2 0 1 6 A N N U A L R E P O R T
TO OU R S HAR EHOLDER S –
2016 was a milestone year for us. With strong brand momentum, ambitious growth strategies and a
powerfully connected team, we returned the company to positive earnings growth for the first time in
three years.
Reflecting on our 2016 performance, I am incredibly proud of our team’s collective achievements clearly
demonstrated by our passionate commitment to owning our position as the leading brand for an active,
mindful lifestyle.
FIN AN CIAL + O PERAT I ONA L H IG HL I GH TS
We delivered revenue of $2.344 billion, representing topline growth of 14%, driven by a 7% constant
dollar total comparable sales increase and square footage growth of 11%. And our focus on operational
excellence delivered 280 basis points of gross margin improvement, primarily a result of the significant
efforts towards improving our supply chain and sourcing infrastructure.
Our growth strategies remain unchanged and we are on track to deliver on our ambitious plan to reach
$4 billion in revenue and double earnings by 2020.
BR AN D + BUSIN ESS HIGHLIGH TS
2016 saw the beginning of our design-led vision, blending function and fashion, and building a solid
innovation pipeline. This was best exemplified by the success of our first engineered sensation, the Align
pant in Nulu™ which in just over a year became our top performing pant within our bottoms category.
Our in-store guest experience remains one of our greatest differentiators and our energy to evolve how
we come to life in retail continues to drive very strong results. From new formats to connecting with new
communities, our curiosity and relentless focus on guest experience fueled our store performance in
North America and around the world.
We made progress in building a digital culture, along with the platforms, capabilities and tools to deliver
a channel-agnostic, personalized guest experience. While early days, we are excited by the opportunities
ahead as we unlock greater guest knowledge across channels and continue the seamless expansion and
integration of our omni-channel strategies.
Internationally, we continued our expansion plans; opening 11 stores across Asia and Europe, including
our first European flagship on London’s Regent Street, and our first three stores in China. I was fortunate
to experience the brand’s momentum in these iconic destinations around the globe and look forward to
accelerating our presence, particularly in China, where we see significant potential.
20 17 + VI SIO N
As we look to the year ahead, our global teams are energized to make an incredible impact on the future
of lululemon. From our pipeline of product innovation to evolving guest experiences, as we unlock the
power of our digital ecosystem and accelerate our global expansion, we are poised to capture and realize
the unlimited opportunities ahead of us as an originator brand with a vision to touch the lives of a billion
people leading an active, mindful lifestyle.
I’d like to express my gratitude to you, our shareholders, for your support, trust and commitment to our
vision for lululemon.
All my best,
L AU R ENT POTDEV IN
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________
Form 10-K
_______________________________________
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 29, 2017
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-33608
_______________________________________
lululemon athletica inc.
(Exact name of registrant as specified in its charter)
_______________________________________
Delaware
(State or other jurisdiction of
incorporation or organization)
1818 Cornwall Avenue
Vancouver, British Columbia
(Address of principal executive offices)
20-3842867
(I.R.S. Employer
Identification Number)
V6J 1C7
(Zip Code)
Registrant's telephone number, including area code: (604) 732-6124
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $0.005 per share
Name of Each Exchange on Which Registered
Nasdaq Global Select Market
_______________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of Section 15(d) of the Act. Yes
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
No
No
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of
"large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Act). Yes
The aggregate market value of the voting stock held by non-affiliates of the registrant on July 29, 2016 was approximately $4,913,000,000. Such aggregate market value was
No
computed by reference to the closing price of the common stock as reported on the Nasdaq Global Select Market on July 29, 2016. For purposes of determining this amount only,
the registrant has defined affiliates as including the executive officers, directors, and owners of 10% or more of the outstanding voting stock of the registrant on July 29, 2016.
Common Stock:
At March 23, 2017 there were 127,272,795 shares of the registrant's common stock, par value $0.005 per share, outstanding.
Exchangeable and Special Voting Shares:
At March 23, 2017, there were outstanding 9,780,927 exchangeable shares of Lulu Canadian Holding, Inc., a wholly-owned subsidiary of the registrant. Exchangeable shares
are exchangeable for an equal number of shares of the registrant's common stock.
In addition, at March 23, 2017, the registrant had outstanding 9,780,927 shares of special voting stock, through which the holders of exchangeable shares of Lulu Canadian
Holding, Inc. may exercise their voting rights with respect to the registrant. The special voting stock and the registrant's common stock generally vote together as a single class on
all matters on which the common stock is entitled to vote.
_______________________________________
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT
PARTS INTO WHICH INCORPORATED
Portions of Proxy Statement for the 2017 Annual
Meeting of Stockholders
Part III
TABLE OF CONTENTS
PART I
Item 1.
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. RISK FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
PROPERTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3.
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
Item 5.
Item 6.
Item 7.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SELECTED CONSOLIDATED FINANCIAL DATA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . . . . . . . . . . . . . . .
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INDEX FOR NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . .
Item 9A. CONTROLS AND PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE . . . . . . . . . . . . . . . . . .
Item 11.
EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PRINCIPAL ACCOUNTANT FEES AND SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
1
5
13
14
15
18
19
34
36
43
63
64
64
64
65
65
EXHIBITS AND FINANCIAL STATEMENT SCHEDULE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
66
Item 14.
PART IV
Item 15.
Special Note Regarding Forward-Looking Statements
PART I
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. We use words such
as "anticipates," "believes," "estimates," "may," "intends," "expects," and similar expressions to identify forward-looking
statements. Discussions containing forward-looking statements may be found in the material set forth under "Business",
"Management's Discussion and Analysis of Financial Condition and Results of Operations", and in other sections of the report.
All forward-looking statements are inherently uncertain as they are based on our expectations and assumptions concerning
future events. Any or all of our forward-looking statements in this report may turn out to be inaccurate. We have based these
forward-looking statements largely on our current expectations and projections about future events and financial trends that we
believe may affect our financial condition, results of operations, business strategy, and financial needs. They may be affected by
inaccurate assumptions we might make or by known or unknown risks and uncertainties, including the risks, uncertainties and
assumptions described in the section entitled "Item 1A. Risk Factors" and elsewhere in this report. In light of these risks,
uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur as
contemplated, and our actual results could differ materially from those anticipated or implied by the forward-looking
statements. All forward-looking statements in this report are made as of the date hereof, based on information available to us as
of the date hereof, and we assume no obligation to update any forward-looking statement.
ITEM 1. BUSINESS
General
lululemon athletica inc. is a designer, distributor, and retailer of healthy lifestyle inspired athletic apparel. Since our
inception, we have developed a distinctive corporate culture, and we have a mission to produce products which create
transformational experiences for people to live happy, healthy, fun lives. We promote a set of core values in our business which
include taking personal responsibility, nurturing entrepreneurial spirit, acting with honesty and courage, valuing connection,
and choosing to have fun. These core values attract passionate and motivated employees who are driven to succeed and share
our purpose of "elevating the world from mediocrity to greatness."
In this Annual Report on Form 10-K ("10-K" or "Report") for the fiscal year ended January 29, 2017 ("fiscal 2016"),
lululemon athletica inc. (together with its subsidiaries) is referred to as "lululemon," "the Company," "we," "us" or "our."
Our Products
Our healthy lifestyle inspired athletic apparel is marketed under the lululemon and ivivva brand names. We offer a
comprehensive line of apparel and accessories for women, men and female youth. Our apparel assortment includes items such
as pants, shorts, tops, and jackets designed for healthy lifestyle and athletic activities such as yoga, running, training, most other
sweaty pursuits, and athletic wear for female youth. We also offer fitness-related accessories, including an array of items such
as bags, socks, underwear, yoga mats, and water bottles.
Although we benefit from the growing number of people that participate in yoga, we believe the percentage of our
products sold for other activities will continue to increase as we broaden our product range.
Our design team continues to source and develop technically advanced fabrics and innovative functional features that we
believe will help advance our product lines and differentiate us from the competition.
Our Market
Our primary target customer is a sophisticated and educated woman who understands the importance of an active, healthy
lifestyle. She is increasingly tasked with the dual responsibilities of career and family and is constantly challenged to balance
her work, life, and health. We believe she pursues exercise to achieve physical fitness and inner peace.
As women have continued to embrace a variety of fitness and athletic activities, including yoga, we believe we have been
able to effectively address their unique fit and performance needs by incorporating style along with comfort and functionality
into our products through our vertical retail strategy.
Although we were founded to address the unique needs of women, we are also successfully designing products for men
and female youth who appreciate the technical rigor and premium quality of our products. In addition, we believe consumer
purchase decisions are driven by both an actual need for functional products and a desire to live a particular lifestyle. As such,
1
we believe the credibility and authenticity of our brand expands our potential market beyond just athletes to those who desire to
lead an active, healthy, and balanced life.
Our Segments
We primarily conduct our business through two channels: company-operated stores and direct to consumer.
We also generate net revenue from our outlets, showrooms, sales from temporary locations, sales to wholesale accounts,
warehouse sales, and license and supply arrangements. The net revenue we generate from these sources is combined in our
other segment.
As of January 29, 2017, we operated 406 stores located in the United States, Canada, Australia, the United Kingdom,
New Zealand, China, Hong Kong, Singapore, South Korea, Germany, Puerto Rico and Switzerland. We believe our vertical
retail strategy allows us to interact more directly with, and gain feedback from, our customers, whom we call guests, while
providing us with greater control of our brand.
Our direct to consumer segment includes the net revenue which we generate from our lululemon and ivivva e-commerce
websites, www.lululemon.com and www.ivivva.com, and other country and region specific websites.
Segment information is included in Note 16 to our consolidated financial statements included in Item 8 of Part II of this
report.
Company-Operated Stores
As of January 29, 2017, our retail footprint included 406 company-operated stores. While most of our company-operated
stores are branded lululemon, 55 of our company-operated stores are branded ivivva and specialize in athletic wear for female
youth. Our retail stores are located primarily on street locations, in lifestyle centers, and in malls.
Our company-operated stores by brand, and by country, as of January 29, 2017 and January 31, 2016, are summarized in
the table below:
lululemon
January 29,
2017
January 31,
2016
United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New Zealand. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hong Kong . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Singapore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
South Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Puerto Rico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Switzerland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ivivva
United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
245
51
27
9
5
3
3
3
2
1
1
1
351
42
13
55
406
229
48
26
6
5
—
2
2
—
1
1
—
320
31
12
43
363
We opened 43 net new company-operated stores in fiscal 2016, including 12 net new stores outside of North America.
2
In fiscal 2017, our new store growth will come primarily from new company-operated stores in the United States and an
acceleration in our company-operated store openings in Asia. Our real estate strategy over the next several years will not only
consist of opening new company-operated stores, but also in overall square footage growth through store expansions and
relocations.
We perform ongoing evaluations of our portfolio of company-operated store locations. In fiscal 2016, we closed three of
our company-operated stores. As we continue our evaluation we may, in future periods, close or relocate additional company-
operated stores.
We believe that our innovative retail concept and guest experience contribute to the success of our stores. During fiscal
2016, our company-operated stores open at least one year, which average approximately 2,941 square feet, averaged sales of
$1,521 per square foot. The square footage of our company-operated stores excludes space used for non-retail activities such as
yoga studios and office space.
Direct to Consumer
Direct to consumer is a substantial part of our business, representing approximately 19.3% of our net revenue in fiscal
2016. We believe that a direct to consumer channel is convenient for our core customer and enhances the image of our brand.
Our direct to consumer channel makes our product accessible to more markets than our company-operated store channel alone.
We believe this channel is effective in building brand awareness, especially in new markets.
Other Channels
Other net revenue accounted for 8.0% of total net revenue in fiscal 2016, compared to 6.9% in fiscal 2015, and 7.1% of
total net revenue in fiscal 2014. Other net revenue includes sales made through the following channels:
• Outlets and warehouse sales - We utilize outlets as well as warehouse sales, which are held from time to time, to sell
slow moving inventory and inventory from prior seasons to retail customers at discounted prices.
•
•
Showrooms - Our showrooms are typically small locations that we open when we enter new markets and feature a
limited selection of our product offering.
Temporary locations - Our temporary locations are typically opened for a short period of time in markets in which we
may not already have a presence.
• Wholesale - Our wholesale accounts include premium yoga studios, health clubs, and fitness centers. We believe
these premium wholesale locations offer an alternative distribution channel that is convenient for our core consumer
and enhances the image of our brand. We do not intend wholesale to be a significant contributor to overall sales.
Instead, we use the channel to build brand awareness, especially in new markets, including those outside of
North America.
•
License and supply arrangements - We enter into license and supply arrangements from time to time when we
believe that it will be to our advantage to partner with companies and individuals with significant experience and
proven success in certain target markets.
In January 2015, we entered into a license and supply arrangement with a partner in the Middle East which grants our
partner the right to operate lululemon branded retail locations in the United Arab Emirates, Kuwait, Qatar, Oman, and Bahrain
for an initial term of five years. We retain the rights to sell lululemon products through our e-commerce websites in these
countries. Under this arrangement we supply the partner with lululemon products, training and other support. As of January 29,
2017, there were three licensed stores in the United Arab Emirates and one licensed store in Qatar, not included in the above
company-operated stores table.
In November 2016, we entered into a license and supply agreement with a partner which grants our partner the right to
operate lululemon branded retail locations in Mexico for a term of ten years, subject to certain conditions. We retain the rights
to sell lululemon products through our e-commerce websites in Mexico. Under this arrangement we supply the partner with
lululemon products, training and other support. As of January 29, 2017 there were no licensed retail locations in operation in
Mexico.
3
Community-Based Marketing
We utilize a community-based approach to building brand awareness and customer loyalty. We pursue a multi-faceted
strategy which leverages our local ambassadors, digital marketing and social media, in-store community boards, and a variety
of grassroots initiatives.
Product Design and Development
Our product design efforts are led by a team of designers based in Vancouver, British Columbia partnering with
international designers. Our team is comprised of dedicated athletes and users of our products who embody our design
philosophy and dedication to premium quality. Our design team identifies trends based on market intelligence and research,
proactively seeks the input of our guests and our ambassadors and broadly seeks inspiration consistent with our goals of style,
function and technical superiority.
As we strive to continue to provide our guests with technically advanced fabrics, our design team works closely with our
suppliers to incorporate innovative fabrics that bring particular specifications to our products. We partner with independent
inspection, verification, and testing companies, who conduct a variety of tests on our fabrics, testing performance
characteristics including pilling, shrinkage, abrasion resistance, and colorfastness. We develop proprietary fabrics and
collaborate with leading fabric and trims suppliers to manufacture fabrics and trims that we ultimately protect through
agreements, trademarks and trade-secrets.
Sourcing and Manufacturing
We do not own or operate any manufacturing facilities. We rely on a limited number of suppliers to provide fabrics for,
and to produce, our products. We work with a group of approximately 65 suppliers to provide the fabrics for our products. We
work with a group of approximately 35 suppliers that manufacture our products, five of which produced approximately 63% of
our products in fiscal 2016. During fiscal 2016, no single manufacturer produced more than 30% of our product offerings.
During fiscal 2016, approximately 47% of our products were produced in South East Asia, approximately 28% in South Asia,
approximately 15% in China, approximately 1% in North America, and the remainder in other regions.
We have developed long-standing relationships with a number of our vendors and take great care to ensure that they share
our commitment to quality and ethics. We do not, however, have any long-term term contracts with the majority of our
suppliers or manufacturing sources for the production and supply of our fabrics and garments, and we compete with other
companies for fabrics, raw materials, and production. We require that all of our manufacturers adhere to a vendor code of ethics
regarding social and environmental sustainability practices. Our product quality and sustainability teams partner with leading
inspection and verification firms to closely monitor each supplier's compliance with applicable laws and our vendor code of
ethics.
Distribution Facilities
We operate and distribute finished products from our owned or leased distribution facilities in the United States, Canada,
and Australia. We own our distribution center in Columbus, Ohio, and lease our other distribution facilities. The approximate
square footage of each facility is included in Item 2 of Part I of this report. We also utilize third-party logistics providers to
warehouse and distribute finished products from their warehouse locations in Hong Kong, China, and the Netherlands.
We believe our distribution infrastructure will be sufficient to accommodate our expected store growth and expanded
product offerings over the next several years.
Competition
Competition in the athletic apparel industry is principally on the basis of brand image and recognition as well as product
quality, innovation, style, distribution, and price. We believe that we successfully compete on the basis of our premium brand
image and our technical product innovation. In addition, we believe our vertical retail distribution strategy differentiates us
from our competitors and allows us to more effectively control our brand image.
The market for athletic apparel is highly competitive. It includes increasing competition from established companies that
are expanding their production and marketing of performance products, as well as from frequent new entrants to the market. We
are in direct competition with wholesalers and direct sellers of athletic apparel, such as Nike, Inc., adidas AG, and Under
Armour, Inc. We also compete with retailers specifically focused on women's athletic apparel including The Gap, Inc.
(including the Athleta brand) and L Brands, Inc. (including the Victoria Sport assortment at Victoria's Secret).
4
Seasonality
Our business is affected by the general seasonal trends common to the retail apparel industry. Our annual net revenue is
weighted more heavily toward our fourth fiscal quarter, reflecting our historical strength in sales during the holiday season,
while our operating expenses are more equally distributed throughout the year. As a result, a substantial portion of our
operating profits are generated in the fourth quarter of our fiscal year. For example, we generated approximately 47%, 45%,
and 42% of our full year operating profit during the fourth quarters of fiscal 2016, fiscal 2015, and fiscal 2014, respectively.
Our Employees
As of January 29, 2017, we had approximately 12,500 employees, of which approximately 7,500 were employed in the
United States, approximately 3,500 were employed in Canada, and approximately 1,500 were employed outside of North
America. None of our employees are currently covered by a collective bargaining agreement. We have had no labor-related
work stoppages by our employees and we believe our relations with our employees are excellent.
Intellectual Property
We have trademark rights on most of our products and believe having distinctive marks that are readily identifiable is an
important factor in building our brand image and in distinguishing our products from the products of others. We consider our
lululemon and wave design trademarks to be among our most valuable assets. In addition, we own many other trademarks for
names of several of our brands, slogans, fabrics and products. We own registered and pending U.S. and foreign utility and
design patents, industrial designs in Canada, and registered community designs in Europe that protect our product innovations,
distinctive apparel, and accessory designs.
Securities and Exchange Commission Filings
Our website address is www.lululemon.com. We provide free access to various reports that we file with, or furnish to, the
United States Securities and Exchange Commission, or the SEC, through our website, as soon as reasonably practicable after
they have been filed or furnished. These reports include, but are not limited to, our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports. Our SEC reports can also be
accessed through the SEC's website at www.sec.gov. The public may read and copy any materials filed by us with the SEC at
the SEC's Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549. The public may obtain information
on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Also available on our website are
printable versions of our Code of Business Conduct and Ethics and charters of the Audit, Compensation, and Nominating and
Governance Committees of our board of directors. Information on our website does not constitute part of this annual report on
Form 10-K or any other report we file or furnish with the SEC.
ITEM 1A. RISK FACTORS
In addition to the other information contained in this Form 10-K, 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, if we fail to deliver innovative and high quality
products acceptable to our guests, or if we face 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.
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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 continue to receive, shipments of products that fail to comply with
our technical specifications or that fail to conform to our quality control standards. We have also received, and may in the
future continue to receive, products that are otherwise unacceptable to us or our guests. Under these circumstances, unless we
are able to obtain replacement products in a timely manner, we risk the loss of net revenue resulting from the inability to sell
those products and related increased administrative and shipping costs. Additionally, if the unacceptability of our products is
not discovered until after such products are purchased by our guests, our guests could lose confidence in the technical attributes
of 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. In addition, our technical athletic apparel is sold at a price premium to traditional athletic apparel.
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" marketing approach, many of our competitors promote their brands through
traditional forms of advertising, such as print media and television commercials, and through celebrity endorsements, and have
substantial resources to devote to such efforts. Our competitors may also create and maintain brand awareness using traditional
forms of advertising more quickly than we can. Our competitors may also be able to increase sales in their new and existing
markets faster than we do by emphasizing different distribution channels than we do, such as catalog sales or an extensive
franchise network.
In addition, because we hold limited patents and exclusive intellectual property rights in the technology, fabrics or
processes underlying our products, our current and future competitors are able to manufacture and sell products with
performance characteristics, fabrication techniques, and styling similar to our products.
Our reliance on suppliers to provide fabrics for and to produce our products could cause problems in our supply chain.
We do not manufacture our products or the raw materials for them and rely instead on suppliers. Many of the specialty
fabrics used in our products are technically advanced textile products developed and manufactured by third parties and may be
available, in the short-term, from only one or a very limited number of sources. In fiscal 2016, approximately 63% of our
products were produced by our top five manufacturing suppliers, and 40% of raw materials were produced by a single
manufacturer. We have no long-term contracts with any of our suppliers or manufacturing sources for the production and
supply of our fabrics and garments, and we compete with other companies for fabrics, raw materials, and production.
We have experienced, and may in the future continue to experience, a significant disruption in the supply of fabrics or
raw materials from current sources and we may be unable to locate alternative materials suppliers of comparable quality at an
acceptable price, or at all. In addition, if we experience significant increased demand, or if we need to replace an existing
supplier or manufacturer, we may be unable to locate additional supplies of fabrics or raw materials or additional
manufacturing capacity on terms that are acceptable to us, or at all, or we may be unable to locate any supplier or manufacturer
with sufficient capacity to meet our requirements or to fill our orders in a timely manner. Identifying a suitable supplier is an
involved process that requires us to become satisfied with its quality control, responsiveness and service, financial stability, and
labor and other ethical practices. Even if we are able to expand existing or find new manufacturing or fabric sources, we may
encounter delays in production and added costs as a result of the time it takes to train our suppliers and manufacturers in our
methods, products, and quality control standards. Delays related to supplier changes could also arise due to an increase in
shipping times if new suppliers are located farther away from our markets or from other participants in our supply chain. Any
delays, interruption or increased costs in the supply of fabric or manufacture of our products could have an adverse effect on
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our ability to meet guest demand for our products and result in lower net revenue and income from operations both in the short
and long term.
An economic downturn or economic uncertainty in our key markets may adversely affect consumer discretionary
spending and demand for our products.
