20
19
Annual Report
Dear Shareholders
Thank you for your confidence and support
of lululemon and our management team.
We are proud to highlight our continued growth in 2019, our plans
for the future, and how we are navigating COVID-19.
Each day, all of us at lululemon are guided by our vision: to be the
experiential brand that ignites a community of people living the
sweatlife through sweat, grow and connect.
In 2019, our Power of Three growth strategy – the three pillars being
product innovation, omni guest experiences and market expansion
– fueled our successful year as revenue grew by 21% to nearly $4
billion. Comps grew 18%1– on top of 18% growth in 2018 – with an
operating margin of 22.3% and EPS growth of 28%1.
This level of consistent performance, along with our balance sheet
with $1.1 billion in cash and no long-term debt at the end of 2019,
allows us to make the right decisions for our brand, in the near-
and long-term.
As I write this against the backdrop of COVID-19, the health and
safety of our teams is our highest priority. Our intention is to
emerge stronger from this situation and be ready to serve our
guests based upon our insights and learnings.
POSITIONED FOR THE RECOVERY
Our healthy business and considerable momentum heading into 2020
allowed us to take a balanced approach to navigate this period of time.
We focused on the critical decisions that were necessary to manage the
near-term while we planned for the long-term, which included adjusting
the runway of our strategic priorities, carefully managing expenses, and
diligently managing our inventory.
This allowed us to plan into the recovery. We have learned a great deal
from our experience in China, both online and as stores reopened – with
many guests displaying new shopping behaviors. We are focused on
getting a fast start, as we learn from this period of time and adapt to the
changes happening within consumer habits and attitudes.
We are innovating to serve guests in new ways. We launched our first
Digital Sweatlife sessions in March, reaching more than 72 million
guests through our online sweat and mindfulness hub. All of the content
features our ambassadors, and guests are connecting and supporting
one another in our virtual community.
Looking into the future, we are well positioned to build upon our
progress creating a distinctive experience for our guests that
dynamically integrates both physical and digital offerings. We saw
considerable success in this strategy in 2019: our business grew by
strong comps in both stores (+10%1) and digital channels (+35%).
We are committed to investing further in these areas as we anticipate
the needs of our guests as they adopt new behaviors.
INVESTING IN THE FUTURE
In 2019, we executed very well against our Power of Three growth
strategies, and we remain committed to delivering on our 2023 targets.
We believe the underlying health of our business is strong.
We are continuing to invest in strategic business initiatives that present
both near-term and long-term returns for shareholders, including:
• Product innovation. The quality, fabrication and innovation of our
product continues to set us apart. The assortment has many core
styles that are relevant year-round, which allows us to approach this
period with agility and flexibility. We are raising the bar on innovation
through Science of Feel, as we deliver pinnacle product that delights
our guests and expands into key categories and new offerings. Our
results have been outstanding, and we are focused on maintaining
the strength and desirability of our product.
• Omni guest experiences. Our e-commerce sites, mobile apps, and
omni-capabilities allow our guest to shop in multiple ways, which is
complemented by our agile store formats. With the ongoing shift
in the consumer landscape, we are focused on our physical stores
and our growing digital options for buying product and guest
experiences. We will continue to push further into the opportunities
of our Membership program – with continued testing in 2020 –
and fully experiential stores – the first of which launched in 2019
in Chicago and Minneapolis.
• Expanding our markets. Our international expansion has been
incredibly successful, demonstrating how the sweatlife translates
across cultures and geographies. And we are still in our early days
of growth internationally. Expanding across China as well as the
APAC and EMEA regions are continued areas of focus, while we also
see considerable untapped growth potential in the United States
and Canada. Moving forward, we will continue to expand with a
region-by-region strategy, with the financial strength to realize the
opportunities in front of us to help communities recover.
LOOKING AHEAD
lululemon is an enduring and resilient brand.
Our strong business performance has established an enviable capital
structure and considerable long-term growth prospects. This consistent
performance enabled us to deliver total shareholder return of more
than 250% over the last three years. And all of us at lululemon know
this is just the beginning of what our brand can and will achieve in the
years ahead.
Our strategic growth plan and our Power of Three pillars are driving
tangible results, allowing us to stay on pace to meet our 2023
commitments. Above all else, I am confident in our talented teams
across our organization and how they fuel our success. Even in the
current situation, we see the strength of lululemon, the power of our
community, and the potential to realize our vision. We are well positioned
for everything that is front of us.
We are grateful for your continued support.
Sincerely,
Calvin McDonald
Chief Executive Officer
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19
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 February 2, 2020
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)
20-3842867
(I.R.S. Employer
Identification Number)
1818 Cornwall Avenue, Vancouver, British Columbia V6J 1C7
(Address of principal executive offices)
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
Trading symbol(s)
LULU
_______________________________________
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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Non-accelerated filer
Emerging growth company
Accelerated filer
Smaller reporting company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Act). Yes
The aggregate market value of the voting stock held by non-affiliates of the registrant on August 2, 2019 was approximately $20,011,000,000. Such aggregate market value
was computed by reference to the closing price of the common stock as reported on the Nasdaq Global Select Market on August 2, 2019. 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 August 2,
2019.
No
Common Stock:
At March 20, 2020 there were 124,115,144 shares of the registrant's common stock, par value $0.005 per share, outstanding.
Exchangeable and Special Voting Shares:
At March 20, 2020, there were outstanding 6,049,939 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 20, 2020, the registrant had outstanding 6,049,939 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
Portions of the Proxy Statement for the 2020 Annual Meeting of Stockholders have been incorporated by reference into Part III of this Annual Report on Form 10-K.
TABLE OF CONTENTS
PART I
BUSINESS
Item 1.
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
Item 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART IV
Item 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
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Special Note Regarding Forward-Looking Statements
PART I
This report and some documents incorporated herein by reference include estimates, projections, statements relating to
our business plans, objectives, and expected operating results that are "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. 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 principally a designer, distributor, and retailer of healthy lifestyle inspired athletic apparel and
accessories. We have a vision to be the experiential brand that ignites a community of people through sweat, grow, and connect,
which we call "living the sweatlife." Since our inception, we have fostered a distinctive corporate culture; we promote a set of
core values in our business which include taking personal responsibility, nurturing entrepreneurial spirit, acting with honesty
and courage, valuing connection, and choosing to have fun. These core values attract passionate and motivated employees who
are driven to achieve personal and professional goals, and share our purpose "to elevate the world by unleashing the full
potential within every one of us."
In this Annual Report on Form 10-K ("10-K" or "Report") for the fiscal year ended February 2, 2020 ("fiscal 2019"),
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 and accessories are marketed under the lululemon brand. We offer a
comprehensive line of apparel and accessories for women and men. Our apparel assortment includes items such as pants,
shorts, tops, and jackets designed for a healthy lifestyle including athletic activities such as yoga, running, training, and most
other sweaty pursuits. We also offer fitness-related accessories.
Our design and development team continues to source technically advanced fabrics, with new feel and fit, and craft
innovative functional features for our products. Through our vertical retail strategy and direct connection with our guests, we
are able to collect feedback and incorporate unique performance and fashion needs into our design process. In this way, we
believe we solve problems for our guests, helping us advance our product lines and differentiate us from the competition.
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 Market
Our guests seek a combination of performance, style, and sensation in their athletic apparel, choosing products that allow
them to feel great however they exercise. Since consumer purchase decisions are driven by both an actual need for functional
products and a desire to live a particular lifestyle, we believe the credibility of our brand and the authentic community
experiences we offer expand our potential market beyond just athletes to those who pursue an active, mindful, and balanced
life.
1
Although our primary and largest customer group is made up of women, we also design a comprehensive men's line and
have a targeted strategy in place to serve our male guests. Our business is growing as more men discover the technical rigor and
premium quality of our products, and are attracted by our distinctive brand.
North America is our largest market by geographical split, offering a mature health and wellness industry and
sophisticated consumer. Additionally, we are expanding internationally across Europe, the People's Republic of China ("PRC"),
and the rest of Asia Pacific. We are expanding in these regions via a decentralized model, allowing for local community insight
and consumer preference to inform our strategic expansion.
Our Segments
We primarily conduct our business through two channels: company-operated stores and direct to consumer.
We also generate net revenue from outlets, sales from temporary locations, sales to wholesale accounts, through license
and supply arrangements, and warehouse sales. The net revenue we generate from these sources is combined in our other
segment.
We operate in both the physical and digital space to better cater to the shopping desires of our guest. At the end of fiscal
2019, we had 491 stores in 17 countries across the globe. In addition to being a venue to sell product, our stores give us a direct
connection to our guest, which we view as a valuable tool in helping us build our brand and product line.
Our direct to consumer segment includes the net revenue which we generate from our e-commerce website
www.lululemon.com, other country and region specific websites, and mobile apps, including mobile apps on in-store devices
that allow demand to be fulfilled via our distribution centers or other retail locations.
Company-Operated Stores
As of February 2, 2020, our retail footprint included 491 company-operated stores. While most of our company-operated
stores are branded lululemon, five 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.
2
Our company-operated stores by country as of February 2, 2020 and February 3, 2019 are summarized in the table below:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
People's Republic of China(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New Zealand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
South Korea. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Singapore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ireland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Netherlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Norway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Switzerland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total company-operated stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
February 2,
2020
February 3,
2019
305
63
38
31
14
7
7
6
5
4
3
2
2
1
1
1
1
285
64
22
29
12
5
7
5
4
3
1
—
1
1
—
—
1
491
440
__________
(1)
PRC included six company-operated stores in Hong Kong, Special Administrative Region, two company-operated stores in Macao, Special
Administration Region, and one company-operated store in Taiwan, PRC as of February 2, 2020. As of February 3, 2019, there were five company-
operated stores in Hong Kong, Special Administrative Region, one company-operated store in Macao, Special Administration Region, and one
company-operated store in Taiwan, PRC.
We opened 51 net new company-operated stores in fiscal 2019, including 32 net new stores outside of North America.
We perform ongoing evaluations of our portfolio of company-operated store locations. During fiscal 2019, we closed four
of our lululemon branded company-operated stores and two of our ivivva branded company-operated stores. As we continue
our evaluations we may, in future periods, close or relocate additional company-operated stores.
In fiscal 2020, our new store growth will come primarily from company-operated store openings in Asia and in the
United States. 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 believe that our innovative retail concept and guest experience contribute to the success of our stores. We use sales
per square foot to assess the performance of our company-operated stores relative to their square footage. We believe that sales
per square foot is useful in evaluating the performance of our company-operated stores. During fiscal 2019, our sales per square
foot was $1,657.
Sales per square foot is calculated using total net revenue from company-operated stores that opened, or opened in their
significantly expanded space, prior to the current fiscal year. The total net revenue of these stores for the fiscal year is divided
by the total square footage of these stores at the end of the year. The fiscal 2019 sales per square foot metric is based on an
average square footage of 3,127 per store as of February 2, 2020. In fiscal years with 53 weeks, the 53rd week of net revenue is
excluded from the calculation of sales per square foot. The square footage of our company-operated stores includes all retail
related space, storage areas, and administrative space used by the store employees. It excludes any space used for non-retail
related activities. The sales per square foot metric we report may not be equivalent to similarly titled metrics reported by other
companies.
Direct to Consumer
Direct to consumer is a substantial part of our business, representing 28.6% of our net revenue in fiscal 2019. We believe
that e-commerce is convenient for our core customer and enhances the image of our brand. Our direct to consumer channel
3
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.
We continue to evolve and integrate our digital and physical channels in order to enrich our interactions with our guests,
and to provide an enhanced omni-channel experience.
Other Channels
Other net revenue accounted for 8.6% of total net revenue in fiscal 2019, compared to 9.2% in fiscal 2018, and 8.9% of
total net revenue in fiscal 2017. Other net revenue includes sales made through the following channels:
• Outlets and warehouse sales - We utilize outlets as well as physical 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.
•
Temporary locations - Our temporary locations, including seasonal stores, 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, including 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.
We have entered into license and supply arrangements with partners in the Middle East and Mexico which grant them the
right to operate lululemon branded retail locations in the United Arab Emirates, Kuwait, Qatar, Oman, Bahrain, and Mexico.
We retain the rights to sell lululemon products through our e-commerce websites in these countries. Under these arrangements
we supply the partners with lululemon products, training and other support. The initial term of the agreement for the Middle
East expired in January 2020 and we currently intend to stay in the market. The initial term of the agreement for Mexico
expires in November 2026. As of February 2, 2020, there were four licensed retail locations in Mexico, three in the United Arab
Emirates, and one in Qatar, which are not included in the above company-operated stores table.
Community-Based Marketing
We utilize a community-based approach to build brand awareness and customer loyalty. We pursue a multi-faceted
strategy which leverages our local teams and ambassadors, digital marketing and social media, in-store community boards, and
a variety of grassroots initiatives. We also plan to continue to explore how we can complement and amplify our community-
based initiatives with global brand-building activity.
Product Design and Development
Our product design and development efforts are led by a team of researchers, scientists, engineers, and designers. Our
team is comprised of athletes and users of our products who embody our design philosophy and dedication to premium quality.
Our design and development 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 function, style, and technical
superiority.
As we strive to continue to provide our guests with technically advanced fabrics, our team works closely with our
suppliers to incorporate the latest in technical innovation, bringing 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. The following statistics are based on cost.
We work with a group of approximately 39 vendors that manufacture our products, five of which produced approximately
56% of our products in fiscal 2019. During fiscal 2019, the largest single manufacturer produced approximately 17% of our
4
products. During fiscal 2019, approximately 33% of our products were manufactured in Vietnam, 16% in Cambodia, 15% in
Sri Lanka, and 11% in the PRC, including 2% in Taiwan, PRC.
We work with a group of approximately 76 suppliers to provide the fabrics for our products. In fiscal 2019,
approximately 59% of our fabrics were produced by our top five fabric suppliers, and the largest single manufacturer produced
approximately 32% of fabric used. During fiscal 2019, approximately 46% of our fabrics originated from Taiwan, PRC, 14%
from the rest of the PRC, 19% from Sri Lanka, and the remainder from other regions.
We also source other raw materials which are used in our products, including items such as content labels, elastics,
buttons, clasps, and drawcords from suppliers located predominantly in the Asia Pacific region.
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 our 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 distribution facilities in the United States, Canada, and Australia.
We own our distribution center in Columbus, Ohio, and lease our other distribution facilities. We also utilize third-party
logistics providers to warehouse and distribute finished products from their warehouse locations in the PRC and the
Netherlands. We regularly evaluate our distribution infrastructure and consolidate or expand our distribution capacity as we
believe appropriate for our operations and to meet anticipated needs.
Competition
Competition in the athletic apparel industry is based principally on 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. We also believe our ability to introduce new product innovations, combine
function and fashion, and connect through in-store and community experiences sets us apart from our competition. In addition,
we believe our vertical retail distribution strategy and community-based marketing differentiates us further, allowing us to more
effectively control our brand image and connect with our guest.
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 who have expanded to include women's athletic apparel including The Gap, Inc.
(including the Athleta brand) and Victoria's Secret with its Sport collection.
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% of our
full year operating profit during each of the fourth quarters of fiscal 2019 and fiscal 2018.
Our Employees
We believe that our people are key to the success of our business, and we strive to foster a distinctive corporate culture
rooted in our core business values which attract passionate and motivated employees who are driven to achieve personal and
professional goals.
As of February 2, 2020, we had approximately 19,000 employees, of which approximately 11,000 were employed in the
United States, approximately 5,200 were employed in Canada, and approximately 2,800 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.
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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. 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, which could be amplified by social media, if we fail to
deliver innovative and high quality products acceptable to our guests, or if we face or mishandle a product recall. 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.
If any of our products are unacceptable to us or our guests, our business could be harmed.
We have occasionally received, and may in the future receive, shipments of products that fail to comply with our
technical specifications or that fail to conform to our quality control standards. We have also received, and may in the future
receive, products that are otherwise unacceptable to us or our guests. Under these circumstances, unless we are able to obtain
replacement products in a timely manner, we risk the loss of net revenue resulting from the inability to sell those products and
related increased administrative and shipping costs. Additionally, if the unacceptability of our products is not discovered until
after such products are purchased by our guests, our guests could lose confidence in our products or we could face a product
recall and our results of operations could suffer and our business, reputation, and brand could be harmed.
The recent COVID-19 coronavirus outbreak and related government, private sector, and individual consumer responsive
actions may adversely affect our business operations, store traffic, employee availability, financial condition, liquidity, and
cash flow.
The outbreak of the COVID-19 coronavirus disease has been declared a pandemic by the World Health Organization
continues to spread in the United States, Canada, and in many other countries globally. Related government and private sector
responsive actions may adversely affect our business operations. It is impossible to predict the effect and ultimate impact of the
COVID-19 pandemic as the situation is rapidly evolving.
The spread of COVID-19 has caused public health officials to recommend precautions to mitigate the spread of the virus,
especially when congregating in heavily populated areas, such as malls and lifestyle centers. In February 2020, we temporarily
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closed all of our retail locations in Mainland China. All but one of these locations have since reopened. In March 2020, we
temporarily closed all of our retail locations in North America, Europe, Malaysia, New Zealand, and we temporarily closed our
distribution center in Sumner, WA. These locations currently remain closed. There is significant uncertainty around the breadth
and duration of our store closures and other business disruptions related to COVID-19, as well as its impact on the U.S.,
Canadian, and global economies, consumer willingness to visit stores, malls, and lifestyle centers, and employee willingness to
staff our stores once they re-open. The extent to which COVID-19 impacts our results will depend on future developments,
which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of
COVID-19 and the actions taken to contain it or treat its impact.
We 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.
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 community-based marketing approach, many of our competitors promote their brands
through traditional forms of advertising, such as print media and television commercials, and through celebrity endorsements,
and have substantial resources to devote to such efforts. Our competitors may also create and maintain brand awareness using
traditional forms of advertising more quickly than we can. Our competitors may also be able to increase sales in their new and
existing markets faster than we do by emphasizing different distribution channels than we do, such as catalog sales or an
extensive franchise network.
In addition, because we hold limited patents and exclusive intellectual property rights in the technology, fabrics or
processes underlying our products, our current and future competitors are able to manufacture and sell products with
performance characteristics, fabrication techniques, and styling similar to our products.
Our reliance on suppliers to provide fabrics for and to produce our products could cause problems in our supply chain.
We do not manufacture our products or the raw materials for them and rely instead on suppliers. Many of the specialty
fabrics used in our products are technically advanced textile products developed and manufactured by third parties and may be
available, in the short-term, from only one or a very limited number of sources. We have no long-term contracts with any of our
suppliers or manufacturers for the production and supply of our raw materials and products, and we compete with other
companies for fabrics, other raw materials, and production. The following statistics are based on cost.
We work with a group of approximately 39 vendors that manufacture our products, five of which produced approximately
56% of our products in fiscal 2019. During fiscal 2019, the largest single manufacturer produced approximately 17% of our
products. During fiscal 2019, approximately 33% of our products were manufactured in Vietnam, 16% in Cambodia, 15% in
Sri Lanka, and 11% in the PRC, including 2% in Taiwan, PRC.
We work with a group of approximately 76 suppliers to provide the fabrics for our products. In fiscal 2019,
approximately 59% of our fabrics were produced by our top five fabric suppliers, and the largest single manufacturer produced
approximately 32% of fabric used. During fiscal 2019, approximately 46% of our fabrics originated from Taiwan, PRC, 14%
from the rest of the PRC, 19% from Sri Lanka, and the remainder from other regions.
We also source other raw materials which are used in our products, including items such as content labels, elastics,
buttons, clasps, and drawcords from suppliers located predominantly in the Asia Pacific region.
We have experienced, and may in the future experience, a significant disruption in the supply of fabrics or raw materials
from current sources and we may be unable to locate alternative materials suppliers of comparable quality at an acceptable
price, or at all. In addition, if we experience significant increased demand, or if we need to replace an existing supplier or
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manufacturer, we may be unable to locate additional supplies of fabrics or raw materials or additional manufacturing capacity
on terms that are acceptable to us, or at all, or we may be unable to locate any supplier or manufacturer with sufficient capacity
to meet our requirements or to fill our orders in a timely manner. Identifying a suitable supplier is an involved process that
requires us to become satisfied with its quality control, responsiveness and service, financial stability, and labor and other
ethical practices. Even if we are able to expand existing or find new manufacturing or fabric sources, we may encounter delays
in production and added costs as a result of the time it takes to train our suppliers and manufacturers in our methods, products,
and quality control standards. Our supply of fabric or manufacture of our products could be disrupted or delayed by the impact
of global health pandemics, including the current COVID-19 coronavirus pandemic, and the related government and private
sector responsive actions such as border closures, restrictions on product shipments, and travel restrictions. Delays related to
supplier changes could also arise due to an increase in shipping times if new suppliers are located farther away from our
markets or from other participants in our supply chain. Any delays, interruption, or increased costs in the supply of fabric or
manufacture of our products could have an adverse effect on our ability to meet guest demand for our products and result in
lower net revenue and income from operations both in the short and long term.
The operations of many of our suppliers are subject to additional risks that are beyond our control and that could harm
our business, financial condition, and results of operations.
Almost all of our suppliers are located outside of North America, and as a result, we are subject to risks associated with
doing business abroad, including:
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the impact of health conditions, including the current COVID-19 coronavirus pandemic, and related government and
private sector responsive actions, and other changes in local economic conditions in countries where our
manufacturers, suppliers, or guests are located;
political unrest, terrorism, labor disputes, and economic instability resulting in the disruption of trade from foreign
countries in which our products are manufactured;
the imposition of new laws and regulations, including those relating to labor conditions, quality and safety standards,
imports, duties, taxes and other charges on imports, as well as trade restrictions and restrictions on currency exchange
or the transfer of funds;
reduced protection for intellectual property rights, including trademark protection, in some countries, particularly in
the PRC; and
disruptions or delays in shipments whether due to port congestion, labor disputes, product regulations and/or
inspections or other factors, natural disasters or health pandemics, or other transportation disruptions.
