lululemon athletica inc.

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL

STATEMENTS

NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Nature of operations

lululemon athletica inc., a Delaware corporation ("lululemon" and, together with its subsidiaries unless the context otherwise requires, the "Company") is engaged in the design, distribution, and retail of healthy lifestyle inspired athletic apparel and accessories. The Company primarily conducts its business through company-operated stores and direct to consumer through e-commerce. It also generates net revenue from outlets, sales from temporary locations, sales to wholesale accounts, and license and supply ~~arrangements, and warehouse sales.~~arrangements. The Company operates stores in the United States, Canada, the People's Republic of China ("PRC"), Australia, ~~China,~~ the United Kingdom, Japan, Germany, New Zealand, ~~Japan, Germany,~~ South Korea, Singapore, France, Malaysia, Sweden, Ireland, the Netherlands, ~~Sweden,~~Norway, and Switzerland. There were ~~460~~506 and ~~440~~491 company-operated stores in operation as of August ~~4, 2019~~2, 2020 and February 2, 2020, respectively.

On July 7, 2020, the Company acquired Curiouser Products Inc., dba MIRROR, ("MIRROR") which has been consolidated from the date of acquisition. MIRROR generates net revenue from the sale of in-home fitness equipment and associated content subscriptions. Please refer to Note 3 ~~2019, respectively.~~for further information.

COVID-19 Pandemic

The outbreak of a novel strain of coronavirus ("COVID-19") was declared a global pandemic by the World Health Organization in March 2020.

In line with recommendations by public health officials and in accordance with governmental authority orders, the Company took actions to temporarily close the majority of its retail locations and to reduce operating hours. In February 2020, the Company temporarily closed all of its retail locations in Mainland China, and in March 2020, the Company temporarily closed all of its retail locations in North America, Europe, and certain countries in Asia Pacific. The stores in Mainland China reopened during the first quarter of fiscal 2020, and stores in other markets began reopening in accordance with local government and public health authority guidelines during the second quarter of fiscal 2020. The Company's stores are operating with restrictive measures in place such as reduced operating hours and limited occupancy levels. As of August 2, 2020, 492 of its company-operated stores were open. The Company's distribution centers in Columbus, Ohio and Sumner, Washington were temporarily closed for one and two weeks, respectively, during the first quarter of fiscal 2020 due to COVID-19.

In response to COVID-19, various government programs have been announced to provide financial relief for affected businesses. The most significant relief measures which the Company qualifies for are the Employee Retention Credit under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") in the United States, and the Canada Emergency Wage Subsidy ("CEWS") under the COVID-19 Economic Response Plan in Canada. During the first two quarters of fiscal 2020, the Company recognized payroll subsidies totaling $35.5 million under these wage subsidy programs and similar plans in other jurisdictions. These subsidies were recorded as a reduction in the associated wage costs which the Company incurred, and were recognized in selling, general and administrative expenses.

The Company also qualifies for and has deferred certain corporate income tax payments and employer payroll tax payments. The most significant is the deferral of $127.5 million of Canadian corporate income tax payments which would otherwise have been paid during the first and second quarters of fiscal 2020 to the third quarter of fiscal 2020.

The Financial Accounting Standards Board ("FASB") staff issued guidance in April 2020 in relation to accounting for lease concessions made in connection with the effects of COVID-19. In accordance with this guidance, the Company has elected to treat COVID-19-related lease concessions as variable lease payments. The Company is actively negotiating commercially reasonable lease concessions. No significant lease concessions were recognized in the first two quarters of fiscal 2020.

Temporary store closures as a result of COVID-19 and associated reduction in operating income during the first two quarters of fiscal 2020 are considered to be an indicator of impairment and the Company performed an assessment of recoverability for the long-lived assets and right-of-use assets associated with closed retail locations. In the first quarter of fiscal 2020, the Company recognized an insignificant impairment charge as a result of this analysis.

Revenue is presented net of an allowance for expected returns, which is estimated based on historic return rates, trends, considering shifts towards increased online shopping by guests, and future expectations. In light of the store closures, the

Table of Contents

Company has extended its return policy. The increase in the sales return allowance reflects the higher proportion of direct to consumer net revenue and anticipated delays in returns as a result of reduced capacity at retail location and closures.

The COVID-19 pandemic has materially impacted the Company's operations. The extent to which COVID-19 continues to impact the Company's operations, and in turn, its operating results and financial position 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 the actions taken to contain it or treat its impact. Continued proliferation of the virus, or resurgence, may result in further or prolonged closures of its retail locations and distribution centers, reduce operating hours, interrupt the Company's supply chain, cause changes in guest behavior, and reduce discretionary spending. Such factors could result in the impairment of long-lived assets and right-of-use assets and the need for an increased provision against the carrying value of the Company's inventories.

Basis of presentation

The unaudited interim consolidated financial statements as of August ~~4, 2019~~2, 2020 and for the quarters and two quarters ended August 2, 2020 and August 4, 2019 ~~and July 29, 2018~~ are presented in United States 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 February ~~3, 2019~~2, 2020 is derived from the Company's audited consolidated financial statements and related notes for the fiscal year ended February ~~3, 2019,~~2, 2020, which are included in Item 8 in the Company's fiscal ~~2018~~2019 Annual Report on Form 10-K filed with the SEC on March ~~27, 2019.~~26, 2020. 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 ~~2018~~2019 Annual Report on Form 10-K. ~~Except as disclosed~~Changes in ~~Note 2 of these unaudited interim consolidated financial statements pertaining to~~ the ~~adoption of new accounting pronouncements, there have been no significant changes to the Company's~~ significant accounting policies asof the Company compared to those described in the Company's fiscal ~~2018~~2019 Annual Report on Form ~~10-K.~~10-K as a result of the acquisition of MIRROR are described below, and Note 2 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 ~~2019~~2020 will end on ~~February 2, 2020~~January 31, 2021 and will be a 52-week year. Fiscal ~~2018~~2019 was a ~~53-week~~52-week year.

In accordance with the Disclosure Modernization and Simplification final rule issued by the SEC and effective for the Company beginning with the quarter ended May 5, 2019, a reconciliation of the changes of stockholders' equity is presented for all periods for which the results of operations are presented.

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.

Accounting policies related to the acquisition of MIRROR

Business combinations

The purchase price of an acquisition is measured as the aggregate of the fair value of the consideration transferred including the acquisition-date fair value of the Company's previously held equity interests. The purchase price is allocated to the fair values of the tangible and intangible assets acquired and liabilities assumed, with any excess recorded as goodwill. These fair value determinations require judgment and may involve the use of significant estimates and assumptions. The purchase price allocation may be provisional during a measurement period of up to one year to provide reasonable time to obtain the information necessary to identify and measure the assets acquired and liabilities assumed. Any such measurement period adjustments are recognized in the period in which the adjustment amount is determined. Transaction costs associated with the acquisition are expensed as incurred.

Goodwill and intangible assets

Acquired finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives, and are reviewed for impairment when events or circumstances indicate that the asset group to which the intangible assets belong might be impaired. The Company revises the estimated remaining useful life of these assets when events or changes in circumstances warrant a revision. If the Company revises the useful life, the unamortized balance is amortized over the remaining useful life on a prospective basis.

Goodwill represents the excess of the aggregate of the consideration transferred over the net assets acquired and liabilities assumed and is tested annually for impairment, or more frequently if there are indicators of impairment.

Table of Contents

Revenue recognition and cost of goods sold

MIRROR generates net revenue from the sale of in-home fitness equipment and associated content subscriptions. Certain in-home fitness contracts contain multiple performance obligations, including hardware and a subscription service commitment. For customer contracts that contain multiple performance obligations the Company accounts for individual performance obligations if they are distinct. The transaction price is allocated to each performance obligation based on its standalone selling price.

The cost of digital content subscription services, including the costs of content creation, studio overhead, and related production departments is recorded in costs of goods sold.

NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS

Recently adopted accounting pronouncements

In ~~February~~June 2016, the FASB issued guidance on ASC ~~842,~~326 ~~Leases~~"Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments". ~~("ASC 842") to increase transparency and comparability among organizations by recognizing lease~~This guidance changes the impairment model for most financial assets and ~~lease liabilities on~~requires the ~~balance sheet and disclosing key information about leasing arrangements.~~use of a forward-looking expected loss model rather than incurred losses for instruments measured at amortized cost. Under ~~the new guidance, lessees~~this model, entities are required to ~~recognize a lease liability, which represents~~estimate the ~~discounted obligation~~lifetime expected credit loss on such instruments and record an allowance to ~~make future minimum lease payments, and a corresponding right-of-use asset on~~offset the ~~balance sheet. The Company adopted ASC 842 on February 4, 2019 using the modified retrospective approach and has elected not to restate comparative periods.~~

~~Table of Contents~~

The Company has chosen to apply the transition package of three practical expedients which allow companies not to reassess whether agreements contain leases, the classification of leases, and the capitalization of initial direct costs. The Company did not elect the practical expedient to use hindsight when determining the lease term.

~~The primary financial statement impact upon adoption was the recognition, on a discounted~~amortized cost basis of the ~~Company's minimum payments under noncancelable operating leases as right-of-use assets and obligations~~financial asset, resulting in a net presentation of the amount expected to be collected on the consolidated balance sheets. As of February 4, 2019, right-of-use assets and lease liabilities were $619.6 million and $651.1 million, respectively. Pre-existing lease balances of $34.8 million from current assets, $9.3 million from non-current assets, and $75.5 million from non-current liabilities were reclassified to right-of-use assets and lease liabilities as part of the adoption of the new standard. There was no cumulative earnings effect adjustment on transition.

~~In August 2017, the FASB amended ASC 815,~~ financial asset.~~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 makes more financial and non-financial hedging strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess effectiveness. The Company adopted this ~~guidance in~~update during the first quarter of fiscal ~~2019,~~2020 and it did not have a material impact on the Company's consolidated financial statements.

Recently issued accounting pronouncements

In ~~August 2018,~~December 2019, the FASB ~~clarified~~issued guidance on ASC ~~350-40,~~740, ~~Intangibles - Goodwill and Other - Internal-Use Software~~"Income Taxes"~~, for certain aspects of accounting for implementation costs incurred~~. The amendments in ~~a cloud computing arrangement that is a service contract. Under the~~this update an entity expenses costs incurred in the preliminary-project and post-implementation-operation stages. An entity also capitalizes certain costs incurred during the application-development stage, as well as certain costs related to enhancements. The ASU does not changesimplify the accounting for income taxes by removing certain exceptions to the ~~service component~~general principles in ASC 740. The amendments also improve consistent application and simplify GAAP for other areas of ~~a cloud computing arrangement.~~this topic by clarifying and amending existing guidance. This ~~standard~~guidance is effective for the Company beginning in ~~the first quarter of 2020, with early adoption permitted. The Company adopted this guidance in the~~its first quarter of fiscal ~~2019,~~2021 and early adoption is permitted. The Company is currently evaluating the impact that this new guidance may have on its consolidated financial statements but does not believe it ~~did not~~will have a material impact.

In March 2020, the FASB released guidance on ASC 848, "Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting". This update provides optional expedients and exceptions to the current guidance on contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts and hedging relationships that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued due to reference rate reform. The guidance was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022. The Company is currently evaluating the impact that this new guidance may have on its consolidated financial statements but does not believe it will have a material impact.

