UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)



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

For the quarterly period ended ~~October 29, 2017~~May 3, 2020



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

~~1818 Cornwall Avenue~~ ~~Vancouver, British Columbia~~	~~V6J 1C7~~
~~(Address of principal executive offices)~~	~~(Zip Code)~~

1818 Cornwall Avenue, Vancouver, British ColumbiaV6J 1C7

(Address of principal executive offices)

Registrant's telephone number, including area code:

~~604-732-6124~~604-732-6124

Former name, former address and former fiscal year, if changed since last report:

N/A

Securities registered pursuant to Section 12(b) of the Act:



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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ☑No o☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T during the preceding 12 months (of for such shorter period that the registrant was required to submit ~~and post~~ such files). Yesþ☑ No o☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):



Large ~~accelerated filer~~Accelerated Filer	þ☑	Accelerated filer	o☐
Non-accelerated filer	o ~~(Do not check if a smaller reporting company)~~ ☐	Smaller reporting company	o☐
Emerging growth company	o☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No þ☑

At ~~December 1, 2017,~~June 5, 2020, there were ~~125,599,066~~124,814,503 shares of the registrant's common stock, par value $0.005 per share, outstanding.

Exchangeable and Special Voting Shares:

At ~~December 1, 2017,~~June 5, 2020, there were outstanding ~~9,780,927~~5,392,512 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 ~~December 1, 2017,~~June 5, 2020, the registrant had outstanding ~~9,780,927~~5,392,512 shares of special voting stock, through which the holders of exchangeable shares of Lulu Canadian Holding, Inc. may exercise their voting rights with respect to the registrant. The special voting stock and the registrant's common stock generally vote together as a single class on all matters on which the common stock is entitled to vote.

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TABLE OF CONTENTS

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PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

lululemon athletica inc.

CONSOLIDATED BALANCE SHEETS

(Unaudited; Amounts in thousands, except per share amounts)


	October 29, 2017			January 29, 2017			May 3, 2020			February 2, 2020
ASSETS
Current assets
Cash and cash equivalents	$	650,054		$	734,846		$	823,006		$	1,093,505
Accounts receivable	21,281			9,200			48,684			40,219
Inventories	396,892			298,432			625,849			518,513
Prepaid and receivable income taxes	77,625			81,190			89,316			85,159
Other prepaid expenses and other current assets	42,496			39,069			107,690			70,542
	1,188,348			1,162,737			1,694,545			1,807,938
Property and equipment, net	440,403			423,499			659,265			671,693
Right-of-use lease assets							731,883			689,664
Goodwill and intangible assets, net	24,476			24,557			24,044			24,423
Deferred income tax assets	37,583			26,256			31,190			31,435
Other non-current assets	29,639			20,492			60,859			56,201
	$	1,720,449		$	1,657,541		$	3,201,786		$	3,281,354
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	14,113		$	24,846		$	78,940		$	79,997
Accrued inventory liabilities	23,420			8,601			9,860			6,344
Accrued compensation and related expenses	62,387			55,238			69,455			133,688
Income taxes payable	4,403			30,290
Current lease liabilities							144,646			128,497
Current income taxes payable							28,729			26,436
Unredeemed gift card liability	52,500			70,454			105,286			120,413
Lease termination liabilities	12,164			—
Other current liabilities	71,590			52,561			194,580			125,043
	240,577			241,990			631,496			620,418
Non-current lease liabilities							639,242			611,464
Non-current income taxes payable							48,226			48,226
Deferred income tax liabilities	—			7,262			40,764			43,432
Other non-current liabilities	58,596			48,316			6,271			5,596
	299,173			297,568			1,365,999			1,329,136
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; 9,781 and 9,781 issued and outstanding	—			—
Special voting stock, $0.000005 par value: 60,000 shares authorized; 9,781 and 9,781 issued and outstanding	—			—
Common stock, $0.005 par value: 400,000 shares authorized; 125,592 and 127,304 issued and outstanding	628			637
Exchangeable stock, no par value: 60,000 shares authorized; 5,482 and 6,227 issued and outstanding							—			—
Special voting stock, $0.000005 par value: 60,000 shares authorized; 5,482 and 6,227 issued and outstanding							—			—
Common stock, $0.005 par value: 400,000 shares authorized; 124,717 and 124,122 issued and outstanding							624			621
Additional paid-in capital	275,871			266,622			334,201			355,541
Retained earnings	1,336,216			1,294,214			1,786,147			1,820,637
Accumulated other comprehensive loss	(191,439		)	(201,500		)	(285,185		)	(224,581		)
	1,421,276			1,359,973			1,835,787			1,952,218
	$	1,720,449		$	1,657,541		$	3,201,786		$	3,281,354

See accompanying notes to the unaudited interim consolidated financial statements

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lululemon athletica inc.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(Unaudited; Amounts in thousands, except per share amounts)


	Quarter Ended						Three Quarters Ended				Quarter Ended
	October 29, 2017			October 30, 2016			October 29, 2017		October 30, 2016		May 3, 2020			May 5, 2019
Net revenue	$	619,018		$	544,416		$	1,720,379	$	1,554,452	$	651,962		$	782,315
Cost of goods sold	297,056			265,990			844,100		782,734		317,560			360,595
Gross profit	321,962			278,426			876,279		771,718		334,402			421,720
Selling, general and administrative expenses	215,367			185,451			640,032		547,195		301,651			292,908
Asset impairment and restructuring costs	21,007			—			36,524		—
Income from operations	85,588			92,975			199,723		224,523		32,751			128,812
Other income (expense), net	1,052			628			2,771		720		1,174			2,379
Income before income tax expense	86,640			93,603			202,494		225,243		33,925			131,191
Income tax expense	27,696			25,318			63,593		57,997		5,293			34,588
Net income	$	58,944		$	68,285		$	138,901	$	167,246	$	28,632		$	96,603

