabilities and other, and prepaid expenses and other current assets; and
changes in adjusting items of $2.7 million, primarily driven by lower cash inflows related to derivatives not designated in a hedging relationship and the gain on disposal of assets, partially offset by increased depreciation and stock-based compensation expenses.
The increase in depreciation and amortization of $16.5 million, and asset impairment related to our ivivva restructuring of $11.6 million. Thiscash used in operating activities was partially offset by a decrease inincreased net income of $28.3 million and a change in deferred income taxes of $18.4$194.2 million.
Investing Activities
Cash flowsThe increase in cash used in investing activities relatewas primarily due to increased capital expenditures, partially offset by the settlement of net investment hedges and other investing activities. The increase in capital expenditures werewas primarily for opening new company-operated stores, remodeling or relocating certain stores, and ongoing store refurbishment. We also had capitaldue to corporate expenditures related to informationdriven by investment in technology and business systems related toand increased expenditures on corporate buildings, and for opening retail locations other than company-operated stores.
Cash used in investing activities increased $13.9 million to $120.1 million for the first three quarters of fiscal 2017 from $106.2 million for the first three quarters of fiscal 2016. This increase was primarily the result ofoffice renovations. There has also been an increase in company-operated store expenditures driven by opening new stores and remodeling existing stores as well as increased investment in our new and existing distribution facilities. This was partially offset by decreased capital expenditures for our direct to consumer and company-operated stores segments, primarily related to our new website andsegment. The proceeds of the sale of an increased number of stores opened during the first three quarters of fiscal 2017 compared to the first three quarters of fiscal 2016. The increase in cash used in investing activities was partially offset by a decrease in capital expenditures at our corporate level. In the second quarter of fiscal 2016, we purchased a land parcel in Vancouver, BC for $19.7 million for general corporate purposes.
Financing Activities
Cash flows used in or provided by financing activities consist primarily of cash used to repurchase shares of our common stock and certain cash flows related to stock-based compensation.
Cash used in financing activities increased $75.4 million, to $100.7 million for the first three quarters of fiscal 2017 compared to $25.3 million for the first three quarters of fiscal 2016.

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On June 11, 2014, our board of directors approved a program to repurchase shares of our common stock up to an aggregate value of $450.0 million. This stock repurchase program was completedadministrative office building during the second quarter of fiscal 2016. On December 1, 2016, our board2022 are included in other investing activities.
Financing Activities
The decrease in cash used in financing activities was primarily the result of directors approved a program to repurchase shares of our commondecrease in stock up to an aggregate value of $100.0 million. This stock repurchase program was completed during the third quarter of fiscal 2017.
Our cashrepurchases. Cash used in financing activities for the first three quarters of fiscal 20172022 included $99.3$375.0 million to repurchase 1.81.2 million shares of our common stock compared to $28.6$491.3 million to repurchase 0.41.4 million shares for the first three quarters of fiscal 2016.2021. 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.
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 1 of Part II of this Quarterly Report on Form 10-Q."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 capital expenditures out of our cash and cash equivalents and cash generated from operations.
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Revolving Credit Facility
On December 15, 2016, we entered into a credit agreement for $150.0 million under an unsecured five-year revolving credit facility. Bank of America, N.A., is administrative agent and HSBC Bank Canada is the syndication agent and letter of credit issuer, and the lenders party thereto. Borrowings under the revolving credit facility may be made, in U.S. Dollars, Euros, Canadian Dollars, and in other currencies, subject to the approval of the administrative agent and the lenders. Up to $35.0 million of the revolving credit facility is available for the issuance of letters of credit and up to $25.0 million is available for the issuance of swing line loans. Commitments under the revolving credit facility may be increased by up to $200.0 million, subject to certain conditions, including the approval of the lenders. Borrowings under the agreement may be prepaid and commitments may be reduced or terminated without premium or penalty (other than customary breakage costs). The principal amount outstanding under the credit agreement will be due and payable in full on December 15, 2021, subject to provisions that permit us to request a limited number of one year extensions annually.
Borrowings made under the revolving credit facility bear interest at a rate per annum equal to, at our option, either (a) a rate based on the rates applicable for deposits on the interbank market for U.S. Dollars or the applicable currency in which the borrowings are made ("LIBOR") 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 1.00%-1.75% for LIBOR loans and 0.00%-0.75% for alternate base rate loans. Additionally, a commitment fee of between 0.125%-0.200%, also determined by reference to the pricing grid, is payable on the average daily unused amounts under the revolving credit facility.
The credit agreement contains negative covenants that, among other things and subject tofollowing table includes certain exceptions, limit the abilitymeasures of our subsidiaries to incur indebtedness, incur liens, undergo fundamental changes, make dispositionsliquidity:
October 30, 2022
(In thousands)
Cash and cash equivalents$352,624 
Working capital excluding cash and cash equivalents(1)
958,722 
Capacity under committed revolving credit facility394,821 
__________
(1)Working capital is calculated as current assets of all or substantially all$2.6 billion less current liabilities of their assets, alter their businesses and enter into agreements limiting subsidiary dividends and distributions.
We are also required to maintain a consolidated rent-adjusted leverage ratio of not greater than 3.50:1.00 and we are not permitted to allow the ratio of consolidated EBITDAR to consolidated interest charges (plus rent) to be 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 October 29, 2017, aside from letters of credit of $1.1 million, we had no other borrowings outstanding under this credit facility.
Off-Balance Sheet Arrangements$1.3 billion.
We enter into standby letters of credit to secure certain of our obligations, including leases, taxes, and duties. As of October 29, 2017,30, 2022, letters of credit and letters of guarantee totaling $1.1$6.7 million had been issued.issued, including $5.2 million under our committed revolving credit facility.
We have not entered into any transactions, agreements orOur committed North America 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 October 30, 2022, aside from letters of credit of $5.2 million, we had no other contractual arrangementsborrowings outstanding under this credit facility. Further information regarding our credit facilities and associated covenants is outlined in Note 5. 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 October 30, 2022 was $1.7 billion, an increase of 85% from October 31, 2021. On a number of units basis, our inventory increased 80% compared to which an entity unconsolidated with us is a party and under which we have (i) any obligation under a guarantee, (ii) any retained or contingentOctober 31, 2021.

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interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity, (iii) any obligation under derivative instruments that are indexed to our shares and classified as equity in our consolidated balance sheets, or (iv) any obligation arising out of a variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
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 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 and estimates are discussed inwithin "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our fiscal 20162021 Annual Report on Form 10-K filed with the SEC on March 29, 2017,2022.
Goodwill Impairment Assessment
Goodwill is tested annually for impairment on the first day of the fourth quarter, or more frequently if events or circumstances indicate it is more likely than not that an impairment may have occurred.
There is $362.5 million of goodwill allocated to the MIRROR reporting unit, which was renamed the "lululemon Studio" reporting unit during the third quarter of 2022. As of October 30, 2022, we concluded that the deterioration in macroeconomic conditions and trends in Notes 2, 4,the digital fitness industry indicated a potentially adverse change in the fair value of the lululemon Studio reporting unit, and 5 includedtherefore we performed a quantitative impairment analysis. The result of the analysis concluded that the fair value of the lululemon Studio reporting unit exceeded its carrying value, and no impairment has been recognized.
We used a discounted cash flow model to estimate the fair value, supplemented by market analysis, which indicated the fair value of lululemon Studio was approximately 4% higher than its carrying value. The key assumptions of the fair value of the lululemon Studio reporting unit are the revenue growth rates, operating profit margins, and the discount rate. Our ability to generate expected cash flows is dependent on several factors including, but not limited to, customer demand and trends in Item 1the connected fitness industry including the level of Part Idesire to exercise at home, our ability to attract new subscribers to grow the community, and our ability to maintain a loyal subscriber base. The fair value of this Quarterly Reportlululemon Studio is also dependent on Form 10-Q.the ability of lululemon Studio to achieve long term profitability.
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Failure to increase the growth rate of new subscribers in the near term, or if we are unable to reduce customer acquisition costs, or other internal or external factors, could cause a material impairment of goodwill.
Operating Locations
Our company-operated stores by brand and by country as of October 29, 201730, 2022 and January 29, 2017,30, 2022 are summarized in the table below.
Number of company-operated stores by countryOctober 30,
2022
January 30,
2022
United States337 324 
People's Republic of China(1)
105 86 
Canada66 63 
Australia31 31 
United Kingdom20 17 
South Korea16 12 
Germany10 
New Zealand
Singapore
Japan
Ireland
France
Malaysia
Spain— 
Sweden
Netherlands
Norway
Switzerland
Total company-operated stores623 574 
  October 29,
2017
 January 29,
2017
lululemon    
United States 263
 245
Canada 54
 51
Australia 27
 27
United Kingdom 9
 9
China 6
 3
New Zealand 6
 5
Hong Kong 3
 3
Singapore 3
 3
South Korea 3
 2
Germany 2
 1
Ireland 1
 