NOTE 3. ACQUISITION

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. The results of operations, financial position, and cash flows of MIRROR have been included in the Company's consolidated financial ~~statements.~~statements since the date of acquisition.

The following table summarizes the fair value of the consideration transferred at the date of acquisition, as well as the calculation of goodwill based on the excess of consideration over the provisional fair value of net assets acquired. As part of the transaction, the Company assumed $30.1 million of MIRROR's outstanding debt. This included $15.1 million of external debt that was settled as part of the transaction and $15.0 million of debt previously owed by MIRROR to the Company, which

Table of Contents

~~Accounting policies~~

represents the effective settlement of a preexisting relationship. The debt was determined to be at market terms and was recognized as a component of the consideration transferred, and no gain or loss was recorded on settlement.


	July 7, 2020
	(in thousands)
Fair value of consideration transferred:
Cash paid to shareholders	$	428,261
Employee options attributed to pre-combination vesting	4,569
Acquired debt settled on acquisition	30,122
Fair value of existing lululemon investment	1,782
	464,734
Less cash and cash equivalents acquired	(12,153)
Fair value of consideration transferred, net of cash and cash equivalents acquired	$	452,581
Less net assets acquired:
Assets acquired:
Inventories	$	16,734
Prepaid expenses and other current assets	3,492
Intangible assets	85,000
Other non-current assets	5,648
	$	110,874
Liabilities assumed:
Current liabilities	$	(13,465)
Current and non-current lease liabilities	(3,246)
Net deferred income tax liability	(4,074)
	$	(20,785)
Net assets acquired	$	90,089
Goodwill	$	362,492

The purchase price allocation remains provisional as the Company is still obtaining all information necessary to finalize the fair value of acquired intangibles, deferred taxes, certain contingencies, and resulting amount of goodwill as of the date of acquisition.

Goodwill relates to benefits expected as a result of the ~~adoption of ASC 842~~

~~Operating leases~~

~~At lease commencement, which is generally when~~acquisition to MIRROR's business and has been allocated to the ~~Company takes possession~~MIRROR reporting unit within the Company's other channels. None of the ~~asset, the~~goodwill is expected to be deductible for income tax purposes.

The Company ~~records~~assigned a ~~lease liability~~fair value to and corresponding right-of-use asset. Lease liabilities represent the present value of minimum lease payments over the expected lease term, which includes options to extend or terminate the lease when it is reasonably certain those options will be exercised. The present value of the lease liability is determined using the Company’s incremental collateralized borrowing rate at the lease commencement.

Minimum lease payments include base rent, fixed escalation of rental payments, and rental payments that are adjusted periodically depending on a rate or index. In determining minimum lease payments, the Company does not separate non-lease components for real estate leases. Non-lease components are generally services that the lessor performsestimated useful lives for the ~~Company associated with the leased asset, such as common area maintenance.~~

~~Right-of-use~~intangible assets represent the right to control the use of the leased asset during the lease and are initially recognized in an amount equal to the lease liability. In addition, prepaid rent, initial direct costs, and adjustments for lease incentives are components of the right-of-use asset. Over the lease term the lease expense is amortized on a straight-line basis beginning on the lease commencement date. Right-of-use assets are assessed for impairmentacquired as part of the ~~impairment~~MIRROR business combination. The fair value of ~~long-lived~~the separately identifiable intangible assets, and their estimated useful lives as of the acquisition date were as follows:

Estimated Fair Value

Estimated Useful Life

(In thousands)

Intangible assets:

Brand

26,500

20.0 years

Customer relationships

28,000

10.0 years

Technology

25,500

7.5 years

Content

5,000

5.0 years

85,000

Table of Contents

Accounting for business combinations requires significant estimates and assumptions to derive the fair value of acquired assets and liabilities, and in the case of MIRROR, this is with specific reference to acquired intangible assets. The fair value of intangible assets was based upon widely-accepted valuation techniques, including discounted cash flows and relief from royalty and replacement cost methods, depending on the nature of the assets acquired or liabilities assumed. Inherent in each valuation technique are critical assumptions, including future revenue growth rates, gross margin, royalty rates, discount rates, and terminal value assumptions. The recognition of deferred tax assets in relation to the historic net operating losses of MIRROR relied on assumptions and estimates of the future profitability of the Company's US operations.

The Company has not disclosed pro forma information of the combined business as the transaction is not material to revenue or net earnings.

Acquisition-related expenses

In connection with the acquisition, the Company recognized certain acquisition-related expenses which are expensed as incurred. These expenses are recognized within acquisition-related expenses in the consolidated statements of operations include the following amounts:

•transaction and integration costs, including fees for advisory and professional services incurred as part of the acquisition and integration costs subsequent to the acquisition;

•acquisition-related compensation, including the partial acceleration of vesting of certain stock options, and amounts due to selling shareholders that are contingent upon continuing employment; and

•gain recognized on the Company's existing investment in the acquiree as of the acquisition date.

The following table summarizes the acquisition-related expenses recognized during fiscal 2020:


	Quarter Ended August 2, 2020		Two Quarters Ended August 2, 2020
	(in thousands)
Acquisition-related expenses:
Transaction and integration costs	$	7,201	$	9,246
Gain on existing investment	(782)		(782)
Acquisition-related compensation	5,045		5,045
	$	11,464	$	13,509

Income tax effects of acquisition-related expenses	$	(1,967)	$	(1,967)

In the first two quarters of fiscal 2020, the Company recognized an expense of $2.9 million for the partial acceleration of vesting of certain stock options held by MIRROR employees, and recognized $2.1 million related to deferred consideration.

The Company will recognize a total expense of $57.1 million for deferred consideration which is ~~performed whenever events or~~due to certain continuing MIRROR employees, subject to the continued employment of those individuals through various vesting dates up to three years from the acquisition date. This acquisition-related compensation is expensed over the vesting periods as service is provided, and consists of cash payments, which are included within accrued compensation and related expenses until payments are made, and stock-based compensation awards that have been granted under the Company's 2014 Equity Incentive Plan to replace certain unvested options as of the acquisition date.

Table of Contents

NOTE 4. GOODWILL

The Company's goodwill is assigned to its company-operated stores and other segments. The changes in ~~circumstances indicate that~~ the carrying ~~amount~~amounts of ~~an asset or asset group may not be recoverable.~~goodwill were as follows:

Variable lease payments, including contingent rental payments based on sales volume, are recognized when the achievement of the specific target is probable. A right-of-use asset and lease liability are not recognized for leases with an initial term of 12 months or less, and the lease expense is recognized on a straight-line basis over the lease term.


	Goodwill
	(In thousands)
Balance as of February 2, 2020	$	24,182
MIRROR acquisition	362,492
Effect of foreign currency translation	(81)
Balance as of August 2, 2020	$	386,593

NOTE 3.5. INTANGIBLE ASSETS, NET

The carrying value of intangible assets, and their estimated remaining useful lives as of August 2, 2020 were as follows:


	August 2, 2020		February 2, 2020		Remaining Useful Life
	(In thousands)
Intangible assets, net:
Brand	$	26,390	$	0	19.9 years
Customer relationships	27,758		0		9.9 years
Technology	25,211		0		7.4 years
Content	4,917		0		4.9 years
Other	195		241		2.2 years
	$	84,471	$	241

NOTE 6. CREDIT ~~FACILITY~~FACILITIES

North America revolving credit facility

On June 6, 2018, the Company entered into Amendment No. 1 to its credit agreement. This amended the credit agreement to provide for (i) an increase in the aggregate commitments under the unsecured five-year revolving credit facility to $400.0 million, with an increase of the sub-limits for the issuance of letters of credit and extensions of swing line loans to $50.0 million for each, (ii) an increase in the option, subject to certain conditions as set forth in the credit agreement, to request increases in commitments under the revolving facility from $400.0 million to $600.0 million, and (iii) an extension in the maturity of the revolving facility from December 15, 2021 to June 6, 2023.

~~Table of Contents~~

In addition, this amendment decreased the applicable margins for LIBOR loans from 1.00%-1.75% to 1.00%-1.50% and for alternate base rate loans from 0.00%-0.75% to 0.00%-0.50%, reduced the commitment fee on average daily unused amounts under the revolving facility from 0.125%-0.200% to 0.10%-0.20%, and reduced fees for unused letters of credit from 1.00%-1.75% to 1.00%-1.50%.

The Company is required to follow certain covenants. As of August 2, 2020, the Company was in compliance with these covenants.

The Company had 0 borrowings outstanding under this credit facility as of August ~~4, 2019~~2, 2020 and February ~~3, 2019.~~2, 2020. As of August ~~4, 2019,~~2, 2020, the Company had letters of credit of ~~$1.8~~$2.3 million outstanding.

Mainland China revolving credit facility

In December 2019, the Company entered into an uncommitted and unsecured 130.0 million Chinese Yuan revolving credit facility. The terms are reviewed on an annual basis. The facility includes a revolving loan of up to 100.0 million Chinese Yuan as well as a financial bank guarantee facility of up to 30.0 million Chinese Yuan, or its equivalent in another currency. In U.S. dollars, the uncommitted and unsecured revolving credit facility is equivalent to $18.6 million, the revolving loan is equivalent of up to $14.3 million, and the financial bank guarantee facility is equivalent of up to $4.3 million. Loans are available in Chinese Yuan for a period not to exceed 12 months, and interest accrues on them at a rate equal to 105% of the applicable PBOC Benchmark Lending Rate. Guarantees have a commission equal to 1% per annum of the outstanding amount.

Table of Contents

The Company is required to follow certain covenants. As of August 2, 2020, the Company was in compliance with these covenants. As of August 2, 2020, there were no borrowings outstanding under this credit facility.

364-Day revolving credit facility

On June 29, 2020, the Company entered into a 364-day credit agreement providing for a $300.0 million committed and unsecured revolving credit facility. The credit agreement matures on June 28, 2021. Bank of America, N.A., is administrative agent and swing line lender. Borrowings under the credit facility may be prepaid and commitments may be reduced or terminated without premium or penalty (other than customary breakage costs).

Borrowings made under the credit facility bear interest at a rate per annum equal to, at the Company's option, either (1) 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 (2) 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 1.50%-2.25% for LIBOR loans and 0.50%-1.25% for alternate base rate or Canadian prime rate loans. Additionally, a commitment fee of between 0.25%-0.55%, also determined by reference to the pricing grid, is payable on the average daily unused amounts under the credit facility.

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 is also required to maintain a consolidated rent-adjusted leverage ratio of not greater than 3.50:1.00 and the Company is 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 August 2, 2020, the Company was in compliance with the covenants. As of August 2, 2020, there were 0 borrowings outstanding under this credit facility.

NOTE 4.7. 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 by the Company directly.

Stock-based compensation expense charged to income for the plans was ~~$23.5~~$24.9 million and ~~$13.0~~$23.5 million for the two quarters ended August 2, 2020 and August 4, 2019, ~~and July 29, 2018,~~ respectively. Total unrecognized compensation cost for all stock-based compensation plans was ~~$82.4~~$95.5 million at August ~~4, 2019,~~2, 2020, which is expected to be recognized over a weighted-average period of ~~2.3~~2.2 years.