Other comprehensive (loss) income:
Foreign currency translation adjustment	(31,018		)	(24,748		)	10,061		20,762		(60,604		)	(15,723		)
Comprehensive income	$	27,926		$	43,537		$	148,962	$	188,008
Comprehensive (loss) income											$	(31,972	)	$	80,880

Basic earnings per share	$	0.44		$	0.50		$	1.02	$	1.22	$	0.22		$	0.74
Diluted earnings per share	$	0.43		$	0.50		$	1.02	$	1.22	$	0.22		$	0.74
Basic weighted-average number of shares outstanding	135,364			137,033			136,191		137,095		130,251			130,694
Diluted weighted-average number of shares outstanding	135,578			137,237			136,357		137,321		130,803			131,337

See accompanying notes to the unaudited interim consolidated financial statements

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lululemon athletica inc.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited; Amounts in thousands)


	Exchangeable Stock	Special Voting Stock			Common Stock					Additional Paid-in Capital				Retained Earnings				Accumulated Other Comprehensive Loss			Total				Quarter Ended May 3, 2020
	Shares	Shares	Par Value		Shares		Par Value										Exchangeable Stock							Special Voting Stock					Common Stock				Additional Paid-in Capital				Retained Earnings			Accumulated Other Comprehensive Loss				Total
Balance at January 29, 2017	9,781	9,781	$	—	127,304		$	637					$	266,622			$		1,294,214		$	(201,500	)		$	1,359,973
																									Shares		Shares		Par Value		Shares					Par Value							Additional Paid-in Capital				Retained Earnings				Accumulated Other Comprehensive Loss	Total
Balance at February 2, 2020																									6,227		6,227		$	—	124,122		$	621
Net income														138,901							138,901																					28,632								28,632
Foreign currency translation adjustment																		10,061			10,061																							(60,604		)		(60,604		)
Common stock issued upon exchange of exchangeable shares																									(745	)	(745	)	—		745		4				(4		)									—
Stock-based compensation expense										13,048											13,048																6,128											6,128
Common stock issued upon settlement of stock-based compensation					194		1			1,647											1,648										371		2				3,133											3,135
Shares withheld related to net share settlement of stock-based compensation					(58	)	—			(3,086		)									(3,086		)								(152	)	(1		)		(30,058		)									(30,059		)
Repurchase of common stock					(1,848	)	(10		)	(2,360		)		(96,899		)					(99,269		)								(369	)	(2		)		(539		)	(63,122		)						(63,663		)
Balance at October 29, 2017	9,781	9,781	$	—	125,592		$	628		$	275,871			$	1,336,216			$	(191,439	)	$	1,421,276
Balance at May 3, 2020																									5,482		5,482		$	—	124,717		$	624			$	334,201		$	1,786,147			$	(285,185	)		$	1,835,787



	Quarter Ended May 5, 2019
	Exchangeable Stock		Special Voting Stock				Common Stock					Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total
	Shares		Shares		Par Value		Shares		Par Value			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total
Balance at February 3, 2019	9,332		9,332		$	—	121,600		$	608		$	315,285		$	1,346,890		$	(216,808	)	$	1,445,975
Net income															96,603						96,603
Foreign currency translation adjustment																		(15,723		)	(15,723		)
Common stock issued upon exchange of exchangeable shares	(1,951	)	(1,951	)	—		1,951		10			(10		)							—
Stock-based compensation expense												10,157									10,157
Common stock issued upon settlement of stock-based compensation							464		2			12,175									12,177
Shares withheld related to net share settlement of stock-based compensation							(115	)	(1		)	(18,938		)							(18,939		)
Repurchase of common stock					��		(1,000	)	(4		)	(1,465		)	(162,061		)				(163,530		)
Balance at May 5, 2019	7,381		7,381		$	—	122,900		$	615		$	317,204		$	1,281,432		$	(232,531	)	$	1,366,720

See accompanying notes to the unaudited interim consolidated financial statements

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lululemon athletica inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; Amounts in thousands)


	Three Quarters Ended						Quarter Ended
	October 29, 2017			October 30, 2016			May 3, 2020			May 5, 2019
Cash flows from operating activities
Net income	$	138,901		$	167,246		$	28,632		$	96,603
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	80,129			63,641			43,532			32,823
Deferred income taxes	(18,385		)	—
Stock-based compensation expense	13,048			12,939			6,128			10,157
Asset impairment for ivivva restructuring	11,593			—
Settlement of derivatives not designated in a hedging relationship	4,178			—			(5,669		)	(4,983		)
Changes in operating assets and liabilities:
Inventories	(95,475		)	(73,660		)	(122,810		)	(42,856		)
Prepaid and receivable income taxes	3,565			(30,580		)	(4,157		)	(32,816		)
Other prepaid expenses and other current assets	(14,885		)	(13,471		)
Other non-current assets	8,126			(8,804		)
Other prepaid expenses and other current and non-current assets							(53,358		)	(16,164		)
Accounts payable	(11,141		)	(1,558		)	2,222			(5,420		)
Accrued inventory liabilities	14,602			5,270			4,016			(6,894		)
Accrued compensation and related expenses	6,579			8,835			(60,137		)	(32,498		)
Income taxes payable	(26,420		)	(17,563		)
Current and non-current income taxes payable							3,711			(60,533		)
Unredeemed gift card liability	(18,272		)	(14,123		)	(13,640		)	(13,641		)
Lease termination liabilities	12,164			—
Other accrued and non-current liabilities	23,002			487
Net cash provided by operating activities	131,309			98,659
Right-of-use lease assets and current and non-current lease liabilities							(16,868		)	8,185
Other current and non-current liabilities							67,155			5,234
Net cash used in operating activities							(121,243		)	(62,803		)
Cash flows from investing activities
Purchase of property and equipment	(107,128		)	(106,168		)	(52,101		)	(68,434		)
Settlement of net investment hedges	(4,599		)	—			6,475			4,657
Other investing activities	(8,324		)	—			—			(131		)
Net cash used in investing activities	(120,051		)	(106,168		)	(45,626		)	(63,908		)
Cash flows from financing activities
Proceeds from settlement of stock-based compensation	1,648			5,959			3,135			12,177
Taxes paid related to net share settlement of stock-based compensation	(3,086		)	(2,691		)	(30,059		)	(18,939		)
Repurchase of common stock	(99,269		)	(28,556		)	(63,663		)	(163,530		)
Net cash used in financing activities	(100,707		)	(25,288		)	(90,587		)	(170,292		)
Effect of exchange rate changes on cash and cash equivalents	4,657			11,701			(13,043		)	(8,076		)
(Decrease) increase in cash and cash equivalents	(84,792		)	(21,096		)
Decrease in cash and cash equivalents							(270,499		)	(305,079		)
Cash and cash equivalents, beginning of period	$	734,846		$	501,482		$	1,093,505		$	881,320
Cash and cash equivalents, end of period	$	650,054		$	480,386		$	823,006		$	576,241