Japan 1
 
Puerto Rico 1
 1
Switzerland 1
 1
Taiwan 1
 
  381
 351
ivivva    
United States 4
 42
Canada 3
 13
  7
 55
Total 388
 406
__________
(1)Included within PRC as of October 30, 2022, were nine stores in Hong Kong Special Administrative Region, six stores in Taiwan, and two stores in Macao Special Administration Region. As of January 30, 2022, there were nine stores in Hong Kong Special Administrative Region, five stores in Taiwan, and two stores in Macao Special Administration Region.
Retail locations operated by third parties under license and supply arrangements are not included in the above table. As of October 29, 2017,30, 2022, there were five22 licensed stores,locations, including three11 in Mexico, seven in the United Arab Emirates, onethree in Mexico,Qatar, and one in Qatar.Kuwait.
On August 20, 2017, as part of the restructuring of our ivivva operations, we closed 48 of our 55 ivivva branded company-operated stores. The seven remaining ivivva branded stores remain in operation and are not expected to close.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Exchange Risk. The functional currency of our foreigninternational 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 foreigninternational 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. Foreign currency exchange differences which arise on translation of our foreigninternational subsidiaries' balance sheets into U.S. dollars are recorded as a foreign currency translation adjustmentother comprehensive income (loss), net of tax in accumulated other comprehensive income or loss within stockholders' equity.
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. As a result, we have been impacted by changes in foreign currency exchange rates and may be impacted for the foreseeable future. The potential impact of currency fluctuation increases as our international expansion increases.
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As of October 29, 201730, 2022, we had certain forward currency contracts outstanding in order to hedge a portion of the foreign currency exposure that arises on translation of a Canadian subsidiary into U.S. dollars. We also had certain forward currency contracts outstanding in an effort to reduce our exposure to the foreign currency exchange revaluation gains and losses that are recognized by our Canadian and Chinese subsidiaries on U.S. dollar denominated monetary assets and liabilities. Please refer to Note 5 to the unaudited interim consolidated financial statements8. Derivative Financial Instruments included in Item 1 of Part I of this report for further information, including details of the notional amounts outstanding.
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.
We currently generate a significant portion of our net revenue and incur a significant portion of our expenses in Canada. We also hold a significant portion of our net assets in Canada. The reporting currency for our consolidated financial statements is the U.S. dollar. A weakeningstrengthening of the U.S. dollar against the Canadian dollar results in:
the following impacts to the consolidated statements of operations:
an increase in our net revenue upon translation of the sales made by our Canadian operations into U.S. dollars for the purposes of consolidation;
an increase in our selling, general and administrative expenses incurred by our Canadian operations upon translation into U.S. dollars for the purposes of consolidation;
foreign exchange revaluation losses by our Canadian subsidiaries on U.S. dollar denominated monetary assets and liabilities; and
derivative valuation gains on forward currency contracts not designated in a hedging relationship;
a decrease in our net revenue upon translation of the sales made by our Canadian operations into U.S. dollars for the purposes of consolidation;
a decrease in our selling, general and administrative expenses incurred by our Canadian operations upon translation into U.S. dollars for the purposes of consolidation;
foreign currency exchange revaluation gains by our Canadian subsidiaries on U.S. dollar denominated monetary assets and liabilities; and
derivative valuation losses on forward currency contracts not designated in a hedging relationship;
the following impacts to the consolidated balance sheets:
an increase in the foreign currency translation adjustment which arises on the translation of our Canadian subsidiaries' balance sheets into U.S. dollars; and
a decrease in the foreign currency translation adjustment from derivative valuation losses on forward currency contracts, entered into as net investment hedges of a Canadian subsidiary.
a decrease in the foreign currency translation adjustment which arises on the translation of our Canadian subsidiaries' balance sheets into U.S. dollars; and
net investment hedge losses from derivative valuation losses on forward currency contracts, entered into as net investment hedges of a Canadian subsidiary.
During the first three quarters of fiscal 2017,2022, the change in the relative value of the U.S. dollar against the Canadian dollar resulted in a $30.4$83.0 million increase in accumulated other comprehensive loss within stockholders' equity. During the first three quarters of fiscal 2016,2021, the change in the relative value of the U.S. dollar against the Canadian dollar resulted in a $25.3$35.6 million reduction in accumulated other comprehensive loss within stockholders' equity.
A 10% depreciationappreciation in the relative value of the U.S. dollar against the Canadian dollar compared to the foreign currency exchange rates in effect for the first three quarters of fiscal 20172022 would have resulted in lower income from operations of approximately $4.4 million in the first three quarters of fiscal 2017.$26.9 million. This assumes a consistent 10% appreciation in the U.S. dollar against the Canadian dollar throughoutover the first three quarters of fiscal 2017.2022. The timing of changes in the relative value of the U.S. dollar combined with the seasonal nature of our business, can affect the magnitude of the impact that fluctuations in foreign currency exchange rates have on our income from operations.
Interest Rate Risk. Our committed revolving credit facility provides us with available borrowings in an amount up to $150.0 million in the aggregate.$400.0 million. Because our revolving credit facility bearsfacilities bear interest at a variable rate, we will be exposed to market risks

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relating to changes in interest rates, if we have a meaningful outstanding balance. As of October 29, 2017,30, 2022, aside from letters of credit of $1.1$5.2 million, we hadthere were no other borrowings outstanding under thisthese credit facility.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. We do not believe these balances are subject to material interest rate risk.
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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 primarilyalso exposed to credit-related losses in the event of nonperformance by the financial institutions that are counterparties to theour 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. Our forward currency contracts are enteredWe have not experienced any losses related to these items, and we believe credit risk to be minimal. We seek to minimize our credit risk by entering into transactions with large,credit worthy and reputable financial institutions that are monitored for counterparty risk.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, andas well as overhead costs and capital expenditures may adversely affect our operating results. Although we do not believe that inflation has hadDuring 2021 and the first three quarters of 2022, our operating margin was impacted by higher air freight costs compared to fiscal 2021 and 2020 as a result of global supply chain disruption, as well as increased wage rates. Sustained increases in transportation costs, wages, and raw material impact on our financial positioncosts, or results of operations to date, a high rate of inflationother inflationary pressures in the future may have an adverse effect on our ability to maintain current levels of grossoperating margin and selling, general and administrative expenses as a percentage of net revenue if the selling prices of our products do not increase with these increased costs.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, or the Exchange Act, 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 Chief Executive Officer (principalprincipal executive officer) and Chief Financial Officer (principal financial officer and principal financial and accounting officer),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 Chief Executive Officerprincipal executive officer and Chief Financial Officer,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) atas of October 29, 2017.30, 2022. Based on that evaluation, our Chief Executive Officerprincipal executive officer and Chief Financial Officerprincipal financial and accounting officer concluded that, atas of October 29, 2017,30, 2022, our disclosure controls and procedures were effective.
There were no changes in our internal control over financial reporting during the quarter ended October 29, 201730, 2022 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 11 to the unaudited interim consolidated financial statements13. Legal Proceedings and Other Contingencies included in Item 1 of Part I of this report and in our fiscal 20162021 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, personal injury claims, product liability claims, employment claims, and similar matters. We believe the ultimate resolution of any such current proceeding will not have a material adverse effect on our continued 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 2021 Annual Report on Form 10-K, for our 2016 fiscal year, the following risk factors should be considered carefully in evaluating our business. Our business, financial condition, or results of operations could be materially adversely affected byas a result of any of these risks. Please note that additional risks not presently known
Risks related to us or that we currently deem immaterial could also impair our business and operations.industry
Our success depends on our ability to maintain the value and reputation of our brand.
Our success depends on the value and reputation of the lululemon brand. The lululemon name is integral to our business as well as to the implementation of our strategies for expanding our business.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. NegativeOur 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 production methodspart of any ofstakeholders, including nongovernmental organizations and governmental institutions, could cause reputational damage, distract senior management, and disrupt our suppliers or manufacturers could adversely affect our reputation and sales and force us to locate alternative suppliers or manufacturing sources.business. Additionally, while we devote considerable effortseffort 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 sell our products through a variety of channels, with a significant portion through traditional brick-and-mortar retail channels. The COVID-19 pandemic has shifted guest shopping preferences away from brick-and-mortar and towards digital platforms. As strong e-commerce channels emerge and develop, we are evolving towards an omni-channel approach to support the shopping behavior of our guests. This involves country and region-specific websites, social media, product notification emails, mobile apps, including mobile apps on in-store devices that allow demand to be fulfilled via our distribution centers, and online order fulfillment through stores. 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 brands.
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 continue to 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 continue to 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 purchased by our guests,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 the size and resources of some of our competitors may allow them to 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.

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Our competitors may be able to achieve and maintain brand awareness and market share more quickly and effectively than we can. In contrast to our "grassroots"grassroots community-based marketing approach, many of our competitors promote their brands through traditional forms of advertising, such as print media and television commercials, and through celebrity endorsements, and have substantial resources to devote to such efforts. Our competitors may also create and maintain brand awareness using traditional forms of advertising more quickly than we can. Our competitors may also be able to increase sales in their new and existing markets faster than we do by emphasizing different distribution channels than we do, such as catalog sales or an extensive franchise network.
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 reliance on suppliers to provide fabrics for and to produce our products could cause problems in our supply chain.
We do not manufacture our products or the raw materials for them and rely instead on suppliers. Many of the specialty fabrics used in our products are technically advanced textile products developed and manufactured by third parties and may be available, in the short-term, from only one or a very limited number of sources. In fiscal 2016, approximately 63% of our products were produced by our top five manufacturing suppliers, and 40% of raw materials were produced by a single manufacturer. We have no long-term contracts with any of our suppliers or manufacturing sources for the production and supply of our fabrics and garments, and we compete with other companies for fabrics, raw materials, and production.
We have experienced, and may in the future continue to experience, a significant disruption in the supply of fabrics or raw materials from current sources and we may be unable to locate alternative materials suppliers of comparable quality at an acceptable price, or at all. In addition, if we experience significant increased demand, or if we need to replace an existing supplier or manufacturer, we may be unable to locate additional supplies of fabrics or raw materials or additional manufacturing capacity on terms that are acceptable to us, or at all, or we may be unable to locate any supplier or manufacturer with sufficient capacity to meet our requirements or to fill our orders in a timely manner. Identifying a suitable supplier is an involved process that requires us to become satisfied with its quality control, responsiveness and service, financial stability, and labor and other ethical practices. Even if we are able to expand existing or find new manufacturing or fabric sources, we may encounter delays in production and added costs as a result of the time it takes to train our suppliers and manufacturers in our methods, products, and quality control standards. Delays related to supplier changes could also arise due to an increase in shipping times if new suppliers are located farther away from our markets or from other participants in our supply chain. Any delays, interruption or increased costs in the supply of fabric or manufacture of our products could have an adverse effect on our ability to meet guest demand for our products and result in lower net revenue and income from operations both in the short and long term.
An economic downturn or economic uncertainty in our key markets may adversely affect consumer discretionary spending and demand for our products.
Many of our products may be considered discretionary items for consumers. Factors affecting the level of consumer spending for such discretionary items include general economic conditions, particularly those in North America, and other factors such as consumer confidence in future economic conditions, fears of recession, the availability and cost of consumer credit, levels of unemployment, and tax rates. As global economic conditions continue to be volatile or economic uncertainty remains, trends in consumer discretionary spending also remain unpredictable and subject to reductions due to credit constraints and uncertainties about the future. Unfavorable economic conditions may lead consumers to delay or reduce purchases of our products. Consumer demand for our products may not reach our targets, or may decline, when there is an economic downturn or economic uncertainty in our key markets, particularly in North America. Our sensitivity to economic cycles and any related fluctuation in consumer demand may have a material adverse effect on our financial condition.
Our sales and profitability may decline as a result of increasing product 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 factors may 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 conditions,condition, operating results, and cash flows.