Table of Contents

A summary of the balances of the Company's stock-based compensation plans as of August ~~4, 2019,~~2, 2020, and changes during the first two quarters then ended, is presented below:

Stock Options Performance-Based Restricted Stock Units Restricted Shares Restricted Stock Units
Restricted Stock Units
(Liability Accounting)
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 Number Weighted-Average Fair Value
(In thousands, except per share amounts)
Balance at February 3, 2019 870
$ 73.34
280
$ 78.01
6
$ 124.19
440
$ 73.73
44
$ 146.12
Granted 322
167.77
93
142.29
7
175.82
119
167.97
—
—
Exercised/released 221
61.12
97
72.04
6
124.19
173
70.17
—
—
Forfeited/expired 50
87.90
15
94.30
—
—
23
93.73
—
—
Balance at August 4, 2019 921
$ 108.50
261
$ 102.23
7
$ 175.82
363
$ 105.04
44
$ 178.93
Exercisable at August 4, 2019 133
$ 64.66


	Stock Options				Performance-Based Restricted Stock Units					Restricted Shares				Restricted Stock Units		Restricted Stock Units (Liability Accounting)
	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		Number	Weighted-Average Fair Value
	(In thousands, except per share amounts)
Balance at February 2, 2020	776	$	113.41	238	$	103.52	7	$	175.82	333	$	108.44	29	$	239.39
Granted	233	177.71		136	115.73		4	296.36		119	197.45		0	0
Exercised/released	145	85.80		171	63.03		7	175.82		165	86.93		0	0
Forfeited/expired	26	158.45		7	158.76		0	0		9	156.80		0	0
Balance at August 2, 2020	838	$	134.68	196	$	145.13	4	$	296.36	278	$	157.64	29	$	325.59
Exercisable at August 2, 2020	175	$	100.92

The grant date 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 are weighted averages of the assumptions that were used in calculating the fair value of stock options granted during the first two quarters of fiscal ~~2019:~~2020:



	Two Quarters Ended August ~~4, 2019~~2, 2020
Expected term	~~3.75~~3.61 years
Expected volatility	~~38.43~~40.03	%
Risk-free interest rate	~~2.19~~0.32	%
Dividend yield	—0	%

The Company's performance-based restricted stock units are awarded to eligible employees and entitle the grantee to receive a maximum of 2 shares of common stock per performance-based restricted stock unit if the Company achieves

~~Table of Contents~~

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 award 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 award date. Restricted stock units that are settled in cash or common stock at the election of the employee are remeasured to fair value at the end of each reporting period until settlement. This fair value is based on the closing price of the Company's common stock on the last business day before each period end.

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 quarter ended August ~~4, 2019,~~2, 2020, there were ~~18.5~~14.9 thousand shares purchased.

Defined contribution pension plans

The Company offers defined contribution pension plans to its eligible employees. Participating employees may elect to defer and contribute a portion of their eligible compensation to a plan up to limits stated in the plan documents, not to exceed

Table of Contents

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 ~~$4.3~~$4.5 million and ~~$3.1~~$4.3 million in the first two quarters of fiscal ~~2019~~2020 and fiscal ~~2018,~~2019, respectively.

NOTE 5.8. 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.

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 August ~~4, 2019~~2, 2020 and February ~~3, 2019,~~2, 2020, the Company held certain assets and liabilities that are required to be measured at fair value on a recurring basis:

August 4, 2019 Level 1 Level 2 Level 3 Balance Sheet Classification
(In thousands)
Money market funds $ 347,590
$ 347,590
$ —
$ —
Cash and cash equivalents
Term deposits 40,606
—
40,606
—
Cash and cash equivalents
Forward currency contract assets 3,838
—
3,838
—
Other prepaid expenses and other current assets
Forward currency contract liabilities 4,162
—
4,162
—
Other current liabilities


	August 2, 2020		Level 1		Level 2		Level 3		Balance Sheet Classification
	(In thousands)
Money market funds	$	179,151	$	179,151	$	0	$	0	Cash and cash equivalents

Term deposits	70,136		0		70,136		0		Cash and cash equivalents
Forward currency contract assets	6,513		0		6,513		0		Prepaid expenses and other current assets
Forward currency contract liabilities	6,559		0		6,559		0		Other current liabilities

~~Table of Contents~~

February 3, 2019 Level 1 Level 2 Level 3 Balance Sheet Classification
(In thousands)
Money market funds $ 471,888
$ 471,888
$ —
$ —
Cash and cash equivalents
Treasury bills 99,958
99,958
—
—
Cash and cash equivalents
Term deposits 63,522
—
63,522
—
Cash and cash equivalents
Forward currency contract assets 516
—
516
—
Other prepaid expenses and other current assets
Forward currency contract liabilities 1,042
—
1,042
—
Other current liabilities


	February 2, 2020		Level 1		Level 2		Level 3		Balance Sheet Classification
	(In thousands)
Money market funds	$	610,800	$	610,800	$	0	$	0	Cash and cash equivalents

Term deposits	203,360		0		203,360		0		Cash and cash equivalents
Forward currency contract assets	1,735		0		1,735		0		Prepaid expenses and other current assets
Forward currency contract liabilities	1,920		0		1,920		0		Other current liabilities

The Company records accounts receivable, accounts payable, and accrued liabilities at cost. The carrying values of these instruments approximate their fair value due to their short-term maturities.

The Company has short-term, highly liquid investments classified as cash equivalents, which are invested in money market funds, Treasury bills, 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 are determined using observable Level 2 inputs, including foreign currency spot exchange rates, forward pricing curves, and interest rates. The fair values consider the credit risk of the Company and its counterparties. The Company's Master International Swap Dealers Association, Inc., Agreements and other similar arrangements allow net settlements under certain conditions. However, the Company records all derivatives on its consolidated balance sheets at fair value and does not offset derivative assets and liabilities.

Table of Contents

NOTE 6.9. DERIVATIVE FINANCIAL INSTRUMENTS

Foreign 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 to U.S. dollar exchange rate and changes in the Chinese Yuan to U.S. dollar exchange rate using forward currency contracts.

Net investment hedges

The Company is exposed to foreign exchange gains and losses which arise on translation of its foreign subsidiaries' balance sheets into U.S. dollars. These gains and losses are recorded as a foreign currency translation adjustment in accumulated other comprehensive income or loss within stockholders' equity.

The Company holds a significant portion of its assets in Canada and enters into forward currency contracts designed to hedge a portion of the foreign currency exposure that arises on translation of a Canadian subsidiary into U.S. dollars. These forward currency contracts are designated as net investment hedges. The 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. Hedge effectiveness is measured using a method based on changes in forward exchange rates. The Company recorded no ineffectiveness from net investment hedges during the first two quarters of fiscal ~~2019.~~2020.

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 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 exchange rate. The resulting foreign currency gains and losses are recorded in selling, general and administrative expenses.

~~Table of Contents~~

During the first two quarters of fiscal ~~2019,~~2020, the Company entered into certain forward currency contracts designed to economically hedge the foreign exchange revaluation gains and losses that are recognized by its Canadian and Chinese subsidiaries on U.S. dollar denominated monetary assets and liabilities. The Company has not applied hedge accounting to these instruments and the change in fair value of these derivatives is recorded within selling, general and administrative expenses.

The Company classifies the cash flows at settlement of its forward currency contracts which are not designated in hedging relationships within operating activities in the consolidated statements of cash flows.

Quantitative disclosures about derivative financial instruments

The Company presents its derivative assets and derivative liabilities at their gross fair values within ~~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 August ~~4, 2019,~~2, 2020, there were derivative assets of ~~$3.8~~$6.5 million and derivative liabilities of ~~$4.2~~$6.6 million subject to enforceable netting arrangements.

Table of Contents

The notional amounts and fair values of forward currency contracts were as follows:

August 4, 2019 February 3, 2019
Gross Notional Assets Liabilities Gross Notional Assets Liabilities
(In thousands)
Derivatives designated as net investment hedges:
Forward currency contracts $ 217,000
$ —
$ 4,162
$ 328,000
$ —
$ 1,042
Derivatives not designated in a hedging relationship:
Forward currency contracts 211,000
3,838
—
309,000
516
—
Net derivatives recognized on consolidated balance sheets:
Forward currency contracts $ 3,838
$ 4,162
$ 516
$ 1,042


	August 2, 2020										February 2, 2020
	Gross Notional		Assets		Liabilities		Gross Notional		Assets		Liabilities
	(In thousands)
Derivatives designated as net investment hedges:
Forward currency contracts	$	721,000	$	0	$	5,870	$	417,000	$	1,583	$	0
Derivatives not designated in a hedging relationship:
Forward currency contracts	726,000		6,513		689		460,000		152		1,920
Net derivatives recognized on consolidated balance sheets:
Forward currency contracts			$	6,513	$	6,559			$	1,735	$	1,920

The forward currency contracts designated as net investment hedges outstanding as of August ~~4, 2019~~2, 2020 mature on different dates between August ~~2019~~2020 and ~~December 2019.~~February 2021.

The forward currency contracts not designated in a hedging relationship outstanding as of August ~~4, 2019~~2, 2020 mature on different dates between August ~~2019~~2020 and ~~December 2019.~~January 2021.

The pre-tax gains and losses on foreign exchange forward contracts recorded in accumulated other comprehensive income or loss were as follows:

Quarter Ended
Two Quarters Ended
August 4, 2019
July 29, 2018
August 4, 2019
July 29, 2018
(In thousands)
Gains (losses) recognized in foreign currency translation adjustment:
Derivatives designated as net investment hedges $ (4,822 ) $ 5,721
$ 1,941
$ 16,538


	Quarter Ended						Two Quarters Ended
	August 2, 2020		August 4, 2019		August 2, 2020		August 4, 2019
	(In thousands)
Gains (losses) recognized in foreign currency translation adjustment:
Derivatives designated as net investment hedges	$	(24,728)	$	(4,822)	$	3,528	$	1,941

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.

~~Table of Contents~~

The pre-tax net foreign exchange and derivative gains and losses recorded in the consolidated statement of operations were as follows:

Quarter Ended Two Quarters Ended
August 4, 2019 July 29, 2018 August 4, 2019 July 29, 2018
(In thousands)
Gains (losses) recognized in selling, general and administrative expenses:
Foreign exchange (losses) gains $ (4,452 ) $ 2,960
$ 1,245
$ 12,605
Derivatives not designated in a hedging relationship 5,121
(5,539 ) (1,510 ) (15,587 )
Net foreign exchange and derivative gains (losses) $ 669
$ (2,579 ) $ (265 ) $ (2,982 )


	Quarter Ended						Two Quarters Ended
	August 2, 2020		August 4, 2019		August 2, 2020		August 4, 2019
	(In thousands)
Gains (losses) recognized in selling, general and administrative expenses:
Foreign exchange gains (losses)	$	(23,867)	$	(4,452)	$	3,874	$	1,245
Derivatives not designated in a hedging relationship	21,574		5,121		(5,946)		(1,510)
Net foreign exchange and derivative gains (losses)	$	(2,293)	$	669	$	(2,072)	$	(265)

Table of Contents

NOTE ~~10.~~12. SEGMENTED INFORMATION AND DISAGGREGATED NET REVENUE

The Company applies ASC Topic 280, Segment Reporting ("ASC 280"), in determining reportable segments for its financial statement disclosure. The Company reports segments based on the financial information it uses in managing its business. The Company's reportable segments are comprised of company-operated stores and direct to consumer. Direct to consumer represents sales from the Company's e-commerce websites and mobile apps. ~~Outlets,~~Other net revenue includes revenue from outlets, temporary locations, sales to wholesale accounts, license and supply arrangements, and ~~warehouse~~the sale ~~net revenue~~of in-home fitness equipment and associated content subscriptions. During the first quarter of fiscal 2020, the Company reviewed its segment and general corporate expenses and determined certain costs that are more appropriately classified in different categories. Accordingly, comparative figures have been ~~combined into other.~~reclassified to conform to the financial presentation adopted for the current year.