See accompanying notes to the unaudited interim consolidated financial statements

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lululemon athletica inc.

INDEX FOR NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL

STATEMENTS

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lululemon athletica inc.

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL

STATEMENTS

NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Nature of operations

lululemon athletica inc., a Delaware corporation ("lululemon" and, together with its subsidiaries unless the context otherwise requires, the "Company") is engaged in the design, distribution, and retail of healthy lifestyle inspired athletic apparel ~~which is sold~~and accessories. The Company primarily conducts its business through ~~a chain of~~ company-operated stores and direct to consumer through ~~e-commerce,~~e-commerce. It also generates net revenue from outlets, ~~showrooms,~~sales from temporary locations, sales to wholesale accounts, license and supply arrangements, and ~~through~~ warehouse sales. ~~Its apparel is marketed under the lululemon and ivivva brand names.~~ The Company operates stores in the United States, Canada, the People's Republic of China ("PRC"), Australia, the United Kingdom, ~~China,~~Japan, New Zealand, ~~Hong Kong, Singapore,~~Germany, South Korea, ~~Germany,~~Singapore, France, Malaysia, Sweden, Ireland, ~~Japan, Puerto Rico, Switzerland,~~the Netherlands, Norway, and ~~Taiwan.~~Switzerland. There were ~~a total of 388~~489 and ~~406~~491 company-operated stores in operation as of ~~October 29, 2017~~May 3, 2020 and ~~January 29, 2017,~~February 2, 2020, respectively.

~~On June 1, 2017,~~COVID-19 Pandemic

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

In line with recommendations by public health officials and in accordance with governmental authority orders, the Company took actions to close the majority of its retail locations and to reduce operating hours. In February 2020, the Company temporarily closed all of its retail locations in Mainland China. All of these locations have since reopened. In March 2020, the Company temporarily closed all of its retail locations in North America, Europe, and certain countries in Asia Pacific. Its distribution centers in Columbus, Ohio and Sumner, Washington were temporarily closed for one and two weeks, respectively, during the first quarter of fiscal 2020 due to COVID-19. Subsequent to May 3, 2020, the Company began reopening stores in certain markets in accordance with local government and public health authority guidelines. These stores are operating with precautionary measures in place such as reduced operating hours and maximum occupancy levels. As of June 10, 2020, 295 of its company-operated stores were open. As of June 10, 2020, all of its distribution centers were open.

In response to COVID-19, various government programs have been announced to provide financial relief for affected businesses. The most significant relief measures which the Company qualifies for are the Employee Retention Credit under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") in the United States, and the Canada Emergency Wage Subsidy ("CEWS") under the COVID-19 Economic Response Plan in Canada. During the first quarter of fiscal 2020, the Company recognized payroll subsidies totaling $14.3 million under these wage subsidy programs and similar plans in other jurisdictions. These subsidies were recorded as a ~~plan~~reduction in the associated wage costs which the Company incurred, and were recognized in selling, general and administrative expenses.

The Company also qualifies for and has deferred certain corporate income tax payments and employer payroll tax payments. The most significant is the deferral of $56.8 million of Canadian corporate income tax payments which would otherwise have been paid during the first quarter of fiscal 2020 to ~~restructure~~the third quarter of fiscal 2020.

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

The temporary store closures as a result of COVID-19 and associated reduction in operating income during the first quarter of fiscal 2020 are considered to be an indicator of impairment and the Company performed an assessment of recoverability for the long-lived assets and right-of-use assets associated with its ~~ivivva operations. On August 20, 2017,~~closed retail locations. The Company recognized an insignificant impairment charge as ~~part~~a result of this ~~plan,~~analysis.

Inventory is valued at the lower of cost and net realizable value. The Company periodically reviews its inventories and makes provisions as necessary to appropriately value goods that are obsolete, have quality issues, or are damaged. The amount of the provision is equal to the difference between the cost of the inventory and its net realizable value based upon assumptions about product quality, damages, future demand, selling prices, and market conditions. The Company did not recognize any significant additional inventory provisions in the first quarter of fiscal 2020 as a result of this analysis.