Many of our products may be considered discretionary items for consumers. Factors affecting the level of consumer
spending for such discretionary items include general economic conditions, particularly those in North America, and other
factors such as consumer confidence in future economic conditions, fears of recession, the availability and cost of consumer
credit, levels of unemployment, and tax rates. As global economic conditions continue to be volatile or economic uncertainty
remains, trends in consumer discretionary spending also remain unpredictable and subject to reductions due to credit
constraints and uncertainties about the future. Unfavorable economic conditions may lead consumers to delay or reduce
purchases of our products. Consumer demand for our products may not reach our targets, or may decline, when there is an
economic downturn or economic uncertainty in our key markets, particularly in North America. Our sensitivity to economic
cycles and any related fluctuation in consumer demand may have a material adverse effect on our financial condition.
Our sales and profitability may decline as a result of increasing product costs and decreasing selling prices.
Our business is subject to significant pressure on costs and pricing caused by many factors, including intense
competition, constrained sourcing capacity and related inflationary pressure, pressure from consumers to reduce the prices we
charge for our products, and changes in consumer demand. These factors may cause us to experience increased costs, reduce
our prices to consumers or experience reduced sales in response to increased prices, any of which could cause our operating
margin to decline if we are unable to offset these factors with reductions in operating costs and could have a material adverse
effect on our financial conditions, operating results and cash flows.
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, 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
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.
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Our inability to safeguard against security breaches with respect to our information technology systems could disrupt our
operations.
Our business employs systems and websites that allow for the storage and transmission of proprietary or confidential
information regarding our business, guests and employees including credit card information. Security breaches could expose us
to a risk of loss or misuse of this information and potential liability. We may not have the resources or technical sophistication
to be able to anticipate or prevent rapidly evolving types of cyber-attacks. Actual or anticipated attacks may cause us to incur
increasing costs including costs to deploy additional personnel and protection technologies, train employees and engage third
party experts and consultants. Advances in computer capabilities, new technological discoveries or other developments may
result in the technology used by us to protect transaction or other data being breached or compromised. Data and security
breaches can also occur as a result of non-technical issues including intentional or inadvertent breach by employees or persons
with whom we have commercial relationships that result in the unauthorized release of personal or confidential information.
Any compromise or breach of our security could result in a violation of applicable privacy and other laws, significant litigation
and potential liability and damage to our brand and reputation or other harm to our business.
Any material disruption of our information systems could disrupt our business and reduce our sales.
We are increasingly dependent on information systems 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.
Any material disruption or slowdown of our systems, including a disruption or slowdown caused by our failure to successfully
upgrade our systems, system failures, viruses, computer "hackers" or other causes, could cause information, including data
related to guest orders, to be lost or delayed which could, especially if the disruption or slowdown occurred during the holiday
season, result in delays in the delivery of products to our stores and guests or lost sales, which could reduce demand for our
products and cause our sales to decline. 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.
The fluctuating cost of raw materials could increase our cost of goods sold and cause our results of operations and
financial condition to suffer.
The fabrics used by our suppliers and manufacturers include synthetic fabrics whose raw materials include petroleum-
based products. Our products also include silver and natural fibers, including cotton. Our costs for raw materials are affected
by, among other things, weather, consumer demand, speculation on the commodities market, the relative valuations and
fluctuations of the currencies of producer versus consumer countries, and other factors that are generally unpredictable and
beyond our control. Increases in the cost of raw materials, including petroleum or the prices we pay for silver and our cotton
yarn and cotton-based textiles, could have a material adverse effect on our cost of goods sold, results of operations, financial
condition, and cash flows.
Our limited operating experience and limited brand recognition in new international markets may limit our expansion
strategy 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 experiencing disappointing growth outside of existing markets could harm our business and
results of operations.
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 are complicated and 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, because substantially all of our products are distributed from four locations,
our operations could also be interrupted by labor difficulties, extreme or severe weather conditions or by floods, fires or other
natural disasters near our distribution centers. 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.
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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.
Changes in tax laws or unanticipated tax liabilities could adversely affect our effective income tax rate and profitability.
We are subject to the income tax laws of the United States, Canada, and several other international jurisdictions. Our
effective income tax rates could be unfavorably impacted by a number of factors, including changes in the mix of earnings
amongst countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in
tax laws, the outcome of income tax audits in various jurisdictions around the world, and any repatriation of unremitted
earnings for which we have not previously accrued U.S. taxes.
We and our subsidiaries engage in a number of intercompany transactions across multiple tax jurisdictions. Although we
believe that these transactions reflect the accurate economic allocation of profit and that proper transfer pricing documentation
is in place, the profit allocation and transfer pricing terms and conditions may be scrutinized by local tax authorities during an
audit and any resulting changes may impact our mix of earnings in countries with differing statutory tax rates.
Current economic and political conditions make tax rules in any jurisdiction, including the United States and Canada,
subject to significant change. There have been proposals to reform U.S. and foreign tax laws that could significantly impact
how U.S. multinational corporations are taxed on foreign earnings. Although we cannot predict whether or in what form such
proposals will pass, several of the proposals considered, if enacted into law, could have an adverse impact on our income tax
expense and cash flows.
If we continue to grow at a rapid pace, we may not be able to effectively manage our growth and the increased complexity
of our business and as a result our brand image and financial performance may suffer.
We have expanded our operations rapidly since our inception in 1998 and our net revenue has increased from
$40.7 million in fiscal 2004 to $2.3 billion in fiscal 2016. 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 years, and generally can be
extended only in five-year increments if at all. We generally cannot cancel these leases at our option. If an existing or new store
9
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,
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, net revenue, 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 in moving products manufactured out of the
countries in which they are manufactured and through the ports on the western coast of North America, whether due to port
congestion, labor disputes, product regulations and/or inspections or other factors, and natural disasters or health pandemics. A
labor strike or other transportation disruption affecting these ports could significantly disrupt our business. Also, the imposition
of trade sanctions or other regulations against products imported by us from, or the loss of "normal trade relations" status with
any country in which our products are manufactured, could significantly increase our cost of products imported into North
America and/or Australia and harm our business.
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:
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identify suitable store locations, the availability of which is outside of our control;
negotiate acceptable lease terms, including desired tenant improvement allowances;
hire, train and retain store personnel and field management;
immerse new store personnel and field management into our corporate culture;
source sufficient inventory levels; and
successfully integrate new stores into our existing operations and information technology systems.
Successful new store openings may also be affected by our ability to initiate our grassroots marketing efforts in advance
of opening our first store in a new market. We typically rely on our grassroots marketing efforts to build awareness of our brand
and demand for our products. Our grassroots marketing efforts are often lengthy and must be tailored to each new market based
on our emerging 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 or the performance of our stores will be
considered successful.
Our ability to source 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. We have expanded our relationships with suppliers outside of China, which among other things has resulted in
increased costs and shipping times for some products. 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 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.
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The U.S. government could impose a border adjustable tax, which could have a material adverse effect on our business,
financial condition and operating results. We are also dependent on international trade agreements and regulations. If the United
States were to withdraw from or materially modify certain international trade agreements, our business could be adversely
affected.
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, 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 continued service of our senior management.
Our future success is substantially dependent on the continued service of our senior management and other key
employees. In the last several years, several members of our senior management team have left us and we have focused time
and resources on recruiting the new members of our current management team. The continued turnover of senior management
and the loss of key members of our executive team could have a negative impact on our ability to manage and grow our
business effectively. In addition, if we're not effective with our succession planning, it may have a negative impact on our
ability to fill senior management roles in a timely manner.
We do not maintain a key person life insurance policy on any of the members of our senior management team. As a
result, we would have no way to cover the financial loss if we were to lose the services of members of our senior management
team.
Our business is affected by seasonality.
Our business is affected by the general seasonal trends common to the retail apparel industry. This seasonality may
adversely affect our business and cause our results of operations to fluctuate, and, as a result, we believe that comparisons of
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. 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.
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We currently generate a significant portion of our net revenue and incur a significant portion of our expenses in Canada.
We also hold a significant portion of our net assets in Canada. The reporting currency for our consolidated financial statements
is the U.S. dollar. A weakening of the U.S. dollar against the Canadian dollar results in:
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an increase in our net revenue upon translation of the sales made by our Canadian operations into U.S. dollars for the
purposes of consolidation;
an increase in our selling, general and administrative expenses incurred by our Canadian operations upon translation
into U.S. dollars for the purposes of consolidation; and
foreign exchange revaluation losses by our Canadian subsidiaries on U.S. dollar cash and receivables denominated in
U.S. dollars.
During fiscal 2016, the change in the relative value of the U.S. dollar against the Canadian dollar resulted in a $41.7
million reduction in accumulated other comprehensive loss within stockholders' equity. During fiscal 2015, the change in the
relative value of the U.S. dollar against the Canadian dollar resulted in a $63.2 million increase in accumulated other
comprehensive loss within stockholders' equity.
A 10% appreciation in the relative value of the U.S. dollar against the Canadian dollar compared to the exchange rates in
effect for fiscal 2015 would have resulted in additional income from operations of approximately $0.2 million in fiscal 2016.
This assumes a consistent 10% appreciation in the U.S. dollar against the Canadian dollar throughout the fiscal year. The timing
of changes in the relative value of the U.S. dollar combined with the seasonal nature of our business, can affect the magnitude
of the impact that fluctuations in foreign exchange rates have on our income from operations.
We have not historically hedged foreign currency fluctuations. However, in the future, in an effort to mitigate these risks,
we may at times enter into derivative financial instruments, although we have not historically done so. We do not, and do not
intend to, engage in the practice of trading derivative securities for profit.
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. During fiscal 2016, approximately 47% of our products
were produced in South East Asia, approximately 28% in South Asia, approximately 15% in China, approximately 1% in North
America, and the remainder in other regions. As a result of our international suppliers, we are subject to risks associated with
doing business abroad, including:
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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; and
changes in local economic conditions in countries where our manufacturers, suppliers, or guests are located.
These and other factors beyond our control could interrupt our suppliers' production in offshore facilities, influence the
ability of our suppliers to export our products cost-effectively or at all and inhibit our suppliers' ability to procure certain
materials, any of which could harm our business, financial condition, and results of operations.
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 obtained and applied for some United States 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
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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.
Our business could be negatively affected as a result of actions of activist stockholders, and such activism could impact
the trading value of our securities.
Responding to actions by activist stockholders can be costly and time-consuming, disrupting our operations and diverting
the attention of management and our employees. Such activities could interfere with our ability to execute our strategic plan. 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.
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. PROPERTIES
Our principal executive and administrative offices are located at 1818 Cornwall Avenue, Vancouver, British Columbia,
Canada, V6J 1C7.
13
As of January 29, 2017, we operated five distribution centers located in the United States, Canada, and Australia. During
fiscal 2016 we began relocating our existing leased distribution center in Vancouver, BC to a new 145,000 square foot leased
premises in Vancouver, BC. This was completed in early fiscal 2017. In addition to those distribution centers, we hold
inventory at warehouses managed by third-parties in Hong Kong, China, and the Netherlands.
We believe our current administrative offices, distribution centers, and the warehouse space available through our third-
party logistics providers will be sufficient for our near term expansion plans.
The general location, use and approximate size of our principal owned properties at January 29, 2017, are set forth below:
Location
Columbus, OH. . . . . . . . . . . . . Distribution Center
Vancouver, BC. . . . . . . . . . . . . Executive and Administrative Offices
Vancouver, BC. . . . . . . . . . . . . Executive and Administrative Offices
Use
Approximate Square Feet
310,000
140,000
15,000
The general location, use, approximate size and lease renewal date of our principal non-retail leased properties at
January 29, 2017, are set forth below:
Location
Use
Approximate Square Feet
Lease Renewal Date
Sumner, WA. . . . . . . . . . . . . . . Distribution Center
Vancouver, BC. . . . . . . . . . . . . Distribution Center
Vancouver, BC. . . . . . . . . . . . . Distribution Center
Vancouver, BC. . . . . . . . . . . . . Executive and Administrative Offices
Vancouver, BC. . . . . . . . . . . . . Executive and Administrative Offices
Melbourne, VIC. . . . . . . . . . . . Distribution Center
Melbourne, VIC. . . . . . . . . . . . Executive and Administrative Offices
150,000 May 2020
145,000
January 2031
110,000 April 2017
60,000 May 2020
25,000
June 2023
55,000
July 2017
25,000 September 2019
As of January 29, 2017, we leased approximately 1.2 million gross square feet relating to 404 of our 406 stores. Our
leases generally have initial terms of between five and 10 years, and generally can be extended only in five-year increments, if
at all. All of our leases require a fixed annual rent, and the majority require the payment of additional rent if store sales exceed
a negotiated amount. Generally, our leases are "net" leases, which require us to pay all of the cost of insurance, taxes,
maintenance and utilities. We generally cannot cancel these leases at our option.
ITEM 3. LEGAL PROCEEDINGS
In addition to the legal matters described in Note 12 to our consolidated financial statements included in Item 8 of Part II
of this report, 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.
14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Market Information and Dividends
Our common stock is quoted on the Nasdaq Global Select Market under the symbol "LULU." The following table sets
forth, for the periods indicated, the high and low closing sale prices of our common stock reported by the Nasdaq Global Select
Market for the last two fiscal years:
Common Stock Price
(Nasdaq Global
Select Market)
High
Low
Fiscal Year Ended January 29, 2017
Fourth Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year Ended January 31, 2016
Fourth Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
69.90
$
80.65
77.80
68.69
$
62.07
$
66.70
68.80
69.77
54.61
54.88
60.07
56.88
44.09
48.28
59.79
60.96
As of March 23, 2017, there were approximately 800 holders of record of our common stock. This does not include
persons whose stock is in nominee or "street name" accounts through brokers.
We have never declared or paid any cash dividends on our common stock and do not anticipate paying any cash
dividends on our common stock. Any future determination as to the payment of cash dividends will be at the discretion of our
board of directors and will depend on our financial condition, operating results, current and anticipated cash needs, plans for
expansion, and other factors that our board of directors considers to be relevant. In addition, financial and other covenants in
any instruments or agreements that we enter into in the future may restrict our ability to pay cash dividends on our common
stock.
Stock Performance Graph
The graph set forth below compares the cumulative total stockholder return on our common stock between January 29,
2012 (the date of our fiscal year end five years ago) and January 29, 2017, with the cumulative total return of (i) the S&P 500
Index and (ii) S&P 500 Apparel, Accessories & Luxury Goods Index, over the same period. This graph assumes the investment
of $100 on January 29, 2012 at the closing sale price our common stock, the S&P 500 Index and the S&P Apparel, Accessories
& Luxury Goods Index and assumes the reinvestment of dividends, if any.
The comparisons shown in the graph below are based on historical data. We caution that the stock price performance
showing in the graph below is not necessarily indicative of, nor is it intended to forecast, the potential future performance of
our common stock. Information used in the graph was obtained from Bloomberg, a source believed to be reliable, but we are
not responsible for any errors or omissions in such information.
15
29-Jan-12
lululemon athletica inc. . . . . . . . . . . . . . . . . . . . . . . . . $ 100.00
S&P 500 Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 100.00
S&P 500 Apparel, Accessories & Luxury Goods
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 100.00
03-Feb-13
$ 105.83
02-Feb-14
71.26
$
01-Feb-15
$ 103.31
31-Jan-16
96.80
$
29-Jan-17
$ 104.21
$ 114.95
$ 135.42
$ 151.56
$ 147.40
$ 174.32
$
91.54
$ 104.75
$ 107.46
$
88.93
$ 74.60
Issuer Purchase of Equity Securities
The following table provides information regarding our purchases of shares of our common stock during the thirteen
weeks ended January 29, 2017 related to our stock repurchase program:
Period(1)
October 31, 2016 - November 27, 2016 . . . . . . . .
November 28, 2016 - January 1, 2017 . . . . . . . . .
January 2, 2017 - January 29, 2017 . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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)
— $
2,984
8,934
11,918
—
64.44
64.57
— $
2,984
8,934
11,918
—
99,807,713
99,230,880
__________
(1) Monthly information is presented by reference to our fiscal periods during our fourth quarter of fiscal 2016.
(2) Our stock repurchase program was approved by our board of directors in December 2016. Common shares are repurchased
in the open market at prevailing market prices, including under written plans complying with the provisions of
Rule 10b5-1 and Rule 10b-18 of the Securities Exchange Act of 1934, with the timing and actual number of common
shares repurchased depending upon market conditions, eligibility to trade, and other factors. The repurchases may be made
up until December 2018, and the maximum dollar value of shares to be repurchased is $100 million.
16
The following table provides information regarding our purchases of shares of our common stock during the thirteen
weeks ended January 29, 2017 related to our Employee Share Purchase Plan:
Period(1)
October 31, 2016 - November 27, 2016 . . . . . . . .
November 28, 2016 - January 1, 2017 . . . . . . . . .
January 2, 2017 - January 29, 2017 . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Number of
Shares Purchased(2)
11,539
15,012
9,126
35,677
Average Price Paid
per Share
$
55.83
67.70
67.34
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)
11,539
15,012
9,126
35,677
5,063,944
5,048,932
5,039,806
___________
(1) Monthly information is presented by reference to our fiscal periods during our fourth quarter of fiscal 2016.
(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 repurchased to settle statutory employee tax withholding related to the vesting of
stock-based compensation awards.
17
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below is derived from our consolidated financial statements and should
be read in conjunction with our consolidated financial statements for the years ended January 29, 2017, January 31, 2016,
February 1, 2015, February 2, 2014 and February 3, 2013. The consolidated statement of operations and comprehensive income
data for each of the years ended January 29, 2017, January 31, 2016 and February 1, 2015 and the consolidated balance sheet
data as of January 29, 2017 and January 31, 2016 is derived from, and qualified by reference to, our audited consolidated
financial statements and related notes appearing elsewhere in this Annual Report. The consolidated statement of operations and
comprehensive income for the year ended February 3, 2013 covers a 53 week period compared to a 52 week period for the
other years.
Fiscal Year Ended
January 29,
2017
January 31,
2016
February 1,
2015
February 2,
2014
February 3,
2013
(In thousands, except per share data)
Consolidated statement of operations and
comprehensive income data:
Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of goods sold. . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . .
Income from operations . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . .
Income before income tax expense . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to non-controlling
interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to lululemon athletica
inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$ 2,344,392
1,144,775
1,199,617
778,465
421,152
1,577
422,729
119,348
303,381
$ 2,060,523
1,063,357
997,166
628,090
369,076
(581)
368,495
102,448
266,047
$ 1,797,213
883,033
914,180
538,147
376,033
7,102
383,135
144,102
239,033
$ 1,591,188
751,112
840,076
448,718
391,358
5,768
397,126
117,579
279,547
$ 1,370,358
607,532
762,826
386,387
376,439
4,957
381,396
109,965
271,431
—
—
—
—
875
303,381
$
266,047
$
239,033
$
279,547
$
270,556
Other comprehensive income (loss):
Foreign currency translation adjustment. . . . . . .
Comprehensive income. . . . . . . . . . . . . . . . . . . .
Basic earnings per share . . . . . . . . . . . . . . . . . . .
Diluted earnings per share. . . . . . . . . . . . . . . . . .
Basic weighted-average number of shares
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted weighted-average number of shares
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36,703
340,084
2.21
2.21
$
$
$
$
$
$
(64,796)
201,251
1.90
1.89
$
$
$
(105,339)
133,694
1.66
1.66
(89,158)
190,389
1.93
1.91
$
$
$
$
$
$
(459)
270,097
1.88
1.85
137,086
140,365
143,935
144,913
144,000
137,302
140,610
144,298
146,043
145,806
January 29,
2017
January 31,
2016
As of
February 1,
2015
(In thousands)
February 2,
2014
February 3,
2013
Consolidated balance sheet data:
Cash and cash equivalents. . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders' equity . . . . . . . . . . . . . . . . . .
$
734,846
1,657,541
1,359,973
$
501,482
1,314,077
1,027,482
$
664,479
1,296,213
1,089,568
$
698,649
1,252,388
1,096,682
$
590,179
1,052,678
887,299
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Our fiscal year ends on the Sunday closest to January 31 of the following year, typically resulting in a 52 week year, but
occasionally giving rise to an additional week, resulting in a 53 week year.
Fiscal 2016, fiscal 2015, and fiscal 2014 were 52 week years. The following discussion and analysis should be read in
conjunction with our consolidated financial statements and the related notes included elsewhere in this Annual Report on
Form 10-K.
This discussion and analysis contains forward-looking statements based on current expectations that involve risks,
uncertainties and assumptions, such as our plans, objectives, expectations, and intentions set forth in the "Special Note
Regarding Forward-Looking Statements." Our actual results and the timing of events may differ materially from those
anticipated in these forward looking statements as a result of various factors, including those set forth in the "Item 1A. Risk
Factors" section and elsewhere in this Annual Report on Form 10-K.
Overview
Fiscal 2016 was a year in which successful execution against our long-term strategies returned the Company to positive
operating income growth for the first time in three years.
We have renewed our design-led focus, blending function and fashion with a solid innovation pipeline in place to fuel our
long term growth.
We continued to optimize and strategically grow our square footage in North America, exploring new concepts such as
our co-located stores and Locals that are tailored and unique to each community.
We made meaningful progress towards building a robust digital ecosystem with key investments in customer relationship
management, analytics, and omni-channel capabilities which will be essential in continuing to elevate our guest experience
across all touch points.
We continued to expand our collective globally through our international expansion, opening 11 stores in Asia and
Europe, which included our first stores in China, South Korea, and Switzerland. As of January 29, 2017, we operated a total of
54 stores across nine countries outside of North America.
Lastly, we made significant improvements to our product and supply chain infrastructure which resulted in 280 basis
points of gross margin expansion from fiscal 2015.
Looking forward in fiscal 2017, we will continue to focus our growth efforts across our four key strategic pillars:
1. Within product innovation, our design-led vision will be concentrated on driving innovation in both our women's and
men's categories.
2. Our digital strategy will center on pursuing our channel agnostic model, improving our web and mobile experience,
and leveraging our guest database to amplify how we connect with our collective both online and in-store.
3.
In North America, our priorities are to continue to optimize our square footage through tailored and curated formats
that fit with each community, while expanding our omni-channel capabilities.
4. Finally, in our international markets, our focus is on accelerating our expansion through store densification in key
strategic cities while driving brand awareness and guest acquisition in new and existing markets.