MIRROR (now known as lululemon Studio) may not achieve near or long term cash flow forecasts, or could fail to achieve the benefits and synergies sought through the acquisition, which could result in a material impairment of goodwill or other assets.
During 2020, we acquired MIRROR as part of our growth plan, which includes driving business through omni-guest experiences. During the third quarter of 2022, MIRROR evolved to become lululemon Studio. The potential benefits of enhancing our digital and interactive capabilities and deepening our roots in the sweatlife might not be realized fully, if at all, or take longer than anticipated to achieve. Further, the expected synergies between lululemon Studio and our core business,
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such as those related to our connections with our guests and communities as well as our store and direct to consumer infrastructure, may not materialize. A significant portion of the purchase price was allocated to goodwill and if our acquisition does not yield expected returns, we may be required to record impairment charges, which would adversely affect our results of operations.
There has been a deterioration in macroeconomic conditions and trends in the digital fitness industry and the fair value of the lululemon Studio reporting unit as of October 30, 2022 was not significantly in excess of its carrying value. Our ability to generate expected cash flows is dependent on several factors including, but not limited to, customer demand and trends in the connected fitness industry including the level of desire to exercise at home, our ability to attract new subscribers to grow the community, and to maintain a loyal subscriber base. The fair value of lululemon Studio is also dependent on achieving long term profitability. Failure to increase the growth rate of new subscribers in the near term, or if we are unable to reduce customer acquisition costs, or other internal or external factors, could cause a material impairment of goodwill.
Our management team has limited experience in addressing the challenges of integrating management teams, strategies, cultures, and organizations of two companies. This may divert the attention of management and cause additional expenses. Management also has limited experience outside of the retail industry, including with the specialized hardware and software sold and licensed by lululemon Studio. If lululemon Studio has inadequate or ineffective controls and procedures, our internal control over financial reporting could be adversely impacted. lululemon Studio may not be well received by our customers or employees, and this could hurt our brand and result in the loss of key employees. If we are unable to manage lululemon Studio operations successfully and efficiently, including its people and technologies, it could adversely affect our results of operations. lululemon Studio may also divert management time and other resources away from our core business.
In addition, we may, from time to time, evaluate and pursue other strategic investments or acquisitions. These involve various inherent risks and the benefits sought may not be realized. The acquisition of MIRROR or other strategic investments or acquisitions may not create value and may harm our brand and adversely affect our business, financial condition, and results of operations.
If we are unable to anticipate consumer preferences and successfully develop and introduce new, innovative, and updateddifferentiated 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, among other things, lower sales and excess inventory levels. 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 unexpected effects on inventory supply and consumer demand caused by the current COVID-19 coronavirus pandemic), and weakening of economic conditions or consumer confidence in future economic conditions.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 inability to safeguard against security breaches with respect to our information technology systems could disrupt our operations.
Our business employs systems and websites that allow for the storage and transmission of proprietary or confidential information regarding our business, guests and employees including credit card information. Security breaches could expose us to a risk of loss or misuse of this information and potential liability. We may not have the resources or technical sophistication to be able to anticipate or prevent rapidly evolving types of cyber-attacks. Actual or anticipated attacks may cause us to incur increasing costs including costs to deploy additional personnel and protection technologies, train employees and engage third party experts and consultants. Advances in computer capabilities, new technological discoveries or other developments may result in the technology used by us to protect transaction or other data being breached or compromised. Data and security breaches can also occur as a result of non-technical issues including intentional or inadvertent breach by employees or persons with whom we have commercial relationships that result in the unauthorized release of personal or confidential information. Any compromise or breach of our security could result in a violation of applicable privacy and other laws, significant litigation and potential liability and damage to our brand and reputation or other harm to our business.
Any material disruption of our information technology systems or unexpected network interruption could disrupt our business and reduce our sales.
We are increasingly dependent on information technology systems and third-parties to operate our e-commerce websites, process transactions, respond to guest inquiries, manage inventory, purchase, sell and ship goods on a timely basis, and maintain cost-efficient operations. The failure of our information technology systems to operate properly or effectively, problems with transitioning to upgraded or replacement systems, or difficulty in integrating new systems, could adversely affect our business. In addition, we have e-commerce websites in the United States, Canada, and internationally. Our information technology systems, websites, and operations of third parties on whom we rely, may encounter damage or disruption or slowdown caused by a failure to successfully upgrade systems, system failures, viruses, computer "hackers" or other causes, could cause information, including data related to guest orders, to be lost or delayed which could, especially if the disruption or slowdown occurred during the holiday season, result in delays in the delivery of products to our stores and guests or lost sales, which could reduce demand for our products and cause our sales to decline. In addition, if changes in technology cause our information systems to become obsolete, or if our information systems are inadequate to handle our growth, we could

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lose guests. We have limited back-up systems and redundancies, and our information technology systems and websites have experienced system failures and electrical outages in the past which have disrupted our operations. Any significant disruption in our information technology systems or websites could harm our reputation and credibility, and could have a material adverse effect on our business, financial condition and results of operations.
If the technology-based systems that give our customers the ability to shop with us online do not function effectively, our operating results, as well as our ability to grow our e-commerce business globally, could be materially adversely affected.
Many of our customers shop with us through our e-commerce website and mobile commerce applications. Increasingly, customers are using tablets and smart phones to shop online with us and with our competitors and to do comparison shopping. We are increasingly using social media and proprietary mobile applications to interact with our customers and as a means to enhance their shopping experience. Any failure on our part to provide attractive, effective, reliable, user-friendly e-commerce platforms that offer a wide assortment of merchandise with rapid delivery options and that continually meet the changing expectations of online shoppers could place us at a competitive disadvantage, result in the loss of e-commerce and other sales, harm our reputation with customers, have a material adverse impact on the growth of our e-commerce business globally and could have a material adverse impact on our business and results of operations.
Risks specific to our e-commerce business also include diversion of sales from our company-operated stores, difficulty in recreating the in-store experience through direct channels and liability for online content. Our failure to successfully respond to these risks might adversely affect sales in our e-commerce business, as well as damage our reputation and brands.
The fluctuating cost of raw materials could increase our cost of goods sold and cause our results of operations and financial condition to suffer.
The fabrics used by our suppliers and manufacturers include synthetic fabrics whose raw materials include petroleum-based products. Our products also include silver and natural fibers, including cotton. Our costs for raw materials are affected by, among other things, weather, consumer demand, speculation on the commodities market, the relative valuations and fluctuations of the currencies of producer versus consumer countries, and other factors that are generally unpredictable and beyond our control. Increases in the cost of raw materials, including petroleum or the prices we pay for silver and our cotton yarn and cotton-based textiles, could have a material adverse effect on our cost of goods sold, results of operations, financial condition, and cash flows.
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 North America. 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 North America, 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 foreigninternational guests' tastes and preferences. We may also encounter difficulty expanding into new international markets because of limited brand recognition leading to delayed acceptance of our technical athletic apparel by guests in these new international markets. Our failure to develop our business in new international markets or experiencing disappointing growth outside of existing markets could harm our business and results of operations.
If we encounter problems withIn addition, our distribution system,continued growth depends in part on our ability to deliverexpand our productsproduct categories and introduce new product lines. We may not be able to successfully manage integration of new product categories or the marketnew product lines with our existing products. Selling new product categories and lines will require our management to meet guest expectations couldlearn different strategies in order to be harmed.successful. We may be unsuccessful in entering new product categories and developing or launching new product lines, which requires management of new suppliers, potential new customers, and new business models. Our management may not have the experience of selling in these new product categories and we may not be able to grow our business as planned. For example, in July 2020, we acquired MIRROR, an in-home fitness company with an interactive workout platform that features live and on-demand classes. If we are unable to effectively and successfully further develop these and future new product categories and lines, we may not be able to increase or maintain our sales and our operating margins may be adversely affected.
We rely on our distribution facilities for substantially all of our product distribution. Our distribution facilities include computer controlledmay not be able to grow the lululemon Studio business and automated equipment, which means their operationshave it achieve profitability.
We may be subjectunable to a number of risks relatedattract and retain subscribers to security or computer viruses, the proper operation of software and hardware, electronic or power interruptions, or other system failures. In addition, because substantially all of our products are distributed from four locations, our operations could also be interrupted by labor difficulties, extreme or severe weather conditions or by floods, fires or other natural disasters near our distribution centers.lululemon Studio. If we encounter problems with our distribution system, our ability to meet guest expectations, manage inventory, complete sales, and achieve objectives for operating efficiencies could be harmed.
Our fabrics and manufacturing technology generally are not patented and can be imitated by our competitors.
The intellectual property rights in the technology, fabrics, and processes used to manufacture our products generally are owned or controlled by our suppliers and are generally not unique to us. Our ability to obtain intellectual property protection for our products is therefore limited and we do not generally own patents or hold exclusive intellectual property rights inprovide the