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Revenue is presented net of an allowance for expected returns, which is estimated based on historic return rates, trends, and future expectations. In light of the store closures, the Company ~~closed 48~~has extended its return policy and the increase in the sales return allowances reflects an anticipated delay in returns as a result of retail location closures.

The COVID-19 pandemic has materially impacted the Company's statement of operations. The extent to which COVID-19 continues to impacts the Company's results and financial position will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19 and the actions taken to contain it or treat its impact. Continued proliferation of the virus, or resurgence, may result in further or prolonged closures of its ~~55 ivivva branded company-operated stores. The seven remaining ivivva branded stores remain~~retail locations and distribution centers, reduce operating hours, interrupt the Company's supply chain, cause changes in ~~operation~~guest behavior, and ~~are not expected to close. All~~reduce discretionary spending. Such factors could result in the impairment of long-lived assets and right-of-use assets and the need for an increased provision against the carrying value of the Company's ivivva branded showrooms and other temporary locations have been closed. The Company continues to offer ivivva branded products on its e-commerce websites. Please refer to Note 6 of these unaudited interim consolidated financial statements for further details regarding the ivivva restructuring.inventories.

Basis of presentation

The unaudited interim consolidated financial statements as of ~~October 29, 2017~~May 3, 2020 and for the quarters ended May 3, 2020 and ~~three quarters ended October 29, 2017 and October 30, 2016~~May 5, 2019 are presented in United States dollars and have been prepared by the Company under the rules and regulations of the Securities and Exchange Commission ("SEC"). The financial information is presented in accordance with United States generally accepted accounting principles ("GAAP") for interim financial information and, accordingly, does not include all of the information and footnotes required by GAAP for complete financial statements. The financial information as of ~~January 29, 2017~~February 2, 2020 is derived from the Company's audited consolidated financial statements and related notes for the fiscal year ended ~~January 29, 2017,~~February 2, 2020, which are included in Item 8 in the Company's fiscal ~~2016~~2019 Annual Report on Form 10-K filed with the SEC on March ~~29, 2017.~~26, 2020. These unaudited interim consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. These unaudited interim consolidated financial statements should be read in conjunction with the Company's consolidated financial statements and related notes included in Item 8 in the Company's fiscal ~~2016~~2019 Annual Report on Form 10-K. Except as disclosed in Note 2 pertaining to the adoption of new accounting pronouncements, there have been no significant changes to the Company's significant accounting policies as described in the Company's fiscal 2019 Annual Report on Form 10-K.

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 ~~2017~~2020 will end on January ~~28, 2018~~31, 2021 and will be a 52-week year. Fiscal 2019 was a 52-week year.

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. RECENT ACCOUNTING PRONOUNCEMENTS

Recently adopted accounting pronouncements

In ~~May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09,~~ ~~Revenue from Contracts with Customers~~ ~~("ASC 606"). This ASU supersedes the revenue recognition requirements in ASC Topic 605~~ ~~Revenue Recognition~~, including most industry-specific revenue recognition guidance. ASU 2014-09 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, and expands the related disclosure requirements. In 2015, the FASB deferred the effective date for this guidance, and inJune 2016, the FASB issued ~~several updates that clarify~~guidance on ASC 326 "Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments". This guidance changes the ~~guidance~~impairment model for most financial assets and requires the use of a forward-looking expected loss model rather than incurred losses for instruments measured at amortized cost. Under this model, entities are required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in ~~this topic. ASC 606 may~~a net presentation of the amount expected to be ~~adopted either~~collected on ~~a full retrospective basis or using a modified retrospective method with a cumulative adjustment to equity. This guidance will be adopted by~~ the ~~Company beginning in its first quarter of fiscal 2018.~~financial asset. The Company ~~continues to evaluate the impact that~~adopted this ~~new guidance may have on its consolidated financial statements, and the method of retrospective adoption that it will elect, but does not expect ASC 606 to materially~~

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impact the amount, or timing, of its revenue recognition. Under the new requirements, the Company expects to recognize its provision for sales returns on a gross basis, rather than a net basis on the consolidated balance sheets.

~~In July 2015, the FASB amended ASC Topic 330,~~ ~~Inventory~~ to simplify the measurement of inventory. The amendments require that an entity measure inventory at the lower of cost and net realizable value instead of the lower of cost and market. This guidance became effective for the Companyupdate during the first quarter of fiscal ~~2017~~2020 and ~~the adoption~~it did not have a material impact ~~its~~on the Company's consolidated financial statements.

Recently issued accounting pronouncements

In ~~February 2016,~~December 2019, the FASB issued guidance on ASC ~~Topic 842,~~ ~~Leases~~ ("740, "Income Taxes". The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles in ASC ~~842") to increase transparency~~740. The amendments also improve consistent application and ~~comparability among organizations~~simplify GAAP for other areas of this topic by ~~recognizing lease assets~~clarifying and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Under the new guidance, lessees are required to recognize a lease liability, which represents the discounted obligation to make future minimum lease payments, and a corresponding right-of-use asset on the balance sheet for most leases.amending existing guidance. This guidance ~~will be~~is effective for the Company beginning in its first quarter of fiscal ~~2019, with~~2021 and early ~~application permitted. The Company will adopt ASC 842 in its first quarter of fiscal 2019. While the Company~~adoption is currently evaluating the impact that this new guidance will have on its consolidated financial statements, it is expected that the primary impact upon adoption will be the recognition, on a discounted basis, of the Company's minimum commitments under noncancelable operating leases as right of use assets and obligations on the consolidated balance sheets. It is expected that this will result in a significant increase in assets and liabilities on the consolidated balance sheets.