These and other factors beyond our control could interrupt our suppliers' production in offshore facilities, influence the
ability of our suppliers to export our products cost-effectively or at all and inhibit our suppliers' ability to procure certain
materials, any of which could harm our business, financial condition, and results of operations.
Our business could be harmed if our suppliers and manufacturers do not comply with our Vendor Code of Ethics or
applicable laws.
While we require our suppliers and manufacturers to comply with our Vendor Code of Ethics, which includes labor,
health and safety, and environment standards, we do not control their practices. If suppliers or contractors do not comply with
these standards or applicable laws or there is negative publicity regarding the production methods of any of our suppliers or
manufacturers, even if unfounded or not material to our supply chain, our reputation and sales could be adversely affected, we
could be subject to legal liability, or we could be forced to locate alternative suppliers or manufacturing sources.
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. Some of the factors that may influence
consumer spending on discretionary items include general economic conditions (particularly those in North America), high
levels of unemployment, health pandemics (such as the impact of the current COVID-19 coronavirus pandemic, including
reduced store traffic and widespread temporary store closures), higher consumer debt levels, reductions in net worth based on
market declines and uncertainty, home foreclosures and reductions in home values, fluctuating interest and foreign currency
rates and credit availability, government austerity measures, fluctuating fuel and other energy costs, fluctuating commodity
prices, tax rates and general uncertainty regarding the overall future economic environment. 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
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lead consumers to delay or reduce purchases of our products. Consumer demand for our products may not reach our targets, or
may decline, when there is an economic downturn or economic uncertainty in our key markets, particularly in North America.
Our sensitivity to economic cycles and any related fluctuation in consumer demand may have a material adverse effect on our
financial condition.
Our sales and profitability may decline as a result of increasing product costs and decreasing selling prices.
Our business is subject to significant pressure on costs and pricing caused by many factors, including intense
competition, constrained sourcing capacity and related inflationary pressure, pressure from consumers to reduce the prices we
charge for our products, and changes in consumer demand. These factors may cause us to experience increased costs, reduce
our prices to consumers or experience reduced sales in response to increased prices, any of which could cause our operating
margin to decline if we are unable to offset these factors with reductions in operating costs and could have a material adverse
effect on our financial condition, operating results, and cash flows.
If we are unable to anticipate consumer preferences and successfully develop and introduce new, innovative, and
updated products, we may not be able to maintain or increase our sales and profitability.
Our success depends on our ability to identify and originate product trends as well as to anticipate and react to changing
consumer demands in a timely manner. All of our products are subject to changing consumer preferences that cannot be
predicted with certainty. If we are unable to introduce new products or novel technologies in a timely manner or our new
products or technologies are not accepted by our guests, our competitors may introduce similar products in a more timely
fashion, which could hurt our goal to be viewed as a leader in technical athletic apparel innovation. Our new products may not
receive consumer acceptance as consumer preferences could shift rapidly to different types of athletic apparel or away from
these types of products altogether, and our future success depends in part on our ability to anticipate and respond to these
changes. Our failure to anticipate and respond in a timely manner to changing consumer preferences could lead to, among other
things, lower sales and excess inventory levels. Even if we are successful in anticipating consumer preferences, our ability to
adequately react to and address those preferences will in part depend upon our continued ability to develop and introduce
innovative, high-quality products. Our failure to effectively introduce new products that are accepted by consumers could result
in a decrease in net revenue and excess inventory levels, which could have a material adverse effect on our financial condition.
Our results of operations could be materially harmed if we are unable to accurately forecast guest demand for our
products.
To ensure adequate inventory supply, we must forecast inventory needs and place orders with our manufacturers based on
our estimates of future demand for particular products. Our ability to accurately forecast demand for our products could be
affected by many factors, including an increase or decrease in guest demand for our products or for products of our
competitors, our failure to accurately forecast guest acceptance of new products, product introductions by competitors,
unanticipated changes in general market conditions (for example, because of unexpected effects on inventory supply and
consumer demand caused by the current COVID-19 coronavirus pandemic), and weakening of economic conditions or
consumer confidence in future economic conditions. If we fail to accurately forecast guest demand, we may experience excess
inventory levels or a shortage of products available for sale in our stores or for delivery to guests.
Inventory levels in excess of guest demand may result in inventory write-downs or write-offs and the sale of excess
inventory at discounted prices, which would cause our gross margin to suffer and could impair the strength and exclusivity of
our brand. Conversely, if we underestimate guest demand for our products, our manufacturers may not be able to deliver
products to meet our requirements, and this could result in damage to our reputation and guest relationships.
Our inability to safeguard against security breaches or our failure to comply with data privacy laws could damage our
customer relationships and result in significant legal and financial exposure.
As part of our normal operations, we receive confidential, proprietary, and personally identifiable information, including
credit card information, and information about our customers, our employees, job applicants, and other third parties. Our
business employs systems and websites that allow for the storage and transmission of this information. However, despite our
safeguards and security processes and protections, security breaches could expose us to a risk of theft or misuse of this
information, and could result in litigation and potential liability. The retail industry, in particular, has been the target of many
recent cyber-attacks. We may not have the resources or technical sophistication to be able to anticipate or prevent rapidly
evolving types of cyber-attacks. Attacks may be targeted at us, our vendors or customers, or others who have entrusted us with
information. In addition, despite taking measures to safeguard our information security and privacy environment from security
breaches, our customers and our business could still be exposed to risk. Actual or anticipated attacks may cause us to incur
increasing costs including costs to deploy additional personnel and protection technologies, train employees and engage third
party experts and consultants. Advances in computer capabilities, new technological discoveries or other developments may
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result in the technology used by us to protect transaction or other data being breached or compromised. Measures we
implement to protect against cyber-attacks may also have the potential to impact our customers' shopping experience or
decrease activity on our websites by making them more difficult to use. Data and security breaches can also occur as a result of
non-technical issues including intentional or inadvertent breach by employees or persons with whom we have commercial
relationships that result in the unauthorized release of personal or confidential information. Any compromise or breach of our
security could result in a violation of applicable privacy and other laws, significant legal and financial exposure, and damage to
our brand and reputation or other harm to our business.
Additionally, we are subject to laws and regulations such as the European Union's General Data Privacy Regulation
("GDPR") and the California Consumer Privacy Act ("CCPA"). These regulations require companies to satisfy new
requirements regarding the handling of personal and sensitive data, including its use, protection, and the ability of persons
whose data is stored to correct or delete such data about themselves. Failure to comply with GDPR requirements could result in
penalties of up to four percent of worldwide revenue. The GDPR, CCPA, and other similar laws and regulations, as well as any
associated inquiries or investigations or any other government actions, may be costly to comply with, increase our operating
costs, require significant management time and attention, and subject us to remedies that may harm our business, including
fines, negative publicity, or demands or orders that we modify or cease existing business practices.
Any material disruption of our information technology systems or unexpected network interruption could disrupt our
business and reduce our sales.
We are increasingly dependent on information technology systems and third-parties to operate our e-commerce websites,
process transactions, respond to guest inquiries, manage inventory, purchase, sell and ship goods on a timely basis, and
maintain cost-efficient operations. The failure of our information technology systems to operate properly or effectively,
problems with transitioning to upgraded or replacement systems, or difficulty in integrating new systems, could adversely
affect our business. In addition, we have e-commerce websites in the United States, Canada, and internationally. Our
information technology systems, websites, and operations of third parties on whom we rely, may encounter damage or
disruption or slowdown caused by a failure to successfully upgrade systems, system failures, viruses, computer "hackers",
natural disasters, or other causes. These could cause information, including data related to guest orders, to be lost or delayed
which could, especially if the disruption or slowdown occurred during the holiday season, result in delays in the delivery of
products to our stores and guests or lost sales, which could reduce demand for our products and cause our sales to decline. The
concentration of our primary offices, two of our distribution centers, and a number of our stores along the west coast of North
America could amplify the impact of a natural disaster occurring in that area to our business, including to our information
technology systems. In addition, if changes in technology cause our information systems to become obsolete, or if our
information systems are inadequate to handle our growth, we could lose guests. We have limited back-up systems and
redundancies, and our information technology systems and websites have experienced system failures and electrical outages in
the past which have disrupted our operations. Any significant disruption in our information technology systems or websites
could harm our reputation and credibility, and could have a material adverse effect on our business, financial condition, and
results of operations.
If the technology-based systems that give our customers the ability to shop with us online do not function effectively, our
operating results, as well as our ability to grow our e-commerce business globally, could be materially adversely affected.
Many of our customers shop with us through our e-commerce websites and mobile apps. Increasingly, customers are
using tablets and smart phones to shop online with us and with our competitors and to do comparison shopping. We are
increasingly using social media and proprietary mobile apps to interact with our customers and as a means to enhance their
shopping experience. Any failure on our part to provide attractive, effective, reliable, user-friendly e-commerce platforms that
offer a wide assortment of merchandise with rapid delivery options and that continually meet the changing expectations of
online shoppers could place us at a competitive disadvantage, result in the loss of e-commerce and other sales, harm our
reputation with customers, have a material adverse impact on the growth of our e-commerce business globally and could have a
material adverse impact on our business and results of operations.
Changes in consumer shopping preferences and shifts in distribution channels could materially impact our results of
operations.
We sell our products through a variety of trade channels, with a significant portion through traditional brick-and-mortar
retail channels. As strong e-commerce channels emerge and develop, we are evolving towards an omni-channel approach to
support the shopping behavior of our guests. This involves country and region specific websites, social media, product
notification emails, mobile apps, including mobile apps on in-store devices that allow demand to be fulfilled via our
distribution centers, and online order fulfillment through stores. The diversion of sales from our company-operated stores could
adversely impact our return on investment and could lead to store closures and impairment charges. We could have difficulty in
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recreating the in-store experience through direct channels. We could also be exposed to liability for online content. Our failure
to successfully integrate our digital and physical channels and respond to these risks might adversely impact our business and
results of operations, as well as damage our reputation and brands.
The fluctuating cost of raw materials could increase our cost of goods sold and cause our results of operations and
financial condition to suffer.
The fabrics used by our suppliers and manufacturers include synthetic fabrics whose raw materials include petroleum-
based products. Our products also include silver and natural fibers, including cotton. Our costs for raw materials are affected
by, among other things, weather, consumer demand, speculation on the commodities market, the relative valuations and
fluctuations of the currencies of producer versus consumer countries, and other factors that are generally unpredictable and
beyond our control. Increases in the cost of raw materials, including petroleum or the prices we pay for silver and our cotton
yarn and cotton-based textiles, could have a material adverse effect on our cost of goods sold, results of operations, financial
condition, and cash flows.
Our limited operating experience and limited brand recognition in new international markets may limit our expansion
and cause our business and growth to suffer.
Our future growth depends in part on our expansion efforts outside of North America. We have limited experience with
regulatory environments and market practices internationally, and we may not be able to penetrate or successfully operate in
any new market. In connection with our expansion efforts we may encounter obstacles we did not face in North America,
including cultural and linguistic differences, differences in regulatory environments, labor practices and market practices,
difficulties in keeping abreast of market, business and technical developments, and foreign guests' tastes and preferences. We
may also encounter difficulty expanding into new international markets because of limited brand recognition leading to delayed
acceptance of our technical athletic apparel by guests in these new international markets. Our failure to develop our business in
new international markets or disappointing growth outside of existing markets could harm our business and results of
operations.
Global economic and political conditions and global events such as health pandemics could adversely impact our results
of operations.
Uncertain or challenging global economic and political conditions could impact our performance, including our ability to
successfully expand internationally. Global economic conditions could impact levels of consumer spending in the markets in
which we operate, which could impact our sales and profitability. Political unrest could negatively impact our guests and
employees, reduce consumer spending, and adversely impact our business and results of operations. Health pandemics, such as
the current COVID-19 coronavirus pandemic, and the related governmental, private sector and individual consumer responsive
actions could reduce store traffic and consumer spending, result in temporary or permanent closures of stores, offices, and
factories, and could negatively impact the flow of goods.
If we encounter problems with our distribution system, our ability to deliver our products to the market and to meet guest
expectations could be harmed.
We rely on our distribution facilities for substantially all of our product distribution. Our distribution facilities include
computer controlled and automated equipment, which means their operations may be subject to a number of risks related to
security or computer viruses, the proper operation of software and hardware, electronic or power interruptions, or other system
failures. In addition, our operations could also be interrupted by labor difficulties, extreme or severe weather conditions or by
floods, fires, or other natural disasters near our distribution centers. If we encounter problems with our distribution system, our
ability to meet guest expectations, manage inventory, complete sales, and achieve objectives for operating efficiencies could be
harmed.
Our fabrics and manufacturing technology generally are not patented and can be imitated by our competitors.
The intellectual property rights in the technology, fabrics, and processes used to manufacture our products generally are
owned or controlled by our suppliers and are generally not unique to us. Our ability to obtain intellectual property protection
for our products is therefore limited and we do not generally own patents or hold exclusive intellectual property rights in the
technology, fabrics or processes underlying our products. As a result, our current and future competitors are able to
manufacture and sell products with performance characteristics, fabrics and styling similar to our products. Because many of
our competitors have significantly greater financial, distribution, marketing, and other resources than we do, they may be able
to manufacture and sell products based on our fabrics and manufacturing technology at lower prices than we can. If our
competitors do sell similar products to ours at lower prices, our net revenue and profitability could suffer.
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Our failure or inability to protect our intellectual property rights could diminish the value of our brand and weaken our
competitive position.
We currently rely on a combination of copyright, trademark, trade dress, and unfair competition laws, as well as
confidentiality procedures and licensing arrangements, to establish and protect our intellectual property rights. The steps we
take to protect our intellectual property rights may not be adequate to prevent infringement of these rights by others, including
imitation of our products and misappropriation of our brand. In addition, intellectual property protection may be unavailable or
limited in some foreign countries where laws or law enforcement practices may not protect our intellectual property rights as
fully as in the United States or Canada, and it may be more difficult for us to successfully challenge the use of our intellectual
property rights by other parties in these countries. If we fail to protect and maintain our intellectual property rights, the value of
our brand could be diminished, and our competitive position may suffer.
Our ability to source and sell our merchandise profitably or at all could be hurt if new trade restrictions are imposed or
existing trade restrictions become more burdensome.
The United States and the countries in which our products are produced or sold internationally have imposed and may
impose additional quotas, duties, tariffs, or other restrictions or regulations, or may adversely adjust prevailing quota, duty, or
tariff levels. The results of any audits or related disputes regarding these restrictions or regulations could have an adverse effect
on our financial statements for the period or periods for which the applicable final determinations are made. Countries impose,
modify, and remove tariffs and other trade restrictions in response to a diverse array of factors, including global and national
economic and political conditions, which make it impossible for us to predict future developments regarding tariffs and other
trade restrictions. Trade restrictions, including tariffs, quotas, embargoes, safeguards, and customs restrictions, could increase
the cost or reduce the supply of products available to us, could increase shipping times, or may require us to modify our supply
chain organization or other current business practices, any of which could harm our business, financial condition, and results of
operations.
We are dependent on international trade agreements and regulations. The countries in which we produce and sell our
products could impose or increase tariffs, duties, or other similar charges that could negatively affect our results of operations,
financial position, or cash flows.
Adverse changes in, or withdrawal from, trade agreements or political relationships between the United States and the
PRC, Canada, or other countries where we sell or source our products, could negatively impact our results of operations or cash
flows. The current political administrations in the United States and the PRC have proposed tariffs which increase the costs of
our products. It is possible that further tariffs may be introduced, or increased. Such changes could adversely impact our
business and could increase the costs of sourcing our products from the PRC, or could require us to source our products from
other countries.
On January 31, 2020, the United Kingdom ("UK") withdrew from the European Union ("EU"), commonly referred to as
"Brexit". There is significant uncertainty related to how the UK's trade, duties, and customs arrangements with the EU will be
impacted by Brexit after the transition period, as well as the impact on the movement of goods, people, and capital between the
UK and the EU. There could be changes in economic conditions in the UK or EU, including foreign exchange rates and
consumer markets. Our business could be adversely affected by these changes, including by additional duties on the
importation of our products into the UK from the EU and as a result of shipping delays or congestion.
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 foreign jurisdictions. Our effective
income tax rates could be unfavorably impacted by a number of factors, including changes in the mix of earnings amongst
countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax laws,
new tax interpretations and guidance, the outcome of income tax audits in various jurisdictions around the world, and any
repatriation of unremitted earnings for which we have not previously accrued applicable U.S. income taxes and foreign
withholding taxes.
Repatriations from our Canadian subsidiaries are not subject to Canadian withholding taxes if such distributions are made
as a return of capital. We have not accrued for any Canadian withholding taxes that could be payable on future repatriations
from our Canadian subsidiaries because we believe the current net investment in our Canadian subsidiaries can either be
repatriated free of withholding tax or is expected to be indefinitely reinvested. The extent to which future increases in the net
assets of our Canadian subsidiaries can be repatriated free of withholding tax is dependent on, among other things, the amount
of paid-up-capital in our Canadian subsidiaries and transactions undertaken by our exchangeable shareholders. We are unable to
determine the timing and extent to which such transactions may occur. Accordingly, increases in our Canadian net assets may
result in an increase to our effective tax rate.
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We and our subsidiaries engage in a number of intercompany transactions across multiple tax jurisdictions. Although we
believe that these transactions reflect the accurate economic allocation of profit and that proper transfer pricing documentation
is in place, the profit allocation and transfer pricing terms and conditions may be scrutinized by local tax authorities during an
audit and any resulting changes may impact our mix of earnings in countries with differing statutory tax rates.
Current economic and political conditions make tax rules in any jurisdiction, including the United States and Canada,
subject to significant change. Changes in applicable U.S., Canadian, or other foreign tax laws and regulations, or their
interpretation and application, including the possibility of retroactive effect, could affect our income tax expense and
profitability, as they did in fiscal 2017 and fiscal 2018 upon passage of the U.S. Tax Cuts and Jobs Act.
If we continue to grow at a rapid pace, we may not be able to effectively manage our growth and the increased complexity
of our business and as a result our brand image and financial performance may suffer.
We have expanded our operations rapidly since our inception in 1998 and our net revenue has increased from
$40.7 million in fiscal 2004 to $4.0 billion in fiscal 2019. If our operations continue to grow at a rapid pace, we may experience
difficulties in obtaining sufficient raw materials and manufacturing capacity to produce our products, as well as delays in
production and shipments, as our products are subject to risks associated with overseas sourcing and manufacturing. We could
be required to continue to expand our sales and marketing, product development and distribution functions, to upgrade our
management information systems and other processes and technology, and to obtain more space for our expanding workforce.
This expansion could increase the strain on our resources, and we could experience operating difficulties, including difficulties
in hiring, training, and managing an increasing number of employees. These difficulties could result in the erosion of our brand
image which could have a material adverse effect on our financial condition.
We are subject to risks associated with leasing retail and distribution space subject to long-term and non-cancelable
leases.
We lease the majority of our stores under operating leases and our inability to secure appropriate real estate or lease terms
could impact our ability to grow. Our leases generally have initial terms of between five and 15 years, and generally can be
extended in five-year increments if at all. We generally cannot cancel these leases at our option. If an existing or new store is
not profitable, and we decide to close it, as we have done in the past and may do in the future, we may nonetheless be
committed to perform our obligations under the applicable lease including, among other things, paying the base rent for the
balance of the lease term. Similarly, we may be committed to perform our obligations under the applicable leases even if
current locations of our stores become unattractive as demographic patterns change. In addition, as each of our leases expire,
we may fail to negotiate renewals, either on commercially acceptable terms or at all, which could require us to close stores in
desirable locations.
We also lease the majority of our distribution centers and our inability to secure appropriate real estate or lease terms
could impact our ability to deliver our products to the market.
Increasing labor costs and other factors associated with the production of our products in South and South East Asia
could increase the costs to produce our products.
A significant portion of our products are produced in South and South East Asia and increases in the costs of labor and
other costs of doing business in the countries in this area could significantly increase our costs to produce our products and
could have a negative impact on our operations and earnings. Factors that could negatively affect our business include a
potential significant revaluation of the currencies used in these countries, which may result in an increase in the cost of
producing products, labor shortage and increases in labor costs, and difficulties and additional costs in transporting products
manufactured from these countries to our distribution centers. Also, the imposition of trade sanctions or other regulations
against products imported by us from, or the loss of "normal trade relations" status with any country in which our products are
manufactured, could significantly increase our cost of products and harm our business.
We may not be able to successfully open new store locations in a timely manner, if at all, which could harm our results of
operations.
Our growth will largely depend on our ability to successfully open and operate new stores, which depends on many
factors, including, among others, our ability to:
•
•
•
identify suitable store locations, the availability of which is outside of our control;
gain brand recognition and acceptance, particularly in markets that are new to us;
negotiate acceptable lease terms, including desired tenant improvement allowances;
13
•
•
•
•
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.
Our failure to comply with trade and other regulations could lead to investigations or actions by government regulators
and negative publicity.