These priorities and investments will continue to position us well for sustainable long term profitable growth.
Financial Highlights
• Net revenue increased 14% to $2.3 billion in fiscal 2016, from $2.1 billion in fiscal 2015. On a constant dollar basis,
net revenue increased 14%. Net revenue increased across all segments, and the increase in net revenue was primarily
due to the addition of 43 net new company-operated stores during fiscal 2016, as well as increased comparable store
sales and the growth of our direct to consumer segment.
• Total comparable sales, which includes comparable store sales and direct to consumer, increased 6% in fiscal 2016
compared to fiscal 2015, or by 7% on a constant dollar basis.
• Comparable store sales increased 4% in fiscal 2016 compared to fiscal 2015, or by 5% on a constant dollar basis,
primarily as a result of increased dollar value per transaction and improved conversion rates.
19
• Direct to consumer net revenue increased 13% in fiscal 2016 compared to fiscal 2015, or by 13% on a constant dollar
basis, primarily as a result of increased traffic on our e-commerce websites, increased dollar value per transaction,
and improved conversion rates.
• Gross profit for fiscal 2016 increased 20% to $1.2 billion, from $1.0 billion in fiscal 2015. Gross profit as a
percentage of net revenue, or gross margin, increased to 51.2% compared to 48.4% in fiscal 2015. The increase in
gross margin was primarily due to lower product costs and improved average retail prices, partially offset by
increased expenses related to our product and supply chain departments and increased occupancy and depreciation
costs.
•
•
Income from operations for fiscal 2016 increased 14% to $421.2 million, from $369.1 million in fiscal 2015. As a
percentage of net revenue, income from operations increased to 18.0% compared to 17.9% of net revenue in fiscal
2015.
Income tax expense for fiscal 2016 increased 16% to $119.3 million, from $102.4 million in fiscal 2015. Our
effective tax rate for fiscal 2016 was 28.2% compared to 27.8% for fiscal 2015. Fiscal 2016 and fiscal 2015 included
net income tax recoveries and related net interest expenses as a result of the finalization of an Advance Pricing
Arrangement with the Internal Revenue Service and the Canada Revenue Agency. Our effective tax rate excluding
these adjustments was 30.7% for fiscal 2016 compared to 29.5% for fiscal 2015.
• Diluted earnings per share for fiscal 2016 were $2.21 compared to $1.89 in fiscal 2015. Excluding the above tax and
related interest adjustments, diluted earnings per share were $2.14 for fiscal 2016 and $1.86 for fiscal 2015.
Refer to the non-GAAP reconciliation tables contained in the "Non-GAAP Financial Measures" section of this "Item 7.
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
effective tax rate and diluted earnings per share excluding certain tax and related interest adjustments, and the most directly
comparable measures calculated in accordance with GAAP.
General
Net revenue is comprised of company-operated store sales, direct to consumer sales through www.lululemon.com,
www.ivivva.com, and other country and region specific websites, and other net revenue, which includes outlet sales, showroom
sales, sales from temporary locations, sales to wholesale accounts, warehouse sales, and license and supply arrangement net
revenue, which consists of royalties as well as sales of our products to licensees.
Cost of goods sold includes the cost of purchased merchandise, including freight, duty, and nonrefundable taxes incurred
in delivering the goods to our distribution centers. It also includes occupancy costs and depreciation expense for our company-
operated store locations, all costs incurred in operating our distribution centers and production, design, distribution, and
merchandise departments, hemming, shrink, and inventory provision expense. The primary drivers of the costs of individual
products are the costs of raw materials and labor in the countries where we source our merchandise.
Selling, general and administrative expenses consist of all operating costs not otherwise included in cost of goods sold.
We expect selling, general and administrative expenses to increase in fiscal 2017 as we incur additional operating expenses to
support our store and direct to consumer growth, while also making strategic investments to support the long term growth of
the business.
Income tax expense depends on the statutory tax rates in the countries where we sell our products and the proportion of
taxable income earned in those jurisdictions. To the extent the relative proportion of taxable income in the jurisdictions
fluctuates, or the tax legislation in the respective jurisdictions changes, so will our effective tax rate. We also anticipate that, in
the future, we may start to sell our products through retail locations in countries in which we have not yet operated, in which
case, we would become subject to taxation based on the foreign statutory rates in the countries where these sales take place and
our effective tax rate could fluctuate accordingly.
20
Results of Operations
The following tables summarize key components of our results of operations for the periods indicated, both in dollars and
as a percentage of net revenue:
Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comparison of Fiscal 2016 to Fiscal 2015
Net Revenue
January 29,
2017
Fiscal Year Ended
January 31,
2016
(In thousands)
February 1,
2015
$ 2,344,392
1,144,775
$ 2,060,523
1,063,357
$ 1,797,213
883,033
1,199,617
778,465
421,152
1,577
422,729
119,348
303,381
$
$
997,166
628,090
369,076
(581)
368,495
102,448
266,047
$
914,180
538,147
376,033
7,102
383,135
144,102
239,033
January 29,
2017
Fiscal Year Ended
January 31,
2016
(Percentages)
February 1,
2015
100.0%
100.0%
100.0%
48.8
51.2
33.2
18.0
—
18.0
5.1
12.9%
51.6
48.4
30.5
17.9
—
17.9
5.0
12.9%
49.1
50.9
30.0
20.9
0.4
21.3
8.0
13.3%
Net revenue increased $283.9 million, or 14%, to $2.344 billion in fiscal 2016 from $2.061 billion in fiscal 2015. On a
constant dollar basis, assuming the average exchange rates in fiscal 2016 remained constant with the average exchange rates in
fiscal 2015, net revenue increased $292.9 million, or 14%.
Net revenue increased across all segments. The increase in net revenue was primarily due to the addition of 43 net new
company-operated stores during fiscal 2016, as well as increased comparable store sales and the growth of our direct to
consumer segment. Total comparable sales, which includes comparable store sales and direct to consumer, increased 6% in
fiscal 2016 compared to fiscal 2015. Total comparable sales increased 7% on a constant dollar basis.
Our net revenue on a segment basis for fiscal 2016 and fiscal 2015 is summarized below. Net revenue is expressed in
dollar amounts. The percentages are presented as a percentage of total net revenue.
Fiscal Years Ended January 29, 2017 and January 31, 2016
2016
2015
2016
2015
(In thousands)
(Percentages)
Company-operated stores. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,704,357
Direct to consumer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
453,287
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
186,748
$ 2,344,392
$ 1,516,323
401,525
142,675
$ 2,060,523
72.7%
19.3
8.0
100.0%
73.6%
19.5
6.9
100.0%
21
Company-Operated Stores. Net revenue from our company-operated stores segment increased $188.0 million, or 12%, to
$1.704 billion in fiscal 2016 from $1.516 billion in fiscal 2015. The following contributed to the increase in net revenue from
our company-operated stores segment:
• Net revenue from company-operated stores we opened or significantly expanded subsequent to January 31, 2016, and
therefore not included in comparable store sales, contributed $126.7 million to the increase. During fiscal 2016 we
opened 43 net new company-operated stores, which included 27 stores in the United States, four stores in Canada,
three stores in each of China and the United Kingdom, two stores in South Korea, and one store in each of Australia,
Hong Kong, Singapore, and Switzerland.
• A comparable store sales increase of 4% in fiscal 2016 compared to fiscal 2015 resulted in a $61.3 million increase to
net revenue. Comparable store sales increased 5%, or $66.4 million on a constant dollar basis. The increase in
comparable store sales was primarily as a result of increased dollar value per transaction and improved conversion
rates.
Direct to Consumer. Net revenue from our direct to consumer segment increased $51.8 million, or 13%, to $453.3 million
in fiscal 2016 from $401.5 million in fiscal 2015. Direct to consumer net revenue increased 13% on a constant dollar basis. The
increase in net revenue from our direct to consumer segment was primarily the result of increased traffic on our e-commerce
websites, increased dollar value per transaction and improved conversion rates.
Other. Net revenue from our other segment increased $44.1 million, or 31%, to $186.7 million in fiscal 2016 from $142.7
million in fiscal 2015. This increase was primarily the result of an increased number of outlets which were open for the full
year in fiscal 2016, increased net revenue at other existing outlets, and an increase in the number of temporary locations.
Gross Profit
Gross profit increased $202.5 million, or 20%, to $1.200 billion in fiscal 2016 from $997.2 million in fiscal 2015.
Gross profit as a percentage of net revenue, or gross margin, increased 280 basis points, to 51.2% in fiscal 2016 from
48.4% in fiscal 2015. The increase in gross margin was primarily the result of an increase in product margin of 330 basis
points, primarily due to lower product costs, improved average retail prices, and lower costs related to our raw material
commitments.
The increase in gross margin was partially offset by an increase in expenses related to our product and supply chain
departments of 20 basis points, an increase in occupancy costs and depreciation of 20 basis points, and an unfavorable impact
of foreign exchange rates of 10 basis points.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $150.4 million, or 24%, to $778.5 million in fiscal 2016 from
$628.1 million in fiscal 2015. The increase in selling, general and administrative expenses was principally comprised of:
•
•
•
•
•
•
an increase in employee costs for our operating locations of $47.0 million, primarily from a growth in labor hours
and bonuses, mainly associated with new company-operated stores;
an increase in head office employee costs of $35.4 million to support the growth in our business;
an increase in head office costs other than employee costs of $21.2 million primarily as a result of increased brand
and community costs, increased depreciation, and increased information technology costs;
an increase in net foreign exchange revaluation losses of $20.3 million, primarily related to the revaluation of U.S.
dollar cash and receivables held in Canadian subsidiaries. There were net foreign exchange losses of $8.3 million in
fiscal 2016 compared to net foreign exchange gains of $12.0 million in fiscal 2015.
an increase in other costs of $18.5 million for our operating channels such as digital marketing expenses, repairs and
maintenance costs, and increased depreciation; and
an increase in variable costs such as credit card fees and distribution costs of $8.1 million primarily as a result of
increased sales.
As a percentage of net revenue, selling, general and administrative expenses increased 270 basis points, to 33.2% in fiscal
2016 from 30.5% in fiscal 2015.
22
Income from Operations
Income from operations increased $52.1 million, or 14%, to $421.2 million in fiscal 2016 from $369.1 million in fiscal
2015. The increase was a result of increased gross profit of $202.5 million, partially offset by increased selling, general and
administrative costs of $150.4 million.
On a segment basis, we determine income from operations without taking into account our general corporate expenses.
Income from operations before general corporate expenses for fiscal 2016 and fiscal 2015 is summarized below and is
expressed in dollar amounts. The percentages are presented as a percentage of net revenue of the respective operating segments.
Fiscal Years Ended January 29, 2017 and January 31, 2016
2016
2015
2016
2015
(In thousands)
(Percentages)
Company-operated stores. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Direct to consumer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations before general corporate expenses . . .
General corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
415,635
186,178
22,312
624,125
202,973
421,152
$
$
346,802
166,418
5,826
519,046
149,970
369,076
24.4%
41.1
11.9
22.9%
41.4
4.1
Company-Operated Stores. Income from operations from our company-operated stores segment increased $68.8 million,
or 20%, to $415.6 million for fiscal 2016 from $346.8 million for fiscal 2015. The increase was primarily the result of an
increase in gross profit of $132.8 million, which was primarily due to increased net revenue and higher gross margin. Net
revenue increased as a result of new stores as well as increased comparable store sales, which was primarily a result of
increased dollar value per transaction and improved conversion rates. This was partially offset by an increase in selling, general
and administrative expenses, including increased store employee costs and increased operating expenses associated with new
stores and increased net revenue at existing stores. Income from operations as a percentage of company-operated stores net
revenue increased by 150 basis points primarily due to increased gross margin, partially offset by deleverage of selling, general
and administrative expenses.
Direct to Consumer. Income from operations from our direct to consumer segment increased $19.8 million, or 12%, to
$186.2 million in fiscal 2016 from $166.4 million in fiscal 2015. The increase was primarily the result of increased gross profit
of $43.2 million primarily due to increased net revenue resulting from an increase in traffic on our e-commerce websites,
increased dollar value per transaction, and improved conversion rates. This was partially offset by an increase in selling,
general and administrative expenses including higher digital marketing expenses and higher variable costs such as distribution
costs and credit card fees as a result of increased net revenue. Income from operations as a percentage of direct to consumer net
revenue has decreased by 30 basis points primarily due to deleverage of selling, general and administrative expenses, partially
offset by an increase in gross margin.
Other. Income from operations from our other segment increased $16.5 million, or 283%, to $22.3 million in fiscal 2016
from $5.8 million in fiscal 2015. The increase was primarily the result of increased gross profit of $26.4 million, partially offset
by increased selling, general and administrative expenses primarily due to increased employee costs. Income from operations
as a percentage of other net revenue increased by 780 basis points primarily due to an increase in gross margin and decreased
selling, general and administrative expenses as a percentage of other net revenue.
General Corporate Expenses. General corporate expenses increased $53.0 million, or 35%, to $203.0 million in fiscal
2016 from $150.0 million in fiscal 2015. This increase was primarily due to increased head office employee costs, brand and
community costs, depreciation, and information technology costs. There was also a $20.3 million increase in foreign exchange
revaluation losses. We expect general corporate expenses to continue to increase in future years as we grow our overall
business and require increased efforts at our head office to support our company-operated stores, direct to consumer and other
segments.
Other Income (Expense), Net
There was net other income of $1.6 million in fiscal 2016 compared to net other expense of $0.6 million in fiscal 2015.
This was primarily the result of a $1.8 million reduction in net interest expense related to certain tax adjustments that are
outlined in Note 15 to the consolidated financial statements included in Item 8 of Part II of this report, as well as interest earned
on our increased cash and cash equivalents in fiscal 2016 compared to fiscal 2015.
23
Income Tax Expense
Income tax expense increased $16.9 million, or 16%, to $119.3 million in fiscal 2016 from $102.4 million in fiscal 2015.
Fiscal 2016 and fiscal 2015 included certain tax adjustments which resulted in net income tax recoveries of $10.7 million
and $7.4 million, respectively, as outlined in Note 15 to the consolidated financial statements included in Item 8 of Part II of
this report.
Our effective tax rate for fiscal 2016 was 28.2% compared to 27.8% for fiscal 2015. Our effective tax rate excluding the
above tax and related interest adjustments was 30.7% for fiscal 2016 compared to 29.5% for fiscal 2015.
Net Income
Net income increased $37.4 million, or 14%, to $303.4 million in fiscal 2016 from $266.0 million in fiscal 2015. The
increase in net income in fiscal 2016 was primarily due to a $202.5 million increase in gross profit and an increase in other
income (expense), net of $2.2 million, partially offset by an increase of $150.4 million in selling, general and administrative
expenses and an increase of $16.9 million in income tax expense.
Comparison of Fiscal 2015 to Fiscal 2014
Net Revenue
Net revenue increased $263.3 million, or 15%, to $2.061 billion in fiscal 2015 from $1.797 billion in fiscal 2014. On a
constant dollar basis, assuming the average exchange rates in fiscal 2015 remained constant with the average exchange rates in
fiscal 2014, net revenue increased $352.2 million, or 20%.
The net revenue increase was primarily driven by sales from new stores and the growth of our direct to consumer
segment. Total comparable sales, which includes comparable store sales and direct to consumer, increased 5% in fiscal 2015
compared to fiscal 2014. Total comparable sales increased 10% on a constant dollar basis.
Our net revenue on a segment basis for fiscal 2015 and fiscal 2014 is summarized below. Net revenue is expressed in
dollar amounts. The percentages are presented as a percentage of total net revenue.
Fiscal Years Ended January 31, 2016 and February 1, 2015
2015
2014
2015
2014
(In thousands)
(Percentages)
Company-operated stores. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,516,323
Direct to consumer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
401,525
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,060,523
142,675
$ 1,348,225
321,180
127,808
73.6%
19.5
6.9
75.0%
17.9
7.1
$ 1,797,213
100.0%
100.0%
Company-Operated Stores. Net revenue from our company-operated stores segment increased $168.1 million, or 12%, to
$1.516 billion in fiscal 2015 from $1.348 billion in fiscal 2014.
During fiscal 2015 we opened 61 net new stores, which included 49 stores in the United States, three stores in Canada,
four stores in the United Kingdom, two stores in Hong Kong, and one store in each of Germany, Puerto Rico, and Singapore.
The increase in net revenue from our company-operated stores segment resulted from an increase of $175.4 million from
non-comparable stores, which includes sales from new stores that have not been open for 12 months and sales from stores
which have been significantly expanded. The increase in net revenue was partially offset by a decrease of $7.3 million from
comparable store sales.
Comparable store sales decreased by less than 1% in fiscal 2015 compared to fiscal 2014. Comparable store sales
increased 4%, or $48.8 million on a constant dollar basis. Comparable store sales on a constant dollar basis increased primarily
as the result of increased traffic which resulted in an increase in the number of transactions, and due to higher average unit
retail prices.
Direct to Consumer. Net revenue from our direct to consumer segment increased $80.3 million, or 25%, to $401.5 million
in fiscal 2015 from $321.2 million in fiscal 2014. Direct to consumer net revenue increased 30% on a constant dollar basis. The
increase in net revenue from our direct to consumer segment was primarily the result of an increase in the number of
transactions which was driven by increased traffic and higher conversion rates on our e-commerce websites.
24
Other. Net revenue from our other segment increased $14.9 million, or 12%, to $142.7 million in fiscal 2015 from $127.8
million in fiscal 2014. This increase was primarily the result of an increased number of outlets and an increased number of
warehouse sales held during fiscal 2015 compared to fiscal 2014. This was partially offset by fewer temporary locations open
during fiscal 2015 compared to fiscal 2014.
Gross Profit
Gross profit increased $83.0 million, or 9%, to $997.2 million in fiscal 2015 from $914.2 million in fiscal 2014.
Gross profit as a percentage of net revenue, or gross margin, decreased 250 basis points, to 48.4% in fiscal 2015 from
50.9% in fiscal 2014. The decrease in gross margin was primarily the result of:
•
•
•
an increase in fixed costs, such as occupancy costs and depreciation, relative to the increase in net revenue, of 90
basis points;
an unfavorable impact of foreign exchange rates on product costs which contributed to a decrease in gross margin of
90 basis points; and
a decrease in product margin of 70 basis points, primarily due to an increase in markdowns and discounts, as well as
other product related costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $89.9 million, or 17%, to $628.1 million in fiscal 2015 from
$538.1 million in fiscal 2014. The increase in selling, general and administrative expenses was principally comprised of:
•
•
•
•
•
an increase in employee costs for our operating locations of $36.8 million, primarily from a growth in labor hours
and bonuses, mainly associated with new company-operated stores;
an increase in head office costs other than employee costs of $18.7 million primarily as a result of increased
professional fees, including supply chain consulting costs, increased brand and community costs, and increased
depreciation;
an increase in variable costs such as distribution costs, credit card fees, and packaging of $14.6 million primarily as a
result of new company-operated stores as well as increased sales volume from our direct to consumer segment;
an increase in head office employee costs of $14.5 million to support the growth in our business; and
an increase in other costs of $10.9 million for our operating channels such as repairs and maintenance costs, digital
marketing expenses, and store community costs.
• The increase in selling, general and administrative expenses was partially offset by an increase in net foreign
exchange revaluation gains of $5.6 million.
As a percentage of net revenue, selling, general and administrative expenses increased 50 basis points, to 30.5% in fiscal
2015 from 30.0% in fiscal 2014.
Income from Operations
Income from operations decreased $7.0 million, or 2%, to $369.1 million in fiscal 2015 from $376.0 million in fiscal
2014. The decrease was a result of increased selling, general and administrative costs of $89.9 million, partially offset by
increased gross profit of $83.0 million.
On a segment basis, we determine income from operations without taking into account our general corporate expenses.
25
Income from operations before general corporate expenses for fiscal 2015 and fiscal 2014 is summarized below and is
expressed in dollar amounts. The percentages are presented as a percentage of net revenue of the respective operating segments.
Fiscal Years Ended January 31, 2016 and February 1, 2015
2015
2014
2015
2014
(In thousands)
(Percentages)
Company-operated stores. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Direct to consumer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations before general corporate expenses . . .
General corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
346,802
$
356,589
166,418
5,826
519,046
149,970
132,877
9,499
498,965
122,932
369,076
$
376,033
22.9%
41.4
4.1
26.4%
41.4
7.4
Company-Operated Stores. Income from operations from our company-operated stores segment decreased $9.8 million,
or 3%, to $346.8 million for fiscal 2015 from $356.6 million for fiscal 2014 primarily due to an increase in selling, general and
administrative expenses related to employee costs as well as operating expenses associated with new stores, partially offset by
an increase of $41.0 million in gross profit from increased sales. Income from operations as a percentage of company-operated
stores net revenue decreased by 350 basis points primarily due to lower gross margin resulting from an increase in fixed costs
relative to the increase in net revenue, unfavorable foreign exchange rates, and an increase in markdowns and discounts, as well
as increased selling, general and administrative expenses as a percentage of net revenue.
Direct to Consumer. Income from operations from our direct to consumer segment increased $33.5 million, or 25%, to
$166.4 million in fiscal 2015 from $132.9 million in fiscal 2014. The increase was primarily the result of increased gross profit
of $39.8 million primarily due to increased net revenue resulting from an increase in the number of transactions which was
driven by increased traffic and higher conversion rates, partially offset by increased selling, general and administrative
expenses. Income from operations as a percentage of direct to consumer net revenue was 41.4% in each of fiscal 2015 and
fiscal 2014.
Other. Income from operations from our other segment decreased $3.7 million, or 39%, to $5.8 million in fiscal 2015
from $9.5 million in fiscal 2014. Income from operations as a percentage of other net revenue decreased by 330 basis points
primarily due to an increased proportion of outlet and warehouse sales within our other segment net revenue in fiscal 2015
compared to fiscal 2014 that carry a lower gross margin.
General Corporate Expenses. General corporate expenses increased $27.0 million, or 22%, to $150.0 million in fiscal
2015 from $122.9 million in fiscal 2014. This increase was primarily due to increased head office employee costs, professional
fees, including increased professional fees related to supply chain consulting costs, and brand and community costs to support
the growth of our business. The increase in general corporate expenses was partially offset by an increase in net foreign
exchange revaluation gains of $5.6 million.