~~In March 2016, the FASB amended ASC Topic 718,~~ ~~Stock Compensation~~ simplifying the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The new guidance also allows an entity to account for forfeitures when they occur. The Company adopted this amendment in the first quarter of fiscal 2017 and elected to continue to estimate expected forfeitures. The Company is now required to include excess tax benefits and deficiencies as a component of income tax expense, rather than a component of stockholders' equity. Additionally, the Company retrospectively adjusted its consolidated statement of cash flows for the three quarters ended October 30, 2016 to reclassify excess tax benefits of $1.3 million from financing activities to operating activities.

~~In August 2017, the FASB amended ASC 815,~~ ~~Derivatives and Hedging~~ to more closely align hedge accounting with companies' risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. It will make more financial and nonfinancial hedging strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess effectiveness. This guidance will be effective for the Company beginning in its first quarter of fiscal 2019, with early application permitted. The Company is currently evaluating the impact that this new guidance may have on its consolidated financial ~~statements.~~statements but does not believe it will have a material impact.

In March 2020, the FASB released guidance on ASC 848, "Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting". This update provides optional expedients and exceptions to the current

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guidance on contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts and hedging relationships that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued due to reference rate reform. The guidance was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022. The Company is currently evaluating the impact that this new guidance may have on its consolidated financial statements but does not believe it will have a material impact.

NOTE 3. CREDIT FACILITIES

North America revolving credit facility

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

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

The Company is required to follow certain covenants. As of May 3, 2020, the Company was in compliance with these covenants.

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

Mainland China revolving credit facility

In December 2019, the Company entered into an uncommitted and unsecured 130.0 million Chinese Yuan revolving credit facility. The terms are reviewed on an annual basis. The facility includes a revolving loan of up to 100.0 million Chinese Yuan as well as a financial bank guarantee facility of up to 30.0 million Chinese Yuan, or its equivalent in another currency. In U.S. dollars, the uncommitted and unsecured revolving credit facility is equivalent to $18.4 million, the revolving loan is equivalent of up to $14.2 million, and the financial bank guarantee facility is equivalent of up to $4.2 million. Loans are available in Chinese Yuan for a period not to exceed 12 months, and interest accrues on them at a rate equal to 105% of the applicable PBOC Benchmark Lending Rate. Guarantees have a commission equal to 1% per annum of the outstanding amount. The Company is required to follow certain covenants. As of May 3, 2020, the Company was in compliance with these covenants. As of May 3, 2020, there were immaterial borrowings outstanding under this credit facility.

NOTE 3.4. STOCK-BASED COMPENSATION AND BENEFIT PLANS

Stock-based compensation plans

The Company's eligible employees participate in various stock-based compensation plans, which are provided by the Company directly.

Stock-based compensation expense charged to income for the plans was ~~$13.0~~$6.6 million and ~~$12.9~~$11.0 million for the ~~three~~ quarters ended ~~October 29, 2017~~May 3, 2020 and ~~October 30, 2016,~~May 5, 2019, respectively. Total unrecognized compensation cost for all stock-based compensation plans was ~~$40.2~~$89.9 million at ~~October 29, 2017,~~May 3, 2020, which is expected to be recognized over a weighted-average period of ~~2.3~~2.4 years.

910

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~~Company stock options, performance-based restricted stock units, restricted shares, and restricted stock units~~

A summary of the balances of the Company's ~~stock option, performance-based restricted stock unit, restricted share, and restricted stock unit activity~~stock-based compensation plans as of ~~October 29, 2017,~~May 3, 2020, and changes during the first ~~three quarters~~quarter then ended, is presented below:



	Stock Options			Performance-Based Restricted Stock Units			Restricted Shares			Restricted Stock Units			Restricted Stock Units (Liability Accounting)
	Number	Weighted-Average Exercise Price		Number	Weighted-Average Grant Date Fair Value		Number	Weighted-Average Grant Date Fair Value		Number	Weighted-Average Grant Date Fair Value		Number	Weighted-Average Fair Value
	(In thousands, except per share amounts)
Balance at February 2, 2020	776	$	113.41	238	$	103.52	7	$	175.82	333	$	108.44	29	$	239.39
Granted	214	188.84		137	115.58		—	—		112	189.30		—	—
Exercised/released	42	75.26		171	63.03		—	—		159	86.02		—	—
Forfeited/expired	—	—		—	—		—	—		1	137.74		—	—
Balance at May 3, 2020	948	$	132.05	204	$	145.55	7	$	175.82	285	$	152.27	29	$	218.69
Exercisable at May 3, 2020	270	$	96.67

Stock Options Performance-Based Restricted Stock Units Restricted Shares Restricted Stock Units
Number Weighted-Average Exercise Price Number Weighted-Average Grant Date Fair Value Number Weighted-Average Grant Date Fair Value Number Weighted-Average Grant Date Fair Value
(In thousands, except per share amounts)
Balance at January 29, 2017 918
$ 59.20
390
$ 61.05
14
$ 70.54
360
$ 62.99
Granted 614
52.16
191
52.21
24
52.38
332
52.65
Exercised/released 40
40.70
—
—
14
70.29
131
60.74
Forfeited 247
58.18
224
54.72
3
51.72
111
57.18
Balance at October 29, 2017 1,245
$ 56.53
357
$ 60.30
21
$ 52.45
450
$ 57.46
Exercisable at October 29, 2017 350
$ 56.14

The 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 induring the first ~~three quarters~~quarter of fiscal ~~2017:~~2020:



	~~Three Quarters~~Quarter Ended ~~October 29, 2017~~ May 3, 2020
Expected term	~~4.00~~3.75 years
Expected volatility	~~38.28~~39.62	%
Risk-free interest rate	~~1.72~~0.34	%
Dividend yield	—	%

The Company's performance-based restricted stock units are awarded to eligible employees and entitle the grantee to receive a maximum of ~~two~~2 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.