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delivery and installation service that our guests expect, offer engaging and innovative classes, and support and continue to improve the technology fabrics or processes underlying our products. As a result, our current and future competitors are able to manufacture and sell products with performance characteristics, fabrics and styling similar to our products. Because many of our competitors have significantly greater financial, distribution, marketing, and other resources thanused, we do, they may not be able to manufacturemaintain and sell products basedgrow the number of subscribers. This could adversely impact our results of operations.
We are dependent on technology systems to provide live and recorded classes to our fabricscustomers with lululemon Studio subscriptions, to maintain its software, and manufacturingto manage subscriptions. If we experience issues such as cybersecurity threats or actions, or interruptions or delays in our technology at lower prices than we can. If our competitors do sell similar products to ours at lower prices, our net revenuesystems, the data privacy and profitabilityoverall experience of subscribers could suffer.
Our failure or inability to protect our intellectual property rightsbe negatively impacted and could diminish the value oftherefore damage our brand and weakenadversely affect our competitive position.results of operations.
We currently rely on a combination of copyright, trademark, trade dress, and unfair competition laws,Competition, including from other in-home fitness providers as well as confidentiality proceduresin-person fitness studios, and licensing arrangements, to establishtrends of consumer preferences, could also impact the level of subscriptions and protecttherefore our intellectual property rights. The steps we take to protect our intellectual property rightsresults of operations. We also may not be adequatesuccessfully adapt the lululemon Studio strategy in response to prevent infringement of these rights by others, including imitation of our productschanging market conditions and misappropriation of our brand. In addition, intellectual property protection may be unavailable or limited in some foreign countries where laws or law enforcement practices may not protect our intellectual property rights as fully as in the United States or Canada, and it may be more difficult for us to successfully challenge the use of our intellectual property rights by other parties in these countries. If we fail to protect and maintain our intellectual property rights, the value of our brand could be diminished and our competitive position may suffer.
Changes in tax laws or unanticipated tax liabilities could adversely affect our effective income tax rate and profitability.
We are subject to the income tax laws of the United States, Canada, and several other international jurisdictions. Our effective income tax rates could be unfavorably impacted by a number of factors, including changes in the mix of earnings amongst countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax laws, the outcome of income tax audits in various jurisdictions around the world, and any repatriation of unremitted earnings for which we have not previously accrued U.S. taxes.
We and our subsidiaries engage in a number of intercompany transactions across multiple tax jurisdictions. Although we believe that these transactions reflect the accurate economic allocation of profit and that proper transfer pricing documentation is in place, the profit allocation and transfer pricing terms and conditions may be scrutinized by local tax authorities during an audit and any resulting changes may impact our mix of earnings in countries with differing statutory tax rates.
Current economic and political conditions make tax rules in any jurisdiction, including the United States and Canada, subject to significant change. Proposals to reform U.S. and foreign tax laws have included, among other things, changes to the U.S. federal tax rate, imposing limitations on the deductibility of interest, the transition from a "worldwide" system of taxation to a territorial system, a one-time tax on accumulated foreign earnings, significant taxes on foreign earnings and payments to foreign related parties, and certain other base erosion prevention measures. There is substantial uncertainty regarding both the timing and the details of any such tax reform. The impact of any potential tax reform on our business is uncertain and could be adverse.customer preferences.
If we continue to grow at a rapid pace, we may not be able to effectively manage our growth and the increased complexity of our business and as a result our brand image and financial performance may suffer.
We have expanded our operations rapidly since our inception in 1998 and our net revenue has increased from $40.7 million in fiscal 2004 to $2.3$6.3 billion in fiscal 2016.2021. If our operations continue to grow at a rapid pace, we may experience difficulties in obtaining sufficient raw materials and manufacturing capacity to produce our products, as well as delays in production and shipments, as our products are subject to risks associated with overseas sourcing and manufacturing. We could be required to continue to expand our sales and marketing, product development and distribution functions, to upgrade our management information systems and other processes and technology, and to obtain more space for our expanding workforce. This expansion could increase the strain on our resources, and we could experience operating difficulties, including difficulties in hiring, training, and managing an increasing number of employees. These difficulties could result in the erosion of our brand image which could have a material adverse effect on our financial condition.
We are subject to risks associated with leasing retail and distribution space subject to long-term and non-cancelable leases.
We lease the majority of our stores under operating leases and our inability to secure appropriate real estate or lease terms could impact our ability to grow. Our leases generally have initial terms of between five and ten15 years, and generally can be extended only in five-year increments if at all. We generally cannot cancel these leases at our option. If an existing or new store is not profitable, and we decide to close it, as we have done in the past and may do in the future, we may nonetheless be committed to perform our obligations under the applicable lease including, among other things, paying the base rent for the balance of the lease term. Similarly, we may be committed to perform our obligations under the applicable leases even if