	Quarter Ended						Two Quarters Ended
	August 2, 2020		August 4, 2019		August 2, 2020		August 4, 2019
	(In thousands)
Net revenue:
Company-operated stores	$	287,201	$	583,756	$	547,171	$	1,090,178
Direct to consumer	554,302		217,636		906,341		427,480
Other	61,439		81,960		101,392		148,009
	$	902,942	$	883,352	$	1,554,904	$	1,665,667
Segmented income (loss) from operations:
Company-operated stores	$	(5,293)	$	154,316	$	(35,447)	$	275,227
Direct to consumer	237,595		86,618		394,542		165,955
Other	2,587		16,418		2,318		29,041
	234,889		257,352		361,413		470,223
General corporate expense	98,292		89,370		190,020		173,429
Amortization of intangible assets	724		0		724		0
Acquisition-related expenses	11,464		0		13,509		0
Income from operations	124,409		167,982		157,160		296,794
Other income (expense), net	(344)		1,850		830		4,229
Income before income tax expense	$	124,065	$	169,832	$	157,990	$	301,023

Capital expenditures:
Company-operated stores	$	27,316	$	42,026	$	61,135	$	80,736
Direct to consumer	9,781		7,584		12,079		13,810
Corporate and other	15,525		17,720		31,509		41,218
	$	52,622	$	67,330	$	104,723	$	135,764
Depreciation and amortization:
Company-operated stores	$	21,963	$	23,712	$	47,591	$	44,772
Direct to consumer	2,928		2,970		5,612		5,432
Corporate and other	15,753		10,917		30,973		20,218
	$	40,644	$	37,599	$	84,176	$	70,422

Quarter Ended Two Quarters Ended
August 4, 2019 July 29, 2018 August 4, 2019 July 29, 2018
(In thousands)
Net revenue:
Company-operated stores $ 583,756
$ 486,368
$ 1,090,178
$ 919,499
Direct to consumer 217,636
167,405
427,480
325,248
Other 81,960
69,727
148,009
128,459
$ 883,352
$ 723,500
$ 1,665,667
$ 1,373,206
Segmented income from operations:
Company-operated stores $ 154,332
$ 125,868
$ 275,239
$ 225,155
Direct to consumer 86,081
67,033
164,756
129,300
Other 16,619
13,094
29,252
24,317
257,032
205,995
469,247
378,772
General corporate expense 89,050
71,787
172,453
140,259
Income from operations 167,982
134,208
296,794
238,513
Other income (expense), net 1,850
1,591
4,229
4,509
Income before income tax expense $ 169,832
$ 135,799
$ 301,023
$ 243,022

Capital expenditures:
Company-operated stores $ 42,026
$ 27,765
$ 80,736
$ 47,001
Direct to consumer 7,584
593
13,810
1,314
Corporate and other 17,720
21,335
41,218
35,692
$ 67,330
$ 49,693
$ 135,764
$ 84,007
Depreciation and amortization:
Company-operated stores $ 23,712
$ 18,489
$ 44,772
$ 35,571
Direct to consumer 2,970
2,302
5,432
4,901
Corporate and other 10,917
7,865
20,218
14,957
$ 37,599
$ 28,656
$ 70,422
$ 55,429

Table of Contents

The following table disaggregates the Company's net revenue by geographic area.


	Quarter Ended						Two Quarters Ended
	August 2, 2020		August 4, 2019		August 2, 2020		August 4, 2019
	(In thousands)
United States	$	595,918	$	621,843	$	1,055,270	$	1,175,490
Canada	147,658		145,605		247,155		269,250
Outside of North America	159,366		115,904		252,479		220,927
	$	902,942	$	883,352	$	1,554,904	$	1,665,667

The ~~economic conditions in these areas could affect the amount and timing of~~following table disaggregates the Company's net revenue ~~and cash flows.~~

Quarter Ended Two Quarters Ended
August 4, 2019 July 29, 2018 August 4, 2019 July 29, 2018
(In thousands)
United States $ 621,843
$ 512,413
$ 1,175,490
$ 974,683
Canada 145,605
124,278
269,250
236,427
Outside of North America 115,904
86,809
220,927
162,096
$ 883,352
$ 723,500
$ 1,665,667
$ 1,373,206

by category.


	Quarter Ended						Two Quarters Ended
	August 2, 2020		August 4, 2019		August 2, 2020		August 4, 2019
	(In thousands)
Women's product	$	649,310	$	616,197	$	1,129,623	$	1,179,180
Men's product	191,019		212,727		320,148		382,946
Other categories	62,613		54,428		105,133		103,541
	$	902,942	$	883,352	$	1,554,904	$	1,665,667

NOTE ~~11.~~13. LEGAL PROCEEDINGS AND OTHER CONTINGENCIES

In addition to the legal proceedings 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. This includes legal matters such as initiation and defense of proceedings to protect intellectual property rights,

~~Table of Contents~~

personal injury claims, product liability claims, employment claims, and similar matters. The Company believes the ultimate resolution of any such legal proceedings, audits, and inspections will not have a material adverse effect on its consolidated balance sheets, results of operations or cash flows.

On October 9, 2015, certain current and former hourly employees of the Company filed a class action lawsuit 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 that the Company violated various New York labor codes by failing to pay all earned wages, including overtime compensation. The plaintiffs are seeking an unspecified amount of damages. The Company intends to vigorously defend this matter.

On ~~November 21, 2018, plaintiff David Shabbouei~~March 23, 2020, a former retail employee filed a representative action in the ~~Delaware~~Los Angeles Superior Court ~~of Chancery a derivative lawsuit on behalf~~alleging violation of the Private Attorney General Act ("PAGA") based on purported California labor code violations including failure to pay wages, failure to pay overtime, failure to provide accurate itemized statements, and failure to provide meal and rest periods. The plaintiff is seeking to recover civil penalties under PAGA. The Company ~~against certain of~~intends to vigorously defend this matter.

On April 9, 2020, Aliign Activation Wear, LLC filed a lawsuit in the ~~Company's current and former directors and officers, captioned~~ ~~David Shabbouei v. Laurent Potdevin, et al.,~~ 2018-0847-JRS. Plaintiff claims that the defendants breached their fiduciary duties to the Company by allegedly failing to address alleged sexual harassment, gender discrimination, and related conduct at the Company. Plaintiff also claims that the defendants breached their fiduciary duties to the Company and wasted corporate assets with respect to the separation agreement entered into by the Company and Laurent Potdevin in connection with his departure from the Company in February 2018. Plaintiff also further brings an unjust enrichment claim against Mr. Potdevin with respect to the separation agreement. Plaintiff seeks unspecified money damagesUnited States District Court for the Central District of California alleging federal trademark infringement, false designation of origin and unfair competition. The plaintiff is seeking injunctive relief, monetary damages and declaratory relief. The Company for the defendants' alleged breaches of fiduciary duty, waste and unjust enrichment, disgorgement of all profits, benefits and other compensation Mr. Potdevin received as a result of defendants' alleged conduct for the Company, an order directing the Companyintends to ~~implement corporate governance and internal procedures, and an award of plaintiff's attorneys' fees, costs and expenses. The defendants and lululemon have moved to dismiss the action.~~vigorously defend this matter.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Some of the statements contained in this Form 10-Q and any documents incorporated herein by reference constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, included or incorporated in this Form 10-Q are forward-looking statements, particularly statements which relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts, such as statements regarding our future financial condition or results of operations, the impact of the COVID-19 pandemic on our business and results of operations, expectations related to our acquisition of MIRROR, our prospects and strategies for future growth, the development and introduction of new products, and the implementation of our marketing and branding strategies. In many cases, you can identify forward-looking statements by terms such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "intends," "predicts," "potential" or the negative of these terms or other comparable terminology.

Table of Contents

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 ~~2018~~2019 Annual Report on Form 10-K filed with the SEC on March ~~27, 2019.~~26, 2020.

We disclose material non-public information through one or more of the following channels: our investor relations website (http://investor.lululemon.com/), the social media channels identified on our investor relations website, press releases, SEC filings, public conference calls, and webcasts.

~~Table of Contents~~

Overview

lululemon athletica inc. is principally a designer, distributor, and retailer of healthy lifestyle inspired athletic apparel and accessories. We have a vision to be the experiential brand that ignites a community of people through sweat, grow, and connect, which we call "living the sweatlife." Since our inception, we have fostered a distinctive corporate culture; we promote a set of core values in our business which include taking personal responsibility, nurturing entrepreneurial spirit, acting with honesty and courage, valuing connection, and choosing to have fun. These core values attract passionate and motivated employees who are driven to achieve personal and professional goals, and share our purpose "to elevate the world by unleashing the full potential within every one of us."

Our healthy lifestyle inspired athletic apparel and accessories are marketed under the lululemon ~~and ivivva brand names.~~brand. We offer a comprehensive line of apparel and accessories for women ~~men,~~ and ~~female youth.~~men. Our apparel assortment includes items such as pants, shorts, tops, and jackets designed for a healthy lifestyle including athletic activities such as yoga, running, training, and most other sweaty pursuits. We also offer fitness-related accessories.

During the second quarter of fiscal 2020, we acquired Curiouser Products Inc., dba MIRROR, for a purchase price of approximately $500.0 million, of which approximately $57.1 million is due to certain continuing employees subject to their continued employment through various vesting dates up to three years after the closing date of the transaction. MIRROR is a leading in-home fitness company with an interactive workout platform that features live and on-demand classes. The acquisition of MIRROR will bolster our digital sweatlife offerings and bring immersive and personalized in-home sweat, and mindfulness solutions to new and existing lululemon guests.

COVID-19 Pandemic

The outbreak of a novel strain of coronavirus ("COVID-19") was declared a global pandemic by the World Health Organization in March 2020. The spread of COVID-19 has caused public health officials to impose restrictions and to recommend precautions to mitigate the spread of the virus, especially when congregating in heavily populated areas, such as malls and lifestyle centers.

We have taken actions to temporarily close retail locations and to reduce operating hours, and we continue to monitor the situation and work closely with local authorities to prioritize the safety of our people and guests. In February 2020, we temporarily closed all of our retail locations in Mainland China. In March 2020, we temporarily closed all of our retail locations in North America, Europe, and certain countries in Asia Pacific. The stores in Mainland China reopened during the first quarter of fiscal 2020, and stores in other markets began reopening in accordance with local government and public health authority guidelines during the second quarter of fiscal 2020. As of August 2, 2020, 492 of our company-operated stores were open. Our distribution centers in Columbus, Ohio and Sumner, Washington were temporarily closed for one and two weeks, respectively, during the first quarter of fiscal 2020 due to COVID-19. As of August 2, 2020, all of our distribution centers were open.