Employee share purchase plan

The Company's board of directors and stockholders approved the Company's Employee Share Purchase Plan ("ESPP") in September 2007. Contributions are made by eligible employees, subject to certain limits defined in the ESPP, and the Company matches one-third of the contribution. The maximum number of shares authorized to be purchased under the ESPP is 6.0 million shares. All shares purchased under the ESPP are purchased in the open market. During the quarter ended ~~October 29, 2017,~~May 3, 2020, there were ~~34.2~~22.1 thousand shares purchased.

Defined contribution pension plans

~~During the second quarter of fiscal 2016, the~~The Company ~~began offering~~offers defined contribution pension plans to its eligible ~~employees in Canada and the United States.~~employees. Participating employees may elect to defer and contribute a portion of their eligible

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compensation to a plan up to limits stated in the plan documents, not to exceed

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the dollar amounts set by applicable laws. The Company matches 50% to 75% of the contribution depending on the participant's length of service, and the contribution is subject to a two year vesting period. The Company's net expense for the defined contribution plans was ~~$3.9~~$2.3 million and ~~$1.6~~$2.3 million in the first ~~three quarters~~quarter of fiscal ~~2017~~2020 and fiscal ~~2016,~~2019, respectively.

NOTE 4.5. FAIR VALUE MEASUREMENT

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are made using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value:

Level 1 - defined as observable inputs such as quoted prices in active markets;

Level 2 - defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and

Level 3 - defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

Assets and liabilities measured at fair value on a recurring basis

The fair value measurement is categorized in its entirety by reference to its lowest level of significant input. As of ~~October 29, 2017,~~May 3, 2020 and February 2, 2020, the Company held certain assets and liabilities that are required to be measured at fair value on a recurring basis:



	May 3, 2020		Level 1		Level 2		Level 3		Balance Sheet Classification
	(In thousands)
Money market funds	$	476,607	$	476,607	$	—	$	—	Cash and cash equivalents
Term deposits	132,222		—		132,222		—		Cash and cash equivalents
Forward currency contract assets	23,511		—		23,511		—		Other prepaid expenses and other current assets
Forward currency contract liabilities	23,766		—		23,766		—		Other current liabilities

October 29, 2017 Level 1 Level 2 Level 3
(In thousands)
Net forward currency contract (liabilities) assets $ (583 ) $ —
$ (583 ) $ —



	February 2, 2020		Level 1		Level 2		Level 3		Balance Sheet Classification
	(In thousands)
Money market funds	$	610,800	$	610,800	$	—	$	—	Cash and cash equivalents
Term deposits	203,360		—		203,360		—		Cash and cash equivalents
Forward currency contract assets	1,735		—		1,735		—		Other prepaid expenses and other current assets
Forward currency contract liabilities	1,920		—		1,920		—		Other current liabilities

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

~~In addition to~~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 ~~that~~ are ~~recorded~~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 ~~on a recurring basis, the Company has impaired certain long-lived~~and does not offset derivative assets and recorded them at their estimated fair value on a non-recurring basis. The fair value of these long-lived assets was determined using Level 3 inputs, principally the present value of the estimated future cash flows expected from their use and eventual disposition.liabilities.

As a result of the ivivva restructuring, the Company recorded lease termination liabilities of $12.2 million, determined using Level 3 inputs based on remaining lease rentals and reduced by estimated sublease income.

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NOTE 5.6. DERIVATIVE FINANCIAL INSTRUMENTS

Foreign exchange risk

The Company is exposed to risks associated with changes in foreign currency exchange rates and uses derivative financial instruments to manage its exposure to certain of these foreign currency exchange rate risks. The Company does not enter into derivative contracts for speculative or trading purposes.

The Company currently hedges against changes in the Canadian dollar to U.S. dollar exchange rate and changes in the Chinese Yuan to U.S. dollar exchange rate using forward currency contracts.

Net investment hedges

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

The Company holds a significant portion of its assets in Canada and ~~during the three quarters ended October 29, 2017, it entered~~enters into forward currency contracts designed to hedge a portion of the foreign currency exposure that arises on translation of a Canadian subsidiary into U.S. dollars. These forward currency contracts are designated as net investment hedges. The effective portions of the hedges are reported in accumulated other comprehensive income or loss and will subsequently be reclassified to net earnings in the period in which the hedged investment is either sold or substantially liquidated. ~~The Company assesses hedge~~Hedge effectiveness is measured using a method based on changes in forward exchange rates. The Company recorded no ineffectiveness from net investment hedges ~~for~~during the ~~three quarters ended October 29, 2017.~~

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fiscal 2020.

The Company classifies the cash flows at settlement of its net investment hedges within investing activities in the consolidated statements of cash flows.

Derivatives not designated as hedging instruments

The Company is exposed to gains and losses arising from changes in foreign exchange rates associated with transactions which are undertaken by its subsidiaries in currencies other than their functional currency. Such transactions include intercompany transactions and inventory purchases. These transactions result in the recognition of certain foreign currency denominated monetary assets and liabilities which are remeasured to the quarter-end or settlement date exchange rate. The resulting foreign currency gains and losses are recorded in selling, general and administrative expenses.

During the ~~three quarters ended October 29, 2017~~first quarter of fiscal 2020, the Company entered into certain forward currency contracts designed to economically hedge the foreign exchange revaluation gains and losses that are recognized by its Canadian and Chinese subsidiaries on U.S. dollar denominated monetary assets and liabilities. The Company has not applied hedge accounting to these instruments and the change in fair value of these derivatives is recorded within selling, general and administrative expenses.