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current locations of our stores become unattractive as demographic patterns change. In addition, as each of our leases expire, we may fail to negotiate renewals, either on commercially acceptable terms or at all, which could require us to close stores in desirable locations.
We also lease the majority of our distribution centers and our inability to secure appropriate real estate or lease terms could impact our ability to deliver our products to the market.
We may not be able to successfully open new store locations in a timely manner, if at all, which could harm our results of operations.
Our growth will largely depend on our ability to successfully open and operate new stores. We may be unsuccessful in identifying new locations and markets where our technical athletic apparel and other products and brand image will be accepted. In addition, we may not be able to open or profitably operate new stores in existing, adjacent, or new markets due to the impact of COVID-19, political instability, inflationary pressures, or other economic conditions, which could have a material adverse effect on us.
Our future success is substantially dependent on the service of our senior management and other key employees.
In the last few years, we have had changes to our senior management team including new hires, departures, and role and responsibility changes. The performance of our senior management team and other key employees may not meet our needs and expectations. Also, the loss of services of any of these key employees, or any negative public perception with respect to these individuals, may be disruptive to, or cause uncertainty in, our business and could have a negative impact on our ability to manage and grow our business effectively. Such disruption could have a material adverse impact on our financial performance, financial condition, and the market price of our stock.
Our business is affected by seasonality, which could result in fluctuations in our operating results.
Our business is affected by the general seasonal trends common to the retail apparel industry. Our annual net revenue is weighted more heavily toward our fourth fiscal quarter, reflecting our historical strength in sales during the holiday season, while our operating expenses are more equally distributed throughout the year. This seasonality, along with other factors that are beyond our control, including weather conditions and the effects of climate change, could adversely affect our business and cause our results of operations to fluctuate.
Risks related to our supply chain
Disruptions of our supply chain could have a material adverse effect on our operating and financial results.
Disruption of our supply chain capabilities due to trade restrictions, political instability, severe weather, natural disasters, public health crises such as the ongoing COVID-19 pandemic, war, terrorism, product recalls, labor supply or stoppages, the financial or operational instability of key suppliers and carriers, changes in diplomatic or trade relationships (including any sanctions, restrictions, and other responses such as those related to current geopolitical events), or other reasons could impair our ability to distribute our products. To the extent we are unable to mitigate the likelihood or potential impact of such events, there could be a material adverse effect on our operating and financial results.
We rely on international suppliers and any significant disruption to our supply chain could impair our ability to procure or distribute our products.
We do not manufacture our products or raw materials and rely on suppliers and manufacturers located predominantly in the Asia Pacific region, including the PRC. We also source other materials used in our products, including items such as content labels, elastics, buttons, clasps, and drawcords, from suppliers located primarily in this region. Based on cost, during 2021:
Approximately 40% of our products were manufactured in Vietnam, 17% in Cambodia, 11% in Sri Lanka, 7% in the PRC, including 2% in Taiwan, and the remainder in other regions.
Approximately 48% of the fabric used in our products originated from Taiwan, 19% from China Mainland, 11% from Sri Lanka, and the remainder from other regions.
The entire apparel industry, including our company, continues to face supply chain challenges as a result of the impacts of COVID-19, political instability, inflationary pressures, macroeconomic conditions, and other factors, including reduced freight availability and increased costs, port disruption, manufacturing facility closures, and related labor shortages and other supply chain disruptions.
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Our supply chain capabilities may be disrupted due to these or other factors, such as severe weather, natural disasters, war or other military conflicts, terrorism, labor supply shortages or stoppages, the financial or operational instability of key suppliers or the countries in which they operate, or changes in diplomatic or trade relationships (including any sanctions, restrictions, and other responses to geopolitical events). Any significant disruption in our supply chain capabilities could impair our ability to procure or distribute our products, which would adversely affect our business and results of operations.
A relatively small number of vendors supply and manufacture a significant portion of our products, and losing one or more of these vendors could adversely affect our business and results of operations.
Many of the specialty fabrics used in our products are technically advanced textile products developed and manufactured by third parties and may be available, in the short-term, from only one or a limited number of sources. We have no long-term contracts with any of our suppliers or manufacturers for the production and supply of our raw materials and products, and we compete with other companies for fabrics, other raw materials, and production. During 2021, we worked with approximately 41 vendors to manufacture our products and 65 suppliers to provide the fabric for our products. Based on cost, during 2021:
Approximately 57% of our products were manufactured by our top five vendors, the largest of which produced approximately 15% of our products; and
Approximately 56% of our fabrics were produced by our top five fabric suppliers, the largest of which produced approximately 27% of fabric used.
We have experienced, and may in the future experience, a significant disruption in the supply of fabrics or raw materials and may be unable to locate alternative suppliers of comparable quality at an acceptable price, or at all. In addition, if we experience significant increased demand, or if we need to replace an existing supplier or manufacturer, we may be unable to locate additional supplies of fabrics or raw materials or additional manufacturing capacity on terms that are acceptable to us, or at all, or we may be unable to locate any supplier or manufacturer with sufficient capacity to meet our requirements or fill our orders in a timely manner. Identifying a suitable supplier is an involved process that requires us to become satisfied with its quality control, responsiveness and service, financial stability, and labor and other ethical practices. Even if we are able to expand existing or find new manufacturing or fabric sources, we may encounter delays in production and added costs as a result of the time it takes to train our suppliers and manufacturers in our methods, products, and quality control standards.
Our supply of fabric or manufacture of our products could be disrupted or delayed by economic or political conditions, and by the impact of COVID-19, and the related government and private sector responsive actions such as closures, restrictions on product shipments, and travel restrictions. Delays related to supplier changes could also arise due to an increase in shipping times if new suppliers are located farther away from our markets or from other participants in our supply chain. The receipt of inventory sourced from areas impacted by COVID-19 has been slowed or disrupted and our manufacturers may also face similar challenges in receiving fabric and fulfilling our orders. In addition, freight capacity issues continue to persist worldwide as there is much greater demand for shipping and reduced capacity and equipment. Any delays, interruption, or increased costs in the supply of fabric or manufacture of our products could have an adverse effect on our ability to meet guest demand for our products and result in lower net revenue and income from operations both in the short and long term.
Our business could be harmed if our suppliers and manufacturers do not comply with our Vendor Code of Ethics or applicable laws.
While we require our suppliers and manufacturers to comply with our Vendor Code of Ethics, which includes labor, health and safety, and environment standards, we do not control their operations. If suppliers or contractors do not comply with these standards or applicable laws or there is negative publicity regarding the production methods of any of our suppliers or manufacturers, even if unfounded or not specific to our supply chain, our reputation and sales could be adversely affected, we could be subject to legal liability, or could cause us to contract with alternative suppliers or manufacturing sources.
The fluctuating cost of raw materials could increase our cost of goods sold.
The fabrics used to make our products include synthetic fabrics whose raw materials include petroleum-based products. Our products also include silver and natural fibers, including cotton. Our costs for raw materials are affected by, among other things, weather, consumer demand, speculation on the commodities market, the relative valuations and fluctuations of the currencies of producer versus consumer countries, and other factors that are generally unpredictable and beyond our control. Any and all of these factors may be exacerbated by global climate change. In addition, ongoing impacts of the pandemic, political instability, trade relations, sanctions, inflationary pressure, or other geopolitical or economic conditions could cause
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raw material costs to increase and have an adverse effect on our future margins. Increases in the cost of raw materials, including petroleum or the prices we pay for silver and our cotton yarn and cotton-based textiles, could have a material adverse effect on our cost of goods sold, results of operations, financial condition, and cash flows.
If we encounter problems with our distribution system, our ability to deliver our products to the market and to meet guest expectations could be harmed.
We rely on our distribution facilities for substantially all of our product distribution. Our distribution facilities include computer controlled and automated equipment, which means their operations may be subject to a number of risks related to security or computer viruses, the proper operation of software and hardware, electronic or power interruptions, or other system failures. In addition, our operations could also be interrupted by labor difficulties, pandemics (such as the COVID-19 pandemic), the impacts of climate change, extreme or severe weather conditions or by floods, fires, or other natural disasters near our distribution centers. If we encounter problems with our distribution system, our ability to meet guest expectations, manage inventory, complete sales, and achieve objectives for operating efficiencies could be harmed.
Increasing labor costs and other factors associated with the production of our products in South Asia and South East Asia could increase the costs to produce our products.
A significant portion of our products are produced in South Asia and South East Asia and increases in the costs of labor and other costs of doing business in the countries in this area could significantly increase our costs to produce our products and could have a negative impact on our operations and earnings. Factors that could negatively affect our business include labor shortages and increases in labor costs, labor disputes, pandemics, the impacts of climate change, difficulties and additional costs in transporting products manufactured from these countries to our distribution centers and significant revaluation of the currencies used in these countries, which may result in an increase in the cost of producing products. Also, the imposition of trade sanctions or other regulations against products imported by us from, or the loss of "normal trade relations" status with any country in which our products are manufactured, could significantly increase our cost of products and harm our business.
Risks related to information security and technology
We may be unable to safeguard against security breaches which could damage our customer relationships and result in significant legal and financial exposure.
As part of our normal operations, we receive confidential, proprietary, and personally identifiable information, including credit card information, and information about our customers, our employees, job applicants, and other third parties. Our business employs systems and websites that allow for the storage and transmission of this information. However, despite our safeguards and security processes and protections, security breaches could expose us to a risk of theft or misuse of this information, and could result in litigation and potential liability.
The retail industry, in particular, has been the target of many recent cyber-attacks. We may not have the resources or technical sophistication to be able to anticipate or prevent rapidly evolving types of cyber-attacks. Attacks may be targeted at us, our vendors or customers, or others who have entrusted us with information. In addition, despite taking measures to safeguard our information security and privacy environment from security breaches, our customers and our business could still be exposed to risk. Actual or anticipated attacks may cause us to incur increasing costs including costs to deploy additional personnel and protection technologies, train employees and engage third party experts and consultants. Advances in computer capabilities, new technological discoveries or other developments may result in the technology used by us to protect transaction or other data being breached or compromised. Measures we implement to protect against cyber-attacks may also have the potential to impact our customers' shopping experience or decrease activity on our websites by making them more difficult to use.
Data and security breaches can also occur as a result of non-technical issues including intentional or inadvertent breach by employees or persons with whom we have commercial relationships that result in the unauthorized release of personal or confidential information. Any compromise or breach of our security could result in a violation of applicable privacy and other laws, significant legal and financial exposure, and damage to our brand and reputation or other harm to our business.
In addition, the increased use of employee-owned devices for communications as well as work-from-home arrangements, such as those implemented in response to the COVID-19 pandemic, present additional operational risks to our technology systems, including increased risks of cyber-attacks. Further, like other companies in the retail industry, we have in the past experienced, and we expect to continue to experience, cyber-attacks, including phishing, and other attempts to breach, or gain unauthorized access to, our systems. To date, these attacks have not had a material impact on our operations, but they may have an impact in the future.
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Privacy and data protection laws increase our compliance burden.
We are subject to a variety of privacy and data protection laws and regulations that change frequently and have requirements that vary from jurisdiction to jurisdiction. For example, we are subject to significant compliance obligations under privacy laws such as the General Data Privacy Regulation ("GDPR") in the European Union, the Personal Information Protection and Electronic Documents Act (“PIPEDA”) in Canada, the California Consumer Privacy Act ("CCPA") modified by the California Privacy Rights Act (“CPRA”), and the Personal Information Protection Law (“PIPL”) in the PRC. Some privacy laws prohibit the transfer of personal information to certain other jurisdictions. We are subject to privacy and data protection audits or investigations by various government agencies. Our failure to comply with these laws subjects us to potential regulatory enforcement activity, fines, private litigation including class actions, and other costs. Our efforts to comply with privacy laws may complicate our operations and add to our compliance costs. A significant privacy breach or failure or perceived failure by us or our third-party service providers to comply with privacy or data protection laws, regulations, policies or regulatory guidance might have a materially adverse impact on our reputation, business operations and our financial condition or results of operations.
Disruption of our technology systems or unexpected network interruption could disrupt our business.
We are increasingly dependent on technology systems and third-parties to operate our e-commerce websites, process transactions, respond to guest inquiries, manage inventory, purchase, sell and ship goods on a timely basis, and maintain cost-efficient operations. The failure of our technology systems to operate properly or effectively, problems with transitioning to upgraded or replacement systems, or difficulty in integrating new systems, could adversely affect our business. In addition, we have e-commerce websites in the United States, Canada, and internationally. Our technology systems, websites, and operations of third parties on whom we rely, may encounter damage or disruption or slowdown caused by a failure to successfully upgrade systems, system failures, viruses, computer "hackers", natural disasters, or other causes. These could cause information, including data related to guest orders, to be lost or delayed which could, especially if the disruption or slowdown occurred during the holiday season, result in delays in the delivery of products to our stores and guests or lost sales, which could reduce demand for our products and cause our sales to decline. The concentration of our primary offices, two of our distribution centers, and a number of our stores along the west coast of North America could amplify the impact of a natural disaster occurring in that area to our business, including to our technology systems. In addition, if changes in technology cause our information systems to become obsolete, or if our information systems are inadequate to handle our growth, we could lose guests. We have limited back-up systems and redundancies, and our technology systems and websites have experienced system failures and electrical outages in the past which have disrupted our operations. Any significant disruption in our technology systems or websites could harm our reputation and credibility, and could have a material adverse effect on our business, financial condition, and results of operations.
Our technology-based systems that give our customers the ability to shop with us online may not function effectively.
Many of our customers shop with us through our e-commerce websites and mobile apps. Increasingly, customers are using tablets and smart phones to shop online with us and with our competitors and to do comparison shopping. We are increasingly using social media and proprietary mobile apps to interact with our customers and as a means to enhance their shopping experience. Any failure on our part to provide attractive, effective, reliable, user-friendly e-commerce platforms that offer a wide assortment of merchandise with rapid delivery options and that continually meet the changing expectations of online shoppers could place us at a competitive disadvantage, result in the loss of e-commerce and other sales, harm our reputation with customers, have a material adverse impact on the growth of our e-commerce business globally and could have a material adverse impact on our business and results of operations.
Risks related to environmental, social, and governance issues
Climate change, and related legislative and regulatory responses to climate change, may adversely impact our business.
There is increasing concern that a gradual rise in global average temperatures due to increased concentration of carbon dioxide and other greenhouse gases in the atmosphere will cause significant changes in weather patterns around the globe, an increase in the frequency, severity, and duration of extreme weather conditions and natural disasters, and water scarcity and poor water quality. These events could adversely impact the cultivation of cotton, which is a key resource in the production of our products, disrupt the operation of our supply chain and the productivity of our contract manufacturers, increase our production costs, impose capacity restraints and impact the types of apparel products that consumers purchase. These events could also compound adverse economic conditions and impact consumer confidence and discretionary spending. As a result, the effects of climate change could have a long-term adverse impact on our business and results of operations. In many countries, governmental bodies are enacting new or additional legislation and regulations to reduce or mitigate the potential impacts of climate change. If we, our suppliers, or our contract manufacturers are required to comply
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with these laws and regulations, or if we choose to take voluntary steps to reduce or mitigate our impact on climate change, we may experience increased costs for energy, production, transportation, and raw materials, increased capital expenditures, or increased insurance premiums and deductibles, which could adversely impact our operations. Inconsistency of legislation and regulations among jurisdictions may also affect the costs of compliance with such laws and regulations. Any assessment of the potential impact of future climate change legislation, regulations or industry standards, as well as any international treaties and accords, is uncertain given the wide scope of potential regulatory change in the countries in which we operate.
Increased scrutiny from investors and others regarding our environmental, social, governance, or sustainability, responsibilities could result in additional costs or risks and adversely impact our reputation, employee retention, and willingness of customers and suppliers to do business with us.
Investor advocacy groups, certain institutional investors, investment funds, other market participants, stockholders, and customers have focused increasingly on the environmental, social and governance ("ESG") or “sustainability” practices of companies, including those associated with climate change. These parties have placed increased importance on the implications of the social cost of their investments. If our ESG practices do not meet investor or other industry stakeholder expectations and standards, which continue to evolve, our brand, reputation and employee retention may be negatively impacted based on an assessment of our ESG practices. Any sustainability report that we publish or other sustainability disclosures we make may include our policies and practices on a variety of social and ethical matters, including corporate governance, environmental compliance, employee health and safety practices, human capital management, product quality, supply chain management, and workforce inclusion and diversity. It is possible that stakeholders may not be satisfied with our ESG practices or the speed of their adoption. We could also incur additional costs and require additional resources to monitor, report, and comply with various ESG practices. Also, our failure, or perceived failure, to meet the standards included in any sustainability disclosure could negatively impact our reputation, employee retention, and the willingness of our customers and suppliers to do business with us.
Risks related to global economic, political, and regulatory conditions
An economic recession, depression, downturn, periods of inflation, or economic uncertainty in our key markets may adversely affect consumer discretionary spending and demand for our products.
Many of our products may be considered discretionary items for consumers. Some of the factors that may influence consumer spending on discretionary items include general economic conditions, high levels of unemployment, health pandemics (such as the impact of the current COVID-19 coronavirus pandemic, including reduced store traffic and widespread temporary closures of retail locations), higher consumer debt levels, reductions in net worth based on market declines and uncertainty, home foreclosures and reductions in home values, fluctuating interest and foreign currency exchange rates and credit availability, government austerity measures, fluctuating fuel and other energy costs, fluctuating commodity prices, inflationary pressure, tax rates and general uncertainty regarding the overall future economic environment. Global economic conditions are uncertain and volatile, due in part to the impacts of COVID-19 and related restrictions and mitigation measures, the potential impacts of increasing inflation, the potential impacts of geopolitical uncertainties, and any potential sanctions, restrictions or responses to those conditions. As global economic conditions continue to be volatile or economic uncertainty remains, trends in consumer discretionary spending also remain unpredictable and subject to reductions due to credit constraints and uncertainties about the future. Unfavorable economic conditions may lead consumers to delay or reduce purchases of our products. Consumer demand for our products may not reach our targets, or may decline, when there is an economic downturn or economic uncertainty in our key markets. Our sensitivity to economic cycles and any related fluctuation in consumer demand may have a material adverse effect on our financial condition.
The current COVID-19 coronavirus pandemic and related government, private sector, and individual consumer responsive actions have affected, and could continue to affect, our business operations, store traffic, employee availability, supply chain, financial condition, liquidity, and cash flow.
The COVID-19 pandemic has negatively impacted the global economy, disrupted consumer spending and global supply chains, and created significant volatility and disruption of financial markets. COVID-19 negatively impacted our business and operations in 2020. While conditions improved in 2021, the extent and duration of ongoing impacts remain uncertain. Certain stores and our third party distribution center in the PRC experienced temporary closures during the first quarter of 2022, and there is uncertainty regarding the ongoing impact of COVID-19 on our operations in the PRC.
The spread of COVID-19 has caused health officials to impose restrictions and recommend precautions to mitigate the spread of the virus, especially when congregating in heavily populated areas, such as malls and lifestyle centers. Our stores have experienced temporary closures, and we have implemented precautionary measures in line with guidance from local authorities in the stores that are open. These measures include restrictions such as limitations on the number of guests
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allowed in our stores at any single time, minimum physical distancing requirements, and limited operating hours. We do not know how the measures recommended by local authorities or implemented by us may change over time or what the duration of these restrictions will be.
Further resurgences in COVID-19 cases, including from variants, could cause additional restrictions, including temporarily closing all or some of our stores again. An outbreak at one of our locations, even if we follow appropriate precautionary measures, could negatively impact our employees, guests, and brand. There is uncertainty over the impact of COVID-19 on the U.S., Canadian, PRC, and global economies, consumer willingness to visit stores, malls, and lifestyle centers, and employee willingness to staff our stores as the pandemic continues and if there are future resurgences. There is also uncertainty regarding potential long-term changes to consumer shopping behavior and preferences and whether consumer demand will recover when restrictions are lifted.
The COVID-19 pandemic also has the potential to significantly impact our supply chain if the factories that manufacture our products, the distribution centers where we manage our inventory, or the operations of our logistics and other service providers are disrupted, temporarily closed, or experience worker shortages. In particular, we have seen disruptions and delays in shipments, and we may see negative impacts to pricing of certain components of our products as a result of the COVID-19 pandemic.
The COVID-19 situation is changing rapidly and the extent to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19 and its variants and the actions taken to contain it or treat its impact, including vaccinations.
Global economic and political conditions and global events such as health pandemics could adversely impact our results of operations.
Uncertain or challenging global economic and political conditions could impact our performance, including our ability to successfully expand internationally. Global economic conditions could impact levels of consumer spending in the markets in which we operate, which could impact our sales and profitability. Political unrest, such as the turmoil related to current geopolitical events and the related sanctions, restrictions, or other responses, could negatively impact our guests and employees, reduce consumer spending, and adversely impact our business and results of operations. Health pandemics, such as the current COVID-19 coronavirus pandemic, and the related governmental, private sector and individual consumer responses could contribute to a recession, depression, or global economic downturn, reduce store traffic and consumer spending, result in temporary or permanent closures of retail locations, offices, and factories, and could negatively impact the flow of goods.
We may be unable to source and sell our merchandise profitably or at all could be hurt if new trade restrictions are imposed or existing trade restrictions become more burdensome.
The United States and the countries in which our products are produced or sold internationally have imposed and may impose additional quotas, duties, tariffs, or other restrictions or regulations, or may adversely adjust prevailing quota, duty, or tariff levels. WeThe results of any audits or related disputes regarding these restrictions or regulations could have expandedan adverse effect on our relationships with suppliers outside of China,financial statements for the period or periods for which among other things has resulted in increased costs and shipping times for some products.the applicable final determinations are made. Countries impose, modify, and remove tariffs and other trade restrictions in response to a diverse array of factors, including global and national economic and political conditions, which make it impossible for us to predict future developments regarding tariffs and other trade restrictions. Trade restrictions, including tariffs, quotas, embargoes, safeguards, and customs restrictions, could increase the cost or reduce the supply of products available to us, could increase shipping times, or may require us to modify our supply chain organization or other current business practices, any of which could harm our business, financial condition, and results of operations.
We are dependent on international trade agreements and regulations. If the United States were to withdraw from or materially modify certain international trade agreements, our business could be adversely affected.
Increasing labor costsThe countries in which we produce and other factors associated with the production ofsell our products in South and South East Asia could impose or increase the costs to produce our products.
A significant portion of our products are produced in South and South East Asia and increases in the costs of labor andtariffs, duties, or other costs of doing business in the countries in this area could significantly increase our costs to produce our products and could have a negative impact on our operations, net revenue, and earnings. Factorssimilar charges that could negatively affect our results of operations, financial position, or cash flows.
Adverse changes in, or withdrawal from, trade agreements or political relationships between the United States and the PRC, Canada, or other countries where we sell or source our products, could negatively impact our results of operations or cash flows. Any tariffs imposed between the United States and the PRC could increase the costs of our products. General geopolitical instability and the responses to it, such as the possibility of sanctions, trade restrictions, and changes in tariffs, including recent sanctions against the PRC, tariffs imposed by the United States and the PRC, and the possibility of additional tariffs or other trade restrictions between the United States and Mexico, could adversely impact our business. It is possible that further tariffs may be introduced, or increased. Such changes could adversely impact our business include a potential significant revaluationand could increase the
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costs of sourcing our products from the currencies usedPRC, or could require us to source more of our products from other countries. The Uyghur Forced Labor Prevention Act may lead to greater supply chain compliance costs and delays to us and to our vendors.
There could be changes in these countries, which may result in an increaseeconomic conditions in the cost of producing products, labor shortageUnited Kingdom ("UK") or European Union ("EU"), including due to the UK's withdrawal from the EU, foreign currency exchange rates, and increases in labor costs, and difficulties in moving products manufactured out of the countries in which they are manufactured and through the portsconsumer markets. Our business could be adversely affected by these changes, including by additional duties on the western coastimportation of North America, whether due to port congestion, labor disputes, product regulations and/or inspections or other factors, and natural disasters or health pandemics. A labor strike or other transportation disruption affecting these ports could significantly disrupt our business. Also, the imposition of trade sanctions or other regulations against products imported by us from, or the loss of "normal trade relations" status with any country in which our products are manufactured,into the UK from the EU and as a result of shipping delays or congestion.
Changes in tax laws or unanticipated tax liabilities could significantly increaseadversely affect our cost of products imported into North America and/or Australiaeffective income tax rate and harm our business.profitability.
The operations of many of our suppliersWe are subject to additional risksthe income tax laws of the United States, Canada, and several other international jurisdictions. Our effective income tax rates could be unfavorably impacted by a number of factors, including changes in the mix of earnings amongst countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax laws, new tax interpretations and guidance, the outcome of income tax audits in various jurisdictions around the world, and any repatriation of unremitted earnings for which we have not previously accrued applicable U.S. income taxes and international withholding taxes.
Repatriations from our Canadian subsidiaries are not subject to Canadian withholding taxes if such distributions are made as a return of capital. Historically, we have not accrued any significant amounts for Canadian withholding taxes that would be payable on repatriations from our Canadian subsidiaries because the net investment in our Canadian subsidiaries is indefinitely reinvested, or could be repatriated free of withholding tax. The extent to which increases in the net assets of our Canadian subsidiaries can be repatriated free of withholding tax is dependent on, among other things, the amount of paid-up-capital in our Canadian subsidiaries and transactions undertaken by our exchangeable shareholders. As of October 30, 2022, we had 5.2 million exchangeable shares outstanding. If there are beyondinsufficient transactions by our controlexchangeable shareholders between now and that could harmthe end of 2022, and our business, financial condition, and results of operations.
AlmostCanadian subsidiary continues to generate profits at historic rates, then we will be unable to repatriate all of our suppliers are located outside2022 Canadian earnings free of North America. During fiscal 2016, approximately 47%withholding tax. We have therefore accrued for Canadian withholding taxes on the portion of our products were produced2022 earnings which we expect to be unable to repatriate free of withholding tax. This has increased our effective tax rate, and absent further transactions by our exchangeable shareholders, we expect our tax rate to increase further in South East Asia, approximately 28%fiscal 2023.
We engage in South Asia, approximately 15%a number of intercompany transactions across multiple tax jurisdictions. Although we believe that these transactions reflect the accurate economic allocation of profit and that proper transfer pricing documentation is in China, approximately 1%place, the profit allocation and transfer pricing terms and conditions may be scrutinized by local tax authorities during an audit and any resulting changes may impact our mix of earnings in North America,countries with differing statutory tax rates. At the end of 2020, our Advance Pricing Arrangement ("APA") with the Internal Revenue Service and the remainderCanada Revenue Agency expired. This APA stipulated the allocation of certain profits between the U.S. and Canada. We are currently in other regions. As a resultthe process of negotiating the renewal of this arrangement and the final agreed upon terms and conditions thereof could impact our international suppliers, we areeffective tax rate.
Current economic and political conditions make tax rules in any jurisdiction, including the United States and Canada, subject to risks associated with doing business abroad, including:
political unrest, terrorism, labor disputes, and economic instability resultingsignificant change. Changes in the disruption of trade from foreign countries in which our products are manufactured;
the imposition of newapplicable U.S., Canadian, or other international tax laws and regulations, or their interpretation and application, including those relating to labor conditions, qualitythe possibility of retroactive effect, could affect our income tax expense and safety standards, imports, duties, taxesprofitability, as they did in fiscal 2017 and other charges on imports, as well as trade restrictions and restrictions on currency exchange or the transfer of funds;
reduced protection for intellectual property rights, including trademark protection, in some countries, particularly China;
disruptions or delays in shipments; and
changes in local economic conditions in countries where our manufacturers, suppliers, or guests are located.
These and other factors beyond our control could interrupt our suppliers' production in offshore facilities, influence the ability of our suppliers to export our products cost-effectively or at all and inhibit our suppliers' ability to procure certain materials, any of which could harm our business, financial condition, and results of operations.