The labeling, distribution, importation, marketing, and sale of our products are subject to extensive regulation by various
federal agencies, including the Federal Trade Commission, Consumer Product Safety Commission and state attorneys general
in the United States, the Competition Bureau and Health Canada in Canada, as well as by various other federal, state,
provincial, local, and international regulatory authorities in the countries in which our products are distributed or sold. If we fail
to comply with any of these regulations, we could become subject to enforcement actions or the imposition of significant
penalties or claims, which could harm our results of operations or our ability to conduct our business. In addition, any audits
and inspections by governmental agencies related to these matters could result in significant settlement amounts, damages,
fines, or other penalties, divert financial and management resources, and result in significant legal fees. An unfavorable
outcome of any particular proceeding could have an adverse impact on our business, financial condition, and results of
operations. In addition, the adoption of new regulations or changes in the interpretation of existing regulations may result in
significant compliance costs or discontinuation of product sales and could impair the marketing of our products, resulting in
significant loss of net revenue.
Our international operations are also subject to compliance with the U.S. Foreign Corrupt Practices Act, or FCPA, and
other anti-bribery laws applicable to our operations. In many foreign countries, particularly in those with developing
economies, it may be a local custom that businesses operating in such countries engage in business practices that are prohibited
by the FCPA or other U.S. and foreign laws and regulations applicable to us. Although we have implemented procedures
designed to ensure compliance with the FCPA and similar laws, some of our employees, agents, or other channel partners, as
well as those companies to which we outsource certain of our business operations, could take actions in violation of our
policies. Any such violation could have a material and adverse effect on our business.
Our future success is substantially dependent on the service of our senior management and other key employees.
In the last few years, we have had changes to our senior management team including new hires, departures, and role and
responsibility changes. The performance of our senior management team and other key employees may not meet our needs and
expectations. Also, the loss of services of any of these key employees, or any negative public perception with respect to these
individuals, may be disruptive to, or cause uncertainty in, our business and could have a negative impact on our ability to
manage and grow our business effectively. Such disruption could have a material adverse impact on our financial performance,
financial condition, and the market price of our stock.
We do not maintain a key person life insurance policy on any of the members of our senior management team. As a
result, we would have no way to cover the financial loss if we were to lose the services of members of our senior management
team.
Our business is affected by seasonality.
Our business is affected by the general seasonal trends common to the retail apparel industry. This seasonality may
adversely affect our business and cause our results of operations to fluctuate, and, as a result, we believe that comparisons of
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.
14
We also have exposure to changes in foreign exchange rates associated with transactions which are undertaken by our
subsidiaries in currencies other than their functional currency. Such transactions include intercompany transactions and
inventory purchases denominated in currencies other than the functional currency of the purchasing entity. As a result, we have
been impacted by changes in exchange rates and may be impacted for the foreseeable future. The potential impact of currency
fluctuation increases as our international expansion increases.
We have, and may continue to, enter into forward currency contracts, or other derivative instruments, in an effort to
mitigate the foreign exchange risks which we are exposed to. This may include entering into forward currency contracts to
hedge against the foreign exchange gains and losses which arise on translation of our foreign subsidiaries' balance sheets into
U.S. dollars, or entering into forward currency contracts in an effort to reduce our exposure to foreign exchange revaluation
gains and losses that arise on monetary assets and liabilities held by our subsidiaries in a currency other than their functional
currency.
Although we use financial instruments to hedge certain foreign currency risks, these measures may not succeed in fully
offsetting the negative impact of foreign currency rate movements.
We are exposed to credit-related losses in the event of nonperformance by the counterparties to the forward currency
contracts.
Our trademarks and other proprietary rights could potentially conflict with the rights of others and we may be prevented
from selling some of our products.
Our success depends in large part on our brand image. We believe that our trademarks and other proprietary rights have
significant value and are important to identifying and differentiating our products from those of our competitors and creating
and sustaining demand for our products. We have applied for and obtained some United States, Canada, and foreign trademark
registrations, and will continue to evaluate the registration of additional trademarks as appropriate. However, some or all of
these pending trademark applications may not be approved by the applicable governmental authorities. Moreover, even if the
applications are approved, third parties may seek to oppose or otherwise challenge these registrations. Additionally, we may
face obstacles as we expand our product line and the geographic scope of our sales and marketing. Third parties may assert
intellectual property claims against us, particularly as we expand our business and the number of products we offer. Our
defense of any claim, regardless of its merit, could be expensive and time consuming and could divert management resources.
Successful infringement claims against us could result in significant monetary liability or prevent us from selling some of our
products. In addition, resolution of claims may require us to redesign our products, license rights from third parties, or cease
using those rights altogether. Any of these events could harm our business and cause our results of operations, liquidity, and
financial condition to suffer.
We are subject to periodic claims and litigation that could result in unexpected expenses and could ultimately be resolved
against us.
From time to time, we are involved in litigation and other proceedings, including matters related to product liability
claims, stockholder class action and derivative claims, commercial disputes and intellectual property, as well as trade,
regulatory, employment, and other claims related to our business. Any of these proceedings could result in significant
settlement amounts, damages, fines, or other penalties, divert financial and management resources, and result in significant
legal fees. An unfavorable outcome of any particular proceeding could exceed the limits of our insurance policies or the carriers
may decline to fund such final settlements and/or judgments and could have an adverse impact on our business, financial
condition, and results of operations. In addition, any proceeding could negatively impact our reputation among our guests and
our brand image.
Our business could be negatively affected as a result of actions of activist stockholders or others.
We may be subject to actions or proposals from stockholders or others that may not align with our business strategies or
the interests of our other stockholders. Responding to such actions can be costly and time-consuming, disrupt our business and
operations, and divert the attention of our board of directors, management, and employees from the pursuit of our business
strategies. Such activities could interfere with our ability to execute our strategic plan. Activist stockholders or others may
create perceived uncertainties as to the future direction of our business or strategy which may be exploited by our competitors
and may make it more difficult to attract and retain qualified personnel and potential guests, and may affect our relationships
with current guests, vendors, investors, and other third parties. In addition, a proxy contest for the election of directors at our
annual meeting would require us to incur significant legal fees and proxy solicitation expenses and require significant time and
attention by management and our board of directors. The perceived uncertainties as to our future direction also could affect the
market price and volatility of our securities.
15
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.
The general location, use and approximate size of our principal owned properties as of February 2, 2020, are set forth
below:
Location
Columbus, OH. . . . . . . . . . . . . Distribution Center
Vancouver, BC. . . . . . . . . . . . . Executive and Administrative Offices
Use
Approximate Square Feet
310,000
140,000
The general location, use, approximate size and lease renewal date of our principal non-retail leased properties as of
February 2, 2020, are set forth below:
Location
Use
Approximate Square Feet
Lease Renewal Date
Toronto, ON. . . . . . . . . . . . . . . Distribution Center
Sumner, WA. . . . . . . . . . . . . . . Distribution Center
Vancouver, BC. . . . . . . . . . . . . Distribution Center
ITEM 3. LEGAL PROCEEDINGS
250,000 September 2033
150,000
July 2025
155,000
January 2031
Please see the legal proceedings described in Note 17 to our audited consolidated financial statements included in Item 8
of Part II of this report.
16
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."
As of March 20, 2020, there were approximately 900 holders of record of our common stock. This does not include
persons whose stock is in nominee or "street name" accounts through brokers.
We do not anticipate paying any cash dividends on our common stock in the foreseeable future. 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 February 1,
2015 (the date of our fiscal year end five years ago) and February 2, 2020, 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 February 1, 2015 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.
17
lululemon athletica inc. . . . . . . . . . . . . . . . . . . . . . . . .
S&P 500 Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S&P 500 Apparel, Accessories & Luxury Goods
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 100.00
$ 100.00
$ 100.00
$
$
$
93.70
$ 100.88
$ 119.38
$ 220.59
$ 361.40
97.26
$ 115.02
$ 144.00
$ 135.67
$ 161.68
82.75
$
69.42
$
90.37
$
79.62
$ 71.89
01-Feb-15
31-Jan-16
29-Jan-17
28-Jan-18
03-Feb-19
02-Feb-20
Issuer Purchase of Equity Securities
The following table provides information regarding our purchases of shares of our common stock during the thirteen
weeks ended February 2, 2020 related to our stock repurchase program:
Period(1)
November 4, 2019 - December 1, 2019 . . . . . . . .
December 2, 2019 - January 5, 2020 . . . . . . . . . .
January 6, 2020 - February 2, 2020 . . . . . . . . . . .
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)
1,584
$
194.10
1,584
$
327,302,004
—
—
1,584
—
—
—
—
1,584
327,302,004
327,302,004
__________
(1)
(2)
Monthly information is presented by reference to our fiscal periods during our fourth quarter of fiscal 2019.
On January 31, 2019, our board of directors approved a stock repurchase program of up to $500 million of our common shares on the open market or in
privately negotiated transactions. Common shares repurchased on the open market are at prevailing market prices, including under plans complying with
the provisions of Rule 10b5-1 and Rule 10b-18 of the Securities Exchange Act of 1934. The timing and actual number of common shares to be
repurchased will depend upon market conditions, eligibility to trade, and other factors. The repurchases are expected to be completed by January 2021.
The following table provides information regarding our purchases of shares of our common stock during the thirteen
weeks ended February 2, 2020 related to our Employee Share Purchase Plan:
Period(1)
November 4, 2019 - December 1, 2019 . . . . . . . .
December 2, 2019 - January 5, 2020 . . . . . . . . . .
January 6, 2020 - February 2, 2020 . . . . . . . . . . .
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 Number
of Shares that May
Yet Be Purchased
Under the Plans or
Programs(2)
5,644
$
5,629
5,474
16,747
221.41
227.93
238.34
5,644
5,629
5,474
16,747
4,737,749
4,732,120
4,726,646
___________
(1)
(2)
Monthly information is presented by reference to our fiscal periods during our fourth quarter of fiscal 2019.
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.
18
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 audited consolidated financial statements and notes included in Item 8 of Part II of this
report as well as "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations".
Consolidated statement of operations and
comprehensive income data:
Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of goods sold. . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . .
Asset impairment and restructuring costs . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . .
Income before income tax expense . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss), net of tax:
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year Ended
February 2,
2020
February 3,
2019
January 28,
2018
January 29,
2017
January 31,
2016
(In thousands, except per share data)
$ 3,979,296
1,755,910
2,223,386
1,334,276
—
889,110
8,283
897,393
251,797
645,596
$
$ 3,288,319
1,472,032
1,816,287
1,110,451
—
705,836
9,414
715,250
231,449
483,801
$
$ 2,649,181
1,250,391
1,398,790
904,264
38,525
456,001
3,997
459,998
201,336
258,662
$
$ 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
$
(7,773)
637,823
4.95
4.93
(73,885)
409,916
3.63
3.61
58,577
317,239
1.90
1.90
$
$
$
36,703
340,084
2.21
2.21
$
$
$
$
$
$
$
$
$
$
$
$
(64,796)
201,251
1.90
1.89
130,393
133,413
135,988
137,086
140,365
130,955
133,971
136,198
137,302
140,610
February 2,
2020
February 3,
2019
As of
January 28,
2018
(In thousands)
January 29,
2017
January 31,
2016
Consolidated balance sheet data1:
Cash and cash equivalents. . . . . . . . . . . . . . . . . .
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders' equity . . . . . . . . . . . . . . . . . .
$ 1,093,505
518,513
3,281,354
1,329,136
1,952,218
$
881,320
404,842
2,084,711
638,736
1,445,975
$
990,501
329,562
1,998,483
401,523
1,596,960
$
734,846
298,432
1,657,541
297,568
1,359,973
$
501,482
284,009
1,314,077
286,595
1,027,482
__________
(1)
We adopted ASC 842 on February 4, 2019 using the modified retrospective approach with no restatement of comparative periods. See Note 2 to the
audited consolidated financial statements included in Item 8 of Part II of this report for additional information.
19
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 2019 was a 52 week year and fiscal 2018 was a 53 week year. Net revenue includes results from the 53rd week,
however, comparable sales are calculated on a one week shifted basis such that the 52 weeks ended February 2, 2020 are
compared to the 52 weeks ended February 3, 2019 rather than January 27, 2019. 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.
We have omitted the results of operations and cash flows for fiscal 2017, and the comparison of fiscal 2018 to fiscal
2017. For the omitted results and comparisons please refer to "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" of our fiscal 2018 Annual Report on Form 10-K filed with the SEC on March 27, 2019.
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 included 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 described in the "Item 1A. Risk
Factors" section and elsewhere in this Annual Report on Form 10-K.
We disclose material non-public information through one or more of the following channels: our investor relations
website (http://investor.lululemon.com/), the social media channels identified on our investor relations website, press releases,
SEC filings, public conference calls, and webcasts.
Overview
Our business momentum continued in fiscal 2019. Net revenue grew 21% and total comparable sales increased 17%. In
addition, we expanded our operating margin 80 basis points to 22.3% and grew earnings per share 37%, or 28% excluding
certain discrete tax items which were recognized in fiscal 2018.
Fueling our performance this year was strength across our product assortment, 18% square footage growth driven by new
stores and our remodel program, and a robust e-commerce business. In addition, our local community events and educators
continued to connect us with our guests in a truly unique manner.
The Power of Three
We believe the first year of our Power of Three growth plan proved to be particularly successful. The strategic pillars of
this plan are product innovation, omni-guest experience, and market expansion.
Product Innovation
Throughout fiscal 2019, response to our product offerings was strong as we continued to grow our core product
categories, expand our merchandise range, and deliver new innovation through our Science of Feel development platform.
Momentum continued in both our men's and women's pant category, and we continued to expand the important categories of
bras and outerwear. In men's, one of our key growth areas, revenue increased 34% in 2019. We also moved beyond test phase
with our new assortment of selfcare personal-care products. We rolled out our initial assortment to 50 stores and online.
Omni-Guest Experience
Performance was strong across both our company-operated store and direct to consumer channels in fiscal 2019, with
comparable store sales increasing 9% and direct to consumer net revenue growing 35%, each based on a shifted calendar. In
fiscal 2019 we began to engage with our guests in new ways. We began testing a new membership program, with four markets
tested in fiscal 2019. We also opened and began testing our first two fully experiential stores in 2019, one in the Lincoln Park
neighborhood of Chicago and the second at the Mall of America near Minneapolis. These stores were designed to offer
dedicated studio space for sweat classes and meditation, locker rooms, healthy foods, and an elevated shopping experience.
In fiscal 2019 we continued to host unique events in North America and in our international markets. In addition to our
SeaWheeze half marathon and festival in Vancouver, we hosted 10K races in Toronto, Edmonton, and San Diego, our first in
the United States. In Europe, we held Sweatlife festivals in London, Paris, and Berlin, and in Mainland China, we hosted our
4th annual Unroll China event. These festivals and events brought together guests, educators, ambassadors, and other members
of the local community to engage in sweat classes, yoga, personal development, and meditation.
20
Market Expansion
In fiscal 2019, we continued to expand our presence both in North America and in our international markets. During the
year, we opened 51 net new company-operated stores, including 19 in North America, 24 in Asia Pacific, and eight in Europe.
We expanded into two new markets in Europe during the year, the Netherlands and Norway. We also launched local market e-
commerce sites in Germany and France. In Asia, we opened our first stores in Malaysia and launched a local e-commerce site
in Japan.
We also expanded our seasonal store strategy in fiscal 2019 with approximately 80 seasonal stores in operation for some
period of time during the year. These stores allowed us to better cater to our guests in select markets, particularly during the
holidays, while also helping introduce new guests to our brand.
For fiscal 2019, our business in North America grew 20%, while total growth in our international markets was 32%.
Coronavirus (COVID-19)
The outbreak of the COVID-19 coronavirus has been declared a pandemic by the World Health Organization and
continues to spread in the United States, Canada, and in many other countries globally. The spread of COVID-19 has caused
public health officials to recommend precautions to mitigate the spread of the virus, especially when congregating in heavily
populated areas, such as malls and lifestyle centers. Government authorities in certain markets in which we operate have also
issued orders that require the closure of non-essential businesses and people to remain at home.
We have taken actions to close certain retail locations and to reduce operating hours, and we continue to monitor the
situation and work closely with local authorities to prioritize the safety of our people and guests. In February 2020, we
temporarily closed all of our retail locations in Mainland China. All but one of these locations have since reopened. In March
2020, we temporarily closed all of our retail locations in North America, Europe, Malaysia, New Zealand, and we temporarily
closed our distribution center in Sumner, WA. These locations currently remain closed.
There is significant uncertainty regarding the extent and duration of the impact that the COVID-19 coronavirus pandemic
will have on the demand for our products and our supply chain. We expect our sales growth trends to experience a meaningful
deterioration from those achieved in fiscal 2019 and to experience a material adverse impact on our fiscal 2020 results. The
extent to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be
predicted, including new information that may emerge concerning the severity of COVID-19 and the actions taken to contain it
or treat its impact.
We remain confident in the long-term growth opportunities and our Power of Three growth plan and believe that we have
sufficient cash and cash equivalents, and available capacity under our revolving credit facilities, to meet our liquidity needs. As
of February 2, 2020, we had cash and cash equivalents of $1.1 billion and the capacity under our committed revolving credit
facility was $398.2 million.
Financial Highlights
The summary below provides both GAAP and non-GAAP financial measures. The adjusted financial measures for fiscal
2018 exclude the amounts recognized in connection with U.S. tax reform and taxes on the repatriation of foreign earnings.
For the fiscal year ended February 2, 2020, compared to the fiscal year ended February 3, 2019:
• Net revenue increased 21% to $4.0 billion. On a constant dollar basis, net revenue increased 22%.
• Total comparable sales, which includes comparable store sales and direct to consumer, increased 17%. On a constant
dollar basis, total comparable sales increased 18%.
– Comparable store sales increased 9%, or increased 10% on a constant dollar basis.
– Direct to consumer net revenue increased 35%, or increased 35% on a constant dollar basis.
• Gross profit increased 22% to $2.2 billion.
• Gross margin increased 70 basis points to 55.9%.
•
Income from operations increased 26% to $889.1 million.
• Operating margin increased 80 basis points to 22.3%.
•
Income tax expense increased 9% to $251.8 million. Our effective tax rate for fiscal 2019 was 28.1% compared to
32.4% for fiscal 2018. The adjusted effective tax rate was 28.0% for fiscal 2018.
21
• Diluted earnings per share were $4.93 for fiscal 2019 compared to $3.61 in fiscal 2018. Adjusted diluted earnings per
share were $3.84 for fiscal 2018.
Due to the 53rd week in fiscal 2018, comparable sales are calculated on a one week shifted basis such that the 52 weeks
ended February 2, 2020 are compared to the 52 weeks ended February 3, 2019 rather than January 27, 2019.
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 adjusted
income tax expense, effective tax rates, and diluted earnings per share, 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, other
country and region specific websites, and mobile apps, including mobile apps on in-store devices that allow demand to be
fulfilled via our distribution centers, and other net revenue, which includes outlet sales, sales from temporary locations, sales to
wholesale accounts, license and supply arrangement net revenue which consists of royalties as well as sales of our products to
licensees, and warehouse sales.
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.
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. In addition, increases in our Canadian net assets may result in an increase to
our effective tax rate due to Canadian withholding taxes that could be payable on future repatriations from our Canadian
subsidiaries to the extent that they are not able to be made as a return of capital.
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year Ended
February 2,
2020
February 3,
2019
February 2,
2020
February 3,
2019
(In thousands)
(Percentages)
$ 3,979,296
$ 3,288,319
100.0%
100.0%
1,755,910
2,223,386
1,334,276
889,110
8,283
897,393
251,797
645,596
$
1,472,032
1,816,287
1,110,451
705,836
9,414
715,250
231,449
483,801
$
44.1
55.9
33.5
22.3
0.2
22.6
6.3
16.2%
44.8
55.2
33.8
21.5
0.3
21.8
7.0
14.7%
22
Comparison of Fiscal 2019 to Fiscal 2018
Net Revenue
Net revenue increased $691.0 million, or 21%, to $4.0 billion in fiscal 2019 from $3.3 billion in fiscal 2018. On a
constant dollar basis, assuming the average exchange rates in fiscal 2019 remained constant with the average exchange rates in
fiscal 2018, net revenue increased $718.5 million, or 22%.
The increase in net revenue was primarily due to increased direct to consumer net revenue, net revenue generated by new
company-operated stores, and an increase in comparable store sales.
Based on a shifted calendar, total comparable sales, which includes comparable store sales and direct to consumer,
increased 17% in fiscal 2019 compared to fiscal 2018. Total comparable sales increased 18% on a constant dollar basis.
Net revenue on a segment basis for fiscal 2019 and fiscal 2018 is summarized below. The percentages are presented as a
percentage of total net revenue.
Fiscal Years Ended February 2, 2020 and February 3, 2019
2019
2018
2019
2018
(In thousands)
(Percentages)
Company-operated stores. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Direct to consumer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,501,067
$ 2,126,363
1,137,822
340,407
858,856
303,100
62.9%
28.6
8.6
64.7%
26.1
9.2
$ 3,979,296
$ 3,288,319
100.0%
100.0%
Company-Operated Stores. Net revenue from our company-operated stores segment increased $374.7 million, or 18%, to
$2.5 billion in fiscal 2019 from $2.1 billion in fiscal 2018. 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 February 3, 2019, and
are therefore not included in comparable store sales, increased net revenue by $238.5 million. During fiscal 2019 we
opened 51 net new company-operated stores, including 24 stores in Asia Pacific, 19 stores in North America, and
eight stores in Europe.
• Based on a shifted calendar, a comparable store sales increase of 9% in fiscal 2019 compared to fiscal 2018.
Comparable store sales increased 10% on a constant dollar basis. The increase in comparable store sales was
primarily a result of increased store traffic and improved conversion rates.
We generated net revenue of $32.7 million in the 53rd week of fiscal 2018 from our company-operated stores segment.