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

~~Outstanding notional amounts~~

~~The Company had foreign exchange forward contracts outstanding with the following notional amounts:~~

October 29, 2017 October 30, 2016
(In thousands)
Derivatives designated as net investment hedges $ 50,000
$ —
Derivatives not designated in a hedging relationship 40,000
—

~~The forward currency contracts designated as net investment hedges mature in January 2018.~~

~~The forward currency contracts not designated in a hedging relationship mature on different dates between November 2017 and December 2017.~~

Quantitative disclosures about derivative financial instruments

The Company presents its derivative assets and derivative liabilities at their gross fair values within other prepaid expenses and other current assets and other current liabilities on the consolidated balance sheets. However, the Company's Master International Swap Dealers Association, Inc., Agreements and other similar arrangements allow net settlements under certain conditions. As of ~~October 29, 2017,~~May 3, 2020, there were derivative assets of ~~$1.2~~$23.5 million and derivative liabilities of ~~$1.5~~$23.8 million subject to enforceable netting arrangements.

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



	May 3, 2020						February 2, 2020
	Gross Notional		Assets		Liabilities		Gross Notional		Assets		Liabilities
	(In thousands)
Derivatives designated as net investment hedges:
Forward currency contracts	$	461,000	$	23,364	$	—	$	417,000	$	1,583	$	—
Derivatives not designated in a hedging relationship:
Forward currency contracts	505,000		147		23,766		460,000		152		1,920
Net derivatives recognized on consolidated balance sheets:
Forward currency contracts			$	23,511	$	23,766			$	1,735	$	1,920

October 29, 2017 October 30, 2016
(In thousands)
Derivatives designated as net investment hedges, recognized within:
Other current liabilities $ 2,902
$ —
Derivatives not designated in a hedging relationship, recognized within:
Other prepaid expenses and other current assets 2,319
—
The forward currency contracts designated as net investment hedges outstanding as of May 3, 2020 mature on different dates between May 2020 and October 2020.

~~Table~~The forward currency contracts not designated in a hedging relationship outstanding as of ~~Contents~~

May 3, 2020 mature on different dates between May 2020 and October 2020.

The pre-tax gains and losses on foreign exchange forward contracts recorded in accumulated other comprehensive income ~~and in the consolidated statement of operations, are~~or loss were as follows:



	Quarter Ended
	May 3, 2020		May 5, 2019
	(In thousands)
Gains (losses) recognized in foreign currency translation adjustment:
Derivatives designated as net investment hedges	$	28,256	$	6,764

Quarter Ended Three Quarters Ended
October 29, 2017 October 30, 2016 October 29, 2017 October 30, 2016
(In thousands)
Derivatives designated as net investment hedges:
Gain (loss) recognized in other comprehensive income $ 1,424
$ —
$ (7,501 ) $ —
Derivatives not designated in a hedging relationship:
(Loss) gain recognized in selling, general and administrative expenses (1,137 ) —
6,497
—

No gains or losses have been reclassified from accumulated other comprehensive income or loss into net income for derivative financial instruments in a net investment hedging relationship, as the Company has not sold or liquidated (or substantially liquidated) its hedged subsidiary.

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



	Quarter Ended
	May 3, 2020			May 5, 2019
	(In thousands)
Gains (losses) recognized in selling, general and administrative expenses:
Foreign exchange gains	$	27,742		$	5,697
Derivatives not designated in a hedging relationship	(27,520		)	(6,631		)
Net foreign exchange and derivative gains (losses)	$	222		$	(934	)

Credit risk

The Company is exposed to credit-related losses in the event of nonperformance by the counterparties to the forward currency contracts. The credit risk amount is the Company's unrealized gains on its derivative instruments, based on foreign currency rates at the time of nonperformance.

The Company's forward currency contracts are entered into with large, reputable financial institutions that are monitored by the Company for counterparty risk.

The Company's derivative contracts contain certain credit risk-related contingent features. Under certain circumstances, including an event of default, bankruptcy, termination, and cross default under the Company's revolving credit facility, the Company may be required to make immediate payment for outstanding liabilities under its derivative contracts.

~~NOTE 6. ASSET IMPAIRMENT AND RESTRUCTURING~~

On June 1, 2017, the Company announced a plan to restructure its ivivva operations. On August 20, 2017, as part of this plan, the Company closed 48 of its 55 ivivva branded company-operated stores. The seven remaining ivivva branded stores remain in operation and are not expected to close. All of the Company's ivivva branded showrooms and other temporary locations have been closed. The Company continues to offer ivivva branded products on its e-commerce websites.

As a result of the closures, the Company recognized aggregate pre-tax charges of $45.4 million during the three quarters ended October 29, 2017. The restructuring was substantially completed during the third quarter of fiscal 2017.

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~~A summary of the pre-tax charges recognized during the third quarter and the first three quarters of fiscal 2017 in connection with the Company's restructuring of its ivivva operations is as follows:~~

Quarter Ended
October 29, 2017 Three Quarters Ended
October 29, 2017
(In thousands)
Costs recorded in cost of goods sold:
Provision to reduce inventories to net realizable value $ 1,934
$ 4,838
Loss (reversal of loss) on committed inventory purchases (2,286 ) 250
Accelerated depreciation 1,530
3,753
1,178
8,841
Costs recorded in operating expenses:
Lease termination costs 19,441
19,884
Impairment of property and equipment —
11,593
Employee related costs 804
4,000
Other restructuring costs 762
1,047
Asset impairment and restructuring costs 21,007
36,524
Restructuring and related costs $ 22,185
$ 45,365

Income tax recoveries of $5.8 million and $11.9 million were recorded on the above items in the third quarter and the first three quarters of fiscal 2017, respectively. These income tax recoveries are based on the expected annual tax rate of the applicable tax jurisdictions.