Other Income (Expense), Net
There was net other expense of $0.6 million in fiscal 2015 compared to net other income of $7.1 million in fiscal 2014.
This was primarily the result of less interest earned on our decreased cash and cash equivalents in fiscal 2015 compared to
fiscal 2014 as well as a net interest expense of $3.5 million related to certain tax adjustments that are outlined in Note 15 to the
audited consolidated financial statements included in Item 8 of Part II of this report.
Income Tax Expense
Income tax expense decreased $41.7 million, or 29%, to $102.4 million in fiscal 2015 from $144.1 million in fiscal 2014.
Our effective tax rate for fiscal 2015 was 27.8% compared to 37.6% for fiscal 2014. Fiscal 2015 included certain tax
adjustments which resulted in a net recovery of $7.4 million as outlined in Note 15 to the audited consolidated financial
statements included in Item 8 of Part II of this report. Fiscal 2014 included a tax expense of $33.7 million to provide for U.S.
income and applicable foreign withholding taxes on dividends of $473.7 million which were distributed during fiscal 2014
from foreign subsidiaries to the U.S. parent entity to fund our share repurchase program. Our effective tax rate excluding these
adjustments was 29.5% for fiscal 2015 compared to 28.8% for fiscal 2014.
26
Net Income
Net income increased $27.0 million, or 11%, to $266.0 million in fiscal 2015 from $239.0 million in fiscal 2014. The
increase in net income in fiscal 2015 was primarily due to a $83.0 million increase in gross profit resulting from new stores and
the growth of our direct to consumer segment and a decrease of $41.7 million in income tax expense, partially offset by an
increase of $89.9 million in selling, general and administrative expenses and a $7.7 million increase in other income (expense),
net.
Comparable Sales
We separately track comparable store sales, which reflect net revenue from company-operated stores that have been open
for at least 12 months, or open for at least 12 months after being significantly expanded. Net revenue from a store is included in
comparable store sales beginning with the first month for which the store has a full month of sales in the prior year.
Comparable store sales exclude sales from new stores that have not been open for at least 12 months, from stores which have
not been in their significantly expanded space for at least 12 months, and from stores which have been temporarily relocated for
renovations. Comparable store sales also exclude sales from direct to consumer, outlets, showrooms, temporary locations,
wholesale accounts, warehouse sales, license and supply arrangements, and sales from company-operated stores that we have
closed.
Total comparable sales combines comparable store sales and direct to consumer sales. We are evolving towards an omni-
channel approach to support the shopping behavior of our guests. This involves country and region specific websites, mobile/
tablet devices in stores, social networks, product notification emails, and online order fulfillment through stores. We therefore
believe that reporting total comparable sales with comparable store sales and direct to consumer sales combined provides a
relevant performance metric.
Various factors affect comparable sales, including:
•
•
•
•
•
•
•
•
•
•
•
•
the location of new stores relative to existing stores;
consumer preferences, buying trends, and overall economic trends;
our ability to anticipate and respond effectively to customer preferences for technical athletic apparel;
competition;
changes in our merchandise mix;
pricing;
the timing of our releases of new merchandise and promotional events;
the effectiveness of our grassroots marketing efforts;
the design and ease of use of our websites;
the level of customer service that we provide in our stores and on our websites;
our ability to source and distribute products efficiently; and
the number of stores we open, close (including for temporary renovations), and expand in any period.
Opening new stores is an important part of our growth strategy. Accordingly, total comparable sales has limited utility for
assessing the success of our growth strategy insofar as comparable sales do not reflect the performance of stores open less than
12 months. The comparable sales measures we report may not be equivalent to similarly titled measures reported by other
companies.
Non-GAAP Financial Measures
Constant dollar changes in net revenue, total comparable sales, comparable store sales, and direct to consumer net
revenue, and the effective tax rate and diluted earnings per share excluding certain tax and related interest adjustments, are non-
GAAP financial measures.
A constant dollar basis assumes the average foreign exchange rates for the period remained constant with the average
foreign exchange rates for the same period of the prior year. We provide constant dollar changes in net revenue, total
comparable sales, comparable store sales, and changes in direct to consumer net revenue because we use these measures to
understand the underlying growth rate of net revenue excluding the impact of changes in foreign exchange rates. We believe
27
that disclosing these measures on a constant dollar basis is useful to investors because it enables them to better understand the
level of growth of our business.
We disclose the effective tax rate and diluted earnings per share excluding certain tax and related interest adjustments
because of their comparability to our historical information, which we believe is useful to investors.
The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or with
greater prominence to, the financial information prepared and presented in accordance with GAAP. A reconciliation of the non-
GAAP financial measures follows, which includes more detail on the GAAP financial measure that is most directly comparable
to each non-GAAP financial measure, and the related reconciliations between these financial measures.
The below changes in net revenue, total comparable sales, comparable store sales, and direct to consumer net revenue
show the change compared to the corresponding period in the prior year.
Constant dollar changes in net revenue, total comparable sales, comparable store sales, and direct to consumer net revenue
Change in net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Adjustments due to foreign exchange rate changes. . . . . . . . . .
Change in net revenue in constant dollars . . . . . . . . . . . . . . . . .
$
283,869
8,983
292,852
14% $
263,310
—
88,877
14% $
352,187
15%
5
20%
Fiscal Year Ended
January 29, 2017
Fiscal Year Ended
January 31, 2016
(In thousands)
(Percentages)
(In thousands)
(Percentages)
Change in total comparable sales1,2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments due to foreign exchange rate changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in total comparable sales in constant dollars1,2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year Ended
January 29,
2017
January 31,
2016
6%
1
7%
5%
5
10%
Change in comparable store sales2. . . . . . . . . . . . . . . . . . . . . . .
Adjustments due to foreign exchange rate changes. . . . . . . . . .
Change in comparable store sales in constant dollars2 . . . . . . . $
(In thousands)
61,341
$
5,036
66,377
(Percentages)
(In thousands)
(Percentages)
4% $
1
5% $
(7,335)
56,106
48,771
—%
4
4%
Fiscal Year Ended
January 29, 2017
Fiscal Year Ended
January 31, 2016
Change in direct to consumer net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments due to foreign exchange rate changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in direct to consumer net revenue in constant dollars . . . . . . . . . . . . . . . . . . . . . . . . . . .
13%
—
13%
25%
5
30%
__________
1Total comparable sales includes comparable store sales and direct to consumer sales.
2Comparable store sales reflects net revenue from company-operated stores that have been open for at least 12 months, or open
for at least 12 months after being significantly expanded.
Fiscal Year Ended
January 29,
2017
January 31,
2016
28
Effective tax rate and diluted earnings per share, excluding tax and related interest adjustments
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax and related interest adjustments1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective tax rate, excluding tax and related interest adjustments . . . . . . . . . . .
28.2%
2.5
30.7%
27.8%
1.7
29.5%
37.6%
(8.8)
28.8%
Fiscal Year Ended
January 29,
2017
January 31,
2016
February 1,
2015
Fiscal Year Ended
January 29,
2017
January 31,
2016
February 1,
2015
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax and related interest adjustments1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share, excluding tax and related interest adjustments . . . . $
$
2.21
(0.07)
2.14
$
$
1.89
(0.03)
1.86
$
$
1.66
0.23
1.89
_________
1Please refer to Note 15 to the audited consolidated financial statements included in Item 8 of Part II of this report for an
explanation as to the nature of these items.
Liquidity and Capital Resources
Our primary sources of liquidity are our current balances of cash and cash equivalents, cash flows from operations, and
capacity under our revolving credit facility. Our primary cash needs are capital expenditures for opening new stores and
remodeling or relocating existing stores, making information technology system enhancements, funding working capital
requirements, and making other strategic capital investments both in North America and internationally. We may also use cash
to repurchase shares of our common stock. Cash and cash equivalents in excess of our needs are held in interest bearing
accounts with financial institutions.
As of January 29, 2017, our working capital (excluding cash and cash equivalents) was $186.4 million, our cash and cash
equivalents were $734.8 million and our capacity under our revolving credit facility was $149.2 million.
The following table summarizes our net cash flows provided by and used in operating, investing and financing activities
for the periods indicated:
January 29,
2017
Fiscal Year Ended
January 31,
2016
(In thousands)
February 1,
2015
Total cash provided by (used in):
Operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $
$
385,119
(149,511)
(25,338)
23,094
233,364
$
$
$
298,740
(143,487)
(273,693)
(44,557)
(162,997) $
314,449
(119,733)
(149,077)
(79,809)
(34,170)
Operating Activities
Cash flows provided by operating activities consist primarily of net income adjusted for certain items not affecting cash
and the effect of changes in operating assets and liabilities.
In fiscal 2016, cash provided by operating activities increased $86.4 million, to $385.1 million compared to cash
provided by operating activities of $298.7 million in fiscal 2015. The increase was primarily a result of a decrease in inventory
purchases, a decrease in the change in prepaid and receivable income taxes, and an increase in net income. This was partially
offset by a decrease in the change in income taxes payable, deferred income taxes, and accrued inventory liabilities.
Inventory purchases decreased during fiscal 2016 primarily as a result of actions taken to align inventory levels with
forward sales trends.
29
In fiscal 2015, cash provided by operating activities decreased $15.7 million, to $298.7 million compared to cash
provided by operating activities of $314.4 million in fiscal 2014. The decrease was primarily a result of an increase in inventory
purchases and an increase in prepaid and receivable income taxes. This was partially offset by an increase in net income,
changes in other operating assets and liabilities, and the change in items not affecting cash. The change in items not affecting
cash was primarily due to an increase in depreciation related to our increased number of stores and a reduction in net deferred
income tax assets.
Inventory increased during fiscal 2015 primarily due to the opening of new stores, increased inventory levels to support
the sales growth in our company-operated stores and direct to consumer segments, and the timing of product deliveries.
Prepaid and receivable income taxes increased during fiscal 2015 primarily as a result of certain tax adjustments as
outlined in Note 15 to the consolidated financial statements included in Item 8 of Part II of this report. These adjustments
resulted in an income tax receivable in the United States and an increase in income taxes payable in Canada.
Investing Activities
Cash flows used in investing activities relate entirely to capital expenditures. Cash used in investing activities increased
$6.0 million, to $149.5 million in fiscal 2016 from $143.5 million in fiscal 2015. Cash used in investing activities increased
$23.8 million, to $143.5 million in fiscal 2015 from $119.7 million in fiscal 2014.
Capital expenditures for our company-operated stores segment were $75.3 million in fiscal 2016 which included $30.6
million to open 46 company-operated stores, $85.8 million in fiscal 2015 which included $49.2 million to open 62 company-
operated stores, and $76.9 million in fiscal 2014 which included $38.1 million to open 49 new company-operated stores. The
remaining capital expenditures for our company-operated stores segment in each period were primarily for the remodeling or
relocation of certain stores, and ongoing store refurbishment.
Capital expenditures for our direct to consumer segment were $11.5 million, $8.3 million, and $10.0 million in fiscal
2016, fiscal 2015, and fiscal 2014, respectively. The capital expenditures for our direct to consumer segment in fiscal 2016
were primarily related to our global website redesign as well as mobile website enhancements, and in fiscal 2015 and 2014
were primarily related to website enhancements and country and region specific website launches.
Capital expenditures related to corporate activities and other were $62.7 million, $49.4 million, and $32.9 million in
fiscal 2016, fiscal 2015, and fiscal 2014, respectively. During the second quarter of fiscal 2016, we purchased a land parcel in
Vancouver, BC for general corporate purposes for $19.7 million. The capital expenditures in each period for corporate activities
and other were for investments in information technology and business systems, improvements at our head office and other
corporate buildings, and for capital expenditures related to opening retail locations other than company-operated stores.
Capital expenditures are expected to range between $170 million and $175 million in fiscal 2017.
Financing Activities
Cash flows used in or provided by financing activities consist primarily of cash used to repurchase shares of our common
stock and certain cash flows related to stock-based compensation.
Cash used in financing activities decreased $248.4 million, to $25.3 million in fiscal 2016 from $273.7 million in fiscal
2015. Cash used in financing activities increased $124.6 million, to $273.7 million in fiscal 2015 from $149.1 million in fiscal
2014. The primary cause of these changes in cash used in financing activities was our stock repurchase program.
On June 11, 2014, our board of directors approved a program to repurchase shares of our common stock up to an
aggregate value of $450.0 million. This stock repurchase program was completed during the second quarter of fiscal 2016. On
December 1, 2016, our board of directors approved a program to repurchase shares of our common stock up to an aggregate
value of $100.0 million.
During the fiscal years ended January 29, 2017, January 31, 2016, and February 1, 2015, 0.5 million, 5.0 million, and 3.7
million shares, respectively, were repurchased under the programs at a total cost of $29.3 million, $274.2 million, and $147.4
million, respectively.
We believe that our cash and cash equivalent balances, cash generated from operations, and borrowings available to us
under our revolving credit facility will be adequate to meet our liquidity needs and capital expenditure requirements for at least
the next 12 months. Our cash from operations may be negatively impacted by a decrease in demand for our products as well as
the other factors described in "Item 1A. Risk Factors". In addition, we may make discretionary capital improvements with
respect to our stores, distribution facilities, headquarters, or systems, which we would expect to fund through the use of cash,
issuance of debt or equity securities or other external financing sources to the extent we were unable to fund such capital
expenditures out of our cash and cash equivalents and cash generated from operations.
30
Revolving Credit Facility
On December 15, 2016, we entered into a credit agreement for $150.0 million under an unsecured five-year revolving
credit facility. Bank of America, N.A., is administrative agent and HSBC Bank Canada is the syndication agent and letter of
credit issuer, and the lenders party thereto. Borrowings under the revolving credit facility may be made, in U.S. Dollars, Euros,
Canadian Dollars, and in other currencies, subject to the approval of the administrative agent and the lenders. Up to $35.0
million of the revolving credit facility is available for the issuance of letters of credit and up to $25.0 million is available for the
issuance of swing line loans. Commitments under the revolving credit facility may be increased by up to $200.0 million,
subject to certain conditions, including the approval of the lenders. Borrowings under the agreement may be prepaid and
commitments may be reduced or terminated without premium or penalty (other than customary breakage costs). The principal
amount outstanding under the credit agreement will be due and payable in full on December 15, 2021, subject to provisions that
permit us to request a limited number of one year extensions annually.
Borrowings made under the revolving credit facility bear interest at a rate per annum equal to, at our option, either (a) a
rate based on the rates applicable for deposits on the interbank market for U.S. Dollars or the applicable currency in which the
borrowings are made ("LIBOR") or (b) an alternate base rate, plus, in each case, an applicable margin. The applicable margin is
determined by reference to a pricing grid, based on the ratio of indebtedness to earnings before interest, tax depreciation,
amortization and rent ("EBITDAR") and ranges between 1.00%-1.75% for LIBOR loans and 0.00%-0.75% for alternate base
rate loans. Additionally, a commitment fee of between 0.125%-0.200%, also determined by reference to the pricing grid, is
payable on the average daily unused amounts under the revolving credit facility.
The credit agreement contains negative covenants that, among other things and subject to certain exceptions, limit the
ability of our 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.
We are also required to maintain a consolidated rent-adjusted leverage ratio of not greater than 3.50:1.00 and we are not
permitted to allow the ratio of consolidated EBITDAR to consolidated interest charges (plus rent) to be less than 2.00:1.00. The
credit agreement also contains certain customary representations, warranties, affirmative covenants, and events of default
(including, among others, an event of default upon the occurrence of a change of control). If an event of default occurs, the
credit agreement may be terminated and the maturity of any outstanding amounts may be accelerated.
As of January 29, 2017, aside from letters of credit of $0.8 million, we had no other borrowings outstanding under this
credit facility.
Contractual Obligations and Commitments
Leases. We lease certain store and other retail locations, distribution centers, offices, and equipment under non-cancelable
operating leases. Our leases generally have initial terms of between five and 10 years, and generally can be extended only in
five-year increments, if at all. Our leases expire at various dates between one and 15 years, excluding extensions at our option.
A substantial number of our leases include renewal options and certain of our leases include rent escalation clauses, rent
holidays and leasehold rental incentives, none of which are reflected in the table below. The majority of our leases for store
premises also include contingent rental payments based on sales, the impact of which also are not reflected in the table below.
Product Purchase Obligations. The amounts listed for product purchase obligations in the table below represent
agreements (including open purchase orders) to purchase products in the ordinary course of business that are enforceable and
legally binding and that specify all significant terms. In some cases, prices are subject to change throughout the production
process. The reported amounts exclude product purchase liabilities included in accounts payable and accrued inventory
liabilities as of January 29, 2017.
The following table summarizes our contractual arrangements as of January 29, 2017, and the timing and effect that such
commitments are expected to have on our liquidity and cash flows in future periods:
Total
2017
2018
2019
2020
2021
Thereafter
Payments Due by Fiscal Year
(In thousands)
Operating leases (minimum rent) . . .
$ 518,613
Product purchase obligations. . . . . . . $ 176,312
$ 118,897
$ 106,496
$ 94,085
$ 71,973
$ 45,019
$ 82,143
$ 176,312
$
— $
— $
— $
— $
—
Off-Balance Sheet Arrangements
We enter into standby letters of credit to secure certain of our obligations, including leases, taxes and duties. As of
January 29, 2017, letters of credit totaling $0.8 million had been issued.
31
We have not entered into any transactions, agreements or other contractual arrangements to which an entity
unconsolidated with us is a party and under which we have (i) any obligation under a guarantee, (ii) any retained or contingent
interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity,
(iii) any obligation under derivative instruments that are indexed to our shares and classified as equity in our consolidated
balance sheets, or (iv) any obligation arising out of a variable interest in any unconsolidated entity that provides financing,
liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions. Predicting future events is inherently an imprecise activity and, as such,
requires the use of judgment. Actual results may vary from our estimates in amounts that may be material to the financial
statements. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions
about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have
been used or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact our
consolidated financial statements.
We believe that the following critical accounting policies affect our more significant estimates and judgments used in the
preparation of our consolidated financial statements:
Revenue Recognition. Net revenue is recognized net of sales taxes, discounts, and an estimated allowance for sales
returns. Sales to customers through company-operated stores and other physical locations are recognized at the point of sale,
net of an estimated allowance for sales returns. Direct to consumer sales are recognized once delivery has occurred and
collection is reasonably assured, net of an estimated allowance for sales returns. Other net revenue includes outlet sales,
showroom sales, sales from temporary locations, sales to wholesale accounts, warehouse sales, and license and supply
arrangement net revenue, which consists of royalties as well as sales of our product to licensees. Revenue is recognized when
these sales occur. Employee discounts are classified as a reduction of net revenue.
Our estimated allowance for sales returns is a subjective critical estimate that has a direct impact on reported net revenue.
This allowance is calculated based on a history of actual returns, estimated future returns and any significant future known or
anticipated events. Consideration of these factors results in an estimated allowance for sales returns. Our standard terms for
retail sales limit returns to approximately 14 days after the sale of the merchandise, however we accept returns after 14 days
where the product fails to meet our guests' quality expectations.
Revenue from our gift cards is recognized when tendered for payment, or upon redemption. Outstanding customer
balances are included in "Unredeemed gift card liability" on the consolidated balance sheets. There are no expiration dates on
our gift cards, and we do not charge any service fees that cause a decrement to customer balances.
While we will continue to honor all gift cards presented for payment, we may determine the likelihood of redemption to
be remote for certain card balances due to, among other things, long periods of inactivity. In these circumstances, to the extent
we determine there is no requirement for remitting card balances to government agencies under unclaimed property laws, card
balances may be recognized in the consolidated statements of operations in net revenue. The amount recognized is an estimate,
based on historical customer redemption rates.
Inventory. Inventory is valued at the lower of cost and market. We periodically review our inventories and make
provisions as necessary to appropriately value goods that are obsolete, have quality issues, or are damaged. The amount of the
provision is equal to the difference between the cost of the inventory and its net realizable value based upon assumptions about
future demand, selling prices, and market conditions. If changes in market conditions result in reductions in the estimated net
realizable value of our inventory below our previous estimate, we would increase our reserve in the period in which we made
such a determination. In addition, we provide for inventory shrinkage as a percentage of sales, based on historical trends from
actual physical inventories. Inventory shrinkage estimates are made to reduce the inventory value for lost or stolen items. We
perform physical inventory counts throughout the year and adjust the shrink provision accordingly.
32
Property and Equipment. Property and equipment are recorded at cost less accumulated depreciation. Buildings are
depreciated on a straight-line basis over the expected useful life of the asset, which we estimate to be 20 years. Leasehold
improvements are depreciated on a straight-line basis over the lesser of the length of the lease and the estimated useful life of
the assets, up to a maximum of five years. All other property and equipment is depreciated using the declining balance method
as follows:
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer hardware and software. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment and vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20%
20% - 30%
30%
Changes in circumstances (such as technological advances) can result in differences between the actual and estimated
useful lives. In those cases where we determine that the useful life of a long-lived asset should be shortened, we increase
depreciation expense over the remaining useful life to depreciate the asset's net book value to its estimated salvage value.
Long-Lived Assets. Long-lived assets, including intangible assets with finite useful lives are evaluated for impairment
when the occurrence of events or changes in circumstances indicates that the carrying value of the assets may not be
recoverable as measured by comparing their net book value to the undiscounted estimated future cash flows generated by their
use and eventual disposition. Impaired assets are recorded at fair value, determined principally by the present value of the
estimated future cash flows expected from their use and eventual disposition.
Income Taxes. Deferred income tax assets and liabilities are determined based on the temporary differences between the
carrying amounts and the tax basis of assets and liabilities, and for tax losses, tax credit carry forwards, and other tax attributes,
using the enacted tax rates that are to be in effect when these differences are expected to reverse.
Deferred income tax liabilities are provided for U.S. income taxes on the undistributed earnings of foreign subsidiaries,
unless those earnings can be distributed on a tax-free basis or if the earnings are indefinitely reinvested. We determine on a
regular basis the amount of undistributed earnings that will be indefinitely reinvested in our non-U.S. operations. This
assessment is based on the cash flow projections and operational and fiscal objectives of each of our U.S. and foreign
subsidiaries. Such estimates are inherently imprecise since many assumptions used in the projections are subject to revision.