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We may not be able to successfully open new store locations in a timely manner, if at all, which could harm our results of operations.
Our growth will largely depend on our ability to successfully open and operate new stores, which depends on many factors, including, among others, our ability to:
identify suitable store locations, the availability of which is outside of our control;
negotiate acceptable lease terms, including desired tenant improvement allowances;
hire, train and retain store personnel and field management;
immerse new store personnel and field management into our corporate culture;
source sufficient inventory levels; and
successfully integrate new stores into our existing operations and information technology systems.
Successful new store openings may also be affected by our ability to initiate our grassroots marketing efforts in advance of opening our first store in a new market. We typically rely on our grassroots marketing efforts to build awareness of our brand and demand for our products. Our grassroots marketing efforts are often lengthy and must be tailored to each new market based on our emerging understandingfiscal 2018 upon passage of the market. WeU.S. Tax Cuts and Jobs Act and in 2020 with the passage of the Coronavirus Aid, Relief, and Economic Security Act. Certain provisions of the recently enacted Inflation Reduction Act effective January 1, 2023, including a 1% excise tax on share repurchases and a 15% corporate alternative minimum tax, may not be able to successfully implementimpact our grassroots marketing efforts in a particular market in a timely manner, if at all. Additionally, we may be unsuccessful in identifying new markets where our technical athletic apparelincome tax expense, profitability, and other products and brand image will be accepted or the performance of our stores will be considered successful.capital allocation decisions.
Our failure to comply with trade and other regulations could lead to investigations or actions by government regulators and negative publicity.
The labeling, distribution, importation, marketing, and sale of our products are subject to extensive regulation by various federal agencies, including the Federal Trade Commission, Consumer Product Safety Commission and state attorneys general in the United States, the Competition Bureau and Health Canada in Canada, the State Administration for Market Regulation of the PRC, General Administration of Customs of the PRC, as well as by various other federal, state, provincial, local, and international regulatory authorities in the countries in which our products are distributed or sold. If we fail to comply with any of these regulations, we could become subject to enforcement actions or the imposition of significant penalties or claims, which could harm our results of operations or our ability to conduct our business. In addition, any audits and inspections by governmental agencies related to these matters could result in significant settlement amounts, damages, fines, or other penalties, divert financial and management resources, and result in significant legal fees. An unfavorable outcome of any particular proceeding could have an adverse impact on our business, financial condition, and results of operations. In addition, the adoption of new regulations or changes in the interpretation of existing regulations may result in
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significant compliance costs or discontinuation of product sales and could impair the marketing of our products, resulting in significant loss of net revenue.
Our international operations are also subject to compliance with the U.S. Foreign Corrupt Practices Act, or FCPA, and other anti-bribery laws applicable to our operations. In many foreign countries, particularly in those with developing economies, it may be a local custom that businesses operating in such countries engage in business practices that are prohibited by the FCPA or other U.S. and foreigninternational laws and regulations applicable to us. Although we have implemented procedures designed to ensure compliance with the FCPA and similar laws, some of our employees, agents, or other channel partners, as well as those companies to which we outsource certain of our business operations, could take actions in violation of our policies. Any such violation could have a material and adverse effect on our business.
Our future success is substantially dependent on the continued service of our senior management.
Our future success is substantially dependent on the continued service of our senior management and other key employees. In the last several years, several members of our senior management team have left us and we have focused time and resources on recruiting the new members of our current management team. The continued turnover of senior management and the loss of key members of our executive team could have a negative impact on our ability to manage and grow our business effectively. In addition, if we're not effective with our succession planning, it may have a negative impact on our ability to fill senior management roles in a timely manner.
We do not maintain a key person life insurance policy on any of the members of our senior management team. As a result, we would have no way to cover the financial loss if we were to lose the services of members of our senior management team.
Our business is affected by seasonality.
Our business is affected by the general seasonal trends common to the retail apparel industry. This seasonality may adversely affect our business and cause our results of operations to fluctuate, and, as a result, we believe that comparisons of