Direct to Consumer. Net revenue from our direct to consumer segment increased $279.0 million to $1.1 billion in fiscal
2019 from $858.9 million in fiscal 2018. We generated net revenue of $20.3 million in the 53rd week of fiscal 2018 from our
direct to consumer segment. Based on a shifted calendar, direct to consumer net revenue increased 35%, or increased 35% 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 and improved conversion rates, partially offset by a decrease in dollar value per transaction.
Other. Net revenue from our other segment increased $37.3 million, or 12%, to $340.4 million in fiscal 2019 from $303.1
million in fiscal 2018. This increase was primarily the result of an increase in net revenue from sales to wholesale accounts, and
an increased number of temporary locations, including seasonal stores, open during fiscal 2019 compared to fiscal 2018.
Gross Profit
Gross profit increased $407.1 million, or 22%, to $2.2 billion in fiscal 2019 from $1.8 billion in fiscal 2018.
Gross profit as a percentage of net revenue, or gross margin, increased 70 basis points, to 55.9% in fiscal 2019 from
55.2% in fiscal 2018. The increase in gross margin was primarily the result of an increase in product margin of 110 basis
points, which was primarily due to lower product costs, a favorable mix of higher margin product, and lower markdowns.
This was partially offset by an increase in costs as a percentage of revenue related to our distribution centers and our
product departments of 30 basis points, an increase in occupancy and depreciation costs as a percentage of revenue of 10 basis
points, and an unfavorable impact of foreign exchange rates of 10 basis points.
23
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $223.8 million, or 20%, to $1.3 billion in fiscal 2019 from $1.1
billion in fiscal 2018. The increase in selling, general and administrative expenses was primarily due to:
•
an increase in costs related to our operating channels of $136.6 million, comprised of:
– an increase in employee costs of $64.7 million primarily from a growth in labor hours and benefits, mainly
associated with new company-operated stores and other new operating locations, and due to higher incentive
compensation expenses;
– an increase in variable costs of $49.2 million primarily due to an increase in distribution costs, credit card
fees, and packaging costs as a result of increased net revenue; and
– an increase in other costs of $22.8 million primarily due to increases in digital marketing expenses,
information technology costs, security, and other costs associated with our operating locations;
•
an increase in head office costs of $84.3 million, comprised of:
– an increase in employee costs of $43.0 million primarily due to increased incentive and stock-based
compensation expense and due to increased wages, primarily from additional employees to support the
growth in our business; and
– an increase in other costs of $41.3 million primarily due to increases in depreciation, information technology
costs, professional fees, brand and community costs, and other head office costs; and
•
an increase in net foreign exchange and derivative revaluation losses of $2.9 million. There were net foreign
exchange and derivative revaluation losses of $1.5 million in fiscal 2019 compared to net foreign exchange
revaluation gains of $1.4 million in fiscal 2018.
As a percentage of net revenue, selling, general and administrative expenses decreased 30 basis points, to 33.5% in fiscal
2019 from 33.8% in fiscal 2018.
Income from Operations
Income from operations increased $183.3 million, or 26%, to $889.1 million in fiscal 2019 from $705.8 million in fiscal
2018. Operating margin increased 80 basis points to 22.3% compared to 21.5% in fiscal 2018.
On a segment basis, we determine income from operations without taking into account our general corporate expenses.
Segmented income from operations before general corporate expenses for fiscal 2019 and fiscal 2018 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 February 2, 2020 and February 3, 2019
2019
2018
2019
2018
(In thousands)
(Percentages)
Segmented income from operations:
Company-operated stores . . . . . . . . . . . . . . . . . . . . . . . . . . .
Direct to consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
689,339
$
575,536
482,368
72,559
1,244,266
355,156
354,107
62,558
992,201
286,365
$
889,110
$
705,836
27.6%
42.4
21.3
27.1%
41.2
20.6
Company-Operated Stores. Income from operations from our company-operated stores segment increased $113.8 million,
or 20%, to $689.3 million for fiscal 2019 from $575.5 million for fiscal 2018. The increase was primarily the result of
increased gross profit of $199.5 million which was primarily due to increased net revenue and higher gross margin. This was
partially offset by an increase in selling, general and administrative expenses, primarily due to increased employee costs,
increased store operating expenses including higher credit card fees, distribution costs, and packaging costs as a result of higher
net revenue, and due to increased security, repairs and maintenance costs, and information technology costs. Income from
operations as a percentage of company-operated stores net revenue increased by 50 basis points, primarily due to leverage on
selling, general and administrative expenses and an increase in gross margin.
24
Direct to Consumer. Income from operations from our direct to consumer segment increased $128.3 million, or 36%, to
$482.4 million in fiscal 2019 from $354.1 million in fiscal 2018. The increase was primarily the result of increased gross profit
of $194.0 million which was primarily due to increased net revenue and higher gross margin. This was partially offset by an
increase in selling, general and administrative expenses primarily due to higher variable costs including distribution costs,
credit card fees, and packaging costs as a result of higher net revenue, as well as higher digital marketing expenses, information
technology costs, and employee costs. Income from operations as a percentage of direct to consumer net revenue has increased
by 120 basis points, primarily due to an increase in gross margin, partially offset by deleverage on selling, general and
administrative expenses.
Other. Other income from operations increased $10.0 million, or 16%, to $72.6 million in fiscal 2019 from $62.6 million
in fiscal 2018. The increase was primarily the result of increased gross profit of $13.6 million which was primarily due to
increased net revenue. The increase in gross profit was partially offset by an increase in selling, general and administrative
expenses, including increased employee costs, increased operating expenses including higher credit card fees and higher
distribution costs as a result of higher net revenue, and due to higher repairs and maintenance costs and information technology
costs. Income from operations as a percentage of other net revenue increased 70 basis points, primarily due to leverage on
selling, general and administrative expenses, partially offset by a decrease in gross margin.
General Corporate Expenses. General corporate expenses increased $68.8 million, or 24%, to $355.2 million in fiscal
2019 from $286.4 million in fiscal 2018. This increase was primarily due to increases in head office employee costs,
depreciation, brand and community costs, information technology costs, professional fees, and an increase in net foreign
exchange and derivative losses of $2.9 million. 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 $8.3 million in fiscal 2019 compared to $9.4 million in fiscal 2018. The decrease was
primarily due to a decrease in net interest income, primarily from lower cash balances during the majority of fiscal 2019
compared to fiscal 2018. The decrease in net other income was partially offset by a decrease in interest expense, primarily the
result of borrowings on our North American revolving credit facility during fiscal 2018. We did not have any borrowings on our
revolving credit facilities during fiscal 2019.
Income Tax Expense
Income tax expense increased $20.3 million, or 9%, to $251.8 million in fiscal 2019 from $231.4 million in fiscal 2018.
U.S. tax reform was enacted on December 22, 2017 and introduced significant changes to U.S. income tax law. We
completed the accounting for the income tax effects of U.S. tax reform during fiscal 2018. This resulted in the recognition of an
additional tax expense of $7.5 million related to the mandatory one-time transition tax on the deemed repatriation of
accumulated undistributed earnings of foreign subsidiaries.
In fiscal 2018, we also completed our assessment of the impact that U.S. tax reform has upon repatriation taxes, our
reinvestment plans, and the most efficient means of deploying our capital resources globally. We concluded that the net
investment in a Canadian subsidiary in excess of the amounts necessary to sustain our business operations would no longer be
indefinitely reinvested and $778.9 million was repatriated from that subsidiary. This resulted in the recognition of a tax expense
of $23.7 million in fiscal 2018.
Further information on the adjustments recognized in fiscal 2018 is outlined in Note 15 to the audited consolidated
financial statements included in Item 8 of Part II of this report.
Our effective tax rate for fiscal 2019 was 28.1% compared to 32.4% for fiscal 2018. The effective tax rate excluding the
above tax adjustments related to U.S. tax reform was 28.0% for fiscal 2018. The increase in the effective tax rate compared to
our adjusted effective tax rate in the prior year was primarily due to accruals for repatriation taxes on unremitted earnings and
true-ups upon filing of tax returns. This was partially offset by a reduction in non-deductible stock-based compensation
expense.
Net Income
Net income increased $161.8 million, or 33%, to $645.6 million in fiscal 2019 from $483.8 million in fiscal 2018. The
increase in net income in fiscal 2019 was primarily due to an increase in gross profit of $407.1 million, partially offset by an
increase in selling, general and administrative expenses of $223.8 million, an increase in income tax expense of $20.3 million,
and a decrease in other income (expense), net of $1.1 million.
25
Comparable Sales
We separately track comparable store sales, which reflect net revenue from company-operated stores that have been open,
or open after being significantly expanded, for at least 12 full fiscal months. Net revenue from a store is included in comparable
store sales beginning with the first fiscal month for which the store has a full fiscal month of sales in the prior year. Comparable
store sales exclude sales from new stores that have not been open for at least 12 full fiscal months, from stores which have not
been in their significantly expanded space for at least 12 full fiscal months, and from stores which have been temporarily
relocated for renovations or temporarily closed for over 30 days. Comparable store sales also exclude sales from direct to
consumer, outlets, temporary locations, wholesale accounts, through license and supply arrangements, warehouse sales, and
sales from company-operated stores that we have closed.
We use comparable store sales to assess the performance of our existing stores. It allows us to monitor the performance of
our business without the impact of recently opened or expanded stores. We believe that investors would similarly find this
metric useful in assessing the performance of our business.
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
apps, including mobile apps on in-store devices that allow demand to be fulfilled via our distribution centers, social media,
product notification emails, and online order fulfillment through stores. Total comparable sales is an increasingly important
metric to us as it allows us to evaluate the performance of our business from an omni-channel perspective. We therefore believe
that reporting total comparable sales with comparable store sales and direct to consumer sales combined provides a relevant
performance metric to investors.
Various factors affect comparable sales, including:
•
•
•
•
•
•
•
•
•
•
•
•
the location of new stores relative to existing stores;
consumer preferences, buying trends, foot traffic in the malls in which our stores are located, 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 marketing efforts;
the design and ease of use of our websites and mobile apps;
the level of customer service that we provide in our stores and on our websites and mobile apps;
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.
In fiscal years with 53 weeks, the 53rd week of net revenue is excluded from the calculation of comparable sales. In the
year following a 53 week year, the prior year period is shifted by one week to compare similar calendar weeks.
Opening new stores and expanding existing stores is an important part of our growth strategy. Accordingly, total
comparable sales is just one way of assessing the success of our growth strategy insofar as comparable sales do not reflect the
performance of stores opened, or significantly expanded, within the last 12 full fiscal months. The comparable sales measures
we report may not be equivalent to similarly titled measures reported by other companies.
Non-GAAP Financial Measures
Constant dollar changes in net revenue, total comparable sales, comparable store sales, and direct to consumer net
revenue, and the adjusted financial results are non-GAAP financial measures.
A constant dollar basis assumes the average foreign 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 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 that disclosing
26
these measures on a constant dollar basis is useful to investors because it enables them to understand the level of growth of our
business.
Adjusted income tax expense, effective tax rates, and diluted earnings per share exclude the amounts recognized in
connection with U.S. tax reform and taxes on repatriation of foreign earnings. We believe these adjusted financial measures are
useful to investors in evaluating the trend in our operating performance as the adjustments do not directly relate to our ongoing
business operations. Furthermore, we do not believe the adjustments are reflective of our expectations of our future operating
performance and believe these non-GAAP measures are useful to investors because of their comparability to our historical
information.
The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or with
greater prominence to, the financial information prepared and presented in accordance with GAAP. A reconciliation of the non-
GAAP financial measures follows, which includes more detail on the GAAP financial measure that is most directly comparable
to each non-GAAP financial measure, and the related reconciliations between these financial measures.
Constant dollar changes in net revenue
The below changes in net revenue show the change compared to the corresponding period in the prior year.
Fiscal Year Ended
February 2, 2020
(In thousands)
(Percentages)
Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments due to foreign exchange rate changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in constant dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
690,977
27,487
718,464
21%
1
22%
Constant dollar changes in total comparable sales, comparable store sales, and direct to consumer net revenue
Due to the 53rd week in fiscal 2018, the below changes in total comparable sales, comparable store sales, and direct to
consumer net revenue are calculated on a one week shifted basis such that the 52 weeks ended February 2, 2020 are compared
to the 52 weeks ended February 3, 2019 rather than January 27, 2019.
Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments due to foreign exchange rate changes . . . . . . . . . . . . . . . . . . . . . .
Change in constant dollars. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17%
1
18%
9%
1
10%
35%
—
35%
Fiscal Year Ended
February 2, 2020
Total
Comparable
Sales1,2
Comparable
Store Sales2
Direct to
Consumer Net
Revenue
__________
(1)
(2)
Total comparable sales includes comparable store sales and direct to consumer sales.
Comparable store sales reflects net revenue from company-operated stores that have been open for at least 12 full fiscal months, or open for at least 12
full fiscal months after being significantly expanded.
27
Adjusted financial measures
The following tables reconcile adjusted financial measures with the most directly comparable measures calculated in
accordance with GAAP. The adjustments relate to the amounts recognized in connection with U.S. tax reform and taxes on
repatriation of foreign earnings. Please refer to Note 15 to the audited consolidated financial statements included in Item 8 of
Part II of this report for further information on these adjustments.
Fiscal Year Ended February 3, 2019
Adjustments
GAAP
Amounts
Tax on
Repatriation of
Foreign
Earnings
U.S. Tax
Reform
Adjusted
Amounts
(Non-GAAP)
(In thousands, except per share amounts)
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
231,449
$ (23,714)
32.4%
(3.3)%
3.61
$
0.18
$
$
(7,464)
(1.1)%
0.05
$
$
200,271
28.0%
3.84
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 facilities. Our primary cash needs are capital expenditures for opening new stores and
remodeling or relocating existing stores, investing in information technology and making 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 well as in money market funds, treasury bills, and term deposits.
As of February 2, 2020, our working capital (excluding cash and cash equivalents) was $94.0 million, our cash and cash
equivalents were $1.1 billion and our capacity under our committed revolving credit facility was $398.2 million.
The following table summarizes our net cash flows provided by and used in operating, investing, and financing activities
for the periods indicated:
Fiscal Year Ended
February 2,
2020
February 3,
2019
(In thousands)
Total cash provided by (used in):
Operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
669,316
(278,408)
(177,173)
(1,550)
212,185
$
$
742,779
(242,794)
(590,214)
(18,952)
(109,181)
Operating Activities
Cash flows provided by operating activities consist primarily of net income adjusted for certain items including
depreciation and amortization, stock-based compensation expense, and the effect of changes in operating assets and liabilities.
Net cash provided by operating activities decreased $73.5 million in fiscal 2019 compared to fiscal 2018, primarily as a
result of the following:
•
an increase in cash used in operating activities of $306.9 million as a result of changes in operating assets and
liabilities, primarily due to the following:
– $115.9 million related to income taxes, primarily due to payments for withholding taxes on repatriated foreign
earnings, as well as timing of tax installments;
– $86.8 million related to accounts payable, primarily due to a change in our payment terms in the prior fiscal year;
– $51.0 million related to other prepaid expenses and other current and non-current assets; and
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– $45.6 million related to inventory, primarily due to an increase in inventory purchases to support our growth.
This was partially offset by an increase of $161.8 million in net income, and an increase of $71.7 million in non-cash
expenses primarily related to an increase in depreciation, stock-based compensation, the settlement of derivatives not
designated in a hedging relationship, and deferred income taxes.
Investing Activities
Cash flows used in investing activities relate to capital expenditures, the settlement of net investment hedges, and other
investing activities. Cash used in investing activities increased $35.6 million, to $278.4 million in fiscal 2019 from $242.8
million in fiscal 2018.
Capital expenditures for our company-operated stores segment were $171.5 million and $129.2 million in fiscal 2019 and
fiscal 2018, respectively. The capital expenditures for our company-operated stores segment in each period were primarily for
the remodeling or relocation of certain stores, for opening new company-operated stores, and ongoing store refurbishment. The
increase in capital expenditures for our company-operated stores segment was primarily due to an increased amount spent on
store remodels and relocations, including our experiential stores. The capital expenditures for our company-operated stores
segment also included $44.3 million to open 57 company-operated stores and $27.1 million to open 39 company-operated
stores, in fiscal 2019 and fiscal 2018 respectively.
Capital expenditures for our direct to consumer segment were $15.8 million and $6.4 million in fiscal 2019 and fiscal
2018, respectively. The capital expenditures for our direct to consumer segment in fiscal 2019 were primarily related to our
new distribution center in Toronto, Canada as well as other information technology infrastructure and system initiatives, and in
fiscal 2018 were primarily related to our global and region specific websites as well as mobile apps.
Capital expenditures related to corporate activities and other were $95.7 million and $90.2 million in fiscal 2019 and
fiscal 2018, respectively. The capital expenditures in each fiscal year were primarily related to 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.
Financing Activities
Cash flows used in financing activities consist primarily of cash used to repurchase shares of our common stock, certain
cash flows related to stock-based compensation, and other financing activities.
Cash used in financing activities decreased $413.0 million, to $177.2 million in fiscal 2019 from $590.2 million in fiscal
2018. The decrease was primarily the result of a decrease in our stock repurchases.
During the fiscal years ended February 2, 2020 and February 3, 2019, 1.1 million and 4.9 million, respectively, were
repurchased under the programs at a total cost of $173.4 million and $598.3 million, respectively. During the first quarter of
fiscal 2019, we repurchased 1.0 million shares in a private transaction, and during the second quarter of fiscal 2018, we
repurchased 3.3 million shares in a private transaction. The other common stock was repurchased in the open market at
prevailing market prices, including under plans complying with the provisions of Rule 10b5-1 and Rule 10b-18 of the
Securities Exchange Act of 1934, with the timing and actual number of shares repurchased depending upon market conditions,
eligibility to trade, and other factors.
We believe that our cash and cash equivalent balances, cash generated from operations, and borrowings available to us
under our revolving credit facilities will be adequate to meet our liquidity needs and capital expenditure requirements for at
least the next 12 months. Our cash from operations may be negatively impacted by a decrease in demand for our products as
well as the other factors described in "Item 1A. Risk Factors". In addition, we may make discretionary capital improvements
with respect to our stores, distribution facilities, headquarters, or systems, or we may repurchase shares under an approved
stock repurchase program, which we would expect to fund through the use of cash, issuance of debt or equity securities or other
external financing sources to the extent we were unable to fund such capital expenditures out of our cash and cash equivalents
and cash generated from operations.
Revolving Credit Facilities
North America revolving credit facility
On December 15, 2016, we entered into a credit agreement for $150.0 million under a committed and 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
29
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, if any, 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.
On June 6, 2018, we entered into Amendment No. 1 to the credit agreement. The Amendment amends the credit
agreement to provide for (i) an increase in the aggregate commitments under the unsecured five-year revolving credit facility to
$400.0 million, with an increase of the sub-limits for the issuance of letters of credit and extensions of swing line loans to $50.0
million for each, (ii) an increase in the option, subject to certain conditions as set forth in the credit agreement, to request
increases in commitments under the revolving facility from $400.0 million to $600.0 million and (iii) an extension in the
maturity of the revolving facility from December 15, 2021 to June 6, 2023.
In addition, the Amendment decreases the applicable margins for LIBOR loans from 1.00%-1.75% to 1.00%-1.50% and
for alternate base rate loans from 0.00%-0.75% to 0.00%-0.50%, reduces the commitment fee on average daily unused amounts
under the revolving facility from 0.125%-0.200% to 0.10%-0.20%, and reduces fees for unused letters of credit from
1.00%-1.75% to 1.00%-1.50%.
As of February 2, 2020, aside from letters of credit of $1.8 million, we had no other borrowings outstanding under this
credit facility.
Mainland China revolving credit facility
In December 2019, the Company entered into an uncommitted and unsecured 130.0 million Chinese Yuan revolving
credit facility. The terms are reviewed on an annual basis. The facility includes a revolving loan of up to 100.0 million Chinese
Yuan as well as a financial bank guarantee facility of up to 30.0 million Chinese Yuan, or its equivalent in another currency.
Loans are available in Chinese Yuan for a period not to exceed 12 months, and interest accrues on them at a rate equal to 105%
of the applicable PBOC Benchmark Lending Rate. Guarantees have a commission equal to 1% per annum of the outstanding
amount. The Company is required to follow certain covenants. As of February 2, 2020, there were no 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-
cancellable operating leases. Our leases generally have initial terms of between five and 15 years, and generally can be
extended in five-year increments, if at all. The following table details the Company's future minimum lease payments.
Minimum lease commitments exclude variable lease expenses including contingent rent payments, common area maintenance,
property taxes, and landlord's insurance.
Purchase obligations. The amounts listed for purchase obligations in the table below represent agreements (including
open purchase orders) to purchase products and for other expenditures in the ordinary course of business that are enforceable
and legally binding and that specify all significant terms. In some cases, values are subject to change, such as for product
purchases throughout the production process. The reported amounts exclude liabilities included in our consolidated balance
sheets as of February 2, 2020.
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One-time transition tax. As outlined in Note 15 to our audited consolidated financial statements included in Item 8 of Part
II of this report, U.S. tax reform imposed a mandatory transition tax on accumulated foreign subsidiary earnings which have
not previously been subject to U.S. income tax. The one-time transition tax is payable over eight years beginning in fiscal 2018.
The table below outlines the expected payments due by fiscal year.
The following table summarizes our contractual arrangements as of February 2, 2020, and the timing and effect that such
commitments are expected to have on our liquidity and cash flows in future periods:
Total
2020
2021
2022
2023
2024
Thereafter
Payments Due by Fiscal Year
(In thousands)
Operating leases (minimum rent) . . .
Purchase obligations . . . . . . . . . . . . .
One-time transition tax payable. . . . .