The possibility exists that amounts determined to be indefinitely reinvested outside of the U.S. may ultimately be repatriated.
U.S. income and foreign withholding taxes have not been provided on approximately $852.3 million of cumulative
undistributed earnings of a Canadian subsidiary as of January 29, 2017. These earnings are indefinitely reinvested outside of
the United States. Income taxes of approximately $38.4 million would be incurred if these earnings were repatriated to the
United States.
As of January 29, 2017, we had cash and cash equivalents of $559.5 million outside of the United States. We do not
intend to repatriate these funds to the United States.
We evaluate our tax filing positions and recognize the largest amount of tax benefit that is considered more likely than
not to be sustained upon examination by the relevant taxing authorities based on the technical merits of the position. This
determination requires the use of significant judgment. Income tax expense is adjusted in the period in which an uncertain tax
position is effectively settled, the statute of limitations expires, facts or circumstances change, tax laws change, or new
information becomes available.
Our tax positions include intercompany transfer pricing policies and the associated taxable income and deductions arising
from intercompany charges between subsidiaries within the consolidated group. Although we believe that our intercompany
transfer pricing policies and tax positions are reasonable, the final outcomes of tax audits or potential tax disputes may be
materially different from that which is reflected in our income tax provisions and accruals.
Goodwill and Intangible Assets. Intangible assets are recorded at cost. Reacquired franchise rights are amortized on a
straight-line basis over their estimated useful lives of 10 years. Goodwill represents the excess of the purchase price over the
fair market value of identifiable net assets acquired and is not amortized. Goodwill is tested for impairment annually or more
frequently when an event or circumstance indicates that goodwill might be impaired. Goodwill impairment testing requires us
to estimate the fair value of our reporting units. We generally base our measurement of the fair value on the present value of
future cash flows. Our significant estimates in the discounted cash flows model include the discount rate and long-term rates of
growth. We use our best estimates and judgment based on available evidence in conducting the impairment testing.
Stock-Based Compensation. We account for stock-based compensation using the fair value method. The fair value of
awards granted is estimated at the date of grant and is recognized as employee compensation expense on a straight-line basis
over the requisite service period. For awards with service and/or performance conditions, the amount of compensation expense
recognized is based on the number of awards that are expected to vest.
33
The estimation of the number of stock awards that will ultimately vest requires judgment, and to the extent actual results
differ from our estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. We
consider several factors when estimating the number of awards which are expected to vest, including, future profit forecasts,
types of awards, size of option holder group, and anticipated employee retention. Actual results may differ substantially from
these estimates.
The calculation of the grant-date fair value of stock options requires us to make certain estimates and assumptions,
including, stock price volatility, and the expected life of the options. We evaluate and revise these estimates and assumptions as
necessary, to reflect market conditions and our historical experience. The expected term of the options is based upon historical
experience of similar awards, giving consideration to expectations of future employee behavior. Expected volatility is based
upon the historical volatility of our common stock for the period corresponding with the expected term of the options. In the
future, the expected volatility and expected term may change which could substantially change the grant-date fair value of
future awards of stock options and, ultimately, the expense we record.
Contingencies. In the ordinary course of business, we are involved in legal proceedings regarding contractual and
employment relationships and a variety of other matters. We record contingent liabilities resulting from claims against us, when
a loss is assessed to be probable and the amount of the loss is reasonably estimable. Assessing probability of loss and
estimating probable losses requires analysis of multiple factors, including in some cases judgments about the potential actions
of third-party claimants and courts.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market
prices and rates. Our market risk exposure is primarily a result of fluctuations in interest rates and foreign currency exchange
rates. We do not hold or issue financial instruments for trading purposes.
Foreign Currency Exchange Risk. 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.
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 currently generate a significant portion of our net revenue and incur a significant portion of our expenses in Canada.
We also hold a significant portion of our net assets in Canada. The reporting currency for our consolidated financial statements
is the U.S. dollar. A weakening of the U.S. dollar against the Canadian dollar results in:
•
•
•
an increase in our net revenue upon translation of the sales made by our Canadian operations into U.S. dollars for the
purposes of consolidation;
an increase in our selling, general and administrative expenses incurred by our Canadian operations upon translation
into U.S. dollars for the purposes of consolidation; and
foreign exchange revaluation losses by our Canadian subsidiaries on U.S. dollar cash and receivables denominated in
U.S. dollars.
During fiscal 2016, the change in the relative value of the U.S. dollar against the Canadian dollar resulted in a $41.7
million reduction in accumulated other comprehensive loss within stockholders' equity. During fiscal 2015, the change in the
relative value of the U.S. dollar against the Canadian dollar resulted in a $63.2 million increase in accumulated other
comprehensive loss within stockholders' equity.
A 10% appreciation in the relative value of the U.S. dollar against the Canadian dollar compared to the exchange rates in
effect for fiscal 2016 would have resulted in additional income from operations of approximately $0.2 million in fiscal 2016.
This assumes a consistent 10% appreciation in the U.S. dollar against the Canadian dollar throughout the fiscal year. The timing
of changes in the relative value of the U.S. dollar combined with the seasonal nature of our business, can affect the magnitude
of the impact that fluctuations in foreign exchange rates have on our income from operations.
34
We have not historically hedged foreign currency fluctuations. However, in the future, in an effort to mitigate these risks,
we may at times enter into derivative financial instruments, although we have not historically done so. We do not, and do not
intend to, engage in the practice of trading derivative securities for profit.
Interest Rate Risk. Our revolving credit facility, which is described in Note 8 to the consolidated financial statements
included in Item 8 of Part II of this report, provide us with available borrowings in an amount up to $150.0 million in the
aggregate. Because our revolving credit facility bears interest at a variable rate, we will be exposed to market risks relating to
changes in interest rates, if we have a meaningful outstanding balance. As of January 29, 2017, aside from letters of credit of
$0.8 million, we had no other borrowings outstanding under this credit facility. We currently do not engage in any interest rate
hedging activity and currently have no intention to do so. However, in the future, if we have a meaningful outstanding balance
under our revolving facility, in an effort to mitigate losses associated with these risks, we may at times enter into derivative
financial instruments, although we have not historically done so. These may take the form of forward contracts, option
contracts, or interest rate swaps. We do not, and do not intend to, engage in the practice of trading derivative securities for
profit.
Inflation
Inflationary factors such as increases in the cost of our product and overhead costs may adversely affect our operating
results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to
date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin
and selling, general and administrative expenses as a percentage of net revenue if the selling prices of our products do not
increase with these increased costs.
35
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
lululemon athletica inc.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations and Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Index for Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37
38
39
40
42
43
36
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders of lululemon athletica inc.
We have audited the accompanying consolidated balance sheets of lululemon athletica inc. and its subsidiaries as of
January 29, 2017 and January 31, 2016 and the related consolidated statements of operations and comprehensive income,
stockholders' equity and cash flows for the 52-week periods ended January 29, 2017, January 31, 2016 and February 1, 2015. In
addition, we have audited the financial statement schedule listed in the accompanying index appearing under Item 15(a)(2). We
also have audited lululemon athletica inc. and its subsidiaries' internal control over financial reporting as of January 29, 2017,
based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Management is responsible for these consolidated financial statements
and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on
Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express an opinion on these
consolidated financial statements, the financial statement schedule and the company's internal control over financial reporting
based on our integrated audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements and the financial statement schedule are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial
statements included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial
statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. Our audit of internal control over financial reporting included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of lululemon athletica inc. and its subsidiaries as of January 29, 2017 and January 31, 2016 and the results of their
operations and their cash flows for the 52-week periods ended January 29, 2017, January 31, 2016, and February 1, 2015 in
conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the
financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related consolidated financial statements. Also, in our opinion,
lululemon athletica inc. and its subsidiaries maintained, in all material respects, effective internal control over financial
reporting as of January 29, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by
COSO.
/s/ PricewaterhouseCoopers LLP
Chartered Professional Accountants
Vancouver, British Columbia
March 28, 2017
37
lululemon athletica inc.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share amounts)
ASSETS
Current assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid and receivable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and intangible assets, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued inventory liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued compensation and related expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unredeemed gift card liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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; 9,781 and 9,804 issued and
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Special voting stock, $0.000005 par value: 60,000 shares authorized; 9,781 and 9,804
issued and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock, $0.005 par value: 400,000 shares authorized; 127,304 and 127,482 issued
and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 29,
2017
January 31,
2016
$
734,846
$
501,482
9,200
298,432
81,190
39,069
1,162,737
423,499
13,108
284,009
91,453
26,987
917,039
349,605
24,557
26,256
20,492
$ 1,657,541
24,777
11,802
10,854
$ 1,314,077
$
24,846
$
8,601
55,238
30,290
70,454
52,020
241,449
7,262
48,857
297,568
—
—
—
10,381
25,451
43,524
37,736
57,736
50,676
225,504
10,759
50,332
286,595
—
—
—
637
266,622
1,294,214
(201,500)
1,359,973
$ 1,657,541
637
245,533
1,019,515
(238,203)
1,027,482
$ 1,314,077
See accompanying notes to the consolidated financial statements
38
lululemon athletica inc.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Amounts in thousands, except per share amounts)
Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year Ended
January 29,
2017
$ 2,344,392
1,144,775
January 31,
2016
$ 2,060,523
1,063,357
February 1,
2015
$ 1,797,213
883,033
1,199,617
778,465
421,152
1,577
422,729
119,348
997,166
628,090
369,076
(581)
368,495
102,448
914,180
538,147
376,033
7,102
383,135
144,102
$
303,381
$
266,047
$
239,033
Other comprehensive income (loss):
Foreign currency translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic weighted-average number of shares outstanding. . . . . . . . . . . . . . . . . . . .
Diluted weighted-average number of shares outstanding . . . . . . . . . . . . . . . . . .
$
$
$
$
$
$
36,703
340,084
2.21
2.21
137,086
137,302
$
$
$
(64,796)
201,251
1.90
1.89
140,365
140,610
(105,339)
133,694
1.66
1.66
143,935
144,298
See accompanying notes to the consolidated financial statements
39
lululemon athletica inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in thousands)
Exchangeable
Stock
Special Voting
Stock
Common Stock
Shares
Shares
Par
Value
Shares
Par
Value
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
29,955
29,955
$
— 115,342
$
577
$
240,351
$
923,822
$
(68,068) $
1,096,682
239,033
239,033
(105,339)
(105,339)
(20,122)
(20,122)
—
20,122
101
(101)
8,269
413
409
2
2,911
(104)
(1)
(4,971)
(3,657)
(18)
(5,177)
(142,236)
—
8,269
413
2,913
(4,972)
(147,431)
9,833
9,833
$
— 132,112
$
661
$
241,695
$ 1,020,619
$
(173,407) $
1,089,568
266,047
266,047
(64,796)
(64,796)
(29)
(29)
—
29
—
—
10,356
(1,202)
350
2
4,702
(50)
—
(2,857)
(4,959)
(26)
(7,016)
(267,151)
(145)
—
10,356
(1,202)
4,704
(2,857)
(274,193)
(145)
9,804
9,804
$
— 127,482
$
637
$
245,533
$ 1,019,515
$
(238,203) $
1,027,482
303,381
303,381
36,703
36,703
(23)
(23)
—
23
—
—
16,822
—
16,822
40
Balance at February 2,
2014 . . . . . . . . . . . . . . .
Net income . . . . . . . . . .
Foreign currency
translation adjustment .
Common stock issued
upon exchange of
exchangeable shares. . .
Stock-based
compensation expense .
Tax benefits from
stock-based
compensation . . . . . . . .
Common stock issued
upon settlement of
stock-based
compensation . . . . . . . .
Shares withheld related
to net share settlement
of stock-based
compensation . . . . . . . .
Repurchase of common
stock . . . . . . . . . . . . . . .
Balance at February 1,
2015 . . . . . . . . . . . . . . .
Net income . . . . . . . . . .
Foreign currency
translation adjustment .
Common stock issued
upon exchange of
exchangeable shares. . .
Stock-based
compensation expense .
Tax benefits from
stock-based
compensation . . . . . . . .
Common stock issued
upon settlement of
stock-based
compensation . . . . . . . .
Shares withheld related
to net share settlement
of stock-based
compensation . . . . . . . .
Repurchase of common
stock . . . . . . . . . . . . . . .
Registration fees
associated with
prospectus supplement .
Balance at January 31,
2016 . . . . . . . . . . . . . . .
Net income . . . . . . . . . .
Foreign currency
translation adjustment .
Common stock issued
upon exchange of
exchangeable shares. . .
Stock-based
compensation expense .
Tax benefits from
stock-based
compensation . . . . . . . .
Common stock issued
upon settlement of
stock-based
compensation . . . . . . . .
Shares withheld related
to net share settlement
of stock-based
compensation . . . . . . . .
Repurchase of common
stock . . . . . . . . . . . . . . .
Balance at January 29,
2017 . . . . . . . . . . . . . . .
Exchangeable
Stock
Special Voting
Stock
Common Stock
Shares
Shares
Par
Value
Shares
Par
Value
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
1,273
304
2
6,905
(50)
(455)
—
(2)
(3,268)
(643)
(28,682)
1,273
6,907
(3,268)
(29,327)
9,781
9,781
$
— 127,304
$
637
$
266,622
$ 1,294,214
$
(201,500) $
1,359,973
See accompanying notes to the consolidated financial statements
41
lululemon athletica inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Cash flows from operating activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Items not affecting cash
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derecognition of unredeemed gift card liability . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefits from stock-based compensation . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid and receivable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued inventory liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued compensation and related expenses. . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unredeemed gift card liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from investing activities
Purchase of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from financing activities
Proceeds from settlement of stock-based compensation . . . . . . . . . . . . . . . .
Tax benefits from stock-based compensation. . . . . . . . . . . . . . . . . . . . . . . . .
Taxes paid related to net share settlement of stock-based compensation. . . .
Repurchase of common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Registration fees associated with prospectus supplement . . . . . . . . . . . . . . .
Deferred debt financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . $
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Fiscal Year Ended
January 29,
2017
January 31,
2016
February 1,
2015
$
303,381
$
266,047
$
239,033
87,697
16,822
(4,548)
(17,563)
(1,273)
(5,403)
11,537
(6,730)
14,080
(18,900)
9,943
(10,020)
16,010
467
(10,381)
385,119
73,383
10,356
(3,647)
11,142
1,202
(83,286)
(52,110)
(3,816)
1,247
5,198
14,937
19,470
16,574
19,563
2,480
298,740
58,364
8,269
(1,468)
2,087
(413)
(26,806)
(15,234)
(6,444)
(2,198)
8,276
11,561
19,304
11,326
3,788
5,004
314,449
(149,511)
(149,511)
(143,487)
(143,487)
(119,733)
(119,733)
6,907
1,273
(3,268)
(29,327)
—
(923)
(25,338)
23,094
233,364
501,482
734,846
$
$
4,704
(1,202)
(2,857)
(274,193)
(145)
—
(273,693)
(44,557)
(162,997)
664,479
501,482
$
$
2,913
413
(4,972)
(147,431)
—
—
(149,077)
(79,809)
(34,170)
698,649
664,479
See accompanying notes to the consolidated financial statements
42
lululemon athletica inc.
INDEX FOR NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1
Note 2
Note 3
Note 4
Note 5
Note 6
Note 7
Note 8
Note 9
Note 10
Note 11
Note 12
Note 13
Note 14
Note 15
Note 16
Note 17
Nature of Operations and Basis of Presentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Summary of Significant Accounting Policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and Intangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Accrued Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Non-Current Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-Term Debt and Credit Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-Based Compensation and Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and Contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Related Party Balances and Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplemental Cash Flow Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Segmented Financial Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarterly Financial Information (Unaudited). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
44
44
49
50
50
50
51
51
51
52
55
55
57
57
57
61
62
43
lululemon athletica inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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, which is sold through a chain of company-operated stores, direct to consumer through e-commerce, outlets,
showrooms, sales from temporary locations, sales to wholesale accounts, warehouse sales, and through license and supply
arrangements. The Company operates stores in the United States, Canada, Australia, the United Kingdom, New Zealand, China,
Hong Kong, Singapore, South Korea, Germany, Puerto Rico and Switzerland. There were 406, 363, and 302 company-operated
stores in operation as of January 29, 2017, January 31, 2016, and February 1, 2015, respectively.
Basis of presentation
The consolidated financial statements have been presented in U.S. dollars and are prepared in accordance with United
States generally accepted accounting principles ("GAAP").
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 2016, 2015, and 2014 were
each 52 week years. Fiscal 2016, 2015, and 2014 ended on January 29, 2017, January 31, 2016, and February 1, 2015,
respectively.
The Company's business is affected by the pattern of seasonality common to most retail apparel businesses. Historically,
the Company has recognized a significant portion of its operating profit in the fourth fiscal quarter of each year as a result of
increased net revenue during the holiday season.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of lululemon athletica inc. and its wholly-owned subsidiaries.
All intercompany balances and transactions have been eliminated.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, bank balances and short-term deposits with original maturities of
three months or less. The Company has not experienced any losses related to these balances, and management believes its
credit risk to be minimal.
Accounts receivable
Accounts receivable primarily arise out of sales to wholesale accounts, landlord lease inducements, and license and
supply arrangements. The allowance for doubtful accounts represents management's best estimate of probable credit losses in
accounts receivable. Receivables are written off against the allowance when management believes that the amount receivable
will not be recovered. As of January 29, 2017, January 31, 2016, and February 1, 2015, the Company recorded an insignificant
allowance for doubtful accounts.
Inventories
Inventories, consisting of finished goods, inventories in transit, and raw materials, are stated at the lower of cost and
market value. Cost is determined using weighted-average costs. For finished goods, market is defined as net realizable value,
and for raw materials, market is defined as replacement cost. Cost of inventories includes all costs incurred to deliver inventory
to the Company's distribution centers including freight, non-refundable taxes, duty and other landing costs.
The Company makes provisions as necessary to appropriately value goods that are obsolete, have quality issues, or are
damaged. The amount of the provision is equal to the difference between the cost of the inventory and its estimated net
realizable value based upon assumptions about future demand, selling prices and market conditions. The Company wrote-off
$16.1 million, $14.2 million, and $12.4 million of inventory in fiscal 2016, fiscal 2015, and fiscal 2014, respectively. In
addition, the Company provides for inventory shrinkage based on historical trends from actual physical inventory counts.
44
Inventory shrinkage estimates are made to reduce the inventory value for lost or stolen items. The Company performs physical
inventory counts and cycle counts throughout the year and adjusts the shrink reserve accordingly.
Property and equipment
Property and equipment are recorded at cost less accumulated depreciation. Direct internal and external costs related to
software used for internal purposes which are incurred during the application development stage or for upgrades that add
functionality are capitalized. All other costs related to internal use software are expensed as incurred.
Depreciation commences when an asset is ready for its intended use. Buildings are depreciated on a straight-line basis
over the expected useful life of the asset, which is estimated to be 20 years. Leasehold improvements are depreciated on a
straight-line basis over the lesser of the length of the lease and the estimated useful life of the improvement, to a maximum of
five years. All other property and equipment are depreciated using the declining balance method as follows:
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer hardware and software. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment and vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20%
20% - 30%
30%
Goodwill and intangible assets
Intangible assets are recorded at cost. Reacquired franchise rights are amortized on a straight-line basis over their
estimated useful lives of 10 years.
Goodwill represents the excess of the aggregate of the consideration transferred, the fair value of any non-controlling
interest in the acquiree, and the acquisition-date fair value of the Company's previously held equity interest over the net assets
acquired and liabilities assumed. Goodwill and intangible assets with indefinite lives are tested annually for impairment or
more frequently when an event or circumstance indicates that goodwill or indefinite life intangible assets might be impaired.
The Company's operating segment for goodwill is its company-operated stores.
Impairment of long-lived assets
Long-lived assets, including intangible assets with finite lives, held for use are evaluated for impairment when the
occurrence of events or a change in circumstances indicates that the carrying value of the assets may not be recoverable as
measured by comparing their carrying value to the estimated undiscounted future cash flows generated by their use and
eventual disposition. Impaired assets are recorded at fair value, determined principally by discounting the future cash flows
expected from their use and eventual disposition. Reductions in asset values resulting from impairment valuations are
recognized in income in the period that the impairment is determined.
Leased property and equipment
The Company leases stores, distribution centers, and administrative offices. Minimum rental payments, including any
fixed escalation of rental payments and rent premiums, are amortized on a straight-line basis over the life of the lease beginning
on the possession date. Rental costs incurred during a construction period, prior to store opening, are recognized as rental
expense.
Lease inducements, which include leasehold improvements paid for by the landlord and rent free periods, are recorded
within other non-current liabilities on the consolidated balance sheets and recognized as a reduction of rent expense on a
straight-line basis over the term of the lease.
The difference between the recognized rental expense and the total rental payments paid is reflected on the consolidated
balance sheets as deferred lease liabilities or a prepaid lease assets within other non-current liabilities and other non-current
assets, respectively.
Contingent rental payments based on sales are recorded in the period in which the sales occur.
The Company recognizes a liability for the fair value of asset retirement obligations ("AROs") when such obligations are
incurred. The Company's AROs are primarily associated with leasehold improvements which, at the end of a lease, the
Company is contractually obligated to remove in order to comply with the lease agreement. At the inception of a lease with
such conditions, the Company records an ARO liability and a corresponding capital asset in an amount equal to the estimated
fair value of the obligation. The liability is estimated based on a number of assumptions requiring management's judgment,
including store closing costs, cost inflation rates and discount rates, and is accreted to its projected future value over time. The
45
capitalized asset is depreciated using the convention for depreciation of leasehold improvement assets. Upon satisfaction of the
ARO conditions, any difference between the recorded ARO liability and the actual retirement costs incurred is recognized as an
operating gain or loss in the consolidated statements of operations.
The Company recognizes a liability for a cost associated with a lease exit or disposal activity when such obligation is
incurred. A lease exit or disposal liability is measured initially at its fair value in the period in which the liability is incurred.
The Company estimates fair value at the cease-use date of its operating leases as the remaining lease rentals, reduced by
estimated sublease rentals that could be reasonably obtained for the property, even where the Company does not intend to enter
into a sublease. Estimating the cost of certain lease exit costs involves subjective assumptions, including the time it would take
to sublease the leased location and the related potential sublease income. The estimated accruals for these costs could be
significantly affected if future experience differs from the assumptions used in the initial estimate.