Table of Contents

Our retail locations and distribution centers are operating with restrictive and precautionary measures in place such as reduced operating hours, physical distancing, enhanced cleaning and sanitation, and limited occupancy levels. This pandemic has also impacted the operations of our third party logistics providers and our manufacturing and supply partners, including through the closure or reduced capacity of facilities, and operational changes to accommodate physical distancing. As the pandemic continues, we may face further disruptions or increased operational and logistics costs throughout our supply chain.

There is significant uncertainty regarding the extent and duration of the impact that the COVID-19 pandemic will have on our store operations, the demand for our products, and on our supply chain. It had a material adverse impact on our results of operations for the first two quarters of fiscal 2020, and we expect it to continue to impact our results of operations, financial position, and liquidity. 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 the actions taken to contain it or treat its impact.

We remain confident in the long-term growth opportunities and our Power of Three growth plan and believe that we have sufficient cash and cash equivalents, and available capacity under our revolving credit facilities, to meet our liquidity needs. As of August 2, 2020, we had cash and cash equivalents of $523.0 million and the capacity under our committed revolving credit facilities was $697.7 million.

Financial Highlights

For the second quarter of fiscal ~~2019,~~2020, compared to the second quarter of fiscal ~~2018:~~2019:

•Net revenue increased ~~22%~~2% to ~~$883.4~~$902.9 million. On a constant dollar basis, net revenue increased ~~23%~~3%.

~~Total comparable sales, which includes comparable store sales and direct~~•Company-operated stores net revenue decreased 51% to $287.2 million.

•Direct to consumer net revenue increased ~~15%. On~~155% to $554.3 million, or increased 157% on a constant dollar ~~basis, total comparable sales increased 17%.~~


–	~~Comparable store sales increased 10%, or increased 11% on a constant dollar basis.~~


–	~~Direct to consumer net revenue increased 30%, or increased 31% on a constant dollar basis.~~

~~Due to~~basis. We held an online warehouse sale during the ~~53rd week in~~second quarter of fiscal 2018, comparable sales are calculated on a one week shifted basis such that the 13 weeks and 26 weeks ended August 4, 2019 are compared to the 13 weeks and 26 weeks ended August 5, 2018 rather than July 29, 2018.2020 which generated net revenue of $43.3 million.

•Gross profit increased ~~23%~~1% to ~~$485.8~~$489.5 million.

•Gross margin ~~increased 20~~decreased 80 basis points to ~~55.0%~~54.2%.

•Acquisition-related expenses of $11.5 million were recognized.

•Income from operations ~~increased 25%~~decreased 26% to ~~$168.0~~$124.4 million.

•Operating margin ~~increased 50~~decreased 520 basis points to ~~19.0%~~13.8%.

•Income tax expense ~~increased 12%~~decreased 17% to ~~$44.8~~$37.3 million. Our effective tax rate for the second quarter of fiscal ~~2019~~2020 was ~~26.4%~~30.0% compared to ~~29.5%~~26.4% for the second quarter of fiscal ~~2018.~~2019.

•Diluted earnings per share were ~~$0.96~~$0.66 compared to ~~$0.71~~$0.96 in the second quarter of fiscal ~~2018.~~2019. This includes $9.5 million of after-tax costs related to the MIRROR acquisition, which reduced diluted earnings per share by $0.08 for the second quarter of fiscal 2020.

As the temporary store closures from COVID-19 have resulted in a significant number of stores being removed from our comparable store base, total comparable sales and comparable store sales are not currently representative of the underlying trends of our business. We do not believe these metrics are currently useful to investors in understanding performance, therefore we have not included these metrics in our discussion and analysis of results of operations.

Refer to the non-GAAP reconciliation tables contained in the "Non-GAAP Financial Measures" section of this Item 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 the most directly comparable measures calculated in accordance with GAAP.

Table of Contents

Results of Operations

Second Quarter Results

The following table summarizes key components of our results of operations for the quarters ended August 2, 2020 and August 4, ~~2019 and July 29, 2018.~~2019. The percentages are presented as a percentage of net revenue.


	Quarter Ended									Quarter Ended
	August 4, 2019		July 29, 2018		August 4, 2019		July 29, 2018			August 2, 2020		August 4, 2019		August 2, 2020		August 4, 2019
	(In thousands)				(Percentages)					(In thousands)						(Percentages)
Net revenue	$	883,352	$	723,500	100.0	%	100.0	%	Net revenue	$	902,942	$	883,352	100.0	%	100.0	%
Cost of goods sold	397,556		327,306		45.0		45.2		Cost of goods sold	413,441		397,556		45.8		45.0
Gross profit	485,796		396,194		55.0		54.8		Gross profit	489,501		485,796		54.2		55.0
Selling, general and administrative expenses	317,814		261,986		36.0		36.2		Selling, general and administrative expenses	352,904		317,814		39.1		36.0
Amortization of intangible assets									Amortization of intangible assets	724		—		0.1		—
Acquisition-related expenses									Acquisition-related expenses	11,464		—		1.3		—
Income from operations	167,982		134,208		19.0		18.5		Income from operations	124,409		167,982		13.8		19.0
Other income (expense), net	1,850		1,591		0.2		0.2		Other income (expense), net	(344)		1,850		—		0.2
Income before income tax expense	169,832		135,799		19.2		18.8		Income before income tax expense	124,065		169,832		13.7		19.2
Income tax expense	44,842		40,029		5.1		5.5		Income tax expense	37,264		44,842		4.1		5.1
Net income	$	124,990	$	95,770	14.1	%	13.2	%	Net income	$	86,801	$	124,990	9.6	%	14.1	%

Net Revenue

Net revenue increased ~~$159.9~~$19.6 million, or ~~22%~~2%, to $902.9 million for the second quarter of fiscal 2020 from $883.4 million for the second quarter of fiscal ~~2019 from $723.5 million for the second quarter of fiscal 2018.~~2019. On a constant dollar basis, assuming the average exchange rates for the second quarter of fiscal ~~2019~~2020 remained constant with the average exchange rates for the second quarter of fiscal ~~2018,~~2019, net revenue increased ~~$168.3~~$26.6 million, or ~~23%~~3%.

The increase in net revenue was primarily due to increased ~~company-operated store net revenue, including from new company-operated stores as well as an increase in comparable store sales, increased~~ direct to consumer net revenue. This was partially offset by a decrease in company-operated store revenue, ~~and an increase~~as well as a decrease in net revenue from our other channels driven by temporary retail ~~locations.~~

~~Based on~~location closures as well as reduced operating hours and limited guest occupancy levels as a ~~shifted calendar, total comparable sales, which includes comparable store sales and direct to consumer, increased 15% in the second quarter~~result of ~~fiscal 2019 compared to the second quarter of fiscal 2018. Total comparable sales increased 17% on a constant dollar basis.~~COVID-19.

Net revenue on a segment basis for the quarters ended August 2, 2020 and August 4, 2019 ~~and July 29, 2018~~ is summarized below. The percentages are presented as a percentage of total net revenue.


	Quarter Ended									Quarter Ended
	August 4, 2019		July 29, 2018		August 4, 2019		July 29, 2018			August 2, 2020		August 4, 2019		August 2, 2020		August 4, 2019
	(In thousands)				(Percentages)					(In thousands)						(Percentages)
Company-operated stores	$	583,756	$	486,368	66.1	%	67.2	%	Company-operated stores	$	287,201	$	583,756	31.8	%	66.1	%
Direct to consumer	217,636		167,405		24.6		23.1		Direct to consumer	554,302		217,636		61.4		24.6
Other	81,960		69,727		9.3		9.6		Other	61,439		81,960		6.8		9.3
Net revenue	$	883,352	$	723,500	100.0	%	100.0	%	Net revenue	$	902,942	$	883,352	100.0	%	100.0	%

Table of Contents

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In addition to the legal matters described in Note 1113 to the unaudited interim consolidated financial statements included in Item 1 of Part I of this report and in our fiscal ~~2018~~2019 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 Annual Report on Form 10-K for our ~~2018~~2019 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 by any of these risks. Please note that additional risks not presently known to us or that we currently deem immaterial could also impair our business and operations.

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. 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. Negative publicity regarding the production methods of any of our suppliers or manufacturers could adversely affect our reputation and sales and force us to locate alternative suppliers or manufacturing sources. Additionally, while we devote considerable efforts 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.

The current COVID-19 coronavirus pandemic and related government, private sector, and individual consumer responsive actions have and will continue to adversely affect our business operations, store traffic, employee availability, financial condition, liquidity, and cash flow.

The outbreak of the COVID-19 coronavirus disease has been declared a pandemic by the World Health Organization and has spread across the United States, Canada, and many other countries globally. Related government and private sector responsive actions have significantly affected our business operations and will likely continue to do so for the foreseeable future.

The spread of COVID-19 has caused public 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. In February 2020, we temporarily closed the majority of our stores, and we have implemented precautionary measures in line with guidance from local authorities in the stores we have reopened. These measures include restrictions such as limitations on the number of guests 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. There is significant uncertainty regarding what the results of operations of reopened stores will be.

A resurgence in COVID-19 cases 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, and global economies, consumer willingness to visit stores, malls, and lifestyle centers, and employee willingness to staff our stores once they reopen. 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.

We may be impacted by other business disruptions related to COVID-19, including disruptions to our sourcing and manufacturing or to our distribution facilities. Both of our distribution centers in the United States have experienced temporary closures due to COVID-19.

Table of Contents

The temporary closure of the majority of our retail locations as well as other impacts of COVID-19 have negatively impacted our cash flows from operations and our liquidity. The length and severity of the pandemic, as well as the pace of recovery could negatively impact our liquidity for the foreseeable future. The availability of federal, state, and foreign funding programs is uncertain.

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 the actions taken to contain it or treat its impact.

If any of our products are unacceptable to us or our guests, our business could be harmed.

We have occasionally received, and may in the future receive, shipments of products that fail to comply with our technical specifications or that fail to conform to our quality control standards. We have also received, and may in the future receive, products that are otherwise unacceptable to us or our guests. Under these circumstances, unless we are able to obtain replacement products in a timely manner, we risk the loss of net revenue resulting from the inability to sell those products and related increased administrative and shipping costs. Additionally, if the unacceptability of our products is not discovered until after such products are purchased by our guests, 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.

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.

~~Table of Contents~~

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. 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. The following statistics are based on cost.

We work with a group of approximately 6539 vendors that manufacture our products, five of which produced approximately 56% of our products in fiscal 2019. During fiscal 2019, the largest single manufacturer produced approximately 17% of our products. During fiscal 2019, approximately 33% of our products were manufactured in Vietnam, 16% in Cambodia, 15% in Sri Lanka, and 11% in the PRC, including 2% in Taiwan, PRC.

Table of Contents

We work with a group of approximately 76 suppliers to provide the fabrics for our products. In fiscal ~~2018,~~2019, approximately ~~60%~~59% of our fabrics were produced by our top five fabric suppliers, and the largest single manufacturer produced approximately ~~35%~~32% of ~~raw materials~~fabric used. ~~We work with a group of approximately 44 vendors that manufacture our products, five of which produced approximately 60% of our products in fiscal 2018.~~ During fiscal ~~2018, the largest single manufacturer produced~~2019, approximately ~~21% of our product offerings. We have no long-term contracts with any of our suppliers or manufacturing sources for the production and supply~~46% of our fabrics originated from Taiwan, PRC, 14% from the rest of the PRC, 19% from Sri Lanka, and ~~garments, and we compete with~~the remainder from other ~~companies for fabrics,~~regions.