$ 826,096
$ 152,440
$ 161,519
$ 138,188
$ 111,877
$ 87,275
$ 174,797
346,542
298,039
53,302
5,076
4,638
5,076
4,538
5,076
4,538
9,518
15,126
12,691
19,663
15,865
Off-Balance Sheet Arrangements
We enter into standby letters of credit to secure certain of our obligations, including leases, taxes, and duties. As of
February 2, 2020, letters of credit totaling $1.8 million had been issued.
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 comprised of company-operated store net revenue, direct to consumer net revenue
through websites and mobile apps, including mobile apps on in-store devices that allow demand to be fulfilled via our
distribution centers, and other net revenue, which includes revenue from outlets, 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. All net revenue is reported net of sales taxes collected from customers on behalf of taxing authorities.
We record an estimated allowance for sales returns. 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 and an asset for estimated returned inventory. Our standard terms for retail sales limit
returns to approximately 30 days after sale; however, we accept returns after 30 days where the product fails to meet our guests'
quality expectations.
Proceeds from the sale of gift cards are initially deferred and recognized within "Unredeemed gift card liability" on the
consolidated balance sheets, and are recognized as revenue when tendered for payment. To the extent there is no requirement to
remit unclaimed card balances to government agencies, an estimate of the gift card balances that will never be redeemed is
recognized as revenue in proportion to gift cards which have been redeemed. The estimate of gift cards that will never be
redeemed is based on the historic trend of unredeemed cards.
Inventory provisions. Inventory is valued at the lower of cost and net realizable value. We periodically review our
inventories and make a provision 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
31
based upon assumptions about product quality, damages, 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.
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 is individually assessed, and estimated to be
up to 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, 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.
Deferred taxes on undistributed net investment of foreign subsidiaries. We have not recognized U.S. state income taxes
and foreign withholding taxes on the net investment in our subsidiaries which we have determined to be indefinitely reinvested.
This determination is based on the cash flow projections and operational and fiscal objectives of each of our foreign
subsidiaries. Such estimates are inherently imprecise since many assumptions utilized in the projections are subject to revision
in the future.
For the portion of our net investment in our Canadian subsidiaries that are not indefinitely reinvested, we have recorded a
deferred tax liability for the taxes which would be due upon repatriation. For distributions made by our Canadian subsidiaries,
the amount of tax payable is partially dependent on how the repatriation transactions are made. The deferred tax liability has
been recorded on the basis that we would choose to make the repatriation transactions in the most tax efficient manner.
Specifically, to the extent that the Canadian subsidiaries have sufficient paid-up-capital, any such distributions would be
characterized for Canadian tax purposes as a return of capital, rather than as a dividend, and would not be subject to Canadian
withholding tax.
As of February 2, 2020, the paid-up-capital balance of the Canadian subsidiaries for tax purposes was $1.5 billion. The
net investment in our Canadian subsidiaries was $1.3 billion, of which $0.8 billion was determined to be indefinitely
reinvested. The Canadian subsidiaries have sufficient paid-up-capital such that we could choose to repatriate the portion of our
net investment that is not indefinitely reinvested without paying Canadian withholding tax.
Deferred tax liabilities of $1.5 million have been recognized in relation to the portion of our net investment in our
Canadian subsidiaries that is not indefinitely reinvested, principally representing the U.S. state income taxes which would be
due upon repatriation. The unrecognized deferred tax liability on the indefinitely reinvested amount is approximately $2.3
million.
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. Awards settled in cash or common stock at the election of the employee are
remeasured to fair value at the end of each reporting period until settlement. The employee compensation expense is recognized
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.
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 and estimated expected forfeitures. Actual
results may differ substantially from these estimates.
32
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
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.
As of February 2, 2020, we had certain forward currency contracts outstanding in order to hedge a portion of the foreign
currency exposure that arises on translation of a Canadian subsidiary into U.S. dollars. We also had certain forward currency
contracts outstanding in an effort to reduce our exposure to the foreign exchange revaluation gains and losses that are
recognized by our Canadian and Chinese subsidiaries on U.S. dollar denominated monetary assets and liabilities. Please refer to
Note 12 to our audited consolidated financial statements included in Item 8 of Part II of this report for further information,
including details of the notional amounts outstanding.
In the future, in an effort to reduce foreign exchange risks, we may enter into further derivative financial instruments
including hedging additional currency pairs. We do not, and do not intend to, engage in the practice of trading derivative
securities for profit.
We currently generate a significant portion of our net revenue and incur a significant portion of our expenses in Canada.
We also hold a significant portion of our net assets in Canada. The reporting currency for our consolidated financial statements
is the U.S. dollar. A strengthening of the U.S. dollar against the Canadian dollar results in:
•
the following impacts to the consolidated statements of operations:
– a decrease in our net revenue upon translation of the sales made by our Canadian operations into U.S. dollars
for the purposes of consolidation;
– a decrease in our selling, general and administrative expenses incurred by our Canadian operations upon
translation into U.S. dollars for the purposes of consolidation;
– foreign exchange revaluation gains by our Canadian subsidiaries on U.S. dollar denominated monetary assets
and liabilities; and
– derivative valuation losses on forward currency contracts not designated in a hedging relationship;
•
the following impacts to the consolidated balance sheets:
– a decrease in the foreign currency translation adjustment which arises on the translation of our Canadian
subsidiaries' balance sheets into U.S. dollars; and
– an increase in the foreign currency translation adjustment from derivative valuation losses on forward
currency contracts, entered into as net investment hedges of a Canadian subsidiary.
33
During fiscal 2019, the change in the relative value of the U.S. dollar against the Canadian dollar resulted in a $4.6
million increase in accumulated other comprehensive loss within stockholders' equity. During fiscal 2018, the change in the
relative value of the U.S. dollar against the Canadian dollar resulted in a $83.2 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 2019 would have resulted in lower income from operations of approximately $4.6 million in fiscal 2019. 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.
Interest Rate Risk. Our committed revolving credit facility provides us with available borrowings in an amount up to
$400.0 million in the aggregate. Because our revolving credit facilities bear interest at a variable rate, we will be exposed to
market risks relating to changes in interest rates, if we have a meaningful outstanding balance. As of February 2, 2020, aside
from letters of credit of $1.8 million, we had no other borrowings outstanding under these credit facilities. We currently do not
engage in any interest rate hedging activity and currently have no intention to do so. However, in the future, if we have a
meaningful outstanding balance under our revolving facility, in an effort to mitigate losses associated with these risks, we may
at times enter into derivative financial instruments, although we have not historically done so. These may take the form of
forward contracts, option contracts, or interest rate swaps. We do not, and do not intend to, engage in the practice of trading
derivative securities for profit.
Our cash and cash equivalent balances are held in the form of cash on hand, bank balances, short-term deposits and
treasury bills with original maturities of three months or less, and in money market funds. We do not believe these balances are
subject to material interest rate risk.
Credit Risk. We have cash on deposit with various large, reputable financial institutions and have invested in U.S. and
Canadian Treasury Bills, and in AAA-rated money market funds. The amount of cash and cash equivalents held with certain
financial institutions exceeds government-insured limits. We are also exposed to credit-related losses in the event of
nonperformance by the financial institutions that are counterparties to our forward currency contracts. The credit risk amount is
our unrealized gains on our derivative instruments, based on foreign currency rates at the time of nonperformance. We have not
experienced any losses related to these items, and we believe credit risk to be minimal. We seek to minimize our credit risk by
entering into transactions with credit worthy and reputable financial institutions and by monitoring the credit standing of the
financial institutions with whom we transact. We seek to limit the amount of exposure with any one counterparty.
Inflation
Inflationary factors such as increases in the cost of our product 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.
34
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
36
38
39
40
41
42
35
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of lululemon athletica inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of lululemon athletica inc. and its subsidiaries (together, the
Company) as of February 2, 2020 and February 3, 2019, and the related consolidated statements of operations and
comprehensive income, stockholders' equity and cash flows for each of the 52 week period ended February 2, 2020, the 53
week period ended February 3, 2019, and the 52 week period ended January 28, 2018, including the related notes, and the
financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the consolidated
financial statements). We also have audited the Company's internal control over financial reporting as of February 2, 2020,
based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of February 2, 2020 and February 3, 2019, and the results of its operations and its cash flows for
the 52 week period ended February 2, 2020, the 53 week period ended February 3, 2019, and the 52 week period ended January
28, 2018 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of February 2, 2020, based
on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for
leases as of February 4, 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included
in Management's Annual Report on Internal Control over Financial Reporting appearing under Item 9A of the Company's 2020
Annual Report on Form 10-K. Our responsibility is to express opinions on the Company's consolidated financial statements and
on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with
the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to
the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. 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.
Definition and Limitations of Internal Control over Financial Reporting
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
36
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.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or
disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Inventory provision
As described in Note 2 and Note 3 to the consolidated financial statements, inventory is valued at the lower of cost and net
realizable value, and management records a provision as necessary to appropriately value inventories that are obsolete, have
quality issues, or are damaged. Provision expense is recorded in cost of goods sold. As of February 2, 2020, the Company's
consolidated net inventories balance was $518.5 million and the inventory provision was $22.1 million. The amount of the
inventory provision is equal to the difference between the cost of the inventory and its estimated net realizable value based on
assumptions about product quality, damages, future demand, selling prices, and market conditions.
The principal considerations for our determination that performing procedures relating to the inventory provision is a critical
audit matter are (i) management identified the matter as a critical accounting estimate; and (ii) significant judgment was
required by management in determining the estimated net realizable value of inventories that are obsolete, have quality issues,
or are damaged, which in turn led to increased audit effort and a higher degree of subjectivity in evaluating audit evidence
relating to the estimate.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the
review of the provision including the assumptions used. These procedures also included, among others: (i) observing the
physical condition of inventories during inventory counts; (ii) evaluating the appropriateness of management's process for
developing the estimates of net realizable value (iii) testing the reliability of reports used by management by agreeing to
underlying records; (iv) testing the reasonableness of the assumptions about quality, damages, future demand, selling prices and
market conditions by considering with historical trends and consistency with evidence obtained in other areas of the audit; and
corroborating the assumptions with individuals within the product team.
/s/ PricewaterhouseCoopers LLP
Chartered Professional Accountants
Vancouver, Canada
March 26, 2020
We have served as the Company's auditor since 2006.
37
lululemon athletica inc.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share amounts)
February 2,
2020
February 3,
2019
ASSETS
Current assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,093,505
$
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid and receivable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Right-of-use lease assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40,219
518,513
85,159
70,542
1,807,938
671,693
689,664
24,423
31,435
56,201
881,320
35,786
404,842
49,385
57,949
1,429,282
567,237
—
24,239
26,549
37,404
$
3,281,354
$
2,084,711
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
79,997
$
Accrued inventory liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued compensation and related expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unredeemed gift card liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,344
133,688
128,497
26,436
120,413
125,043
620,418
611,464
48,226
43,432
5,596
95,533
16,241
109,181
—
67,412
99,412
112,698
500,477
—
42,099
14,249
81,911
1,329,136
638,736
Commitments and contingencies
Stockholders' equity
Undesignated preferred stock, $0.01 par value: 5,000 shares authorized; none issued and outstanding .
Exchangeable stock, no par value: 60,000 shares authorized; 6,227 and 9,332 issued and outstanding .
Special voting stock, $0.000005 par value: 60,000 shares authorized; 6,227 and 9,332 issued and
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock, $0.005 par value: 400,000 shares authorized; 124,122 and 121,600 issued and
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
621
355,541
1,820,637
608
315,285
1,346,890
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(224,581)
(216,808)
1,952,218
1,445,975
$
3,281,354
$
2,084,711
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 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset impairment and restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year Ended
February 2,
2020
February 3,
2019
January 28,
2018
$ 3,979,296
$ 3,288,319
$ 2,649,181
1,755,910
2,223,386
1,334,276
—
889,110
8,283
897,393
251,797
1,472,032
1,816,287
1,110,451
—
705,836
9,414
715,250
231,449
1,250,391
1,398,790
904,264
38,525
456,001
3,997
459,998
201,336
$
645,596
$
483,801
$
258,662
Other comprehensive income (loss), net of tax:
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 . . . . . . . . . . . . . . . . . .
$
$
$
$
$
$
(7,773)
637,823
4.95
4.93
130,393
130,955
$
$
$
(73,885)
409,916
3.63
3.61
133,413
133,971
58,577
317,239
1.90
1.90
135,988
136,198
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
Loss
Total
9,781
9,781
$
— 127,304
$
637
$
266,622
$ 1,294,214
$
(201,500) $
1,359,973
258,662
58,577
17,610
267
1
5,627
(60)
—
(3,229)
(1,861)
(10)
(2,377)
(97,874)
258,662
58,577
17,610
5,628
(3,229)
(100,261)
9,781
9,781
$
— 125,650
$
628
$
284,253
$ 1,455,002
$
(142,923) $
1,596,960
483,801
483,801
(73,885)
(73,885)
(449)
(449)
—
449
535
2
3
(2)
28,568
17,647
(94)
—
(8,779)
(4,940)
(25)
(6,402)
(591,913)
—
28,568
17,650
(8,779)
(598,340)
9,332
9,332
$
— 121,600
$
608
$
315,285
$ 1,346,890
$
(216,808) $
1,445,975
645,596
645,596
(7,773)
(7,773)
(3,105)
(3,105)
—
3,105
16
(16)
45,593
603
3
18,167
(130)
(1,056)
(1)
(5)
(21,943)
(1,545)
(171,849)
—
45,593
18,170
(21,944)
(173,399)
6,227
6,227
$
— 124,122
$
621
$
355,541
$ 1,820,637
$
(224,581) $
1,952,218
See accompanying notes to the consolidated financial statements
40
Balance at January 29,
2017 . . . . . . . . . . . . . . .
Net income . . . . . . . . . .
Foreign currency
translation adjustment .
Stock-based
compensation expense .
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 28,
2018 . . . . . . . . . . . . . . .
Net income . . . . . . . . . .
Foreign currency
translation adjustment .
Common stock issued
upon exchange of
exchangeable shares. . .
Stock-based
compensation expense .
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 3,
2019 . . . . . . . . . . . . . . .
Net income . . . . . . . . . .
Foreign currency
translation adjustment .
Common stock issued
upon exchange of
exchangeable shares. . .
Stock-based
compensation expense .
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 2,
2020 . . . . . . . . . . . . . . .
lululemon athletica inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Cash flows from operating activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derecognition of unredeemed gift card liability . . . . . . . . . . . . . . . . . . . .
Asset impairment for ivivva restructuring . . . . . . . . . . . . . . . . . . . . . . . . .
Settlement of derivatives not designated in a hedging relationship. . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid and receivable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
Other prepaid expenses and other current and non-current assets . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued inventory liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued compensation and related expenses . . . . . . . . . . . . . . . . . . . .
Current income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unredeemed gift card liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Right-of-use lease assets and current and non-current lease liabilities.
Other current and non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from investing activities
Purchase of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlement of net investment hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from financing activities
Proceeds from settlement of stock-based compensation . . . . . . . . . . . . . . . .
Taxes paid related to net share settlement of stock-based compensation. . . .
Repurchase of common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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
February 2,
2020
February 3,
2019
January 28,
2018
$
645,596
$
483,801
$
258,662
161,933
122,484
108,235
45,593
(11,939)
—
(1,925)
24,129
(117,591)
(35,775)
(81,606)
(14,810)
(9,598)
25,326
(40,264)
33,289
6,127
17,422
23,409
28,568
(6,859)
—
(14,876)
16,786
(85,942)
(437)
(30,653)
71,962
4,312
41,600
52,597
24,885
(6,169)
—
40,720
669,316
742,779
(283,048)
347
4,293
(278,408)
18,170
(21,944)
(173,399)
—
(177,173)
(1,550)
212,185
$
881,320
$ 1,093,505
$
$
(225,807)
(16,216)
(771)
(242,794)
17,650
(8,779)
(598,340)
(745)
(590,214)
(18,952)
(109,181)
990,501
881,320
$
$
17,610
(6,202)
11,593
6,227
(11,416)
(21,178)
32,242
(7,755)
(1,551)
3,680
12,873
(16,470)
17,282
48,268
—
37,237
489,337
(157,864)
(7,203)
(8,325)
(173,392)
5,628
(3,229)
(100,261)
—
(97,862)
37,572
255,655
734,846
990,501
See accompanying notes to the consolidated financial statements
41
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
Note 18
Note 19
Note 20
Note 21
Nature of Operations and Basis of Presentation
Summary of Significant Accounting Policies
Inventories
Property and Equipment
Other Non-Current Assets
Other Current Liabilities
Other Non-Current Liabilities
Long-Term Debt and Credit Facilities
Stockholders' Equity
Stock-Based Compensation and Benefit Plans
Fair Value Measurement
Derivative Financial Instruments
Leases
Asset Impairment and Restructuring
Income Taxes
Earnings Per Share
Commitments and Contingencies
Supplemental Cash Flow Information
Segmented Information and Disaggregated Net Revenue
Quarterly Financial Information (Unaudited)
Subsequent Events
43
43
50
50
50
51
51
51
52
52
55
56
57
59
60
63
63
64
65
67
68
42
lululemon athletica inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Nature of operations
lululemon athletica inc., a Delaware corporation, ("lululemon" and, together with its subsidiaries unless the context
otherwise requires, the "Company") is engaged in the design, distribution, and retail of healthy lifestyle inspired athletic
apparel, which is sold through a chain of company-operated stores, direct to consumer through e-commerce, outlets, sales from
temporary locations, sales to wholesale accounts, license and supply arrangements, and warehouse sales. The Company
operates stores in the United States, Canada, the People's Republic of China ("PRC"), Australia, the United Kingdom, Japan,
New Zealand, Germany, South Korea, Singapore, France, Malaysia, Sweden, Ireland, the Netherlands, Norway, and
Switzerland. There were 491, 440, and 404 company-operated stores in operation as of February 2, 2020, February 3, 2019, and
January 28, 2018, respectively.
During fiscal 2017, the Company restructured its ivivva operations. Please refer to Note 14 for further details regarding
the ivivva restructuring.
Please refer to Note 21 for further details on the impact of the COVID-19 coronavirus on the Company's operations
subsequent to February 2, 2020.
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 2019 and fiscal 2017 were
each 52 week years. Fiscal 2018 was a 53 week year. Fiscal 2019, 2018, and 2017 ended on February 2, 2020, February 3,
2019, and January 28, 2018, respectively.
The Company's business is affected by the pattern of seasonality common to most retail apparel businesses. Historically,
the Company has recognized a significant portion of its operating profit in the fourth fiscal quarter of each year as a result of
increased net revenue during the holiday season.
Certain comparative figures have been reclassified to conform to the financial presentation adopted for the current year.
NOTE 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 the
Company's credit risk to be minimal.
Accounts receivable
Accounts receivable primarily arise out of inventory duty receivables, sales to wholesale accounts, 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 February 2, 2020, February 3, 2019, and January 28, 2018, the Company recorded an insignificant allowance
for doubtful accounts.
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Inventories
Inventories, consisting of finished goods, inventories in transit, and raw materials, are stated at the lower of cost and net
realizable value. Cost is determined using weighted-average costs, and 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 periodically reviews its inventories and makes a provision 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 product quality, damages, future demand, selling prices,
and market conditions. If changes in market conditions result in reductions in the estimated net realizable value of its inventory
below its previous estimate, the Company would increase its reserve in the period in which it made such a determination.
In addition, the Company provides for inventory shrinkage based on historical trends from actual physical inventory
counts. 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 individually assessed, and estimated to be up to 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 10 years for stores and 15 years for corporate offices and distribution centers. 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
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 is tested annually for impairment or more frequently when an event or circumstance
indicates that goodwill 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
At lease commencement, which is generally when the Company takes possession of the asset, the Company records a
lease liability and corresponding right-of-use asset. Lease liabilities represent the present value of minimum lease payments
over the expected lease term, which includes options to extend or terminate the lease when it is reasonably certain those options
will be exercised. The present value of the lease liability is determined using the Company's incremental collateralized
borrowing rate at the lease commencement.
Minimum lease payments include base rent, fixed escalation of rental payments, and rental payments that are adjusted
periodically depending on a rate or index. In determining minimum lease payments, the Company does not separate non-lease
components for real estate leases. Non-lease components are generally services that the lessor performs for the Company
associated with the leased asset, such as common area maintenance.
44
Right-of-use assets represent the right to control the use of the leased asset during the lease and are initially recognized in
an amount equal to the lease liability. In addition, prepaid rent, initial direct costs, and adjustments for lease incentives are
components of the right-of-use asset. Over the lease term the lease expense is amortized on a straight-line basis beginning on
the lease commencement date. Right-of-use assets are assessed for impairment as part of the impairment of long-lived assets,
which is performed whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group
may not be recoverable.
Variable lease payments, including contingent rental payments based on sales volume, are recognized when the
achievement of the specific target is probable. A right-of-use asset and lease liability are not recognized for leases with an
initial term of 12 months or less, and the lease expense is recognized on a straight-line basis over the lease term.
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
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.
Revenue recognition
Net revenue is comprised of company-operated store net revenue, direct to consumer net revenue through websites and
mobile apps, including mobile apps on in-store devices that allow demand to be fulfilled via the Company's distribution
centers, and other net revenue, which includes revenue from outlets, 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 from customers on behalf of taxing authorities.
Revenue is recognized when performance obligations are satisfied through the transfer of control of promised goods to
the Company's customers. Control transfers once a customer has the ability to direct the use of, and obtain substantially all of
the benefits from, the product. This includes the transfer of legal title, physical possession, the risks and rewards of ownership,
and customer acceptance. Revenue from company-operated stores and other retail locations is recognized at the point of sale.