Deferred revenue
Receipts from the sale of gift cards are treated as deferred revenue. Amounts received in respect of gift cards are recorded
as an unredeemed gift card liability. Revenue from the Company's gift cards is recognized when tendered for payment, or upon
redemption.
Revenue recognition
Net revenue is comprised of company-operated store net revenue, direct to consumer sales through www.lululemon.com,
www.ivivva.com and other country and region specific websites, and other net revenue, which includes outlet sales, showroom
sales, sales from temporary locations, sales to wholesale accounts, warehouse sales, and license and supply arrangement net
revenue, which consists of royalties as well as sales of the Company's products to licensees.
All revenue is reported net of sales taxes collected for various governmental agencies.
Sales to customers through company-operated stores are recognized at the point of sale, net of discounts and an estimated
allowance for sales returns. Sales of apparel to customers through the Company's retail websites are recognized when delivery
has occurred, and collection is reasonably assured, net of an estimated allowance for sales returns. Sales of apparel to wholesale
accounts are recognized when delivery has occurred and collection is reasonably assured.
Revenue from the Company's gift cards is recognized when tendered for payment, or upon redemption. Outstanding
customer balances are included in unredeemed gift card liability on the consolidated balance sheets. There are no expiration
dates on the Company's gift cards, and lululemon does not charge any service fees that cause a decrement to customer balances.
While the Company will continue to honor all gift cards presented for payment, management may determine the
likelihood of redemption to be remote for certain card balances due to, among other things, long periods of inactivity. In these
circumstances, to the extent management determines there is no requirement for remitting card balances to government
agencies under unclaimed property laws, card balances may be recognized in the consolidated statements of operations in net
revenue. For the years ended January 29, 2017, January 31, 2016, and February 1, 2015, net revenue recognized on
unredeemed gift card balances was $4.5 million, $3.6 million, and $1.5 million, respectively.
Cost of goods sold
Cost of goods sold includes:
•
the cost of purchased merchandise, which includes acquisition and production costs including raw material and labor,
as applicable;
•
•
•
•
•
•
the cost incurred to deliver inventory to the Company's distribution centers including freight, non-refundable taxes,
duty, and other landing costs;
the cost of the Company's distribution centers, such as labor, rent, utilities, and depreciation;
the cost of the Company's production, design, distribution, and merchandising departments including salaries, stock-
based compensation and benefits, and other expenses;
occupancy costs such as minimum rent, contingent rent where applicable, property taxes, utilities, and depreciation
expense for the Company's company-operated store locations;
hemming; and
shrink and inventory provision expense.
46
Selling, general and administrative expenses
Selling, general and administrative expenses consist of all operating costs not otherwise included in cost of goods sold.
The Company's selling, general and administrative expenses include the costs of corporate and store-level wages and benefits,
costs to transport the Company's products from the distribution facilities to the Company's sales locations and e-commerce
guests, professional fees, marketing, information technology, human resources, accounting, legal, corporate facility and
occupancy costs, and depreciation and amortization expense other than in cost of goods sold.
For the years ended January 29, 2017, January 31, 2016, and February 1, 2015, the Company incurred transportation costs
of $44.9 million, $40.6 million, and $35.9 million, respectively.
Store pre-opening costs
Operating costs incurred prior to the opening of new stores are expensed as incurred as selling, general and administrative
expenses.
Income taxes
The Company follows the liability method with respect to accounting for income taxes. Deferred income tax assets and
liabilities are determined based on the temporary differences between the carrying amounts and the tax basis of assets and
liabilities, and for tax losses, tax credit carry forwards, and other tax attributes. Deferred income tax assets and liabilities are
measured using enacted tax rates that are expected to be in effect when these differences are anticipated to reverse.
Deferred income tax assets are reduced by a valuation allowance, if based on the weight of available evidence, it is more
likely than not that some portion or all of the deferred tax assets will not be realized. The evaluation as to the likelihood of
realizing the benefit of a deferred income tax asset is based on the timing of scheduled reversals of deferred tax liabilities,
taxable income forecasts, and tax-planning strategies. The recognition of a deferred income tax asset is based upon several
assumptions and forecasts, including current and anticipated taxable income, the utilization of previously unrealized non-
operating loss carry forwards, and regulatory reviews of tax filings. Given the judgments and estimates required and the
sensitivity of the results to the significant assumptions used, the Company believes the accounting estimates used in relation to
the valuation of deferred income tax assets are subject to measurement uncertainty and are susceptible to a material change if
the underlying assumptions change.
The Company provides for taxes at the enacted rate applicable for the appropriate tax jurisdiction. U.S. income taxes on
undistributed earnings of foreign subsidiaries which the Company has determined to be indefinitely reinvested have not been
recognized. Management periodically assesses the need to utilize these undistributed earnings to finance foreign operations.
This assessment is based on the cash flow projections and operational and fiscal objectives of each of the Company's foreign
subsidiaries. Such estimates are inherently imprecise since many assumptions utilized in the projections are subject to revision
in the future.
The Company evaluates its tax filing positions and recognizes the largest amount of tax benefit that is considered more
likely than not to be sustained upon examination by the relevant taxing authorities based on the technical merits of the position.
This determination requires the use of significant judgment. Income tax expense is adjusted in the period in which an uncertain
tax position is effectively settled, the statute of limitations expires, facts or circumstances change, tax laws change, or new
information becomes available. The Company's policy is to recognize interest expense and penalties related to income tax
matters as part of other income (expense), net. Accrued interest and penalties are included within the related tax liability on our
consolidated balance sheets.
Currency translation
The functional currency for each entity included in these consolidated financial statements that is domiciled outside of the
United States is generally the applicable local currency. Assets and liabilities of each foreign entity are translated into
U.S. dollars at the exchange rate in effect on the balance sheet date. Net revenue and expenses are translated at the average rate
in effect during the period. Unrealized translation gains and losses are recorded as a foreign currency translation adjustment,
which is included in other comprehensive income or loss, which is a component of accumulated other comprehensive income
or loss included in stockholders' equity.
Foreign currency transactions denominated in a currency other than an entity's functional currency are remeasured into
the functional currency with any resulting gains and losses recognized in selling, general and administrative expenses, except
for gains and losses arising on intercompany foreign currency transactions that are of a long-term investment nature, which are
recorded as a foreign currency translation adjustment in other comprehensive income or loss.
47
The aggregate revaluation foreign exchange gains (losses) included in selling, general and administrative expenses
amount to $(8.3) million, $12.0 million, and $6.4 million for the years ended January 29, 2017, January 31, 2016, and
February 1, 2015, respectively.
Fair value of financial instruments
The Company's financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable,
accrued liabilities, and other liabilities. Unless otherwise noted, it is management's opinion that the Company is not exposed to
significant interest or credit risks arising from these financial instruments. The fair value of these financial instruments
approximates their carrying value, unless otherwise noted.
Concentration of credit risk
The Company is not exposed to significant credit risk on its cash and cash equivalents and accounts receivable. Cash and
cash equivalents are held with high quality financial institutions. Accounts receivable are primarily from wholesale accounts,
for landlord lease inducements, and from license and supply arrangements. The Company does not require collateral to support
the accounts receivable; however, in certain circumstances, the Company may require parties to provide payment for goods
prior to delivery of the goods. The accounts receivable are net of an allowance for doubtful accounts, which is established
based on management's assessment of the credit risk of the underlying accounts.
Stock-based compensation
The Company accounts for stock-based compensation using the fair value method. The fair value of awards granted is
estimated at the date of grant and is recognized as employee compensation expense on a straight-line basis over the requisite
service period with the offsetting credit to additional paid-in capital. For awards with service and/or performance conditions,
the amount of compensation expense recognized is based on the number of awards expected to vest and is adjusted to reflect
those awards that do ultimately vest. For awards with performance conditions, the Company recognizes the compensation
expense if and when the Company concludes that it is probable that the performance condition will be achieved. The Company
reassesses the probability of achieving the performance condition at each reporting date. The fair value of each stock option
granted is estimated on the award date using the Black-Scholes model, and the fair value of the restricted shares, performance-
based restricted stock units, and restricted stock units is based on the closing price of the Company's common stock on the
award date.
Earnings per share
Earnings per share is calculated using the weighted-average number of common and exchangeable shares outstanding
during the period. Exchangeable shares are the equivalent of common shares in all material respects. All classes of stock have
in effect the same rights and share equally in undistributed net income. Diluted earnings per share is calculated by dividing net
income available to stockholders for the period by the diluted weighted-average number of shares outstanding during the
period. Diluted earnings per share reflects the potential dilution from common shares issuable through stock options,
performance-based restricted stock units that have satisfied their performance factor, restricted shares, and restricted stock units
using the treasury stock method.
Contingencies
In the ordinary course of business, the Company is involved in legal proceedings regarding contractual and employment
relationships and a variety of other matters. The Company records contingent liabilities resulting from claims against us, when
a loss is assessed to be probable and the amount of the loss is reasonably estimable.
Use of estimates
The preparation of financial statements in conformity with GAAP in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements as well as the reported amounts of net revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Recent accounting pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued ASC Topic 606, Revenue from Contracts with
Customers ("ASC 606"), which supersedes the revenue recognition requirements in ASC Topic 605 Revenue Recognition,
including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. This
guidance requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an
48
amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, and
expands the related disclosure requirements. In 2015, the FASB deferred the effective date for this guidance, and in 2016, the
FASB issued several updates that clarify the guidance in this topic. ASC 606 may be adopted either on a full retrospective basis
or using a modified retrospective method with a cumulative adjustment to equity. This guidance will be adopted by the
Company beginning in its first quarter of fiscal 2018. The Company is currently evaluating the impact that this new guidance
may have on its consolidated financial statements and the method of retrospective adoption that it will elect, but does not
expect ASC 606 to materially impact the Company's consolidated financial statements.
In June 2014, the FASB amended ASC Topic 718, Compensation - Stock Compensation ("ASC 718") for share-based
payments in which the terms of the award provide that a performance target can be achieved after the requisite service period.
The amendments require that a performance target that affects vesting and that could be achieved after the requisite service
period be treated as a performance condition. This guidance became effective for the Company beginning in its first quarter of
fiscal 2016 and it was adopted prospectively. The adoption did not have an impact on the Company's consolidated financial
statements.
In April 2015, the FASB amended ASC Subtopic 350-40, Intangibles - Goodwill and Other - Internal-Use Software to
provide guidance to customers about whether a cloud computing arrangement includes a software license. This guidance
requires that if a cloud computing arrangement includes a software license, the customer should account for the software
license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement
does not include a software license, the customer should account for the arrangement as a service contract. This guidance
became effective for the Company beginning in its first quarter of fiscal 2016 and it was adopted prospectively. The adoption
did not have a material impact on the Company's consolidated financial statements.
In July 2015, the FASB amended ASC Topic 330, Inventory to simplify the measurement of inventory. The amendments
require that an entity measure inventory at the lower of cost and net realizable value instead of the lower of cost and market.
This guidance will be effective for the Company beginning in its first quarter of fiscal 2017 and the Company does not expect
the adoption to have a material impact on its consolidated financial statements.
In February 2016 the FASB issued ASC Topic 842, Leases ("ASC 842") to increase transparency and comparability
among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about
leasing arrangements. Under the new guidance, lessees are required to recognize a lease liability, which represents the
discounted obligation to make future minimum lease payments, and a corresponding right-of-use asset on the balance sheet for
most leases. This guidance will be effective for the Company beginning in its first quarter of fiscal 2019, with early application
permitted. The Company will adopt ASC 842 in its first quarter of fiscal 2019. While the Company is currently evaluating the
impact that this new guidance will have on its consolidated financial statements, it is expected that the primary impact upon
adoption will be the recognition, on a discounted basis, of the Company's minimum commitments under noncancelable
operating leases as right of use assets and obligations on the consolidated balance sheets. It is expected that this will result in a
significant increase in assets and liabilities on the consolidated balance sheets.
In March 2016, the FASB amended ASC 718, simplifying the accounting for share-based payment transactions, including
the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash
flows. The new guidance also allows an entity to account for forfeitures when they occur. This guidance will be effective for
the Company beginning in its first quarter of fiscal 2017, with early application permitted. The Company will adopt this
amendment in the first quarter of fiscal 2017 and will elect to continue to estimate expected forfeitures. Starting in the first
quarter of fiscal 2017, the Company will be required to include excess tax benefits and deficiencies as a component of income
tax expense, rather than a component of stockholders' equity. This will increase the volatility of income tax expense and the
magnitude of the impact, among other variables, will be dependent upon the future price of the Company's common stock and
the timing and volume of share-based payment award activity, such as employee exercises of stock options and the vesting of
stock awards. The adoption of this new guidance, will also have an immaterial retrospective impact on the classification of cash
flows between operating and financing activities.
3 INVENTORIES
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
306,087
$
290,791
Provision to reduce inventory to market value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7,655)
298,432
$
(6,782)
284,009
$
January 29,
2017
January 31,
2016
(In thousands)
49
4 PROPERTY AND EQUIPMENT
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer hardware. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment and vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 29,
2017
January 31,
2016
(In thousands)
$
78,561
$
55,488
32,174
273,801
84,479
58,270
160,835
13,704
(278,325)
423,499
$
30,885
225,604
73,254
44,085
112,161
11,929
(203,801)
349,605
$
Included in the cost of computer software are capitalized costs of $6.3 million and $3.7 million at January 29, 2017 and
January 31, 2016, respectively, associated with internally developed software.
Depreciation expense related to property and equipment was $87.0 million, $72.6 million, and $57.5 million for the years
ended January 29, 2017, January 31, 2016, and February 1, 2015, respectively.
5 GOODWILL AND INTANGIBLE ASSETS
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in foreign currency exchange rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Intangibles—reacquired franchise rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in foreign currency exchange rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 29,
2017
January 31,
2016
(In thousands)
$
25,496
(1,263)
24,233
10,150
(9,807)
(19)
324
25,496
(1,666)
23,830
10,150
(9,074)
(129)
947
Goodwill and intangible assets, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
24,557
$
24,777
Amortization expense related to intangible assets was $0.7 million, $0.8 million, and $0.9 million for the years ended
January 29, 2017, January 31, 2016, and February 1, 2015, respectively.
The weighted-average remaining useful lives of the reacquired franchise rights were 1.29 years as of January 29, 2017
and 1.73 years as of January 31, 2016.
6 OTHER ACCRUED LIABILITIES
Accrued duty, freight, and other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales tax collected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
27,477
10,182
5,562
8,799
$
52,020
$
26,017
10,506
6,070
8,083
50,676
January 29,
2017
January 31,
2016
(In thousands)
50
7 OTHER NON-CURRENT LIABILITIES
Deferred lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease inducements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 29,
2017
January 31,
2016
(In thousands)
$
$
26,648
22,209
48,857
$
$
25,723
24,609
50,332
8 LONG-TERM DEBT AND CREDIT FACILITIES
Revolving credit facility
On December 15, 2016, the Company entered into a $150.0 million unsecured, revolving credit facility. Any amounts
outstanding under the revolving credit facility will be due and payable in full on December 15, 2021, subject to provisions that
permit the Company to request a limited number of one year extensions annually.
Up to $35.0 million of the revolving credit facility is available for the issuance of letters of credit and up to $25.0 million
is available for swing line loans. Commitments under the revolving credit facility may be increased by up to $200.0 million,
subject to certain conditions, including the approval of the lenders.
Borrowings under the revolving credit facility may be made in U.S. Dollars, Euros, Canadian Dollars, and in other
currencies, subject to the approval of the administrative agent and the lenders. Borrowings under the agreement may be prepaid
and commitments may be reduced or terminated without premium or penalty (other than customary breakage costs).
Borrowings made under the revolving credit facility bear interest at a variable rate per annum equal to, at the Company's
option, either (a) LIBOR or (b) an alternate base rate, plus, in each case, an applicable margin. The applicable margin is
determined by reference to a pricing grid, based on the ratio of indebtedness to earnings before interest, tax depreciation,
amortization and rent ("EBITDAR") and ranges between 1.00%-1.75% for LIBOR loans and 0.00%-0.75% for alternate base
rate loans. Additionally, a commitment fee of between 0.125%-0.200%, also determined by reference to the pricing grid, is
payable on the average daily unused amounts under the revolving credit facility.
The credit agreement contains negative covenants that, among other things and subject 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 it
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). As of January 29, 2017,
the Company was in compliance with all applicable covenants.
As of January 29, 2017, aside from letters of credit of $0.8 million, there were no other borrowings outstanding under this
credit facility.
9 STOCKHOLDERS' EQUITY
Special voting stock and exchangeable shares
The holders of the special voting stock are entitled to one vote for each share held. The special voting shares are not
entitled to receive dividends or distributions or receive any consideration in the event of a liquidation, dissolution, or wind-up.
To the extent that exchangeable shares as described below are exchanged for common stock, a corresponding number of special
voting shares will be cancelled without consideration.
The holders of the exchangeable shares have dividend and liquidation rights equivalent to those of holders of the
common shares of the Company. The exchangeable shares can be converted on a one for one basis by the holder at any time
into common shares of the Company plus a cash payment for any accrued and unpaid dividends. Holders of exchangeable
shares are entitled to the same or economically equivalent dividend as declared on the common stock of the Company. The
exchangeable shares are non-voting. The Company has the right to convert the exchangeable shares into common shares of the
Company at any time after the earlier of July 26, 2047, the date on which fewer than 4.2 million exchangeable shares are
outstanding, or in the event of certain events such as a change in control.
51
10 STOCK-BASED COMPENSATION AND BENEFIT PLANS
Stock-based compensation plans
The Company's employees participate in various stock-based compensation plans which are provided by the Company
directly.
In June 2014, the Company's stockholders approved the adoption of the lululemon athletica inc. 2014 Equity Incentive
Plan ("2014 Plan"). The 2014 Plan provides for awards in the form of stock options, stock appreciation rights, restricted stock
purchase rights, restricted share bonuses, restricted stock units, performance shares, performance-based restricted stock units,
cash-based awards, other stock-based awards, and deferred compensation awards to employees (including officers and directors
who are also employees), consultants, and directors of the Company.
The awards granted under the 2007 Equity Incentive Plan ("2007 Plan") remain outstanding and continue to vest under
their original conditions. No further awards will be granted under the 2007 Plan.
The Company has granted stock options, performance-based restricted stock units, restricted stock units, and restricted
shares. Stock options granted to date generally have a four-year vesting period, vest at a rate of 25% each year on the
anniversary date of the grant, and expire seven years from the date of grant. Performance-based restricted stock units issued
generally vest three years from the grant date and restricted shares generally vest one year from the grant date. Restricted stock
units granted generally have a three-year vesting period and vest at a certain percentage each year on the anniversary date of the
grant.
The Company issues previously unissued shares upon the exercise of Company options, vesting of performance-based
restricted stock units or restricted stock units, and granting of restricted shares.
Stock-based compensation expense charged to income for the plans was $16.8 million, $10.4 million, and $8.3 million
for the years ended January 29, 2017, January 31, 2016, and February 1, 2015, respectively.
Total unrecognized compensation cost for all stock-based compensation plans was $35.8 million as of January 29, 2017,
which is expected to be recognized over a weighted-average period of 2.2 years, and was $30.3 million as of January 31, 2016
over a weighted-average period of 2.4 years.
52
Company stock options, performance-based restricted stock units, restricted shares and restricted stock units
A summary of the Company's stock option, performance-based restricted stock unit, restricted share and restricted stock
unit activity as of January 29, 2017, January 31, 2016, and February 1, 2015, and changes during the fiscal years then ended is
presented below:
Stock Options
Performance-Based
Restricted Stock Units
Restricted Shares
Restricted Stock Units
Weighted-
Average
Exercise
Price
Weighted-
Average
Grant Date
Fair Value
Number
Weighted-
Average
Grant Date
Fair Value
Number
Weighted-
Average
Grant Date
Fair Value
Number
Number
(In thousands, except per share amounts)
$
$
$
669
447
158
79
879
399
235
176
867
428
191
186
30.76
48.16
18.5
59.09
39.25
57.43
20.26
55.22
49.54
68.63
36.76
58.87
$
$
$
428
321
217
80
452
156
58
155
395
164
7
162
57.08
49.67
40.04
61.34
59.27
63.35
67.5
62.06
58.58
68.64
64.36
62.54
$
$
$
57
34
29
—
62
19
46
4
31
17
34
—
51.99
39
56.28
—
42.86
66.07
42.73
38.25
57.67
69.94
58.39
—
— $
195
—
9
186
238
41
50
333
216
91
98
$
$
—
45.76
—
45.92
45.75
61.6
46.04
53.35
55.91
68.15
56.87
55.95
918
$
59.20
390
$
61.05
14
$
70.54
360
$
62.99
Balance at February 2,
2014. . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . .
Exercised/vested . . . . . .
Forfeited . . . . . . . . . . . .
Balance at February 1,
2015. . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . .
Exercised/vested . . . . . .
Forfeited . . . . . . . . . . . .
Balance at January 31,
2016. . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . .
Exercised/vested . . . . . .
Forfeited . . . . . . . . . . . .
Balance at January 29,
2017. . . . . . . . . . . . . . . .
A total of 14.3 million shares of the Company's common stock have been authorized for future issuance under the
Company's 2014 Equity Incentive Plan.
The Company's performance-based restricted stock units are awarded to eligible employees and entitle the grantee to
receive a maximum of two shares of common stock per performance-based restricted stock unit if the Company achieves
specified performance goals and the grantee remains employed during the vesting period. The fair value of performance-based
restricted stock units is based on the closing price of the Company's common stock on the award date. Expense for
performance-based restricted stock units is recognized when it is probable that the performance goal will be achieved.
The 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.