We also source other raw materials which are used in our products, including items such as content labels, elastics, buttons, clasps, and ~~production.~~drawcords from suppliers located predominantly in the Asia Pacific region.

We have experienced, and may in the future 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. Our supply of fabric or the manufacturing of our products could be disrupted or delayed by the impact of global health pandemics, including the current COVID-19 coronavirus pandemic, and the related government and private sector responsive actions such as border 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. 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.

The operations of many of our suppliers are subject to additional risks that are beyond our control and that could harm our business, financial condition, and results of operations.

Almost all of our suppliers are located outside of North America, and as a result, we are subject to risks associated with doing business abroad, including:

•the impact of health conditions, including the current COVID-19 coronavirus pandemic, and related government and private sector responsive actions, and other changes in local economic conditions in countries where our manufacturers, suppliers, or guests are located;

•political unrest, terrorism, labor disputes, and economic instability resulting in the disruption of trade from foreign countries in which our products are manufactured;

•the imposition of new laws and regulations, including those relating to labor conditions, quality and safety standards, imports, duties, taxes 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 in the PRC; and

•disruptions or delays in shipments whether due to port congestion, labor disputes, product regulations and/or inspections or other factors, natural disasters or health pandemics, or other transportation disruptions.

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.

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 practices. 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 material to our supply chain, our reputation and sales could be adversely affected, we could be subject to legal liability, or we could be forced to locate alternative suppliers or manufacturing sources.

Table of Contents

An economic recession, depression, 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~~Some of the ~~level of~~factors that may influence consumer spending ~~for such~~on discretionary items include general economic conditions ~~particularly~~(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,~~America), high levels of unemployment, health pandemics (such as the impact of the current COVID-19 coronavirus pandemic, including reduced store traffic and widespread temporary store closures), 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 rates and credit availability, government austerity measures, fluctuating fuel and other energy costs, fluctuating commodity prices, tax ~~rates.~~rates and general uncertainty regarding the overall future economic environment. To date, COVID-19 and related restrictions and mitigation measures have negatively impacted the global economy and created significant volatility and disruption of financial markets. While the duration and severity of the economic impact of COVID-19 is unknown, any recession, depression or general downturn in the global economy will negatively affect consumer confidence and discretionary spending. 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, 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 condition, operating results, and cash flows.

~~Table of Contents~~

If we are unable to anticipate consumer preferences and successfully develop and introduce new, innovative, and updated 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. 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

Table of Contents

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 or our failure to comply with data privacy laws 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.

Additionally, we are subject to laws and regulations such as the European ~~Union has adopted a comprehensive~~Union's General Data Privacy Regulation ~~(the "GDPR"~~("GDPR") and the California Consumer Privacy Act ("CCPA"). ~~The GDPR requires~~These regulations require companies to satisfy new requirements regarding the handling of personal and sensitive data, including its use, protection, and the ability of persons whose data is stored to correct or delete such data about themselves. Failure to comply with GDPR requirements could result in penalties of up to four percent of worldwide revenue. The GDPR, CCPA, and other similar laws and regulations, as well as any associated inquiries or investigations or any other government actions, may be costly to comply with, increase our operating costs, require significant management time and attention, and subject us to remedies that

~~Table of Contents~~

may harm our business, including fines, negative publicity, or demands or orders that we modify or cease existing business practices.

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", 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 information 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 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.

Table of Contents

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 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.

~~Changes~~Temporary store closures due to COVID-19, 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 trade channels, with a significant portion through traditional brick-and-mortar retail channels. Many of our stores remain temporarily closed due to the impacts of COVID-19, and we are unable to predict the breadth and duration of these store closures and the restrictions that will be in place once they do reopen. 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 store closures and impairment charges. We could have difficulty in recreating the in-store experience through direct channels. We could also be exposed to liability for online content. 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.

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.

~~Table of Contents~~

Our limited operating experience and limited brand recognition in new international markets 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 foreign 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 disappointing growth outside of existing markets could harm our business and results of operations.

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 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 responsive actions could contribute to a recession, depression, or global economic downturn, reduce store traffic and consumer spending, result in temporary or permanent closures of stores, offices, and factories, and could negatively impact the flow of goods.

Table of Contents

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, 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.

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 in 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 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 do sell similar products 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 copyright, trademark, trade dress, 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 rights by others, including imitation of our products 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.

Our ability 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. The results of any audits or related disputes regarding these restrictions or regulations could have an adverse effect on our financial statements for the period or periods for which 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.

~~Table of Contents~~

We are dependent on international trade agreements and regulations. The countries in which we produce and sell our products could impose or increase tariffs, duties, or other similar 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 ~~China,~~the PRC, Canada, or other countries where we sell or source our products, could negatively impact our results of operations or cash flows. The current political administrations in the United States and ~~China~~the PRC have proposed tariffs which 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 and could increase the costs of sourcing our products from ~~China,~~the PRC, or could require us to source our products from other countries.

~~The invocation~~

Table of ~~Article 50 of~~Contents

On January 31, 2020, the ~~Treaty of~~United Kingdom ("UK") withdrew from the European Union ("EU") ~~by the United Kingdom ("UK") initiated the withdrawal of the UK from the EU,~~, commonly referred to as "Brexit". There is significant uncertainty related to how the UK's trade, duties, and customs arrangements with the EU will be impacted by Brexit after the transition period, as well as the impact on the movement of goods, people, and capital between the UK and the EU. There could be changes in economic conditions in the UK or EU, including foreign exchange rates and consumer markets. Our business could be adversely affected by these changes, including by additional duties on the importation of our products into the UK from the EU and as a result of shipping delays or congestion.

The potential benefits and synergies sought with the acquisition of MIRROR might not be fully realized, if at all.

On July 7, 2020, we completed the acquisition of MIRROR as part of our growth plan, which includes driving business through omni guest experiences. 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. The expected synergies between lululemon and MIRROR, 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.

Management has limited experience in addressing the challenges of integrating management teams, strategies, cultures, and organizations of two companies. This integration 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 MIRROR. If MIRROR has inadequate or ineffective controls and procedures, our internal control over financial reporting could be adversely impacted. The acquisition may not be well received by the customers or employees of either company, and this could hurt our brand and result in the loss of key employees. If we are unable to successfully integrate MIRROR, including its people and technologies, we may not be able to manage operations efficiently, which could adversely affect our results of operations.

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.

The significant costs incurred in connection with the acquisition of MIRROR could limit our operating flexibility.

The acquisition of MIRROR had a significant impact on our cash flows. We have incurred and expect to continue to incur costs in connection with the acquisition including fees for financial and legal advisors as well as expenses incurred in integrating MIRROR. These costs could limit our operating flexibility and ability to take responsive actions to current and future economic uncertainty, including the ongoing impact of COVID-19. While we expanded our available borrowings under our credit facilities to provide extra liquidity, we will incur additional interest expenses if we draw from these facilities.

We may not be able to grow the MIRROR business and have it achieve profitability.

We may be unable to attract and retain subscribers to MIRROR. If we do not provide the delivery and installation service that our guests expect, offer engaging and innovative classes, and support and continue to improve the technology used, we may not be able to maintain and grow the number of subscribers. This could adversely impact our results of operations.

We are dependent on information technology systems to provide live and recorded classes to our customers with MIRROR subscriptions, to maintain its software, and to manage subscriptions. If we experience issues such as cybersecurity threats or actions, or interruptions or delays in our information technology systems, the data privacy and overall experience of subscribers could be negatively impacted and could therefore damage our brand and adversely affect our results of operations.

Competition, including from other in-home fitness solutions as well as in-person fitness studios, and trends of consumer preferences, could also impact the level of subscriptions and therefore our results of operations.

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~~foreign 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 foreign withholding taxes. We may face unanticipated tax liabilities in connection with our acquisition of MIRROR.

Table of Contents

Repatriations from our Canadian subsidiaries are not subject to Canadian withholding taxes if such distributions are made as a return of capital. We have not accrued for any Canadian withholding taxes that could be payable on future repatriations from our Canadian subsidiaries because we believe the current net investment in our Canadian subsidiaries can either be repatriated free of withholding tax or is expected to be indefinitely reinvested. The extent to which future 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. We are unable to determine the timing and extent to which such transactions may occur. Accordingly, increases in our Canadian net assets may result in an increase to our effective tax rate.

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. Changes in applicable U.S., Canadian, or other foreign tax laws and regulations, or their interpretation and application, including the possibility of retroactive effect, could affect our income tax expense and profitability, as they did in fiscal 2017 and fiscal 2018 upon passage of the U.S. Tax Cuts and Jobs Act.

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 ~~$3.3~~$4.0 billion in fiscal ~~2018.~~2019. 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 ~~ten~~15 years, and generally can be extended 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 current locations of our stores become unattractive as demographic patterns change. In addition, as each of our leases expire,

~~Table of Contents~~

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.

Increasing labor costs and other factors associated with the production of our products in South and South East Asia could 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 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 a potential significant revaluation of the currencies used in these countries, which may result in an increase in the cost of producing products, labor shortage and increases in labor costs, and difficulties and additional costs in transporting products manufactured from these countries to our distribution centers. 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.

~~The operations~~

Table of ~~many of our suppliers are subject to additional risks that are beyond our control and that could harm our business, financial condition, and results of operations.~~Contents

Almost all of our suppliers are located outside of North America. During fiscal 2018, approximately 58% of our products were manufactured in South East Asia, approximately 21% in South Asia, approximately 12% in China, approximately 8% in the Americas, and the remainder in other regions.

~~As a result of our international suppliers, we are subject to risks associated with doing business abroad, including:~~

~~political unrest, terrorism, labor disputes, and economic instability resulting in the disruption of trade from foreign countries in which our products are manufactured;~~

the imposition of new laws and regulations, including those relating to labor conditions, quality and safety standards, imports, duties, taxes 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 whether due to port congestion, labor disputes, product regulations and/or inspections or other factors, natural disasters or health pandemics, or other transportation disruptions; and

~~changes in local economic conditions in countries where our manufacturers, suppliers, or guests are located.~~

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;

•gain brand recognition and acceptance, particularly in markets that are new to us;

•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

~~Table of Contents~~

~~on our emerging understanding of the market. We may not be able to successfully implement 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 apparel and other products and brand image will be ~~accepted,~~accepted. In addition, we may not be able to open or profitably operate new stores in existing, adjacent, or new markets due to the ~~performance~~impact of ~~our stores will be considered successful.~~COVID-19, which could have a material adverse effect on us.

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, 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 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 foreign 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 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.

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

Table of Contents

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 foreign 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 foreign 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 exchange differences which arise on translation of our foreign subsidiaries' balance sheets into U.S. dollars are recorded as a foreign currency translation adjustment in accumulated other comprehensive income or loss within stockholders' equity.

~~Table of Contents~~

We also have exposure to changes in foreign 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 exchange rates and may be impacted for the foreseeable future. The potential impact of currency fluctuation increases as our international expansion increases.

We have, and may continue to, 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.

Our trademarks 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 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 applied for and obtained some United States, Canada, and foreign trademark registrations, and will continue to evaluate the registration of additional trademarks as appropriate. However, some or all of these pending trademark 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 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 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.

Table of Contents

Our business could be negatively affected as a result of actions of activist stockholders or others.

We may be subject to actions or proposals from stockholders or others that may not align with our business strategies or the interests of our other stockholders. Responding to such actions can be costly and time-consuming, disrupt our business and operations, and divert the attention of our board of directors, management, and employees from the pursuit of our 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 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.