Direct to consumer revenue and sales to wholesale accounts are recognized upon receipt by the customer. In certain
arrangements the Company receives payment before the customer receives the promised good. These payments are initially
recorded as deferred revenue, and recognized as revenue in the period when control is transferred to the customer.
Revenue is presented net of an allowance for estimated returns, which is based on historic experience. The Company's
liability for sales return refunds is recognized within other current liabilities, and an asset for the value of inventory which is
expected to be returned is recognized within other prepaid expenses and other current assets on the consolidated balance sheets.
Shipping fees billed to customers are recorded as revenue, and shipping costs are recognized within selling, general and
administrative expenses in the same period the related revenue is recognized.
Proceeds from the sale of gift cards are initially deferred and recognized within unredeemed gift card liability on the
consolidated balance sheets, and are recognized as revenue when tendered for payment. Based on historical experience, and to
the extent there is no requirement to remit unclaimed card balances to government agencies, an estimate of the gift card
balances that will never be redeemed is recognized as revenue in proportion to gift cards which have been redeemed.
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, the portion of card balances not expected to be redeemed are recognized in net
45
revenue in proportion to the gift cards which have been redeemed, under the redemption recognition method. For the years
ended February 2, 2020, February 3, 2019, and January 28, 2018, net revenue recognized on unredeemed gift card balances was
$11.9 million, $6.9 million, and $6.2 million, respectively.
See Note 19 for disaggregated net revenue by channel, geographic area, and product category.
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, research and development, 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.
Selling, general and administrative expenses
Selling, general and administrative expenses consist of all operating costs not otherwise included in cost of goods sold or
asset impairment and restructuring costs. The Company's selling, general and administrative expenses include the costs of
corporate and retail employee 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 February 2, 2020, February 3, 2019, and January 28, 2018, the Company incurred outbound
transportation costs of $106.7 million, $79.5 million, and $53.8 million, respectively.
Asset impairment and restructuring costs
Asset impairment and restructuring costs consist of the lease termination, impairment of property and equipment,
employee related costs, and other restructuring costs recognized in connection with the restructuring of the Company's ivivva
operations.
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 carryforwards, and other tax attributes. Deferred income tax assets and liabilities are
measured using enacted tax rates, for the appropriate tax jurisdiction, that are expected to be in effect when these differences
are anticipated to reverse.
The Company has not recognized U.S. state income taxes and foreign withholding taxes on undistributed earnings of
foreign subsidiaries which the Company has determined to be indefinitely reinvested.
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
46
assumptions and forecasts, including current and anticipated taxable income, the utilization of previously unrealized non-
operating loss carryforwards, and regulatory reviews of tax filings.
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 the
Company's consolidated balance sheets.
The U.S. Tax Cuts and Jobs Act ("U.S. tax reform") was enacted on December 22, 2017 and introduced significant
changes to U.S. income tax law. The United States Securities Exchange Commission ("SEC") issued Staff Accounting Bulletin
118 ("SAB 118") which allowed companies to record provisional estimates of the impacts of U.S. tax reform within a one year
measurement period. The Company recorded certain provisional amounts in fiscal 2017 and completed the accounting for the
income tax effects of U.S. tax reform during fiscal 2018. U.S. tax reform changes and their impact to the Company are outlined
in Note 15. The Company treats the global intangible low-taxed income ("GILTI") tax as an in period tax.
Fair value of financial instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. Fair value measurements are made using a three-tier fair
value hierarchy, which prioritizes the inputs used in measuring fair value:
• Level 1 - defined as observable inputs such as quoted prices in active markets;
• Level 2 - defined as inputs other than quoted prices in active markets that are either directly or indirectly observable;
and
• Level 3 - defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to
develop its own assumptions.
The fair value measurement is categorized in its entirety by reference to its lowest level of significant input.
The Company records accounts receivable, accounts payable, and accrued liabilities at cost. The carrying values of these
instruments approximate their fair value due to their short-term maturities. 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 Company holds certain assets and liabilities that are required to be measured at fair value on a recurring basis, which
are outlined in Note 11.
Foreign currency
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.
Derivative financial instruments
The Company uses derivative financial instruments to manage its exposure to certain foreign currency exchange rate
risks.
47
Net investment hedges. The Company enters into certain forward currency contracts that are designated as net investment
hedges. The effective portions of the hedges are reported in accumulated other comprehensive income or loss, net of tax, and
will subsequently be reclassified to net earnings in the period in which the hedged investment is either sold or substantially
liquidated. Hedge effectiveness is measured using a method based on changes in forward exchange rates. The Company
classifies the cash flows at settlement of its net investment hedges within investing activities in the consolidated statements of
cash flows.
Derivatives not designated as hedging instruments. The Company also enters into certain forward currency contracts that
are not designated as net investment hedges. They are designed to economically hedge the foreign exchange revaluation gains
and losses of certain monetary assets and liabilities. The Company has not applied hedge accounting to these instruments and
the change in fair value of these derivatives is recorded within selling, general and administrative expenses. The Company
classifies the cash flows at settlement of its forward currency contracts which are not designated in hedging relationships within
operating activities in the consolidated statements of cash flows.
The Company presents its derivative assets and derivative liabilities at their gross fair values within other prepaid
expenses and other current assets and other current liabilities on the consolidated balance sheets. However, the Company's
Master International Swap Dealers Association, Inc., Agreements and other similar arrangements allow net settlements under
certain conditions.
The Company does not enter into derivative contracts for speculative or trading purposes. Additional information on the
Company's derivative financial instruments is included in Notes 11 and 12.
Concentration of credit risk
Accounts receivable are primarily from inventory duty receivables, wholesale accounts, 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.
Cash and cash equivalents are held with high quality financial institutions. The amount of cash and cash equivalents held
with certain financial institutions exceeds government-insured limits. The Company is also exposed to credit-related losses in
the event of nonperformance by the counterparties to the forward currency contracts. The credit risk amount is the Company's
unrealized gains on its derivative instruments, based on foreign currency rates at the time of nonperformance. The Company
has not experienced any losses related to these items, and it believes credit risk to be minimal. The Company seeks to minimize
its credit risk by entering into transactions with credit worthy and reputable financial institutions and by monitoring the credit
standing of the financial institutions with whom it transacts. It seeks to limit the amount exposure with any one counterparty.
The Company's derivative contracts contain certain credit risk-related contingent features. Under certain circumstances,
including an event of default, bankruptcy, termination, and cross default under the Company's North American revolving credit
facility, the Company may be required to make immediate payment for outstanding liabilities under its derivative contracts.
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. Awards settled in cash or common stock at the election of the employee are remeasured to fair
value at the end of each reporting period until settlement. The employee compensation expense is recognized on a straight-line
basis over the requisite service period with the offsetting credit to additional paid-in capital for awards that are settled in
common shares, and with the offsetting credit to accrued compensation and related expenses for awards that are settled in cash
or common stock at the election of the employee.
For awards with service and/or performance conditions, the amount of compensation expense recognized is based on the
number of awards expected to vest, reflecting estimated expected forfeitures, 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 grant date fair value of each stock option granted
is estimated on the award date using the Black-Scholes model, and the grant date fair value of 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. Restricted stock units that are settled in cash or common stock at the election of the employee are remeasured to
fair value at the end of each reporting period until settlement. This fair value is based on the closing price of the Company's
common stock on the last business day before each period end.
48
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.
Recently adopted accounting pronouncements
In February 2016, the Financial Accounting Standards Board ("FASB") issued ASC 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. The Company adopted ASC 842 on February 4, 2019 using the modified retrospective approach
with no restatement of comparative periods.
The Company has chosen to apply the transition package of three practical expedients which allow companies not to
reassess whether agreements contain leases, the classification of leases, and the capitalization of initial direct costs. The
Company did not elect the practical expedient to use hindsight when determining the lease term.
The primary financial statement impact upon adoption was the recognition, on a discounted basis, of the Company's
minimum payments under noncancelable operating leases as right-of-use assets and obligations on the consolidated balance
sheets. As of February 4, 2019, right-of-use assets and lease liabilities were $619.6 million and $651.1 million, respectively.
Pre-existing lease balances of $34.8 million from current assets, $9.3 million from non-current assets, and $75.5 million from
non-current liabilities were reclassified to right-of-use assets and lease liabilities as part of the adoption of the new standard.
There was no cumulative earnings effect adjustment on transition.
In August 2017, the FASB amended ASC 815, Derivatives and Hedging, to more closely align hedge accounting with
companies' risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope
and results of hedging programs. It makes more financial and non-financial hedging strategies eligible for hedge accounting. It
also amends the presentation and disclosure requirements and changes how companies assess effectiveness. The Company
adopted this guidance in the first quarter of fiscal 2019, and it did not have a material impact on the Company's consolidated
financial statements.
In August 2018, the FASB clarified ASC 350-40, Intangibles - Goodwill and Other - Internal-Use Software, for certain
aspects of accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. Under the
update, an entity expenses costs incurred in the preliminary-project and post-implementation-operation stages. An entity also
capitalizes certain costs incurred during the application-development stage, as well as certain costs related to enhancements.
The ASU does not change the accounting for the service component of a cloud computing arrangement. This standard is
effective beginning in the first quarter of 2020, with early adoption permitted. The Company adopted this guidance in the first
quarter of fiscal 2019, and it did not have a material impact on the Company's consolidated financial statements.
In May 2014, the FASB issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with
Customers ("ASC 606") which supersedes the revenue recognition requirements in ASC 605 Revenue Recognition. This ASU
requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that
49
reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company
adopted ASC 606 on January 29, 2018 on a modified retrospective basis. There were no changes to the consolidated statement
of operations as a result of the adoption, and the timing and amount of its revenue recognition remained substantially
unchanged under this new guidance.
NOTE 3. INVENTORIES
February 2,
2020
February 3,
2019
(In thousands)
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
540,580
$
420,931
Provision to reduce inventories to net realizable value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(22,067)
518,513
$
(16,089)
404,842
The Company had net write-offs of $28.6 million, $25.3 million, and $16.4 million of inventory in fiscal 2019, fiscal
2018, and fiscal 2017, respectively for goods that were obsolete, had quality issues, or were damaged.
NOTE 4. PROPERTY AND EQUIPMENT
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer hardware. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment and vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, gross . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
February 2,
2020
February 3,
2019
(In thousands)
$
71,829
$
30,187
489,202
109,533
95,399
336,768
19,521
40,930
78,636
38,030
362,571
103,733
69,542
230,689
15,009
74,271
1,193,369
(521,676)
671,693
$
$
972,481
(405,244)
567,237
Included in the cost of computer software are capitalized costs of $20.7 million and $13.2 million as of February 2, 2020
and February 3, 2019, respectively, associated with internally developed software.
Depreciation expense related to property and equipment was $161.8 million, $122.4 million, and $108.0 million for the
years ended February 2, 2020, February 3, 2019, and January 28, 2018, respectively.
See Note 14 for information on the impairment of long-lived assets the Company recognized as part of the restructuring
of its ivivva operations.
NOTE 5. OTHER NON-CURRENT ASSETS
Cloud computing arrangement implementation costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred lease assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
February 2,
2020
February 3,
2019
(In thousands)
$
24,648
$
19,901
—
11,652
$
56,201
$
2,395
15,793
9,286
9,930
37,404
50
NOTE 6. OTHER CURRENT LIABILITIES
Accrued duty, freight, and other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales tax collected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales return allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forward currency contract liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease termination liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NOTE 7. OTHER NON-CURRENT LIABILITIES
February 2,
2020
February 3,
2019
(In thousands)
$
59,403
$
17,370
12,705
12,897
8,356
5,457
1,920
182
6,753
49,945
16,091
8,045
11,318
7,331
11,295
1,042
2,293
5,338
$
125,043
$
112,698
Tenant inducements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
February 2,
2020
February 3,
2019
(In thousands)
— $
—
5,596
5,596
$
42,138
33,406
6,367
81,911
NOTE 8. LONG-TERM DEBT AND CREDIT FACILITIES
North America revolving credit facility
On December 15, 2016, the Company entered into a $150.0 million committed and 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 February 2, 2020,
the Company was in compliance with all applicable covenants.
51
On June 6, 2018, the Company entered into Amendment No. 1 to the credit agreement. The Amendment amends the
credit agreement to provide for (i) an increase in the aggregate commitments under the unsecured five-year revolving credit
facility to $400.0 million, with an increase of the sub-limits for the issuance of letters of credit and extensions of swing line
loans to $50.0 million for each, (ii) an increase in the option, subject to certain conditions as set forth in the credit agreement, to
request increases in commitments under the revolving facility from $400.0 million to $600.0 million and (iii) an extension in
the maturity of the revolving facility from December 15, 2021 to June 6, 2023.
In addition, the Amendment decreases the applicable margins for LIBOR loans from 1.00%-1.75% to 1.00%-1.50% and
for alternate base rate loans from 0.00%-0.75% to 0.00%-0.50%, reduces the commitment fee on average daily unused amounts
under the revolving facility from 0.125%-0.200% to 0.10%-0.20%, and reduces fees for unused letters of credit from
1.00%-1.75% to 1.00%-1.50%.
As of February 2, 2020, aside from letters of credit of $1.8 million, there were no other borrowings outstanding under this
credit facility.
Mainland China revolving credit facility
In December 2019, the Company entered into an uncommitted and unsecured 130.0 million Chinese Yuan revolving
credit facility. The terms are reviewed on an annual basis. The facility includes a revolving loan of up to 100.0 million Chinese
Yuan as well as a financial bank guarantee facility of up to 30.0 million Chinese Yuan, or its equivalent in another currency.
Loans are available in Chinese Yuan for a period not to exceed 12 months, and interest accrues on them at a rate equal to 105%
of the applicable PBOC Benchmark Lending Rate. Guarantees have a commission equal to 1% per annum of the outstanding
amount. The Company is required to follow certain covenants. As of February 2, 2020, there were no borrowings outstanding
under this credit facility.
NOTE 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 earliest 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.
NOTE 10. STOCK-BASED COMPENSATION AND BENEFIT PLANS
Stock-based compensation plans
The Company's eligible employees participate in various stock-based compensation plans, which are provided by the
Company directly.
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 and vest at a rate of 25% each year on the
anniversary date of the grant. Stock options generally expire on the earlier of seven years from the date of grant, or a specified
period of time following termination, in accordance with the 2014 Plan and the related grant agreement. Performance-based
restricted stock units issued generally vest three years from the grant date and restricted shares generally vest one year from the
52
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 that are settled in common stock, and granting of restricted shares.
Stock-based compensation expense charged to income for the plans was $46.1 million, $29.6 million, and $17.6 million
for the years ended February 2, 2020, February 3, 2019, and January 28, 2018, respectively.
Total unrecognized compensation cost for all stock-based compensation plans was $63.4 million as of February 2, 2020,
which is expected to be recognized over a weighted-average period of 2.0 years, and was $55.6 million as of February 3, 2019
over a weighted-average period of 2.1 years.
A summary of the balances of the Company's stock-based compensation plans as of February 2, 2020, February 3, 2019,
and January 28, 2018, and changes during the fiscal years then ended is presented below:
Stock Options
Performance-Based
Restricted Stock
Units
Restricted Shares
Restricted Stock
Units
Restricted Stock
Units
(Liability Accounting)
Weighted
-Average
Exercise
Price
Number
Number
Weighted
-Average
Grant
Date Fair
Value
Weighted
-Average
Grant
Date Fair
Value
Number
Weighted
-Average
Grant
Date Fair
Value
Weighted
-Average
Fair
Value
Number
Number
(In thousands, except per share amounts)
Balance at January
29, 2017 . . . . . . . .
Granted . . . . . . . . .
Exercised/vested. .
Forfeited/expired .
Balance at January
28, 2018 . . . . . . . .
Granted . . . . . . . . .
Exercised/vested. .
Forfeited/expired .
Balance at
February 3, 2019 .
Granted . . . . . . . . .
Exercised/vested. .
Forfeited/expired .
Balance at
February 2, 2020 .
918
619
109
311
$ 59.20
52.34
51.62
58.09
1,117
$ 56.44
96.96
56.29
59.76
388
316
319
870
325
299
120
390
192
—
253
329
123
39
133
$ 61.05
52.38
—
55.30
$ 60.42
102.49
63.04
61.71
$ 73.34
280
$ 78.01
168.14
60.75
102.37
93
97
38
142.33
72.04
91.03
14
24
14
3
21
6
21
—
6
7
6
—
$ 70.54
52.38
70.29
51.72
$ 52.45
124.19
52.45
—
$124.19
175.82
124.19
—
360
336
135
134
427
257
174
70
440
124
186
45
$ 62.99
— $ —
52.83
60.64
57.28
—
—
—
—
—
—
$ 57.54
— $ —
88.75
58.94
66.90
$ 73.73
170.15
70.69
95.46
44
—
—
44
—
15
—
136.67
—
—
$146.12
—
179.67
—
776
$113.41
238
$103.52
7
$175.82
333
$108.44
29
$239.39
A total of 13.3 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 grant date fair value of the restricted shares and restricted stock units is based on the closing price of the Company's
common stock on the award date. Restricted stock units that are settled in cash or common stock at the election of the employee
are remeasured to fair value at the end of each reporting period until settlement. This fair value is based on the closing price of
the Company's common stock on the last business day before each period end.
53
The grant date fair value of each stock option granted is estimated on the date of grant using the Black-Scholes model.
The assumptions used to calculate the fair value of the options granted are evaluated and revised, as necessary, to reflect market
conditions and the Company's historical experience. The expected term of the options is based upon the historical experience of
similar awards, giving consideration to expectations of future employee behavior. Expected volatility is based upon the
historical volatility of the Company's common stock for the period corresponding with the expected term of the options. The
risk-free interest rate is based on the U.S. Treasury yield curve for the period corresponding with the expected term of the
options. The following are weighted averages of the assumptions that were used in calculating the fair value of stock options
granted in fiscal 2019, 2018, and 2017:
Expected term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year Ended
February 2,
2020
February 3,
2019
January 28,
2018
3.75 years
3.75 years
4.00 years
38.43%
2.19%
—%
36.87%
2.46%
—%
38.28%
1.72%
—%
The following table summarizes information about stock options outstanding and exercisable as of February 2, 2020:
Range of Exercise Prices
$38.25 - $59.75 . . . . . . . . . . . . . . . . . . . . . . . .
$60.30 - $81.22 . . . . . . . . . . . . . . . . . . . . . . . .
$85.96 - $124.19 . . . . . . . . . . . . . . . . . . . . . . .
$136.67 - $155.97 . . . . . . . . . . . . . . . . . . . . . .
$167.54 - $239.39 . . . . . . . . . . . . . . . . . . . . . .
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)
155
$
82
180
73
286
776
51.91
70.95
88.86
137.35
168.22
$
113.41
4.0
3.8
5.2
5.5
6.2
5.2
$
40
28
18
18
—
51.88
70.53
92.25
137.35
—
104
$
78.94
3.5
3.6
5.2
5.5
0.0
4.2
Intrinsic value . . . . . . . . . . . . . . . . . . . . . . . . .
$
97,775
$
16,704
As of February 2, 2020, the unrecognized compensation cost related to these options was $17.1 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 February 2, 2020, February 3, 2019, and January 28, 2018 was $54.09, $30.30, and $16.88,
respectively.
The following table summarizes the intrinsic value of options exercised and awards that vested during fiscal 2019, 2018,
and 2017:
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance-based restricted stock units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock units. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock units (liability accounting) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
February 2,
2020
Fiscal Year Ended
February 3,
2019
(In thousands)
January 28,
2018
$
36,188
$
17,268
$
1,856
16,003
1,048
31,300
2,603
3,413
2,600
17,142
—
—
743
7,447
—
$
87,142
$
40,423
$
10,046
Employee share purchase plan
The Company's board of directors and stockholders approved the Company's Employee Share Purchase Plan ("ESPP") in
September 2007. Contributions are made by eligible employees, subject to certain limits defined in the ESPP, and the Company
matches one-third of the contribution. The maximum number of shares authorized to be purchased under the ESPP is 6.0
54
million shares. All shares purchased under the ESPP are purchased in the open market. During the year ended February 2, 2020,
there were 0.1 million shares purchased.
Defined contribution pension plans
The Company offers defined contribution pension plans to its eligible employees. Participating employees may elect to
defer and contribute a portion of their eligible compensation to a plan up to limits stated in the plan documents, not to exceed
the dollar amounts set by applicable laws. The Company matches 50% to 75% of the contribution depending on the
participant's length of service, and the contribution is subject to a two year vesting period. The Company's net expense for the
defined contribution plans was $8.5 million, $6.4 million, and $5.2 million for the years ended February 2, 2020, February 3,
2019, and January 28, 2018, respectively.
NOTE 11. FAIR VALUE MEASUREMENT
Assets and liabilities measured at fair value on a recurring basis
As of February 2, 2020 and February 3, 2019, the Company held certain assets and liabilities that are required to be
measured at fair value on a recurring basis:
Money market funds . . . . . . .
Term deposits. . . . . . . . . . . . .
Forward currency contract
assets . . . . . . . . . . . . . . . . . . .
Forward currency contract
liabilities. . . . . . . . . . . . . . . . .
February 2,
2020
Level 1
Level 2
Level 3
Balance Sheet Classification
(In thousands)
$
610,800
$
610,800
$
— $
— Cash and cash equivalents
203,360
1,735
1,920
February 3,
2019
—
—
—
203,360
— Cash and cash equivalents
1,735
1,920
Other prepaid expenses and
other current assets
—
— Other current liabilities
Level 1
Level 2
Level 3
Balance Sheet Classification
Money market funds . . . . . . .
Treasury bills . . . . . . . . . . . . .
Term deposits. . . . . . . . . . . . .