53
The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes model. The
assumptions used to calculate the fair value of options granted are evaluated and revised, as necessary, to reflect market
conditions and the Company's historical experience. The expected term of the options is based upon the historical experience of
similar awards, giving consideration to expectations of future employee behavior. Expected volatility is based upon the
historical volatility of the Company's common stock for the period corresponding with the expected term of the options. The
risk-free interest rate is based on the U.S. Treasury yield curve for the period corresponding with the expected term of the
options. The following assumptions were used in calculating the fair value of stock options granted in fiscal 2016, 2015, and
2014:
Expected term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year Ended
January 29,
2017
January 31,
2016
February 1,
2015
4.00 years
40.07%
4.00 years
42.73%
4.00 years
45.93%
1.08%
—%
0.98%
—%
1.04%
—%
The following table summarizes information about stock options outstanding and exercisable at January 29, 2017:
Range of Exercise Prices
$9.00 - $48.36 . . . . . . . . . . . . . . . . . . . . . . . . .
$52.59 - $53.79 . . . . . . . . . . . . . . . . . . . . . . . .
$53.87 - $67.68 . . . . . . . . . . . . . . . . . . . . . . . .
$68.69 - $68.69 . . . . . . . . . . . . . . . . . . . . . . . .
$69.30 - $76.95 . . . . . . . . . . . . . . . . . . . . . . . .
Intrinsic value . . . . . . . . . . . . . . . . . . . . . . . . .
$
7,916
Outstanding
Weighted-
Average
Exercise
Price
Number of
Options
Weighted-
Average
Remaining
Life (Years)
Number of
Options
Exercisable
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Life (Years)
(In thousands, except per share amounts and years)
$
180
214
132
351
41
918
$
40.94
53.40
63.97
68.69
73.06
59.20
4.2
5.1
5.1
6.2
3.9
5.3
$
89
63
35
—
27
214
$
$
3,695
36.40
53.25
62.88
—
73.80
50.41
3.5
4.9
4.6
0.0
2.9
4.0
As of January 29, 2017, the unrecognized compensation cost related to these options was $11.6 million, which is
expected to be recognized over a weighted-average period of 2.8 years. The weighted-average grant date fair value of options
granted during the years ended January 29, 2017, January 31, 2016, and February 1, 2015 was $22.39, $19.76, and $17.69,
respectively.
The following table summarizes the intrinsic value of options exercised and awards that vested during fiscal 2016, 2015,
and 2014:
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance-based restricted stock units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock units. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 29,
2017
Fiscal Year Ended
January 31,
2016
(In thousands)
February 1,
2015
$
$
6,072
471
2,283
6,084
14,910
$
$
10,554
3,592
2,739
2,230
19,115
$
$
4,382
10,242
1,567
—
16,191
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 as defined in the ESPP, and the
Company matches one-third of the contribution. The maximum number of shares available under the ESPP is 6.0
54
million shares. During the year ended January 29, 2017, there were 0.1 million shares purchased under the ESPP in the open
market.
Defined contribution pension plans
During fiscal 2016, the Company began offering defined contribution pension plans to its eligible employees in Canada
and the United States. Participating employees may elect to defer and contribute a portion of their eligible compensation to a
plan up to limits stated in the plan documents, not to exceed the dollar amounts set by applicable laws. The Company matches
50% to 75% of the contribution depending on the participant's length of service, and the contribution is subject to a two year
vesting period. The Company's contributions were $3.2 million for the year ended January 29, 2017.
11 EARNINGS PER SHARE
The details of the computation of basic and diluted earnings per share are as follows:
Fiscal Year Ended
January 29,
2017
January 31,
2016
February 1,
2015
(In thousands, except per share amounts)
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic weighted-average number of shares outstanding. . . . . . . . . . . . . . . . . . . .
Assumed conversion of dilutive stock options and awards. . . . . . . . . . . . . . . . .
Diluted weighted-average number of shares outstanding . . . . . . . . . . . . . . . . . .
Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
303,381
137,086
216
137,302
2.21
2.21
$
$
$
266,047
140,365
245
140,610
1.90
1.89
$
$
$
239,033
143,935
363
144,298
1.66
1.66
The Company's calculation of weighted-average shares includes the common stock of the Company as well as the
exchangeable shares. Exchangeable shares are the equivalent of common shares in all material respects. All classes of stock
have in effect the same rights and share equally in undistributed net income. For the fiscal years ended January 29, 2017,
January 31, 2016, and February 1, 2015, 0.1 million, 0.1 million, and 0.3 million stock options and awards, respectively, were
anti-dilutive to earnings per share and therefore have been excluded from the computation of diluted earnings per share.
On June 11, 2014, the Company's board of directors approved a program to repurchase shares of the Company's common
stock up to an aggregate value of $450.0 million. This stock repurchase program was completed during the second quarter of
fiscal 2016.
On December 1, 2016, the Company's board of directors approved a program to repurchase shares of the Company's
common stock up to an aggregate value of $100.0 million. The common stock is repurchased in the open market at prevailing
market prices, with the timing and actual number of shares repurchased depending upon market conditions, eligibility to trade,
and other factors. The repurchases may be made up until December 2018. As of January 29, 2017, the remaining aggregate
value of shares available to be repurchased under this program was $99.2 million.
During the fiscal years ended January 29, 2017, January 31, 2016, and February 1, 2015, 0.5 million, 5.0 million, and 3.7
million shares, respectively, were repurchased under the programs at a total cost of $29.3 million and $274.2 million, and
$147.4 million respectively.
Subsequent to January 29, 2017, and up to March 23, 2017, 35 thousand shares were repurchased at a total cost of $2.3
million.
12 COMMITMENTS AND CONTINGENCIES
Commitments
The Company has obligations under operating leases for its store and other retail locations, distribution centers, offices,
and equipment. As of January 29, 2017, the lease terms of the various leases range from two to 15 years. A substantial number
of the Company's leases include renewal options and certain of the Company's leases include rent escalation clauses, rent
holidays and leasehold rental incentives. The majority of the Company's leases for store premises also include contingent rental
payments based on sales volume. The Company is required to make deposits for rental payments pursuant to certain lease
agreements, which have been included in other non-current assets. Minimum annual basic rent payments excluding other
executory operating costs, pursuant to lease agreements are approximately as laid out in the table below. These amounts include
55
commitments in respect of company-operated stores that have not yet opened but for which lease agreements have been
executed.
Total
2017
2018
2019
2020
2021
Thereafter
Payments Due by Fiscal Year
(In thousands)
Operating leases (minimum rent) . . .
$ 518,613
$ 118,897
$ 106,496
$ 94,085
$ 71,973
$ 45,019
$ 82,143
Rent expense for the years ended January 29, 2017, January 31, 2016, and February 1, 2015 was $147.4 million, $124.5
million, and $100.0 million, respectively, under operating lease agreements, consisting of minimum rental expense of $137.0
million, $113.9 million, and $89.9 million, respectively, and contingent rental amounts of $10.4 million, $10.5 million, and
$10.1 million, respectively.
In January 2015, the Company entered into a license and supply arrangement with a partner in the Middle East which
grants the partner the right to operate lululemon branded retail locations in the United Arab Emirates, Kuwait, Qatar, Oman,
and Bahrain for an initial term of five years. Under this arrangement, the Company supplies the partner with lululemon
products, training, and other support. As of January 29, 2017, there were three licensed stores in the United Arab Emirates and
one licensed store in Qatar.
In November 2016, the Company entered into a license and supply agreement with a partner which grants the partner the
right to operate lululemon branded retail locations in Mexico for a term of ten years, subject to certain conditions. Under this
arrangement the Company supplies the partner with lululemon products, training and other support. As of January 29,
2017 there were no licensed retail locations in operation in Mexico.
Contingencies
In addition to the legal matters described below, the Company is, from time to time, involved in routine legal matters
incidental to the conduct of its 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. The
Company believes the ultimate resolution of any such current proceeding will not have a material adverse effect on its
consolidated balance sheets, results of operations or cash flows.
On July 15, 2015, plaintiffs Hallandale Beach Police Officers and Firefighters' Personnel Retirement Fund and Laborers'
District Council Industry Pension Fund filed in the Delaware Court of Chancery a derivative lawsuit on behalf of lululemon
against certain current and former directors of lululemon, captioned Laborers' District Council Industry Pension Fund v.
Bensoussan, et al., C.A. No. 11293-CB. The plaintiffs claimed that the individual defendants breached their fiduciary duties to
lululemon by allegedly failing to investigate certain trades of lululemon stock owned by Dennis J. Wilson in 2013. The
plaintiffs also claimed that Mr. Wilson breached his fiduciary duties by making his broker aware of certain non-public, material
events prior to executing sales of lululemon stock on Mr. Wilson's behalf. On June 14, 2016 the Court of Chancery dismissed
the action for failure to adequately plead that demand on the board was excused and for failure to state a claim upon which
relief may be granted. The plaintiffs appealed the dismissal to the Supreme Court of the state of Delaware and the Supreme
Court affirmed the Court of Chancery's judgment on February 3, 2017.
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.
56
13 RELATED PARTY BALANCES AND TRANSACTIONS
The Company entered into the following transactions with related parties, all of which were approved by the Company's
Audit Committee in accordance with the Company's related party transaction policy:
January 29,
2017
Fiscal Year Ended
January 31,
2016
(In thousands)
February 1,
2015
Payments to related parties
Lease costs for one company-operated store. . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Consulting fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Employment compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
108
167
274
$
$
$
112
354
140
$
$
$
140
289
—
The Company's founder, who is a beneficial owner of more than 10% of the Company's total outstanding shares, and who
was a member of the Company's board of directors until February 2, 2015, owns a retail space that the Company leases for one
of its company-operated stores. Consulting fees were paid to a relative of the Company's founder.
An immediate family member of one of our executives commenced employment with the Company during fiscal 2015.
The above employment compensation consists of salary, bonuses, and the grant date fair value of equity awards.
14 SUPPLEMENTAL CASH FLOW INFORMATION
January 29,
2017
Fiscal Year Ended
January 31,
2016
(In thousands)
February 1,
2015
Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
132,422
5,178
$
$
113,534
52
$
$
146,376
14
15 INCOME TAXES
The Company's domestic and foreign income before income tax expense and current and deferred income taxes from
federal, state, and foreign sources are as follows:
January 29,
2017
Fiscal Year Ended
January 31,
2016
(In thousands)
February 1,
2015
Income (loss) before income tax expense
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current income tax expense (recovery)
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax expense (recovery)
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
57
84,286
$
94,234
(30,955) $
453,684
422,729
284,209
368,495
$
36,245
6,690
94,581
137,516
(18,662) $
3,363
110,372
95,073
288,901
383,135
54,172
8,203
80,461
142,836
(11,065) $
(1,840)
(5,263)
(18,168)
119,348
$
8,719
$
425
(1,769)
7,763
77
(6,574)
7,375
102,448
$
1,266
144,102
The Company's income tax expense for fiscal 2016, fiscal 2015 and fiscal 2014 include certain tax adjustments, as
follows:
January 29,
2017
Fiscal Year Ended
January 31,
2016
(In thousands)
February 1,
2015
Transfer pricing adjustments, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax on repatriation of foreign earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax adjustment on foreign tax credit calculations. . . . . . . . . . . . . . . . . . . . . . . .
Total tax adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
(10,706) $
(38)
—
(10,744) $
(4,826) $
7,838
(10,455)
(7,443) $
—
33,746
—
33,746
Transfer pricing adjustments, net
The Company's tax positions include the Company's intercompany transfer pricing policies and the associated taxable
income and deductions arising from intercompany charges between subsidiaries within the consolidated group.
During fiscal 2016, the Company finalized an Advance Pricing Arrangement ("APA") with the Internal Revenue Service
("IRS") and the Canada Revenue Agency ("CRA"). This agreement determines the amount of income which is taxable in each
respective jurisdiction.
In the year ended January 31, 2016, the Company received communications from the IRS and CRA which led to the
determination that it was more likely than not that the outcome of the APA would result in a decrease in taxable income in the
United States and an increase in taxable income in Canada for fiscal 2011 through fiscal 2015. The Company recorded a net
income tax recovery of $4.8 million in the year ended January 31, 2016, representing the largest amount of benefit that was
considered more likely than not to be realized upon finalization of the APA.
In the year ended January 29, 2017, the APA was finalized and the final terms of the arrangement resulted in an increased
amount of income tax recoverable in the United States. This resulted in the recognition of a further net income tax recovery of
$10.7 million in the year ended January 29, 2017.
For the years ended January 29, 2017 and January 31, 2016, the Company recorded net interest expenses related to the
APA of $1.7 million and $3.5 million, respectively. This represents accrued interest on the Canadian income tax payable related
to the APA. The APA resulted in an increase in income tax payable in Canada. These interest costs were recognized in other
income (expense), net. There were no similar net interest expenses during the year ended February 1, 2015.
Tax on repatriation of foreign earnings
In the year ended February 1, 2015, the Company recorded a tax expense of $33.7 million representing the estimated U.S.
income tax and foreign withholding tax payable on the repatriation of earnings in the form of dividends of $473.7
million, which were distributed during fiscal 2014 by foreign subsidiaries to the U.S. parent entity to fund a share repurchase
program.
In the year ended January 31, 2016, as a result of the change in the expected outcome of the APA described above, it was
expected that a significant intercompany debt between one of the Company's U.S. subsidiaries and a Canadian subsidiary
would arise upon the finalization of the APA. In order to finance the payment of this intercompany debt, it was expected that
$156.0 million would be distributed from a Canadian subsidiary to the U.S. parent entity. As a result, these foreign earnings
were no longer considered indefinitely reinvested and the Company recorded an incremental tax expense and deferred tax
liability of $7.8 million to provide for U.S. income and applicable foreign withholding taxes on this expected distribution.
In the year ended January 29, 2017, the APA was finalized and a distribution of $156.0 million was made from a
Canadian subsidiary to the U.S. parent entity.
The cumulative undistributed earnings of the Company's foreign subsidiaries as of January 29, 2017 were $866.2 million,
including $852.3 million of cumulative undistributed earnings of a Canadian subsidiary. Income taxes of approximately $38.4
million would be incurred if these earnings were repatriated to the United States.
No deferred income tax liabilities have been recognized on any of the undistributed earnings of the Company's foreign
subsidiaries as these earnings are indefinitely reinvested outside of the United States. In reaching the conclusion that these
undistributed earnings are indefinitely reinvested, the Company considers its international expansion plans, projected working
capital needs, projected head office capital investments outside of the United States, forecasted cash flow requirements and
available liquidity within the United States, and other factors the Company believes are relevant. If the intentions of the
Company change, the Company would be required to accrue the income taxes which would be due upon repatriation.
58
As of January 29, 2017, the Company had cash and cash equivalents of $559.5 million outside of the United States.
Tax adjustment on foreign tax credit calculations
During the year ended January 31, 2016, the Company finalized the amount of U.S. income tax payable on the dividends
of $473.7 million which were distributed in fiscal 2014. The change in the expected outcome of the APA had an impact on the
foreign tax credits relating to the dividends paid in fiscal 2014 that had been initially estimated and as a result the Company
recognized an income tax recovery of $10.5 million during fiscal 2015.
A summary reconciliation of the effective tax rate is as follows:
Federal income tax at statutory rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign tax rate differentials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. state taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-deductible compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Permanent and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax and related interest adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer pricing adjustments, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax on repatriation of foreign earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax adjustment on foreign tax credit calculations . . . . . . . . . . . . . . . . . . . . .
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 29,
2017
Fiscal Year Ended
January 31,
2016
(Percentages)
February 1,
2015
35.0%
(7.0)
1.6
0.6
0.5
(2.5)
—
—
28.2%
35.0%
(6.9)
0.8
0.6
—
(1.0)
2.1
(2.8)
27.8%
35.0%
(6.8)
1.2
0.3
(0.9)
—
8.8
—
37.6%
59
The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and
deferred income tax liabilities as of January 29, 2017 and January 31, 2016 are presented below:
Deferred income tax assets
Net operating loss carry forwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
16,280
$
11,753
January 29,
2017
January 31,
2016
(In thousands)
Property and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred lease liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease inducements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax liabilities
Property and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax and related interest adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred lease liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease inducements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(21,025)
8,542
2,354
4,811
8,142
6,818
334
26,256
$
(10,128) $
—
831
311
—
—
—
1,724
(7,262)
18,994
$
(35)
55
—
—
29
—
—
11,802
(29,214)
(8,245)
8,757
8,353
4,015
3,845
2,192
(462)
(10,759)
1,043
Net deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
The majority of the net operating loss carry forwards begin expiring in fiscal 2031.
The Company files income tax returns in the U.S., Canada and various foreign, state, and provincial jurisdictions. The
2012 to 2015 tax years remain subject to examination by the U.S. federal and state tax authorities. The 2010 and 2011 tax years
are still open for certain state tax authorities. The 2007 to 2015 tax years remain subject to examination by Canadian tax
authorities. The 2011 to 2015 tax years remain subject to examination by tax authorities in certain foreign jurisdictions. The
Company does not have any significant unrecognized tax benefits arising from uncertain tax positions taken, or expected to be
taken, in the Company's tax returns.
60
16 SEGMENTED FINANCIAL INFORMATION
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. Outlets, showrooms, sales from temporary locations,
sales to wholesale accounts, warehouse sales, and license and supply arrangement net revenue have been combined into other.
Information for these segments is detailed in the table below:
Net revenue
Company-operated stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Direct to consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 29,
2017
Fiscal Year Ended
January 31,
2016
(In thousands)
February 1,
2015
$ 1,704,357
453,287
$ 1,516,323
401,525
$ 1,348,225
321,180
186,748
$ 2,344,392
142,675
$ 2,060,523
127,808
$ 1,797,213
Income from operations before general corporate expenses
Company-operated stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Direct to consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General corporate expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
415,635
$
346,802
$
356,589
186,178
22,312
624,125
202,973
421,152
1,577
$
422,729
$
166,418
5,826
519,046
149,970
369,076
(581)
368,495
132,877
9,499
498,965
122,932
376,033
7,102
$
383,135
Capital expenditures
Company-operated stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Direct to consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,461
62,746
Depreciation and amortization
Company-operated stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Direct to consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
59,585
7,015
21,097
87,697
$
149,511
8,284
49,447
143,487
50,951
6,628
15,804
73,383
$
$
$
$
$
$
76,894
9,952
32,887
119,733
37,951
6,299
14,114
58,364
75,304
$
85,756
$
Intercompany amounts are excluded from the above table as they are not included in the materials reviewed by the chief
operating decision maker.
The Company operates in five geographic areas — the United States, Canada, Australia and New Zealand, Europe, and
Asia. Net revenue by region for the years ended January 29, 2017, January 31, 2016, and February 1, 2015 was as follows:
January 29,
2017
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,726,076
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
447,167
Outside of North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
171,149
$ 2,344,392
61
Fiscal Year Ended
January 31,
2016
(In thousands)
February 1,
2015
$ 1,508,841
416,520
$ 1,257,351
434,328
135,162
$ 2,060,523
105,534
$ 1,797,213
Property and equipment, net by geographic area as of January 29, 2017 and January 31, 2016 were as follows:
January 29,
2017
January 31,
2016
(In thousands)
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
170,745
$
170,823
Canada. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outside of North America. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
217,035
35,719
154,578
24,204
$
423,499
$
349,605
The Company's intangible assets and goodwill relate to the reporting segment consisting of company-operated stores.
17 QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following tables present the Company's unaudited quarterly results of operations and comprehensive income for each
of the quarters in the fiscal years ended January 29, 2017 and January 31, 2016. The following tables should be read in
conjunction with the Company's audited consolidated financial statements and related notes. The Company has prepared the
information below on a basis consistent with its audited consolidated financial statements and has included all adjustments,
consisting of normal recurring adjustments, which, in the opinion of the Company's management, are necessary to fairly
present its operating results for the quarters presented. The Company's historical unaudited quarterly results of operations are
not necessarily indicative of results for any future quarter or for a full year.
Fiscal 2016
Fiscal 2015
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Net revenue. . . . . . . . . . . . .
Cost of goods sold . . . . . . .
Gross profit . . . . . . . . . . . . .
$ 789,940
362,041
427,899
$ 544,416
265,990
278,426
(Unaudited; Amounts in thousands, except per share amounts)
$ 514,520
260,359
254,161
$ 495,516
256,385
239,131
$ 479,693
254,896
224,797
$ 704,276
349,809
354,467
$ 453,010
240,985
212,025
$ 423,544
217,667
205,877
231,270
196,629
185,451
92,975
180,202
73,959
181,542
57,589
188,184
166,283
156,619
68,178
145,446
66,579
137,841
68,036
857
628
578
(486)
938
(2,890)
842
529
197,486
61,351
$ 136,135
93,603
25,318
$ 68,285
74,537
20,912
$ 53,625
57,103
11,767
45,336
167,221
49,805
$ 117,416
65,288
12,135
$ 53,153
67,421
19,753
$ 47,668
68,565
20,755
$ 47,810
$
Selling, general and
administrative expenses . . .
Income from operations . . .
Other income (expense),
net . . . . . . . . . . . . . . . . . . . .
Income before income tax
expense . . . . . . . . . . . . . . . .
Income tax expense . . . . . .
Net income . . . . . . . . . . . . .
Other comprehensive
income (loss):
Foreign currency
translation adjustment. . . . .
Comprehensive income . . .
15,941
$ 152,076
(24,748)
$ 43,537
(28,052)
$ 25,573
73,562
$ 118,898
(47,369)
$ 70,047
(665)
$ 52,488
(39,368)
8,300
22,606
$ 70,416
0.34
0.34
$
$
0.34
0.34
$
$
$
Basic earnings per share . . .
Diluted earnings per share .
$
$
0.99
0.99
$
$
0.50
0.50
$
$
0.39
0.39
$
$
0.33
0.33
$
$
0.85
0.85
$
$
0.38
0.38
The Company's quarterly results of operations have varied in the past and are likely to do so again in the future. As such,
the Company believes that comparisons of its quarterly results of operations should not be relied upon as an indication of the
Company's future performance.
62
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and
principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended,
or the Exchange Act, as of the end of the period covered by this report, or the Evaluation Date. Based upon the evaluation, our
principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective
as of the Evaluation Date. Disclosure controls and procedures are controls and procedures designed to reasonably ensure that
information required to be disclosed in our reports filed under the Exchange Act, such as this report, is recorded, processed,
summarized, and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures
include controls and procedures designed to reasonably ensure that such information is accumulated and communicated to our
management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions
regarding required disclosure.