~~Table of Contents~~

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.

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 quarter ended August ~~4, 2019~~2, 2020 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⁾
May 6, 2019 - June 2, 2019 2,429
$ 163.35
2,429
$ 336,773,231
June 3, 2019 - July 7, 2019 7,136
164.29
7,136
335,600,874
July 8, 2019 - August 4, 2019 —
—
—
335,600,874
Total 9,565
9,565

~~__________~~

Period⁽¹⁾

~~Monthly information is presented by reference to our fiscal periods during our second quarter~~

Total Number of ~~fiscal 2019.~~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⁾

May 4, 2020 - May 31, 2020		—	—	—	$	263,646,016
⁽²⁾June 1, 2020 - July 5, 2020	A stock repurchase program was approved by our board of directors in November 2017 for the repurchase of up to $200 million common shares and in June 2018, our board of directors approved an increase to this stock repurchase program, authorizing the repurchase of up to a total of $600 million of our common shares.	—	—	—	263,646,016
July 6, 2020 - August 2, 2020		—	—	—	263,646,016
Total		—		—

__________

⁽¹⁾Monthly information is presented by reference to our fiscal periods during our second quarter of fiscal 2020.

⁽²⁾On January 31, 2019, our board of directors approved a ~~new~~ stock repurchase program of up to $500 million of our common shares on the open market or in privately negotiated transactions. 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. ~~The repurchases are expected to be completed by January 2021.~~

As of March 31, 2020, we temporarily paused our share repurchase program.

Table of Contents

The following table provides information regarding our purchases of shares of our common stock during the quarter ended August ~~4, 2019~~2, 2020 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⁾
May 6, 2019 - June 2, 2019 6,313
$ 169.23
6,313
4,777,113
June 3, 2019 - July 7, 2019 6,147
177.75
6,147
4,770,966
July 8, 2019 - August 4, 2019 6,080
190.06
6,080
4,764,886
Total 18,540
18,540


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⁾
May 4, 2020 - May 31, 2020	5,263	$	266.78	5,263	4,699,286
June 1, 2020 - July 5, 2020	4,937	292.66		4,937	4,694,349
July 6, 2020 - August 2, 2020	4,712	316.22		4,712	4,689,637
Total	14,912			14,912

__________

⁽¹⁾

⁽¹⁾Monthly information is presented by reference to our fiscal periods during our second quarter of fiscal 2020.

⁽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.

~~Monthly information is presented by reference to our fiscal periods during our second quarter of fiscal 2019.~~

⁽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.

Table of Contents

ITEM 6. EXHIBITS

Incorporated by Reference

Exhibit
No.

Exhibit Title

Filed
Herewith

Form

Exhibit
No.

File No.

Filing
Date

10.1

364-Day Credit Agreement, dated June 29, 2020, among lululemon athletica inc., a Delaware corporation; lululemon athletica canada inc., a corporation organized under the laws of British Columbia; Lulu Canadian Holding, Inc., a corporation organized under the laws of British Columbia; lululemon usa inc., a Nevada corporation; each lender from time to time a party to the credit agreement; and Bank of America, N.A., as administrative agent and swing line lender

8-K

10.1

001-33608

7/1/2020

31.1

Certification of principal executive officer Pursuant to Exchange Act Rule 13a-14(a)

31.2

Certification of principal financial and accounting officer Pursuant to Exchange Act Rule 13a-14(a)

32.1*

Certification of principal executive officer and principal financial and accounting officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101

The following unaudited interim consolidated financial statements from the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended August 2, 2020, formatted in 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 Statements

~~Incorporated by Reference~~

~~Exhibit~~

~~No.~~

~~Exhibit Title~~

~~Filed~~

~~Herewith~~

~~Form~~

~~Exhibit~~

~~No.~~

~~File No.~~

~~Filing~~

~~Date~~

~~31.1~~

~~Certification of principal executive officer Pursuant to Exchange Act Rule 13a-14(a)~~Furnished herewith.

~~31.2~~

~~Certification of principal financial and accounting officer Pursuant to Exchange Act Rule 13a-14(a)~~

32.1*

~~Certification of principal executive officer and principal financial and accounting officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~

~~101~~

The following unaudited interim consolidated financial statements from the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended August 4, 2019, formatted in 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 Statements



*	~~Furnished herewith.~~

Table of Contents

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/ PATRICK~~ ~~J. GUIDO~~
		~~Patrick J. Guido~~
		~~Chief Financial Officer~~
		~~(principal financial and accounting officer)~~

~~Dated: September 5, 2019~~

~~Table of Contents~~

~~Exhibit Index~~

~~Incorporated by Reference~~lululemon athletica inc.

~~Exhibit~~

~~No.~~

~~Exhibit Title~~

By:

~~Filed~~

~~Herewith~~

~~Form~~

~~Exhibit~~

~~No.~~

~~File No.~~

~~Filing~~

~~Date~~/s/ CALVIN MCDONALD

Calvin McDonald

~~31.1~~

~~Certification of principal executive officer Pursuant to Exchange Act Rule 13a-14(a)~~

Chief Executive Officer

~~31.2~~

~~Certification of~~ (principal financial and accounting ~~officer Pursuant to Exchange Act Rule 13a-14(a)~~

32.1*

~~Certification of principal executive officer and principal financial and accounting officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~

~~101~~

officer)

Dated: September 8, 2020

Table of Contents

Exhibit Index

Incorporated by Reference

Exhibit
No.

Exhibit Title

Filed
Herewith

Form

Exhibit
No.

File No.

Filing
Date

10.1

8-K

10.1

001-33608

7/1/2020

31.1

Certification of principal executive officer Pursuant to Exchange Act Rule 13a-14(a)

31.2

Certification of principal financial and accounting officer Pursuant to Exchange Act Rule 13a-14(a)

32.1*

Certification of principal executive officer and principal financial and accounting officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101



*			Furnished herewith.

4856



Delaware			20-3842867
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)



Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.005 per share	LULU	Nasdaq Global Select Market



Large Accelerated Filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐


		August 4, 2019			February 3, 2019				August 2, 2020		February 2, 2020
ASSETS	ASSETS							ASSETS
Current assets								Current assets
Cash and cash equivalents		$	623,738		$	881,320		Cash and cash equivalents	$	522,998	$	1,093,505
Accounts receivable		27,659			35,786			Accounts receivable	48,922		40,219
Inventories		494,294			404,842			Inventories	672,773		518,513
Prepaid and receivable income taxes		112,572			49,385			Prepaid and receivable income taxes	125,019		85,159
Other prepaid expenses and other current assets		74,750			57,949
Prepaid expenses and other current assets								Prepaid expenses and other current assets	120,043		70,542
		1,333,013			1,429,282				1,489,755		1,807,938
Property and equipment, net		617,090			567,237			Property and equipment, net	698,514		671,693
Right-of-use lease assets		657,044			—			Right-of-use lease assets	725,805		689,664
Goodwill		24,184			24,239			Goodwill	386,593		24,182
Intangible assets, net								Intangible assets, net	84,471		241
Deferred income tax assets		26,296			26,549			Deferred income tax assets	31,591		31,435
Other non-current assets		37,117			37,404			Other non-current assets	77,298		56,201
		$	2,694,744		$	2,084,711			$	3,494,027	$	3,281,354
LIABILITIES AND STOCKHOLDERS' EQUITY								LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities								Current liabilities
Accounts payable		$	110,513		$	95,533		Accounts payable	$	122,767	$	79,997
Accrued inventory liabilities		8,778			16,241			Accrued inventory liabilities	31,675		6,344
Other accrued liabilities								Other accrued liabilities	177,436		112,641
Accrued compensation and related expenses		100,735			109,181			Accrued compensation and related expenses	84,102		133,688
Current lease liabilities		130,182			—			Current lease liabilities	147,941		128,497
Current income taxes payable		5,090			67,412			Current income taxes payable	75,153		26,436
Unredeemed gift card liability		79,629			99,412			Unredeemed gift card liability	106,425		120,413
Other current liabilities		117,682			112,698			Other current liabilities	17,810		12,402
		552,609			500,477				763,309		620,418
Non-current lease liabilities		568,311			—			Non-current lease liabilities	632,646		611,464
Non-current income taxes payable		48,226			42,099			Non-current income taxes payable	43,150		48,226
Deferred income tax liabilities		14,114			14,249			Deferred income tax liabilities	46,901		43,432
Other non-current liabilities		4,105			81,911			Other non-current liabilities	6,919		5,596
		1,187,365			638,736				1,492,925		1,329,136
Commitments and contingencies								Commitments and contingencies
Stockholders' equity								Stockholders' equity
Undesignated preferred stock, $0.01 par value: 5,000 shares authorized; none issued and outstanding		—			—
Exchangeable stock, no par value: 60,000 shares authorized; 7,381 and 9,332 issued and outstanding		—			—
Special voting stock, $0.000005 par value: 60,000 shares authorized; 7,381 and 9,332 issued and outstanding		—			—
Common stock, $0.005 par value: 400,000 shares authorized; 122,921 and 121,600 issued and outstanding		615			608
Undesignated preferred stock, $0.01 par value: 5,000 shares authorized; NaN issued and outstanding								Undesignated preferred stock, $0.01 par value: 5,000 shares authorized; NaN issued and outstanding	0		0
Exchangeable stock, no par value: 60,000 shares authorized; 5,393 and 6,227 issued and outstanding								Exchangeable stock, no par value: 60,000 shares authorized; 5,393 and 6,227 issued and outstanding	0		0
Special voting stock, $0.000005 par value: 60,000 shares authorized; 5,393 and 6,227 issued and outstanding								Special voting stock, $0.000005 par value: 60,000 shares authorized; 5,393 and 6,227 issued and outstanding	0		0
Common stock, $0.005 par value: 400,000 shares authorized; 124,917 and 124,122 issued and outstanding								Common stock, $0.005 par value: 400,000 shares authorized; 124,917 and 124,122 issued and outstanding	625		621
Additional paid-in capital		329,915			315,285			Additional paid-in capital	358,414		355,541
Retained earnings		1,404,866			1,346,890			Retained earnings	1,872,948		1,820,637
Accumulated other comprehensive loss		(228,017		)	(216,808		)	Accumulated other comprehensive loss	(230,885)		(224,581)
		1,507,379			1,445,975				2,001,102		1,952,218
		$	2,694,744		$	2,084,711			$	3,494,027	$	3,281,354


	Quarter Ended August 2, 2020
	Exchangeable Stock	Special Voting Stock				Common Stock						Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss	Total
	Shares	Shares	Par Value		Shares	Par Value
Balance at May 3, 2020	5,482	5,482	$	0	124,717	$	624	$	334,201	$	1,786,147	$	(285,185)	$	1,835,787
Net income										86,801				86,801
Foreign currency translation adjustment												54,300		54,300
Common stock issued upon exchange of exchangeable shares	(89)	(89)	—		89	—		—						—
Stock-based compensation expense								15,784						15,784
Common stock issued upon settlement of stock-based compensation					114	0		9,328						9,328
Shares withheld related to net share settlement of stock-based compensation					(3)	1		(899)						(898)

Balance at August 2, 2020	5,393	5,393	$	0	124,917	$	625	$	358,414	$	1,872,948	$	(230,885)	$	2,001,102



☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	Quarter Ended August 4, 2019
	Exchangeable Stock	Special Voting Stock			Common Stock					Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total
	Shares	Shares	Par Value		Shares		Par Value			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total
Balance at May 5, 2019	7,381	7,381	$	—	122,900		$	615		$	317,204		$	1,281,432		$	(232,531	)	$	1,366,720
Net income													124,990						124,990
Foreign currency translation adjustment																4,514			4,514
Stock-based compensation expense										11,848									11,848
Common stock issued upon settlement of stock-based compensation					33		1			1,336									1,337
Shares withheld related to net share settlement of stock-based compensation					(2	)	—			(461		)							(461		)
Repurchase of common stock					(10	)	(1		)	(12		)	(1,556		)				(1,569		)
Balance at August 4, 2019	7,381	7,381	$	—	122,921		$	615		$	329,915		$	1,404,866		$	(228,017	)	$	1,507,379



	Quarter Ended July 29, 2018
	Exchangeable Stock	Special Voting Stock			Common Stock					Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total
	Shares	Shares	Par Value		Shares		Par Value			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total
Balance at April 29, 2018	9,776	9,776	$	—	125,911		$	630		$	291,352		$	1,530,147		$	(185,895	)	$	1,636,234
Net income													95,770						95,770
Foreign currency translation adjustment																(18,249		)	(18,249		)
Stock-based compensation expense										7,855									7,855
Common stock issued upon settlement of stock-based compensation					104		—			5,344									5,344
Shares withheld related to net share settlement of stock-based compensation					(4	)	—			(501		)							(501		)
Repurchase of common stock					(3,355	)	(17		)	(4,348		)	(401,873		)				(406,238		)
Balance at July 29, 2018	9,776	9,776	$	—	122,656		$	613		$	299,702		$	1,224,044		$	(204,144	)	$	1,320,215


	Two Quarters Ended August 2, 2020
	Exchangeable Stock	Special Voting Stock				Common Stock						Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss	Total
	Shares	Shares	Par Value		Shares	Par Value
Balance at February 2, 2020	6,227	6,227	$	0	124,122	$	621	$	355,541	$	1,820,637	$	(224,581)	$	1,952,218
Net income										115,433				115,433
Foreign currency translation adjustment												(6,304)		(6,304)
Common stock issued upon exchange of exchangeable shares	(834)	(834)	—		834	4		(4)						—
Stock-based compensation expense								21,912						21,912
Common stock issued upon settlement of stock-based compensation					485	2		12,461						12,463
Shares withheld related to net share settlement of stock-based compensation					(155)	0		(30,957)						(30,957)
Repurchase of common stock					(369)	(2)		(539)		(63,122)				(63,663)
Balance at August 2, 2020	5,393	5,393	$	0	124,917	$	625	$	358,414	$	1,872,948	$	(230,885)	$	2,001,102


	Two Quarters Ended August 4, 2019																													Two Quarters Ended August 4, 2019
	Exchangeable Stock		Special Voting Stock				Common Stock					Additional Paid-in Capital				Retained Earnings			Accumulated Other Comprehensive Loss				Total							Exchangeable Stock				Special Voting Stock										Common Stock											Additional Paid-in Capital				Retained Earnings				Accumulated Other Comprehensive Loss			Total
	Shares		Shares		Par Value		Shares		Par Value													Shares							Shares				Par Value			Shares				Par Value
Balance at February 3, 2019	9,332		9,332		$	—	121,600		$	608					$		315,285				$	1,346,890					$	(216,808	)	$	1,445,975	Balance at February 3, 2019			9,332				9,332			$	0			121,600			$	608			$	315,285			$	1,346,890			$	(216,808)		$	1,445,975
Net income																221,593							221,593			Net income																									221,593								221,593
Foreign currency translation adjustment																			(11,209		)		(11,209		)	Foreign currency translation adjustment																														(11,209)				(11,209)
Common stock issued upon exchange of exchangeable shares	(1,951	)	(1,951	)	—		1,951		10			(10		)									—			Common stock issued upon exchange of exchangeable shares				(1,951)				(1,951)			—				1,951			10			(10)												—
Stock-based compensation expense												22,005											22,005			Stock-based compensation expense																					22,005												22,005
Common stock issued upon settlement of stock-based compensation							497		3			13,511											13,514			Common stock issued upon settlement of stock-based compensation															497			3			13,511												13,514
Shares withheld related to net share settlement of stock-based compensation							(117	)	(1		)	(19,399		)									(19,400		)	Shares withheld related to net share settlement of stock-based compensation															(117)			(1)			(19,399)												(19,400)
Repurchase of common stock							(1,010	)	(5		)	(1,477		)		(163,617		)					(165,099		)	Repurchase of common stock															(1,010)			(5)			(1,477)				(163,617)								(165,099)
Balance at August 4, 2019	7,381		7,381		$	—	122,921		$	615		$	329,915			$	1,404,866		$	(228,017	)		$	1,507,379		Balance at August 4, 2019				7,381				7,381			$	0			122,921			$	615		$	329,915			$	1,404,866			$	(228,017)			$	1,507,379



	Two Quarters Ended July 29, 2018
	Exchangeable Stock		Special Voting Stock				Common Stock					Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total
	Shares		Shares		Par Value		Shares		Par Value			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total
Balance at January 28, 2018	9,781		9,781		$	—	125,650		$	628		$	284,253		$	1,455,002		$	(142,923	)	$	1,596,960
Net income															170,923						170,923
Foreign currency translation adjustment																		(61,221		)	(61,221		)
Common stock issued upon exchange of exchangeable shares	(5	)	(5	)	—		5		—			—									—
Stock-based compensation expense												13,048									13,048
Common stock issued upon settlement of stock-based compensation							437		2			13,750									13,752
Shares withheld related to net share settlement of stock-based compensation							(81	)	—			(7,001		)							(7,001		)
Repurchase of common stock							(3,355	)	(17		)	(4,348		)	(401,881		)				(406,246		)
Balance at July 29, 2018	9,776		9,776		$	—	122,656		$	613		$	299,702		$	1,224,044		$	(204,144	)	$	1,320,215



Note 1			Nature of Operations and Basis of Presentation	9
Note 2			Recent Accounting Pronouncements	911
Note 3			~~Credit Facility~~Acquisition	1011
Note 4			Goodwill	14
Note 5			Intangible Assets, Net	14
Note 6			Credit Facilities	14
Note 7			Stock-Based Compensation and Benefit Plans	1115
Note 58			Fair Value Measurement	1217
Note 69			Derivative Financial Instruments	1318
Note 710			~~Leases~~Earnings Per Share	1520
Note 811			~~Earnings Per Share~~Supplementary Financial Information	1720
Note 912			~~Supplementary Financial Information~~	17
~~Note 10~~	Segmented Information and Disaggregated Net Revenue	1922
Note 1113			Legal Proceedings and Other Contingencies	1923



	February 3, 2019		Level 1		Level 2		Level 3		Balance Sheet Classification
	(In thousands)
Money market funds	$	471,888	$	471,888	$	—	$	—	Cash and cash equivalents
Treasury bills	99,958		99,958		—		—		Cash and cash equivalents
Term deposits	63,522		—		63,522		—		Cash and cash equivalents
Forward currency contract assets	516		—		516		—		Other prepaid expenses and other current assets
Forward currency contract liabilities	1,042		—		1,042		—		Other current liabilities



	August 4, 2019
	(In thousands)
Final two quarters of fiscal 2019	$	81,143
2020	141,047
2021	141,259
2022	117,444
2023	91,165
After 2024	213,965
Future minimum lease payments	$	786,023
Impact of discounting	(87,530		)
Present value of lease liabilities	$	698,493

Balance sheet classification:
Current lease liabilities	$	130,182
Non-current lease liabilities	568,311
	$	698,493



	~~August 4, 2019~~
~~Weighted-average remaining lease term~~	~~6.11 years~~
~~Weighted-average discount rate~~	~~3.75~~	%



	Payments Due by Fiscal Year
	Total		2019		2020		2021		2022		2023		Thereafter
	(In thousands)
Operating leases (minimum rent)	$	783,913	$	169,822	$	147,541	$	123,032	$	99,471	$	73,213	$	170,834


–	an increase in employee costs of $17.3 million primarily from a growth in labor hours and benefits, mainly associated with new company-operated stores and other new operating locations, and due to higher incentive compensation expenses;


–	~~an increase in variable costs of $10.3 million primarily due to an increase in distribution costs, credit card fees, and packaging costs as a result of increased net revenue; and~~


–	~~an increase in other costs of $4.7 million primarily due to increases in information technology costs, repairs and maintenance, and other costs associated with our operating locations;~~


–	~~an increase in employee costs of $15.4 million primarily due to additional employees to support the growth in our business, and due to increased incentive and stock-based compensation expense; and~~


–	~~an increase in other costs of $11.3 million primarily due to increases in depreciation, brand and community costs, professional fees, information technology costs, and other head office costs; and~~


–	an increase in employee costs of $34.3 million primarily from a growth in labor hours and benefits, mainly associated with new company-operated stores and other new operating locations, and due to higher incentive compensation expenses;


–	~~an increase in variable costs of $18.2 million primarily due to an increase in distribution costs, credit card fees, and packaging costs as a result of increased net revenue; and~~


–	an increase in other costs of $12.9 million primarily due to an increase in digital marketing expenses, information technology costs, repairs and maintenance costs, security costs, and other costs associated with our operating locations;


–	~~an increase in employee costs of $27.4 million primarily due to additional employees to support the growth in our business and increased incentive and stock-based compensation expense; and~~


–	~~an increase in other costs of $18.2 million primarily due to an increase in professional fees, depreciation, brand and community costs, information technology costs, and other head office costs.~~


	Quarter Ended August 2, 2020
	Net Revenue						Direct to Consumer Net Revenue
	(In thousands)		(Percentages)		(Percentages)
Change	$	19,590	2	%	155	%
Adjustments due to foreign exchange rate changes	6,976		1		2
Change in constant dollars	$	26,566	3	%	157	%



	Quarter Ended August 4, 2019				Two Quarters Ended August 4, 2019
	(In thousands)		(Percentages)		(In thousands)		(Percentages)
Change	$	159,852	22	%	$	292,461	21	%
Adjustments due to foreign exchange rate changes	8,437		1		20,968		2
Change in constant dollars	$	168,289	23	%	$	313,429	23	%



	Quarter Ended August 4, 2019						Two Quarters Ended August 4, 2019
	Total Comparable Sales^1,2		Comparable Store Sales²		Direct to Consumer Net Revenue		Total Comparable Sales^1,2		Comparable Store Sales²		Direct to Consumer Net Revenue
Change	15	%	10	%	30	%	15	%	8	%	31	%
Adjustments due to foreign exchange rate changes	2		1		1		1		1		2
Change in constant dollars	17	%	11	%	31	%	16	%	9	%	33	%


⁽¹⁾	~~Total comparable sales includes comparable store sales and direct to consumer sales.~~


⁽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.


–	~~$89.4 million related to income taxes, primarily due to payments for withholding taxes on repatriated foreign earnings, as well as timing of tax installments;~~


–	~~$71.1 million related to accounts payable, primarily due to a change in our payment terms in the prior fiscal year;~~


–	~~$40.0 million related to other prepaid expenses and other current and non-current assets; and~~