Forward currency contract
assets . . . . . . . . . . . . . . . . . . .
Forward currency contract
liabilities. . . . . . . . . . . . . . . . .
$
471,888
$
471,888
$
(In thousands)
99,958
63,522
516
1,042
99,958
—
—
—
— $
—
— Cash and cash equivalents
— Cash and cash equivalents
63,522
— Cash and cash equivalents
516
1,042
Other prepaid expenses and
other current assets
—
— Other current liabilities
The Company records accounts receivable, accounts payable, and accrued liabilities at cost. The carrying values of these
instruments approximate their fair value due to their short-term maturities.
The Company has short-term, highly liquid investments classified as cash equivalents, which are invested in money
market funds, Treasury bills, and term deposits. The Company records cash equivalents at their original purchase prices plus
interest that has accrued at the stated rate.
The fair values of the forward currency contract assets and liabilities are determined using observable Level 2 inputs,
including foreign currency spot exchange rates, forward pricing curves, and interest rates. The fair values consider the credit
risk of the Company and its counterparties. The Company's Master International Swap Dealers Association, Inc., Agreements
and other similar arrangements allow net settlements under certain conditions. However, the Company records all derivatives
on its consolidated balance sheets at fair value and does not offset derivative assets and liabilities.
Assets and liabilities measured at fair value on a non-recurring basis
In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company has impaired certain
long-lived assets and recorded them at their estimated fair value on a non-recurring basis. The fair value of these long-lived
assets was determined using Level 3 inputs, principally the present value of the estimated future cash flows expected from their
55
use and eventual disposition. Please refer to Note 14 for further details regarding the impairment of long-lived assets as a result
of the ivivva restructuring.
The Company has also recorded lease termination liabilities at fair value on a non-recurring basis, determined using
Level 3 inputs based on remaining lease rentals and reduced by estimated sublease income.
NOTE 12. DERIVATIVE FINANCIAL INSTRUMENTS
The Company currently hedges against changes in the Canadian dollar to U.S. dollar exchange rate and changes in the
Chinese Yuan to U.S. dollar exchange rate using forward currency contracts.
Net investment hedges
The Company holds a significant portion of its assets in Canada and during the year ended February 2, 2020, it entered
into forward currency contracts designed to hedge a portion of the foreign currency exposure that arises on translation of a
Canadian subsidiary into U.S. dollars. These forward currency contracts are designated as net investment hedges. The
Company assesses hedge effectiveness based on changes in forward rates. The Company recorded no ineffectiveness from net
investment hedges for the year ended February 2, 2020.
Derivatives not designated as hedging instruments
During the year ended February 2, 2020 the Company entered into certain forward currency contracts designed to
economically hedge the foreign exchange revaluation gains and losses that are recognized by its Canadian and Chinese
subsidiaries on U.S. dollar denominated monetary assets and liabilities.
Quantitative disclosures about derivative financial instruments
The notional amounts and fair values of forward currency contracts were as follows:
February 2, 2020
February 3, 2019
Gross Notional
Assets
Liabilities
Gross Notional
Assets
Liabilities
(In thousands)
Derivatives designated as net
investment hedges:
Forward currency contracts
$
417,000
$
1,583
$
— $
328,000
$
— $
1,042
Derivatives not designated in
a hedging relationship:
Forward currency contracts
460,000
152
1,920
309,000
516
—
Net derivatives recognized on
consolidated balance sheets:
Forward currency contracts .
$
1,735
$
1,920
$
516
$
1,042
As of February 2, 2020, there were derivative assets of $1.7 million and derivative liabilities of $1.9 million subject to
enforceable netting arrangements.
The forward currency contracts designated as net investment hedges mature on different dates between February 2020
and August 2020.
The forward currency contracts not designated in a hedging relationship mature on different dates between February 2020
and August 2020.
The pre-tax gains and losses on foreign exchange forward contracts recorded in accumulated other comprehensive
income are as follows:
Gains (losses) recognized in foreign currency translation adjustment:
Derivatives designated as net investment hedges . . . . . . . . . . . . . . . . . . . . . . .
$
2,972
$
23,946
$
(15,974)
56
February 2,
2020
Fiscal Year Ended
February 3,
2019
(In thousands)
January 28,
2018
No gains or losses have been reclassified from accumulated other comprehensive income into net income for derivative
financial instruments in a net investment hedging relationship, as the Company has not sold or liquidated (or substantially
liquidated) its hedged subsidiary.
The pre-tax net foreign exchange and derivative gains and losses recorded in the consolidated statement of operations are as
follows:
February 2,
2020
Fiscal Year Ended
February 3,
2019
(In thousands)
January 28,
2018
Gains (losses) recognized in selling, general and administrative expenses:
Foreign exchange gains (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivatives not designated in a hedging relationship . . . . . . . . . . . . . . . . . . . .
Net foreign exchange and derivative gains (losses) . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
2,701
(4,209)
(1,508) $
23,642
(22,249)
1,393
$
$
(6,798)
14,115
7,317
NOTE 13. LEASES
The Company has obligations under operating leases for its store and other retail locations, distribution centers, offices,
and equipment. As of February 2, 2020, the lease terms of the various leases range from two to fifteen years. The majority of
the Company's leases include renewal options at the sole discretion of the Company. In general, it is not reasonably certain that
lease renewals will be exercised at lease commencement and therefore lease renewals are not included in the lease term.
The following table details the Company's net lease expense. 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 variable lease expenses disclosed below include contingent rent
payments and other non-fixed lease related costs, including common area maintenance, property taxes, and landlord's
insurance.
Net lease expense:
Operating lease expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term lease expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Variable lease expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year
Ended
February 2,
2020
(In thousands)
$
176,367
9,358
70,957
$
256,682
57
The following table presents future minimum lease payments and the impact of discounting.
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
After 2025. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Future minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impact of discounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Present value of lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance sheet classification:
Current lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The weighted-average remaining lease term and weighted-average discount rate were as follows:
Weighted-average remaining lease term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
February 2,
2020
(In thousands)
152,440
$
161,519
138,188
111,877
87,275
174,797
826,096
(86,135)
739,961
128,497
611,464
739,961
$
$
$
$
February 2,
2020
6.07 years
3.57%
Disclosures related to periods prior to adoption of ASC 842
The following table details the Company's total rent expense prior to the adoption of ASC 842 as well as the property
taxes for leased locations.
Total rent expense:
Minimum rent expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common area expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rent contingent on sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property taxes for leased locations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year Ended
February 3,
2019
January 28,
2018
(In thousands)
$
161,847
$
135,879
23,269
12,846
197,962
17,826
$
$
20,016
11,433
167,328
15,766
$
$
The table below summarizes the Company's contractual arrangements as of February 3, 2019, and the timing and effect
that such commitments are expected to have on its liquidity and cash flows in future periods. 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 commitments in respect of lease agreements that have been executed, but have not yet
commenced.
Operating leases (minimum rent) . . .
$ 783,913
$ 169,822
$ 147,541
$ 123,032
$ 99,471
$ 73,213
$ 170,834
Total
2019
2020
2021
2022
2023
Thereafter
Payments Due by Fiscal Year
(In thousands)
58
NOTE 14. ASSET IMPAIRMENT AND RESTRUCTURING
During fiscal 2017, the Company restructured its ivivva operations. On August 20, 2017, the Company closed 48 of its 55
ivivva branded company-operated stores and all other ivivva branded temporary locations. As a result of this restructuring, the
Company recognized aggregate pre-tax charges of $47.2 million during fiscal 2017.
A summary of the pre-tax charges recognized in connection with the Company's restructuring of its ivivva operations is
as follows:
Fiscal Year
Ended
January 28,
2018
(In thousands)
Costs recorded in cost of goods sold:
Provision to reduce inventories to net realizable value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accelerated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Costs recorded in operating expenses:
Lease termination costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset impairment and restructuring costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and related costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
4,945
3,753
8,698
21,069
11,593
4,226
1,637
38,525
47,223
Income tax recoveries of $12.7 million were recorded on the above items in fiscal 2017. These income tax recoveries are
based on the annual tax rate of the applicable tax jurisdictions.
Costs recorded in cost of goods sold
During fiscal 2017, the Company recognized expenses of $8.7 million in cost of goods sold as a result of the restructuring
of its ivivva operations. This included $4.9 million to reduce inventories to their estimated net realizable value, and $3.8
million in accelerated depreciation primarily related to leasehold improvements and furniture and fixtures for stores that were
closed on August 20, 2017.
Costs recorded in operating expenses
The Company recognized asset impairment and restructuring costs of $38.5 million during fiscal 2017 as a result of the
restructuring of its ivivva operations.
As a result of the plan to close the majority of the ivivva branded locations, the long-lived assets of each ivivva branded
location were tested for impairment as of April 30, 2017. For impaired locations, a loss was recognized representing the
difference between the net book value of the long-lived assets and their estimated fair value. Impairment losses totaling $11.6
million were recognized during the first quarter of fiscal 2017. These losses primarily relate to leasehold improvements and
furniture and fixtures of the company-operated stores segment. These assets were retired during fiscal 2017 in conjunction with
the closures of the company-operated stores.
During fiscal 2017, the Company recognized lease termination costs of $21.1 million, employee related expenses as a
result of the restructuring of $4.2 million as well as other restructuring costs of $1.6 million.
59
NOTE 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:
Income before income tax expense
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current income tax expense
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax expense (recovery)
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
February 2,
2020
Fiscal Year Ended
February 3,
2019
(In thousands)
January 28,
2018
$
$
$
$
$
$
$
$
180,043
717,350
897,393
45,765
11,480
170,158
$
$
$
132,563
582,687
715,250
73,213
16,153
123,129
123,942
336,056
459,998
79,724
11,573
109,322
227,403
$
212,495
$
200,619
(5,683) $
(150)
30,227
(13,068) $
(8,566)
40,588
24,394
18,954
14,443
3,988
(17,714)
717
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
251,797
$
231,449
$
201,336
The Company's income tax expense for fiscal 2018 and fiscal 2017 included certain discrete tax amounts, as follows:
Fiscal Year Ended
February 3,
2019
January 28,
2018
(In thousands)
U.S. tax reform:
One-time transition tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax on repatriation from foreign subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax recovery on ivivva restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total discrete amounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
7,464
$
58,896
—
23,714
—
$
31,178
$
398
—
(12,741)
46,553
U.S. tax reform
The U.S. tax reform enacted on December 22, 2017 introduced significant changes to the U.S. income tax laws, including
reduction in the U.S. federal income tax rate from 35% to 21%, a shift to a territorial tax system which changed how foreign
earnings are subject to U.S. tax, and the imposition of a mandatory one-time transition tax on the accumulated undistributed
earnings of foreign subsidiaries.
One-time transition tax. U.S. tax reform required the Company to pay U.S. income taxes on accumulated foreign
subsidiary earnings not previously subject to U.S. income tax at a rate of 15.5% on cash and cash equivalents and 8% on the
remaining earnings, net of foreign tax credits. The one-time transition tax is payable over eight years.
During fiscal 2017, the Company recognized a provisional amount of $58.9 million for the mandatory one-time transition
tax on the deemed repatriation of accumulated undistributed earnings of foreign subsidiaries. As a result of completing its fiscal
2017 U.S. tax returns and incorporating newly issued guidance into its calculations the Company recognized an additional
current tax expense of $7.5 million during fiscal 2018 for the mandatory one-time transition tax.
Deferred income tax effects. U.S. tax reform reduced the U.S. federal income tax rate from 35% to 21%. Accordingly, the
Company remeasured its deferred income tax assets and liabilities to reflect the reduced rate that is expected to apply in future
60
periods when these balances reverse. The Company recognized a provisional deferred income tax expense of $0.4 million
during fiscal 2017 to reflect the reduced U.S. tax rate and other effects of U.S. tax reform. There were no adjustments to this
provisional amount in fiscal 2018.
The Company completed the accounting for the income tax effects of U.S. tax reform in fiscal 2018.
Tax on repatriation from foreign subsidiaries
U.S. tax reform and the shift to a territorial tax system in fiscal 2017 eliminated U.S. federal income taxes upon the
repatriation of foreign earnings. However, U.S. tax reform did not eliminate foreign withholding taxes, or certain state income
taxes.
During fiscal 2018, the Company completed its evaluation of the impact that U.S. tax reform has upon repatriation taxes,
its reinvestment plans, and the most efficient means of deploying its capital resources. As a result of these evaluations, the
Company repatriated $778.9 million from a Canadian subsidiary to the U.S. parent entity in fiscal 2018. A net tax current
expense of $23.7 million was recognized in fiscal 2018 on this distribution.
As at February 2, 2020, the Company's net investment in its Canadian subsidiaries was $1.3 billion, of which $0.8 billion
was determined to be indefinitely reinvested. A deferred tax liability of $1.5 million has been recognized in relation to the
portion of the Company's net investment in its Canadian subsidiaries that is not indefinitely reinvested, principally representing
the U.S. state income taxes which would be due upon repatriation. This deferred tax liability has been recorded on the basis that
the Company would choose to make the repatriation transactions in the most tax efficient manner. Specifically, to the extent
that the Canadian subsidiaries have sufficient paid-up-capital, any such distributions would be characterized as a return of
capital for Canadian tax purposes, and therefore not subject to Canadian withholding tax. The unrecognized deferred tax
liability on the indefinitely reinvested amount is approximately $2.3 million.
No deferred income tax liabilities have been recognized on any of the undistributed earnings of the Company's other
foreign subsidiaries as these earnings are permanently reinvested outside of the United States. Excluding its Canadian
subsidiaries, cumulative undistributed earnings of the Company's foreign subsidiaries as of February 2, 2020 were $52.1
million.
As of February 2, 2020, the Company had cash and cash equivalents of $387.4 million outside of the United States.
Tax recovery on ivivva restructuring costs
As outlined in Note 14, the Company restructured its ivivva operations during fiscal 2017. Income tax recoveries of $12.7
million were recorded on total restructuring costs of $47.2 million in fiscal 2017. These income tax recoveries are based on the
tax rate of the applicable tax jurisdictions.
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. tax reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax on repatriation from foreign subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
February 2,
2020
Fiscal Year Ended
February 3,
2019
(Percentages)
January 28,
2018
21.0%
21.0%
4.6
1.0
0.6
0.9
—
—
4.7
0.9
0.8
0.6
1.1
3.3
33.9%
(5.9)
1.5
0.9
0.5
12.9
—
28.1%
32.4%
43.8%
61
The Company's U.S. federal income tax rate of 33.9% for the year ended January 28, 2018 was a blended rate that
includes the rate decrease which became effective on January 1, 2018.
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 February 2, 2020 and February 3, 2019 are presented below:
February 2,
2020
February 3,
2019
(In thousands)
Deferred income tax assets:
Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred lease liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tenant inducements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unredeemed gift card liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax assets, net of valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax liabilities:
Property and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Right-of-use lease assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred income tax (liabilities) assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance sheet classification:
Deferred income tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred income tax (liabilities) assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
$
2,354
$
8,763
5,444
144,412
—
—
4,961
3,509
6,815
4,827
2,759
183,844
(5,655)
178,189
$
(57,280) $
(132,059)
(847)
(190,186)
(11,997) $
3,163
8,684
—
—
8,206
10,444
2,440
3,265
5,015
—
4,813
46,030
(507)
45,523
(33,055)
—
(168)
(33,223)
12,300
$
31,435
(43,432)
(11,997) $
26,549
(14,249)
12,300
As of February 2, 2020, the Company had net operating loss carryforwards of $9.7 million. The majority of the net
operating loss carryforwards expire, if unused, between fiscal 2026 and fiscal 2039.
The Company files income tax returns in the U.S., Canada, and various foreign, state, and provincial jurisdictions. The
2016 to 2018 tax years remain subject to examination by the U.S. federal and state tax authorities. The 2013 tax year is still
open for certain state tax authorities. The 2010 to 2018 tax years remain subject to examination by Canadian tax authorities.
The 2012 to 2018 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.
62
NOTE 16. EARNINGS PER SHARE
The details of the computation of basic and diluted earnings per share are as follows:
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year Ended
February 2,
2020
February 3,
2019
January 28,
2018
(In thousands, except per share amounts)
$
645,596
$
483,801
$
258,662
130,393
133,413
135,988
562
558
210
130,955
133,971
136,198
$
$
4.95
4.93
$
$
3.63
3.61
$
$
1.90
1.90
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 February 2, 2020,
February 3, 2019, and January 28, 2018, 48.0 thousand, 32.2 thousand, and 0.1 million stock options and awards, respectively,
were anti-dilutive to earnings per share and therefore have been excluded from the computation of diluted earnings per share.
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. This stock repurchase program was completed during the third
quarter of fiscal 2017. On November 29, 2017, the Company's board of directors approved a stock repurchase program for up
to $200.0 million and on June 6, 2018, the board of directors approved an increase to this stock repurchase program,
authorizing the repurchase of up to a total of $600.0 million of the Company's common shares. These programs were completed
during the first quarter of fiscal 2019.
On January 31, 2019, the Company's board of directors approved a stock repurchase program for up to $500.0 million of
the Company's common shares on the open market or in privately negotiated transactions. Common shares repurchased on the
open market are at prevailing market prices, including under plans complying with the provisions of Rule 10b5-1 and Rule
10b-18 of the Securities Exchange Act of 1934. The timing and actual number of common shares to be repurchased will depend
upon market conditions, eligibility to trade, and other factors, in accordance with Securities and Exchange Commission
requirements, and the repurchase program is expected to be completed by January 2021. As of February 2, 2020, the remaining
value of shares available to be repurchased under this program was $327.3 million.
During the fiscal years ended February 2, 2020, February 3, 2019, and January 28, 2018, 1.1 million, 4.9 million, and 1.9
million shares, respectively, were repurchased under the programs at a total cost of $173.4 million, $598.3 million, and $100.3
million, respectively.
Subsequent to February 2, 2020, and up to March 20, 2020, 0.2 million shares were repurchased at a total cost of $33.8
million.
NOTE 17. COMMITMENTS AND CONTINGENCIES
Commitments
Leases. The Company has obligations under operating leases for its store and other retail locations, distribution centers,
offices, and equipment. Please refer to Note 13 for further details regarding lease commitments and the timing of future
minimum lease payments.
License and supply arrangements. The Company has entered into license and supply arrangements with partners in the
Middle East and Mexico which grant them the right to operate lululemon branded retail locations in the United Arab Emirates,
Kuwait, Qatar, Oman, Bahrain, and Mexico. The Company retains the rights to sell lululemon products through its e-commerce
websites in these countries. Under these arrangements, the Company supplies the partners with lululemon products, training,
and other support. The initial term of the agreement for the Middle East expired in January 2020 and the Company currently
intends to stay in the market. The initial term of the agreement for Mexico expires in November 2026. As of February 2, 2020,
there were four licensed retail locations in Mexico, three in the United Arab Emirates, and one in Qatar.
One-time transition tax. As outlined in Note 15, U.S. tax reform imposed a mandatory transition tax on accumulated
foreign subsidiary earnings which have not previously been subject to U.S. income tax. The one-time transition tax is payable
over eight years beginning in fiscal 2018. The Company recognized a provisional income tax expense of $58.9 million in fiscal
63
2017 and an additional expense of $7.5 million during fiscal 2018 for the mandatory transition tax. The one-time transition tax
payable is net of foreign tax credits, and the table below outlines the expected payments due by fiscal year.
The following table summarizes the Company's contractual arrangements as of February 2, 2020, and the timing and
effect that such commitments are expected to have on its liquidity and cash flows in future periods:
One-time transition tax payable. . . . .
$ 53,302
$
5,076
$
5,076
$
5,076
$
9,518
$ 12,691
$ 15,865
Total
2020
2021
2022
2023
2024
Thereafter
Payments Due by Fiscal Year
(In thousands)
Contingencies
Legal proceedings. In addition to the legal proceedings described below, the Company is, from time to time, involved in
routine legal matters, and audits and inspections by governmental agencies and other third parties which are incidental to the
conduct of its business. This includes legal matters such as initiation and defense of proceedings to protect intellectual property
rights, personal injury claims, product liability claims, employment claims, and similar matters. The Company believes the
ultimate resolution of any such legal proceedings, audits, and inspections will not have a material adverse effect on its
consolidated balance sheets, results of operations or cash flows.
On October 9, 2015, certain current and former hourly employees of the Company filed a class action lawsuit in the
Supreme Court of New York entitled Rebecca Gathmann-Landini et al v. lululemon USA inc. On December 2, 2015, the case
was moved to the United States District Court for the Eastern District of New York. The lawsuit alleges that the Company
violated various New York labor codes by failing to pay all earned wages, including overtime compensation. The plaintiffs are
seeking an unspecified amount of damages. The Company intends to vigorously defend this matter.
On November 21, 2018, plaintiff David Shabbouei filed in the Delaware Court of Chancery a derivative lawsuit on behalf
of the Company against certain of the Company's current and former directors and officers, captioned David Shabbouei v.
Laurent Potdevin, et al., 2018-0847-JRS. Plaintiff claims that the defendants breached their fiduciary duties to the Company by
allegedly failing to address alleged sexual harassment, gender discrimination, and related conduct at the Company. Plaintiff
also claims that the defendants breached their fiduciary duties to the Company and wasted corporate assets with respect to the
separation agreement entered into by the Company and Laurent Potdevin in connection with his departure from the Company
in February 2018. Plaintiff also further brings an unjust enrichment claim against Mr. Potdevin with respect to the separation
agreement. Plaintiff seeks unspecified money damages for the Company for the defendants' alleged breaches of fiduciary duty,
waste and unjust enrichment, disgorgement of all profits, benefits and other compensation Mr. Potdevin received as a result of
defendants' alleged conduct for the Company, an order directing the Company to implement corporate governance and internal
procedures, and an award of plaintiff's attorneys' fees, costs and expenses. The defendants and the Company have moved to
dismiss the action.