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our operating results between different quarters within a single fiscal year are not necessarily meaningful and that results of operations in any period should not be considered indicative of the results to be expected for any future period.
Because a significant portion of our net revenue and expenses are generated in countries other than the United States, fluctuations in foreign currency exchange rates have affected our results of operations and may continue to do so in the future.
The functional currency of our foreigninternational 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 foreigninternational 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. Foreign currency exchange differences which arise on translation of our foreigninternational subsidiaries' balance sheets into U.S. dollars are recorded as a foreign currency translation adjustmentother comprehensive income (loss), net of tax in accumulated other comprehensive income or loss within stockholders' equity.
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. As a result, we have been impacted by changes in foreign currency exchange rates and may be impacted for the foreseeable future. The potential impact of currency fluctuation increases as our international expansion increases.
From time to time, we may enter into forward currency contracts, or other derivative instruments, in an effort to mitigate the foreign exchange risks which we are exposed to. This may include entering into forward currency contracts to hedge against the foreign exchange gains and losses which arise on translation of our foreign subsidiaries' balance sheets into U.S. dollars, or entering into forward currency contracts in an effort to reduce our exposure to foreign exchange revaluation gains and losses that arise on monetary assets and liabilities held by our subsidiaries in a currency other than their functional currency.
Although we use financial instruments to hedge certain foreign currency risks, these measures may not succeed in fully offsetting the negative impact of foreign currency rate movements.
We are exposed to credit-related losses in the event of nonperformance by the counterparties to the forward currency contracts.contracts used in our hedging strategies.
Risks related to intellectual property
Our fabrics and manufacturing technology generally are not patented and can be imitated by our competitors. If our competitors sell products similar to ours at lower prices, our net revenue and profitability could suffer.
The intellectual property rights in the technology, fabrics, and processes used to manufacture our products generally are owned or controlled by our suppliers and are generally not unique to us. Our ability to obtain intellectual property protection for our products is therefore limited. We may see higher than anticipated costs associated with,hold limited patents and exclusive intellectual property rights in the technology, fabrics or not realize the benefits of,processes underlying our efforts to restructure our ivivva business.
In June 2017, we announced a plan to restructure our ivivva operations to a primarily e-commerce focused business. In August 2017, as part of this effort, we closed 48 of our 55 ivivva branded company-operated stores. The estimated costs and benefits associated with our restructuring efforts may vary materially based on various factors, including the timing of our execution of the programs, the outcome of negotiations with landlords and other third parties, the accuracy of our sales forecasts, inventory levels, the diversion of management attention from ongoing business activities or a decrease in employee morale, potential employment or other claims and litigation, and changes in management's assumptions and projections.products. As a result, our current and future competitors are able to manufacture and sell products with performance characteristics, fabrics and styling similar to our products. Because many of our competitors have significantly greater financial, distribution, marketing, and other resources than we do, they may be able to manufacture and sell products based on our fabrics and manufacturing technology at lower prices than we can. If our competitors sell products similar to ours at lower prices, our net revenue and profitability could suffer.
Our failure or inability to protect our intellectual property rights could diminish the value of our brand and weaken our competitive position.
We currently rely on a combination of patent, copyright, trademark, trade dress, trade secret, and unfair competition laws, as well as confidentiality procedures and licensing arrangements, to establish and protect our intellectual property rights. The steps we take to protect our intellectual property rights may not be adequate to prevent infringement of these eventsrights by others, including imitation of our products and circumstances, delays and unexpected costsmisappropriation of our brand. In addition, any of our intellectual property rights may occur,be challenged, which could result in higher costs than we anticipatethem being narrowed in scope or declared invalid or unenforceable, or our intellectual property protection may be unavailable or limited in some international countries where laws or law enforcement practices may not realizing all,protect our intellectual property rights as fully as in the United States or any,Canada, and it may be more difficult for us to successfully challenge the use of our intellectual property rights by other parties in these countries. If we fail to protect and maintain our intellectual property rights, the anticipated benefitsvalue of these restructuring efforts.our brand could be diminished, and our competitive position may suffer.
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Our trademarks, patents, and other proprietary rights could potentially conflict with the rights of others and we may be prevented from selling some of our products.
Our success depends in large part on our brand image. We believe that our trademarks, patents, and other proprietary rights have significant value and are important to identifying and differentiating our products from those of our competitors and creating and sustaining demand for our products. We have obtainedapplied for and applied forobtained some United States, Canada, and foreigninternational trademark registrations and patents, and will continue to evaluate the registration of additional trademarks and patents as appropriate. However, some or all of these pending trademark or patent applications may not be approved by the applicable governmental authorities. Moreover, even if the applications are approved, third parties may seek to oppose or otherwise challenge these applications or registrations. Additionally, we may face obstacles as we expand our product line and the geographic scope of our sales and marketing. Third parties may assert intellectual property claims against us, particularly as we expand our business and the number of products we offer. Our defense of any claim, regardless of its merit, could be expensive and time consuming and could divert management resources. Successful infringement claims against us could result in significant monetary liability or prevent us from selling some of our products. In addition, resolution of claims may require us to redesign our products, license rights from third parties, or cease using those rights altogether. Any of these events could harm our business and cause our results of operations, liquidity, and financial condition to suffer.