Inherent Limitations over Internal Controls
Our internal control over financial reporting is designed to provide reasonable assurances regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in
accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the
financial statements. Management, including our principal executive officer and principal financial officer, does not expect that
our internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated,
can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource limitations on all control systems; no evaluation of internal controls
can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of
the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because
of changes in business conditions, or that the degree of compliance with the policies and procedures may deteriorate.
Management's Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined
in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). Management conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the criteria set forth in Internal Control—Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. Based on
this evaluation, management concluded that we maintained effective internal control over financial reporting as of January 29,
2017. The effectiveness of our internal control over financial reporting as of January 29, 2017 has been audited by
PricewaterhouseCoopers LLP our independent registered public accounting firm, as stated in their report in Item 8 of Part II of
this Form 10-K.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the fourth quarter of the fiscal year ended
January 29, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
63
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item concerning our directors, director nominees and Section 16 beneficial ownership
reporting compliance is incorporated by reference to our definitive Proxy Statement for our 2017 Annual Meeting of
Stockholders under the captions "Election of Directors," "Section 16(a) Beneficial Ownership Reporting Compliance,"
"Executive Officers" and "Corporate Governance."
We have adopted a written code of business conduct and ethics, which applies to all of our directors, officers and
employees, including our principal executive officer and our principal financial and accounting officer. Our Code of Business
Conduct and Ethics is available on our website, www.lululemon.com, and can be obtained by writing to Investor Relations,
lululemon athletica inc., 1818 Cornwall Avenue, Vancouver, British Columbia, Canada V6J 1C7 or by sending an email to
investors@lululemon.com. The information contained on our website is not incorporated by reference into this Annual Report
on Form 10-K. Any amendments, other than technical, administrative or other non-substantive amendments, to our Code of
Business Conduct and Ethics or waivers from the provisions of the Code of Business Conduct and Ethics for our principal
executive officer and our principal financial and accounting officer will be promptly disclosed on our website following the
effective date of such amendment or waiver.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to our 2017 Proxy Statement under the captions
"Executive Compensation" and "Executive Compensation Tables."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required by this item is incorporated by reference to our 2017 Proxy Statement under the caption
"Principal Stockholders and Stock Ownership by Management."
Equity Compensation Plan Information (as of January 29, 2017)
Plan Category
Equity compensation plans approved by stockholders . .
Equity compensation plans not approved by
stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
Securities to be Issued
Upon Exercise of
Outstanding Options,
Warrants and Rights(1)
(A)
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights(2)
(B)
1,668,504
$
—
1,668,504
$
59.20
—
59.20
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (A))(3)
(C)
19,338,881
—
19,338,881
__________
(1) This amount represents the following: (a) 918,143 shares subject to outstanding options, (b) 390,111 shares subject to
outstanding performance-based restricted stock units, and (c) 360,250 shares subject to outstanding restricted stock units.
The options, performance-based restricted stock units and restricted stock units are all under our 2007 Equity Incentive
Plan or our 2014 Equity Incentive Plan. Restricted shares outstanding under our 2014 Equity Incentive Plan have already
been reflected in our total outstanding common stock balance.
(2) The weighted-average exercise price is calculated solely on the exercise prices of the outstanding options and does not
reflect the shares that will be issued upon the vesting of outstanding awards of performance-based restricted stock units
and restricted stock units, which have no exercise price.
(3) This includes (a) 14,299,075 shares of our common stock available for future issuance under our 2014 Equity Incentive
Plan and (b) 5,039,806 shares of our common stock available for future issuance under our Employee Share Purchase Plan.
The number of shares remaining available for future issuance under our 2014 Equity Incentive Plan is reduced by 1.7
shares for each award other than stock options granted and by one share for each stock option award granted. Outstanding
awards that expire or are canceled without having been exercised or settled in full are available for issuance again under
our 2014 Equity Incentive Plan and shares that are withheld in satisfaction of tax withholding obligations for full value
awards are also again available for issuance. No further awards may be issued under the predecessor plan, our 2007 Equity
Incentive Plan.
64
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated by reference to our 2017 Proxy Statement under the captions
"Certain Relationships and Related Party Transactions" and "Corporate Governance."
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated by reference to our 2017 Proxy Statement under the caption "Fees
for Professional Services."
65
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(a) Documents filed as part of this report:
PART IV
1. Financial Statements. The financial statements as set forth under Item 8 of this Annual Report on Form 10-K are
incorporated herein.
2. Financial Statement Schedule.
Schedule II
Valuation and Qualifying Accounts
Description
Shrink Provision on Finished Goods
For the year ended February 1, 2015 . . . . . . . . . . . . . . . . .
For the year ended January 31, 2016 . . . . . . . . . . . . . . . . .
For the year ended January 29, 2017 . . . . . . . . . . . . . . . . .
Obsolescence and Quality Provision on Finished Goods
and Raw Materials
For the year ended February 1, 2015 . . . . . . . . . . . . . . . . .
For the year ended January 31, 2016 . . . . . . . . . . . . . . . . .
For the year ended January 29, 2017 . . . . . . . . . . . . . . . . .
Damage Provision on Finished Goods
For the year ended February 1, 2015 . . . . . . . . . . . . . . . . .
For the year ended January 31, 2016 . . . . . . . . . . . . . . . . .
For the year ended January 29, 2017 . . . . . . . . . . . . . . . . .
Sales Return Allowances
For the year ended February 1, 2015 . . . . . . . . . . . . . . . . .
For the year ended January 31, 2016 . . . . . . . . . . . . . . . . .
For the year ended January 29, 2017 . . . . . . . . . . . . . . . . .
Valuation Allowance on Deferred Income Taxes
For the year ended February 1, 2015 . . . . . . . . . . . . . . . . .
For the year ended January 31, 2016 . . . . . . . . . . . . . . . . .
For the year ended January 29, 2017 . . . . . . . . . . . . . . . . .
$
$
$
$
$
Balance at
Beginning of
Year
Charged to
Costs and
Expenses
Write-offs Net
of Recoveries
Balance at
End of Year
(In thousands)
(1,098) $
(1,324)
(427)
(3,564) $
(5,633)
(5,168)
3,338
$
6,530
5,260
(5,493) $
(3,605)
(5,156)
(2,566) $
(3,139)
(3,200)
4,454
$
1,588
3,343
(911) $
(1,068)
(1,199)
(8,064) $
(12,790)
(13,915)
$
7,907
12,659
12,806
1,655
$
672
$
— $
2,327
4,459
2,132
269
—
—
(91) $
(91)
(91)
— $
— $
—
—
—
—
(1,324)
(427)
(335)
(3,605)
(5,156)
(5,013)
(1,068)
(1,199)
(2,308)
2,327
4,459
4,728
(91)
(91)
(91)
66
3. Exhibits
Exhibit Index
Exhibit Title
Filed
Herewith
Form
Exhibit No.
File No.
Filing Date
Incorporated by Reference
Exhibit
No.
3.1
3.2
3.3
4.1
Amended and Restated Certificate of Incorporation of
lululemon athletica inc.
Certificate of Amendment to Amended and Restated
Certificate of Incorporation of lululemon athletica inc.
Bylaws of lululemon athletica inc.
Form of Specimen Stock Certificate of lululemon
athletica inc.
10.1*
lululemon athletica inc. 2014 Equity Incentive Plan
10.2*
10.3*
10.4*
10.5*
Form of Non-Qualified Stock Option Agreement (for
outside directors)
Form of Non-Qualified Stock Option Agreement (with
clawback provision)
Form of Notice of Grant of Performance Shares and
Performance Shares Agreement (with clawback
provision)
Form of Notice of Grant of Restricted Stock Units and
Restricted Stock Units Agreement (with clawback
provision)
10.6*
Form of Restricted Stock Award Agreement
10.7*
10.8
10.9
10.10
10.11
10.12
10.13
10.14
Amended and Restated LIPO Investments (USA), Inc.
Option Plan and form of Award Agreement
Second Amended and Restated Registration Rights
Agreement dated June 18, 2015 between lululemon
athletica inc. and the parties named therein
Exchange Trust Agreement dated July 26, 2007
between lululemon athletica inc., Lulu Canadian
Holding, Inc. and Computershare Trust Company of
Canada
Exchangeable Share Support Agreement dated July 26,
2007 between lululemon athletica inc., Lululemon
Callco ULC and Lulu Canadian Holding, Inc.
Amended and Restated Declaration of Trust for
Forfeitable Exchangeable Shares dated July 26, 2007,
by and among the parties named therein
Amended and Restated Arrangement Agreement dated
as of June 18, 2007, by and among the parties named
therein (including Plan of Arrangement and
Exchangeable Share Provisions)
Form of Indemnification Agreement between
lululemon athletica inc. and its directors and certain
officers
Purchase and Sale Agreement between 2725312
Canada Inc and lululemon athletica inc., dated
December 22, 2010
10.15* Outside Director Compensation Plan
X
67
8-K
8-K
8-K
S-1/A
8-K
10-Q
3.1
001-33608
8/8/2007
3.1
001-33608
7/1/2011
3.1
4.1
001-33608
6/5/2015
001-33608
7/9/2007
10.1
001-33608
6/13/2014
10.2
001-33608
12/6/2012
10-Q
10.1
001-33608
6/8/2016
10-Q
10.2
001-33608
6/8/2016
10-Q
10.3
001-33608
6/8/2016
10-Q
S-1
10.12
001-33608
12/11/2014
10.3
333-142477
5/1/2007
10-Q
10.2
001-33608
9/10/2015
10-Q
10.5
001-33608
9/10/2007
10-Q
10.6
001-33608
9/10/2007
10-Q
10.7
001-33608
9/10/2007
S-1/A
10.14
333-142477
7/9/2007
S-1/A
10.16
333-142477
7/9/2007
10-K
10.12
001-33608
3/17/2011
Exhibit
No.
10.16*
Exhibit Title
lululemon athletica inc. Employee Share Purchase Plan
Filed
Herewith
10.17* Executive Employment Agreement, effective as of
December 1, 2013, between lululemon athletica inc.
and Laurent Potdevin
10.18* Executive Employment Agreement, effective as of
January 2, 2015, between lululemon athletica inc. and
Stuart C. Haselden
10.19* Executive Employment Agreement, effective as of
November 24, 2014, between lululemon athletica inc.
and Scott (Duke) Stump
10.20* Executive Employment Agreement, effective as of June
4, 2015, between lululemon athletica inc. and Miguel
Almeida
Incorporated by Reference
Form
10-Q
8-K
Exhibit No.
10.3
File No.
001-33608
Filing Date
11/29/2007
10.1
001-33608
12/11/2013
8-K
10.1
001-33608
1/7/2015
10-Q
10.13
001-33608
12/11/2014
10-Q
10.1
001-33608
9/10/2015
10.21* Executive Employment Agreement, effective as of
10-K
10.22
001-33608
3/30/2016
October 26, 2015, between lululemon athletica inc. and
Lee Holman
10.22* Executive Employment Agreement, effective as of
10-Q
10.1
001-33608
12/9/2015
November 5, 2015, between lululemon athletica inc.
and Gina Warren
10.23* Executive Employment Agreement, effective as of
X
December 5, 2016, between lululemon athletica canada
inc. and Celeste Burgoyne
10.24
21.1
23.1
31.1
31.2
Credit Agreement, dated as of December 15, 2016,
among lululemon athletica inc., lululemon athletica
canada inc., Lulu Canadian Holding, Inc. and
lululemon usa inc., as borrowers, Bank of America,
N.A., as administrative agent, swing line lender and
letter of credit issuer, HSBC Bank Canada, as
syndication agent and letter of credit issuer, and each
other lender party thereto.
8-K
10.1
001-33608
12/21/2016
Subsidiaries of lululemon athletica inc.
10-K
21.1
001-33608
3/26/2015
Consent of PricewaterhouseCoopers LLP
Certification of Chief Executive Officer pursuant to
Exchange Act Rules 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
Certification of Chief Financial Officer pursuant to
Exchange Act Rules 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
X
X
X
32.1** Certification of Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
68
Incorporated by Reference
Form
Exhibit No.
File No.
Filing Date
Filed
Herewith
X
Exhibit Title
The following financial statements from the Company's
10-K for the fiscal year ended January 29, 2017,
formatted in XBRL: (i) Consolidated Balance Sheets,
(ii) Consolidated Statements of Operations and
Comprehensive Income, (iii) Consolidated Statements
of Stockholders' Equity, (iv) Consolidated Statements
of Cash Flows (v) Notes to the Consolidated Financial
Statements
Denotes a compensatory plan, contract or arrangement, in which our directors or executive officers may participate.
Furnished herewith.
Exhibit
No.
101
*
**
69
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
LULULEMON ATHLETICA INC.
By:
Date:
/s/ LAURENT POTDEVIN
Laurent Potdevin
Chief Executive Officer (Principal Executive Officer)
March 28, 2017
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints Laurent Potdevin and Stuart C. Haselden and each of them, with full power of substitution and resubstitution and full
power to act without the other, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and stead
and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file, any and all
documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all
that said attorneys-in-fact and agents or any of them or their and his or her substitute or substitutes, may lawfully do or cause to
be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature
Title
Date
/s/ LAURENT POTDEVIN
Director and Chief Executive Officer
March 28, 2017
Laurent Potdevin
(Principal Executive Officer)
/s/ STUART C. HASELDEN
Stuart C. Haselden
Chief Financial Officer (Principal
Financial and Accounting Officer)
March 28, 2017
/s/ MICHAEL CASEY
Director, Co-Chairman of the Board
March 28, 2017
Michael Casey
/s/ DAVID M. MUSSAFER
Director, Co-Chairman of the Board
March 28, 2017
David M. Mussafer
/s/ ROBERT BENSOUSSAN
Director
Robert Bensoussan
/s/ STEVEN J. COLLINS
Director
Steven J. Collins
/s/ KATHRYN HENRY
Director
Kathryn Henry
/s/ JON MCNEILL
Director
Jon McNeill
/s/ MARTHA A.M. MORFITT
Director
Martha A.M. Morfitt
/s/ EMILY WHITE
Director
Emily White
70
March 28, 2017
March 28, 2017
March 28, 2017
March 28, 2017
March 28, 2017
March 28, 2017
Exhibit Index
Exhibit Title
Filed
Herewith
Form
Exhibit No.
File No.
Filing Date
Incorporated by Reference
Exhibit
No.
3.1
3.2
3.3
4.1
Amended and Restated Certificate of Incorporation of
lululemon athletica inc.
Certificate of Amendment to Amended and Restated
Certificate of Incorporation of lululemon athletica inc.
Bylaws of lululemon athletica inc.
Form of Specimen Stock Certificate of lululemon
athletica inc.
10.1*
lululemon athletica inc. 2014 Equity Incentive Plan
10.2*
10.3*
10.4*
10.5*
Form of Non-Qualified Stock Option Agreement (for
outside directors)
Form of Non-Qualified Stock Option Agreement (with
clawback provision)
Form of Notice of Grant of Performance Shares and
Performance Shares Agreement (with clawback
provision)
Form of Notice of Grant of Restricted Stock Units and
Restricted Stock Units Agreement (with clawback
provision)
10.6*
Form of Restricted Stock Award Agreement
10.7*
10.8
10.9
10.10
10.11
10.12
10.13
10.14
Amended and Restated LIPO Investments (USA), Inc.
Option Plan and form of Award Agreement
Second Amended and Restated Registration Rights
Agreement dated June 18, 2015 between lululemon
athletica inc. and the parties named therein
Exchange Trust Agreement dated July 26, 2007
between lululemon athletica inc., Lulu Canadian
Holding, Inc. and Computershare Trust Company of
Canada
Exchangeable Share Support Agreement dated July 26,
2007 between lululemon athletica inc., Lululemon
Callco ULC and Lulu Canadian Holding, Inc.
Amended and Restated Declaration of Trust for
Forfeitable Exchangeable Shares dated July 26, 2007,
by and among the parties named therein
Amended and Restated Arrangement Agreement dated
as of June 18, 2007, by and among the parties named
therein (including Plan of Arrangement and
Exchangeable Share Provisions)
Form of Indemnification Agreement between
lululemon athletica inc. and its directors and certain
officers
Purchase and Sale Agreement between 2725312
Canada Inc and lululemon athletica inc., dated
December 22, 2010
8-K
8-K
8-K
S-1/A
8-K
10-Q
3.1
001-33608
8/8/2007
3.1
001-33608
7/1/2011
3.1
4.1
001-33608
6/5/2015
001-33608
7/9/2007
10.1
001-33608
6/13/2014
10.2
001-33608
12/6/2012
10-Q
10.1
001-33608
6/8/2016
10-Q
10.2
001-33608
6/8/2016
10-Q
10.3
001-33608
6/8/2016
10-Q
S-1
10.12
001-33608
12/11/2014
10.3
333-142477
5/1/2007
10-Q
10.2
001-33608
9/10/2015
10-Q
10.5
001-33608
9/10/2007
10-Q
10.6
001-33608
9/10/2007
10-Q
10.7
001-33608
9/10/2007
S-1/A
10.14
333-142477
7/9/2007
S-1/A
10.16
333-142477
7/9/2007
10-K
10.12
001-33608
3/17/2011
10.15* Outside Director Compensation Plan
X
10.16*
lululemon athletica inc. Employee Share Purchase Plan
10-Q
10.3
001-33608
11/29/2007
71
Exhibit
No.
Exhibit Title
Filed
Herewith
10.17* Executive Employment Agreement, effective as of
December 1, 2013, between lululemon athletica inc.
and Laurent Potdevin
10.18* Executive Employment Agreement, effective as of
January 2, 2015, between lululemon athletica inc. and
Stuart C. Haselden
10.19* Executive Employment Agreement, effective as of
November 24, 2014, between lululemon athletica inc.
and Scott (Duke) Stump
10.20* Executive Employment Agreement, effective as of June
4, 2015, between lululemon athletica inc. and Miguel
Almeida
10.21* Executive Employment Agreement, effective as of
October 26, 2015, between lululemon athletica inc. and
Lee Holman
Incorporated by Reference
Form
8-K
Exhibit No.
10.1
File No.
001-33608
Filing Date
12/11/2013
8-K
10.1
001-33608
1/7/2015
10-Q
10.13
001-33608
12/11/2014
10-Q
10.1
001-33608
9/10/2015
10-K
10.22
001-33608
3/30/2016
10.22* Executive Employment Agreement, effective as of
10-Q
10.1
001-33608
12/9/2015
November 5, 2015, between lululemon athletica inc.
and Gina Warren
10.23* Executive Employment Agreement, effective as of
X
December 5, 2016, between lululemon athletica canada
inc. and Celeste Burgoyne
10.24
21.1
23.1
31.1
31.2
Credit Agreement, dated as of December 15, 2016,
among lululemon athletica inc., lululemon athletica
canada inc., Lulu Canadian Holding, Inc. and
lululemon usa inc., as borrowers, Bank of America,
N.A., as administrative agent, swing line lender and
letter of credit issuer, HSBC Bank Canada, as
syndication agent and letter of credit issuer, and each
other lender party thereto.
8-K
10.1
001-33608
12/21/2016
Subsidiaries of lululemon athletica inc.
10-K
21.1
001-33608
3/26/2015
Consent of PricewaterhouseCoopers LLP
Certification of Chief Executive Officer pursuant to
Exchange Act Rules 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
Certification of Chief Financial Officer pursuant to
Exchange Act Rules 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
X
X
X
32.1** Certification of Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
72
Exhibit
No.
101
Exhibit Title
The following financial statements from the Company's
10-K for the fiscal year ended January 29, 2017,
formatted in XBRL: (i) Consolidated Balance Sheets,
(ii) Consolidated Statements of Operations and
Comprehensive Income, (iii) Consolidated Statements
of Stockholders' Equity, (iv) Consolidated Statements
of Cash Flows (v) Notes to the Consolidated Financial
Statements
Incorporated by Reference
Form
Exhibit No.
File No.
Filing Date
Filed
Herewith
X
*
**
Denotes a compensatory plan, contract or arrangement, in which our directors or executive officers may participate.
Furnished herewith.
73
[This page intentionally left blank]
Board of Directors and Executive Officers
BOARD O F DI RECTO R S
Glenn Murphy
David M. Mussafer
Laurent Potdevin
Robert Bensoussan
Michael Casey
Steven J. Collins
Kathryn Henry
Jon McNeill
Co-Chairman of the Board
FIS Holdings, Founder and CEO
Co-Chairman of the Board
Advent International Corporation, Managing Partner
Chief Executive Officer
Sirius Equity LLP, Director
Starbucks Corporation, Retired Executive Vice President,
Chief Financial Officer and Chief Administrative Officer
Advent International Corporation, Managing Director
Strategic Advisor and Independent Consultant
Tesla, Inc., President, Global Sales, Delivery and Service
Martha A.M. (Marti) Morfitt
River Rock Partners Inc., Principal
Emily White
EXEC UT IV E O FF IC ER S
Laurent Potdevin
Stuart Haselden
Miguel Almeida
Celeste Burgoyne
Lee Holman
Scott (Duke) Stump
Gina Warren
ANN UAL M EETI N G
Airborne Inc., Former Chief Executive Officer
Snapchat, Inc., Former Chief Operating Officer
Chief Executive Officer
Chief Financial Officer and Executive Vice President, Operations
Executive Vice President, Digital
Executive Vice President, Americas Retail
Executive Vice President, Creative Director
Executive Vice President, Community and Brand
Executive Vice President, People and Culture
The annual meeting will be held on Thursday, June 8, 2017 at 9:00 am, Pacific Time, via live webcast at
www.virtualshareholdermeeting.com/lulu2017
INV ESTOR IN FORM ATIO N
Shareholders are advised to review financial information and other disclosures about lululemon contained
in its 2016 Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Proxy Statement and other SEC
filings, as well as press releases and earnings announcements by accessing the Company’s website at
http://investor.lululemon.com or at www.sec.gov
INVESTOR INQUIRIES SHOULD BE DIRECTED TO:
IN DEPENDENT AUDI TO R S
BY EMAI L :
investors@lululemon.com
PricewaterhouseCoopers LLP
BY MAI L :
lululemon athletica Investor Relations
1818 Cornwall Avenue
Vancouver, British Columbia
Canada V6J 1C7
TR ANS FER AGENT
Computershare Trust Company, N.A.