NOTE 18. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for amounts included in the measurement of lease liabilities. . . . . . .
Leased assets obtained in exchange for new operating lease liabilities . . . . . . .
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
February 2,
2020
Fiscal Year Ended
February 3,
2019
(In thousands)
January 28,
2018
$
305,493
$
177,040
$
137,826
177,144
222,448
325
—
—
1,394
—
—
8
64
NOTE 19. SEGMENTED INFORMATION AND DISAGGREGATED NET REVENUE
The Company applies ASC Topic 280, Segment Reporting ("ASC 280"), in determining reportable segments for its
financial statement disclosure. The Company reports segments based on the financial information it uses in managing its
business. The Company's reportable segments are comprised of company-operated stores and direct to consumer. Direct to
consumer represents sales from the Company's e-commerce websites and mobile apps. Outlets, temporary locations, sales to
wholesale accounts, license and supply arrangements, and warehouse sale net revenue have been combined into other. During
the first quarter of fiscal 2018, the Company reviewed its general corporate expenses and determined certain costs which were
previously classified as general corporate expense are more appropriately classified within the direct to consumer segment.
Accordingly, comparative figures have been reclassified to conform to the financial presentation adopted for the current year.
Net revenue:
Company-operated stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Direct to consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Segmented income from operations:
Company-operated stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Direct to consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General corporate expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures:
Company-operated stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Direct to consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization:
Company-operated stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Direct to consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
February 2,
2020
Fiscal Year Ended
February 3,
2019
(In thousands)
January 28,
2018
$ 2,501,067
$ 2,126,363
$ 1,837,065
1,137,822
340,407
858,856
303,100
577,590
234,526
$ 3,979,296
$ 3,288,319
$ 2,649,181
$
689,339
$
575,536
$
464,321
482,368
72,559
1,244,266
355,156
—
889,110
8,283
354,107
62,558
992,201
286,365
—
705,836
9,414
224,076
35,580
723,977
220,753
47,223
456,001
3,997
$
897,393
$
715,250
$
459,998
$
171,496
$
129,155
$
$
$
15,813
95,739
283,048
97,896
12,469
51,568
$
$
6,420
90,232
225,807
76,303
10,018
36,163
$
$
80,240
19,928
57,696
157,864
64,870
12,997
30,368
$
161,933
$
122,484
$
108,235
The accelerated depreciation related to the restructuring of the ivivva operations is included in corporate and other in the
above breakdown of depreciation and amortization.
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's goodwill relates to the reporting segment consisting of company-operated stores.
65
The following table disaggregates the Company's net revenue by geographic area for the years ended February 2,
2020, February 3, 2019, and January 28, 2018.
February 2,
2020
Fiscal Year Ended
February 3,
2019
(In thousands)
January 28,
2018
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outside of North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,854,364
$ 2,363,374
$ 1,911,763
649,114
475,818
565,105
359,840
491,779
245,639
$ 3,979,296
$ 3,288,319
$ 2,649,181
Property and equipment, net by geographic area as of February 2, 2020 and February 3, 2019 were as follows:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
259,485
$
217,874
Canada. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outside of North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
346,305
65,903
671,693
$
303,061
46,302
567,237
$
The following table disaggregates the Company's net revenue by category for the years ended February 2,
2020, February 3, 2019, and January 28, 2018.
February 2,
2020
February 3,
2019
(In thousands)
Women's product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Men's product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other categories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
February 2,
2020
Fiscal Year Ended
February 3,
2019
(In thousands)
January 28,
2018
$ 2,790,997
$ 2,352,788
$ 1,892,624
933,767
254,532
694,921
240,610
526,535
230,022
$ 3,979,296
$ 3,288,319
$ 2,649,181
66
NOTE 20. 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 February 2, 2020 and February 3, 2019. 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 2019
Fiscal 2018
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
(Unaudited; Amounts in thousands, except per share amounts)
$1,397,491
$ 916,138
$ 883,352
$ 782,315
$1,167,458
$ 747,655
$ 723,500
$ 649,706
586,665
810,826
411,094
505,044
397,556
485,796
360,595
421,720
498,875
668,583
340,878
406,777
327,306
396,194
304,973
344,733
394,339
329,215
317,814
292,908
337,163
270,874
261,986
240,428
416,487
175,829
167,982
128,812
331,420
135,903
134,208
104,305
2,129
1,925
1,850
2,379
2,861
2,044
1,591
2,918
418,616
120,595
177,754
169,832
131,191
51,772
44,842
34,588
334,281
115,816
137,947
135,799
107,223
43,534
40,029
32,070
$ 298,021
$ 125,982
$ 124,990
$ 96,603
$ 218,465
$ 94,413
$ 95,770
$ 75,153
(6,444)
9,880
4,514
(15,723)
(5,346)
(7,318)
(18,249)
(42,972)
$ 291,577
$ 135,862
$ 129,504
$ 80,880
$ 213,119
$ 87,095
$ 77,521
$ 32,181
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. . . . . . . .
Other
comprehensive
income (loss), net of
tax:
Foreign currency
translation
adjustment . . . . . . . .
Comprehensive
income . . . . . . . . . . .
Basic earnings per
share. . . . . . . . . . . . .
Diluted earnings per
share. . . . . . . . . . . . .
$
$
2.29
2.28
$
$
0.97
0.96
$
$
0.96
0.96
$
$
0.74
0.74
$
$
1.66
1.65
$
$
0.71
0.71
$
$
0.71
0.71
$
$
0.55
0.55
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.
67
NOTE 21. SUBSEQUENT EVENTS
The Company evaluates events or transactions that occur after the balance sheet date through to the date which the
financial statements are issued, for potential recognition or disclosure in its consolidated financial statements in accordance
with ASC Topic 855, Subsequent Events.
The outbreak of the COVID-19 coronavirus has been declared a pandemic by the World Health Organization and
continues to spread in the United States, Canada, and in many other countries globally. Subsequent to February 2, 2020, in line
with recommendations by public health officials and in accordance with governmental authority orders, the Company has taken
actions to close certain retail locations and to reduce operating hours.
In February 2020, the Company temporarily closed all of its retail locations in Mainland China. All but one of these
locations have since reopened. In March 2020, the Company temporarily closed all of its retail locations in North America,
Europe, Malaysia, New Zealand, and it temporarily closed its distribution center in Sumner, WA. These locations currently
remain closed.
The Company cannot reasonably estimate the length or severity of this pandemic, but currently anticipates a material
adverse impact on its consolidated financial position, results of operations, and cash flows in fiscal 2020.
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 and accounting 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 and accounting 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 principal executive officer and principal financial and
accounting 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 and accounting 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
68
this evaluation, management concluded that we maintained effective internal control over financial reporting as of February 2,
2020. The effectiveness of our internal control over financial reporting as of February 2, 2020 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
February 2, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
69
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 2020 Annual Meeting of
Stockholders under the captions "Election of Directors," "Section 16(a) Beneficial Ownership Reporting Compliance,"
"Executive Officers," and "Corporate Governance," and, to the extent necessary, under the caption "Delinquent Section 16(a)
Reports."
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 Global 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
Global Code of Business Conduct and Ethics or waivers from the provisions of the Global 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 2020 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 2020 Proxy Statement under the caption
"Principal Stockholders and Stock Ownership by Management."
Equity Compensation Plan Information (as of February 2, 2020)
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)
1,377,299
$
—
1,377,299
$
113.41
—
113.41
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (A))(3)
(C)
18,017,693
—
18,017,693
__________
(1)
(2)
(3)
This amount represents the following: (a) 776,124 shares subject to outstanding options, (b) 238,280 shares subject to outstanding performance-based
restricted stock units, (c) 333,481 shares subject to outstanding restricted stock units, and (d) 29,414 shares subject to outstanding restricted stock units
that settle in cash or common stock at the election of the employee. 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.
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.
This includes (a) 13,291,047 shares of our common stock available for future issuance under our 2014 Equity Incentive Plan and (b) 4,726,646 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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated by reference to our 2020 Proxy Statement under the captions
"Certain Relationships and Related Party Transactions" and "Corporate Governance."
70
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated by reference to our 2020 Proxy Statement under the caption "Fees
for Professional Services."
71
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 January 28, 2018 . . . . . . . . . . . . . . . . .
For the year ended February 3, 2019 . . . . . . . . . . . . . . . . .
For the year ended February 2, 2020 . . . . . . . . . . . . . . . . .
Obsolescence and Quality Provision on Finished Goods
and Raw Materials
For the year ended January 28, 2018 . . . . . . . . . . . . . . . . .
For the year ended February 3, 2019 . . . . . . . . . . . . . . . . .
For the year ended February 2, 2020 . . . . . . . . . . . . . . . . .
Damage Provision on Finished Goods
For the year ended January 28, 2018 . . . . . . . . . . . . . . . . .
For the year ended February 3, 2019 . . . . . . . . . . . . . . . . .
For the year ended February 2, 2020 . . . . . . . . . . . . . . . . .
Sales Return Allowances
For the year ended January 28, 2018 . . . . . . . . . . . . . . . . .
For the year ended February 3, 2019 . . . . . . . . . . . . . . . . .
For the year ended February 2, 2020 . . . . . . . . . . . . . . . . .
Valuation Allowance on Deferred Income Taxes
For the year ended January 28, 2018 . . . . . . . . . . . . . . . . .
For the year ended February 3, 2019 . . . . . . . . . . . . . . . . .
For the year ended February 2, 2020 . . . . . . . . . . . . . . . . .
$
$
$
$
$
Balance at
Beginning of
Year
Charged to
Costs and
Expenses
Write-offs Net
of Recoveries
Balance at
End of Year
(In thousands)
(335) $
(310)
(1,194)
(8,656) $
(13,597)
(12,593)
8,681
$
12,713
11,712
(310)
(1,194)
(2,075)
(5,013) $
(9,303)
(7,552)
(5,361) $
(2,453)
(5,363)
1,071
$
4,204
2,533
(9,303)
(7,552)
(10,382)
(2,308) $
(5,520)
(7,343)
(18,503) $
(22,912)
(28,313)
15,291
$
21,089
26,047
(4,728) $
(6,293)
(11,318)
(91) $
(1,843)
(507)
(1,565) $
(5,025)
(1,579)
(1,752) $
(427)
(5,148)
— $
—
—
— $
1,763
—
(5,520)
(7,343)
(9,609)
(6,293)
(11,318)
(12,897)
(1,843)
(507)
(5,655)
72
l3. Exhibits
Exhibit
No.
Exhibit Title
Filed
Herewith
Form
Exhibit No.
File No.
Filing Date
Exhibit Index
Incorporated by Reference
3.1
3.2
3.3
3.4
3.5
4.1
4.2
Amended and Restated Certificate of Incorporation of
lululemon athletica inc.
Certificate of Amendment to Amended and Restated
Certificate of Incorporation of lululemon athletica inc.
Certificate of Amendment to Certificate of
Incorporation filed July 20, 2017
Certificate of Amendment to Certificate of
Incorporation filed June 12, 2018
Bylaws of lululemon athletica inc.
Form of Specimen Stock Certificate of lululemon
athletica inc.
Description of Securities Registered Under Section 12
of the Securities Exchange Act of 1934
X
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
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)
73
8-K
8-K
10-Q
10-Q
8-K
S-3
8-K
10-Q
3.1
001-33608
8/8/2007
3.1
001-33608
7/1/2011
3.1
001-33608
8/30/2018
3.1
001-33608
8/30/2018
3.1
001-33608
6/5/2015
4.1
333-185899
1/7/2013
10.1
001-33608
6/13/2014
10.2
0001-33608
12/6/2012
10-Q
10.1
001-33608
6/1/2017
10-Q
10.2
001-33608
6/1/2017
10-Q
10.3
001-33608
6/1/2017
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
Exhibit
No.
10.13
10.14
Exhibit Title
Filed
Herewith
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
10.16*
lululemon athletica inc. Employee Share Purchase Plan
10.18* Executive Employment Agreement, effective as of
December 5, 2016, between lululemon athletica canada
inc. and Celeste Burgoyne
Incorporated by Reference
Form
S-1/A
Exhibit No.
10.16
File No.
333-142477
Filing Date
7/9/2007
10-K
10.12
001-33608
3/17/2011
10-Q
10-Q
10-K
10.1
001-33608
12/11/2019
10.3
001-33608
11/29/2007
10.23
001-33608
3/29/2017
10.19* Executive Employment Agreement, effective as of
8-K
10.1
001-33608
7/24/2018
August 20, 2018, between lululemon athletica canada
inc. and Calvin McDonald
10.20* Executive Employment Agreement, effective as of
10-Q
10.1
001-33608
5/31/2018
April 30, 2018, between lululemon athletica inc. and
Patrick Guido
10.21* Amendment to Executive Employment Agreement,
10-K
10.24
001-33608
3/27/2019
effective as of March 4, 2019, between lululemon
athletica inc. and Patrick Guido
10.22* Executive Employment Agreement, effective as of
10-Q
10.1
001-33608
12/06/2018
September 20, 2018, between lululemon athletica inc.
and Michelle Choe
10.23* Executive Employment Agreement, effective as of
X
January 20, 2020, between lululemon athletica inc. and
Nicole Neuburger
10.24
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.
10.25
Amendment No. 1 to Credit Agreement, dated June 6,
2018, among lululemon athletica inc. and the other
parties thereto
8-K
10.1
001-33608
12/21/2016
8-K
10.1
001-33608
6/6/2018
21.1
23.1
31.1
31.2
Subsidiaries of lululemon athletica inc.
10-K
21.1
001-33608
3/27/2019
Consent of PricewaterhouseCoopers LLP
Certification of principal 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 principal financial and accounting
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 principal executive officer and
principal financial and accounting officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
74
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 February 2, 2020,
formatted in iXBRL: (i) Consolidated Balance Sheets,
(ii) Consolidated Statements of Operations and
Comprehensive Income, (iii) Consolidated Statements
of Stockholders' Equity, (iv) Consolidated Statements
of Cash Flows (v) Notes to the Consolidated Financial
Statements
Denotes a compensatory plan, contract or arrangement, in which our directors or executive officers may participate.
Furnished herewith.
Exhibit
No.
101
*
**
75
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:
/s/ CALVIN MCDONALD
Calvin McDonald
Chief Executive Officer
(principal executive officer)
Date:
March 26, 2020
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints Calvin McDonald and Patrick J. Guido 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/ CALVIN MCDONALD
Chief Executive Officer and Director
March 26, 2020
Calvin McDonald
(principal executive officer)
/s/ PATRICK J. GUIDO
Chief Financial Officer
March 26, 2020
Patrick J. Guido
(principal financial and accounting officer)
/s/ GLENN MURPHY
Director, Chairman of the Board
March 26, 2020
Glenn Murphy
/s/ MICHAEL CASEY
Director
Michael Casey
/s/ STEPHANIE FERRIS
Director
Stephanie Ferris
/s/ TRICIA GLYNN
Director
Tricia Glynn
/s/ KATHRYN HENRY
Director
Kathryn Henry
/s/ JON MCNEILL
Director
Jon McNeill
/s/ MARTHA A.M. MORFITT
Director
Martha A.M. Morfitt
/s/ DAVID M. MUSSAFER
Director
David M. Mussafer
/s/ EMILY WHITE
Director
Emily White
76
March 26, 2020
March 26, 2020
March 26, 2020
March 26, 2020
March 26, 2020
March 26, 2020
March 26, 2020
March 26, 2020
Exhibit
No.
Exhibit Title
Filed
Herewith
Form
Exhibit No.
File No.
Filing Date
Exhibit Index
Incorporated by Reference
3.1
3.2
3.3
3.4
3.5
4.1
4.2
Amended and Restated Certificate of Incorporation of
lululemon athletica inc.
Certificate of Amendment to Amended and Restated
Certificate of Incorporation of lululemon athletica inc.
Certificate of Amendment to Certificate of
Incorporation filed July 20, 2017
Certificate of Amendment to Certificate of
Incorporation filed June 12, 2018
Bylaws of lululemon athletica inc.
Form of Specimen Stock Certificate of lululemon
athletica inc.
Description of Securities Registered Under Section 12
of the Securities Exchange Act of 1934
X
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
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)
77
8-K
8-K
3.1
001-33608
8/8/2007
3.1
001-33608
7/1/2011
10-Q
3.1
001-33608
8/30/2018
10-Q
3.1
001-33608
8/30/2018
8-K
S-3
8-K
10-Q
3.1
001-33608
6/5/2015
4.1
333-185899
1/7/2013
10.1
001-33608
6/13/2014
10.2
0001-33608
12/6/2012
10-Q
10.1
001-33608
6/1/2017
10-Q
10.2
001-33608
6/1/2017
10-Q
10.3
001-33608
6/1/2017
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
Exhibit
No.
10.13
10.14
Exhibit Title
Filed
Herewith
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
10.16*
lululemon athletica inc. Employee Share Purchase Plan
10.18* Executive Employment Agreement, effective as of
December 5, 2016, between lululemon athletica canada
inc. and Celeste Burgoyne
Incorporated by Reference
Form
S-1/A
Exhibit No.
10.16
File No.
333-142477
Filing Date
7/9/2007
10-K
10.12
001-33608
3/17/2011
10-Q
10-Q
10-K
10.1
001-33608
12/11/2019
10.3
001-33608
11/29/2007
10.23
001-33608
3/29/2017
10.19* Executive Employment Agreement, effective as of
8-K
10.1
001-33608
7/24/2018
August 20, 2018, between lululemon athletica canada
inc. and Calvin McDonald
10.20* Executive Employment Agreement, effective as of
10-Q
10.1
001-33608
5/31/2018
April 30, 2018, between lululemon athletica inc. and
Patrick Guido
10.21* Amendment to Executive Employment Agreement,
10-K
10.24
001-33608
3/27/2019
effective as of March 4, 2019, between lululemon
athletica inc. and Patrick Guido
10.22* Executive Employment Agreement, effective as of
10-Q
10.1
001-33608
12/06/2018
September 20, 2018, between lululemon athletica inc.
and Michelle Choe
10.23* Executive Employment Agreement, effective as of
X
January 20, 2020, between lululemon athletica inc. and
Nicole Neuburger
10.24
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.
10.25
Amendment No. 1 to Credit Agreement, dated June 6,
2018, among lululemon athletica inc. and the other
parties thereto
8-K
10.1
001-33608
12/21/2016
8-K
10.1
001-33608
6/6/2018
21.1
23.1
31.1
31.2
Subsidiaries of lululemon athletica inc.
10-K
21.1
001-33608
3/27/2019
Consent of PricewaterhouseCoopers LLP
Certification of principal 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 principal financial and accounting
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 principal executive officer and
principal financial and accounting officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
78
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 February 2, 2020,
formatted in iXBRL: (i) Consolidated Balance Sheets,
(ii) Consolidated Statements of Operations and
Comprehensive Income, (iii) Consolidated Statements
of Stockholders' Equity, (iv) Consolidated Statements
of Cash Flows (v) Notes to the Consolidated Financial
Statements
Denotes a compensatory plan, contract or arrangement, in which our directors or executive officers may participate.
Furnished herewith.
Exhibit
No.
101
*
**
79
[This page intentionally left blank]
Board of Directors
and Executive Officers
BOARD OF DIRECTORS
Glenn Murphy
David M. Mussafer
Calvin McDonald
Michael Casey
Stephanie Ferris
Kathryn Henry
Jon McNeill
Martha (Marti) Morfitt
Tricia Glynn
Emily White
EXECUTIVE OFFICERS
Calvin McDonald
Julie Averill
Celeste Burgoyne
Michelle (Sun) Choe
Patrick (PJ) Guido2
Nicole (Nikki) Neuburger
Chairman of the Board
FIS Holdings, Founder and CEO
Lead Director of the Board
Advent International Corporation, Chairman and Managing Partner
Chief Executive Officer
Starbucks Corporation, Retired Executive Vice President,
Chief Financial Officer and Chief Administrative Officer
Fidelity National Information Services, Inc., Chief Operating Officer
Strategic Advisor and Independent Consultant
DeltaV Ventures, Chief Executive Officer
River Rock Partners Inc., Principal
Airborne Inc., Former Chief Executive Officer
Advent International Corporation, Managing Director
Anthos Capital, President
Chief Executive Officer
Executive Vice President, Chief Technology Officer
Executive Vice President, Americas and Global Guest Innovation
Chief Product Officer
Chief Financial Officer
Chief Brand Officer
ANNUAL MEETING
The annual meeting will be held on Wednesday,
June 3, 2020 at 8:00 am, Pacific Time, via live webcast
at www.virtualshareholdermeeting.com/lulu2020.
INVESTOR INFORMATION
Shareholders are advised to review financial information and other
disclosures about lululemon contained in its 2019 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:
By email:
By mail:
investors@lululemon.com
lululemon athletica Investor Relations
1818 Cornwall Avenue
Vancouver, British Columbia
Canada V6J 1C7
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP
TRANSFER AGENT
Computershare Trust Company, N.A.
1 This metric is a non-GAAP financial measure. Please refer to the section entitled “Non-GAAP Financial Measures” included in Item 7 of Part II of the accompanying report on Form 10-K.
This letter contains forward-looking statements based on current expectations that involve risks, uncertainties and assumptions, such as our plans, objectives, expectations, and intentions.
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 stated in the “Item 1A.
Risk Factors” section and elsewhere in our Annual Report on Form 10-K.
2 Mr. Guido has resigned from his position as Chief Financial Officer, effective May 8, 2020.
20
19
lululemon.com