We have been, and in the future may be, sued by third parties for alleged infringement of their proprietary rights.
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TableThere is considerable patent and other intellectual property development activity in our market, and litigation, based on allegations of Contentsinfringement or other violations of intellectual property, is frequent in the fitness and technology industries. Furthermore, it is common for individuals and groups to purchase patents and other intellectual property assets for the purpose of making claims of infringement to extract settlements from companies like ours. Our use of third-party content, including music content, software, and other intellectual property rights may be subject to claims of infringement or misappropriation. We cannot guarantee that our internally developed or acquired technologies and content do not or will not infringe the intellectual property rights of others. From time to time, our competitors or other third parties may claim that we are infringing upon or misappropriating their intellectual property rights, and we may be found to be infringing upon such rights. Any claims or litigation could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages or ongoing royalty payments, prevent us from offering our platform or services or using certain technologies, force us to implement expensive work-arounds, or impose other unfavorable terms. We expect that the occurrence of infringement claims is likely to grow as the market for fitness products and services grows and as we introduce new and updated products and offerings. Accordingly, our exposure to damages resulting from infringement claims could increase and this could further exhaust our financial and management resources. Any of the foregoing could prevent us from competing effectively and could have an adverse effect on our business, financial condition, and operating results.


Risks related to legal and governance matters
We are subject to periodic claims and litigation that could result in unexpected expenses and could ultimately be resolved against us.
From time to time, we are involved in litigation and other proceedings, including matters related to product liability claims, stockholder class action and derivative claims, commercial disputes and intellectual property, as well as trade, regulatory, employment, and other claims related to our business. Any of these proceedings could result in significant settlement amounts, damages, fines, or other penalties, divert financial and management resources, and result in significant legal fees. An unfavorable outcome of any particular proceeding could exceed the limits of our insurance policies or the carriers may decline to fund such final settlements and/or judgments and could have an adverse impact on our business, financial condition, and results of operations. In addition, any proceeding could negatively impact our reputation among our guests and our brand image.
Our business could be negatively affected as a result of actions of activist stockholders and such activism could impactor others.
We may be subject to actions or proposals from stockholders or others that may not align with our business strategies or the trading valueinterests of our securities.
other stockholders. Responding to such actions by activist stockholders can be costly and time-consuming, disruptingdisrupt our business and operations, and divertingdivert the attention of our board of directors, management, and employees from the pursuit of our employees.business strategies. Such activities could interfere with our ability to execute our strategic plan. Activist stockholders or others may create perceived uncertainties as to the future direction of our business or strategy which may be exploited by our competitors and may make it more difficult to attract and retain qualified personnel and potential guests, and may affect our relationships with current guests, vendors, investors, and other third parties. In addition, a proxy contest for the election of directors at our annual meeting would require us to incur significant legal fees and proxy solicitation expenses and require
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significant time and attention by management and our board of directors. The perceived uncertainties as to our future direction also could affect the market price and volatility of our securities.
Anti-takeover provisions of Delaware law and our certificate of incorporation and bylaws could delay and discourage takeover attempts that stockholders may consider to be favorable.
Certain provisions of our certificate of incorporation and bylaws and applicable provisions of the Delaware General Corporation Law may make it more difficult or impossible for a third-party to acquire control of us or effect a change in our board of directors and management. These provisions include:
the classification of our board of directors into three classes, with one class elected each year;
prohibiting cumulative voting in the election of directors;
the ability of our board of directors to issue preferred stock without stockholder approval;
the ability to remove a director only for cause and only with the vote of the holders of at least 66 2/3% of our voting stock;
a special meeting of stockholders may only be called by our chairman or Chief Executive Officer, or upon a resolution adopted by an affirmative vote of a majority of the board of directors, and not by our stockholders;
prohibiting stockholder action by written consent; and
our stockholders must comply with advance notice procedures in order to nominate candidates for election to our board of directors or to place stockholder proposals on the agenda for consideration at any meeting of our stockholders.
In addition, we are governed by Section 203 of the Delaware General Corporation Law which, subject to some specified exceptions, prohibits "business combinations" between a Delaware corporation and an "interested stockholder," which is generally defined as a stockholder who becomes a beneficial owner of 15% or more of a Delaware corporation's voting stock, for a three-year period following the date that the stockholder became an interested stockholder. Section 203 could have the effect of delaying, deferring, or preventing a change in control that our stockholders might consider to be in their best interests.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table provides information regarding our purchases of shares of our common stock during the third quarter ended October 29, 2017of 2022 related to our stock repurchase program:
Period(1)
 
Total Number of Shares Purchased(2)
 Average Price Paid per Share 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2)
 
Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(2)
July 31, 2017 - August 27, 2017 92,188
 $60.64
 92,188
 $2,873,628
August 28, 2017 - October 1, 2017 48,236
 59.57
 48,236
 45
October 2, 2017 - October 29, 2017 
 
 
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Total 140,424
   140,424
  
Period(1)
Total Number of Shares Purchased(2)
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2)
Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(2)
August 1, 2022 - August 28, 202231,504 $317.15 31,504 $819,488,363 
August 29, 2022 - October 2, 202223,092 303.09 23,092 812,489,434 
October 3, 2022 - October 30, 2022— — — 812,489,434 
Total54,596 54,596 
__________
(1)
(1)Monthly information is presented by reference to our fiscal periods during our third quarter of 2022.
(2)On March 23, 2022, our board of directors approved a stock repurchase program of up to $1.0 billion of our 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.
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Monthly information is presented by reference to our fiscal periods during our third quarter of fiscal 2017.
(2)
Our stock repurchase program was approved by our board of directors in December 2016. Common shares were 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 common shares repurchased depending upon market conditions, eligibility to trade, and other factors. The maximum dollar value of shares to be repurchased was $100.0 million and the program was completed in the third quarter of fiscal 2017.
The following table provides information regarding our purchases of shares of our common stock during the third quarter ended October 29, 2017of 2022 related to our Employee Share Purchase Plan:
Period(1)
 
Total Number of Shares Purchased(2)
 Average Price Paid per Share 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2)
 
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(2)
July 31, 2017 - August 27, 2017 11,514
 $60.44
 11,514
 4,951,449
August 28, 2017 - October 1, 2017 11,943
 60.20
 11,943
 4,939,506
October 2, 2017 - October 29, 2017 10,749
 60.59
 10,749
 4,928,757
Total 34,206
   34,206
  
Period(1)
Total Number of Shares Purchased(2)
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2)
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(2)
August 1, 2022 - August 28, 20226,697 $319.42 6,697 4,540,279 
August 29, 2022 - October 2, 202211,512 313.63 11,512 4,528,767 
October 3, 2022 - October 30, 20227,439 308.03 7,439 4,521,328 
Total25,648 25,648 
__________
(1)
(1)Monthly information is presented by reference to our fiscal periods during our third quarter of 2022.
(2)The ESPP was approved by our board of directors and stockholders in September 2007. All shares purchased under the ESPP are purchased on the Nasdaq Global Select Market (or such other stock exchange as we may designate). Unless our board terminates the ESPP earlier, it will continue until all shares authorized for purchase have been purchased. The maximum number of shares authorized to be purchased under the ESPP was 6,000,000.
Monthly information is presented by reference to our fiscal periods during our third quarter of fiscal 2017.
(2)
Our Employee Share Purchase Plan (ESPP) was approved by our board of directors and stockholders in September 2007. All shares purchased under the ESPP are purchased on the Nasdaq Global Select Market (or such other stock exchange as we may designate from time to time). Unless our board of directors terminates the ESPP earlier, the ESPP will continue until all shares authorized for purchase under the ESPP have been purchased. The maximum number of shares authorized to be purchased under the ESPP is 6,000,000.
Excluded from this disclosure are shares withheld to settle statutory employee tax withholding related to the vesting of stock-based compensation awards.

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ITEM 6. EXHIBITS
Incorporated by Reference
Exhibit
No.
Exhibit TitleFiled
Herewith
FormExhibit
No.
File No.Filing
Date
10.1*X
Incorporated by Reference
Exhibit
No.
Exhibit Title
Filed
Herewith
Form
Exhibit
No.
File No.
Filing
Date
31.1
31.1X



31.2X



32.1**




101The following unaudited interim consolidated financial statements from the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended October 29, 2017,30, 2022, formatted in XBRL:iXBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations and Comprehensive Income, (iii) Consolidated Statements of Stockholders' Equity, (iv) Consolidated Statements of Cash Flows (v) Notes to the Unaudited Interim Consolidated Financial StatementsX



*104Furnished herewithCover Page Interactive Data File (formatted in iXBRL and contained in Exhibit 101)X


*Denotes a compensatory plan, contract, or arrangement, in which our directors or executive officers may participate.
**Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
lululemon athletica inc.
By:
/s/ STUART HASELDEN
Stuart Haselden
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Dated: December 6, 2017

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Exhibit Index
Incorporated by Reference
Exhibit
No.
Exhibit Title
Filed
Herewith
Form
Exhibit
No.
File No.
Filing
Date
31.1Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a)X



31.2Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a)X



32.1*Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002




101The following unaudited interim consolidated financial statements from the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended October 29, 2017, formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations and Comprehensive Income, (iii) Consolidated Statements of Stockholders' Equity, (iv) Consolidated Statements of Cash Flows (v) Notes to the Unaudited Interim Consolidated Financial StatementsX



lululemon athletica inc.
*By:Furnished herewith
/s/  MEGHAN FRANK
Meghan Frank
Chief Financial Officer
(principal financial and accounting officer)

Dated: December 8, 2022
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