~~Costs recorded in cost of goods sold~~

During the first three quarters of fiscal 2017, the Company recognized expenses of $8.8 million in cost of goods sold as a result of the restructuring of its ivivva operations. This included $4.8 million to reduce inventories to their estimated net realizable value, and $0.3 million for the losses the Company expects to incur on certain firm inventory and fabric purchase commitments. The liability for the expected losses is included within accrued inventory liabilities on the consolidated balance sheets.

During the second and third quarters of fiscal 2017, the Company took delivery of inventory that it had previously committed to purchase. As a result, there was a reduction in the Company's liability for expected losses on committed inventory purchases and a corresponding increase in its provision to reduce inventories to net realizable value.

The Company also recorded accelerated depreciation charges of $3.8 million during the first three quarters of fiscal 2017, primarily related to leasehold improvements and furniture and fixtures for stores that closed during the third quarter of fiscal 2017.

~~Costs recorded in operating expenses~~

~~The Company recognized asset impairment and restructuring costs of $36.5 million during the first three quarters of fiscal 2017 as a result of the restructuring of its ivivva operations.~~

As a result of the plan to close the majority of the ivivva branded locations, the long-lived assets of each ivivva branded location were tested for impairment as of April 30, 2017. For impaired locations, a loss was recognized representing the difference between the net book value of the long-lived assets and their estimated fair value. Impairment losses totaling $11.6 million were recognized during the first quarter of fiscal 2017. These losses primarily relate to leasehold improvements and furniture and fixtures of the company-operated stores segment. These assets were retired during the third quarter of fiscal 2017 in conjunction with the closures of the company-operated stores.

The fair value of the long-lived assets for each store was determined using Level 3 inputs, principally the present value of the estimated future cash flows expected from their use and eventual disposition.

~~During the first three quarters of fiscal 2017, the Company recognized employee related expenses as a result of the restructuring of $4.0 million.~~

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The Company recognized lease termination costs of $19.9 million during the first three quarters of fiscal 2017. As of October 29, 2017, the Company had lease termination liabilities of $12.2 million. During the first three quarters of fiscal 2017, the Company also recognized other restructuring costs of $1.0 million.

~~NOTE 7. INCOME TAXES~~

As disclosed in Note 15 to the audited consolidated financial statements included in Item 8 of the Company's fiscal 2016 Annual Report on Form 10-K filed with the SEC on March 29, 2017, the Company finalized a bilateral Advance Pricing Arrangement ("APA") with the Internal Revenue Service ("IRS") and the Canada Revenue Agency ("CRA") during fiscal 2016.

~~The results for the quarter and three quarters ended October 29, 2017 did not include any discrete items or adjustments related to the APA.~~

The results for the quarter and three quarters ended October 30, 2016 included net interest expenses of $0.2 million and $1.7 million, respectively, that were recorded in other income (expense), net, and net income tax recoveries of $4.0 million and $11.6 million, respectively, related to the expected outcome of the APA and taxes associated with the anticipated repatriation of foreign earnings.

NOTE 8.7. EARNINGS PER SHARE

The details of the computation of basic and diluted earnings per share are as follows:



	Quarter Ended
	May 3, 2020		May 5, 2019
	(In thousands, except per share amounts)
Net income	$	28,632	$	96,603
Basic weighted-average number of shares outstanding	130,251		130,694
Assumed conversion of dilutive stock options and awards	552		643
Diluted weighted-average number of shares outstanding	130,803		131,337
Basic earnings per share	$	0.22	$	0.74
Diluted earnings per share	$	0.22	$	0.74

Quarter Ended Three Quarters Ended
October 29, 2017 October 30, 2016 October 29, 2017 October 30, 2016
(In thousands, except per share amounts)
Net income $ 58,944
$ 68,285
$ 138,901
$ 167,246
Basic weighted-average number of shares outstanding 135,364
137,033
136,191
137,095
Assumed conversion of dilutive stock options and awards 214
204
166
226
Diluted weighted-average number of shares outstanding 135,578
137,237
136,357
137,321
Basic earnings per share $ 0.44
$ 0.50
$ 1.02
$ 1.22
Diluted earnings per share $ 0.43
$ 0.50
$ 1.02
$ 1.22

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 ~~three~~ quarters ended ~~October 29, 2017~~May 3, 2020 and ~~October 30, 2016, 0.2 million~~May 5, 2019, 97.5 thousand and ~~0.1 million~~75.7 thousand stock options and awards, respectively, were anti-dilutive to earnings per share and therefore have been excluded from the computation of diluted earnings per share.

On ~~June 11, 2014,~~January 31, 2019, the Company's board of directors approved a stock repurchase program for up to ~~repurchase shares~~$500.0 million of the Company's common ~~stock up to an aggregate value of $450.0 million. This stock repurchase program was completed during the second quarter of fiscal 2016.~~

~~On December 1, 2016, the Company's board of directors approved a program to repurchase~~ shares ~~of the Company's common stock up to an aggregate value of $100.0 million. The common stock was repurchased in~~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, with the~~1934. The timing and actual number of common shares to be repurchased ~~depending~~will depend upon market conditions, eligibility to trade, and other ~~factors. This stock~~factors, in accordance with Securities and Exchange Commission requirements. As of March 31, 2020, the Company temporarily paused its share repurchase program. As of May 3, 2020, the remaining aggregate value of shares available to be repurchased under this program was ~~completed during the third quarter of fiscal 2017.~~$263.6 million.

During the ~~three~~ quarters ended ~~October 29, 2017~~May 3, 2020 and ~~October 30, 2016, 1.8~~May 5, 2019, 0.4 million and ~~0.4~~1.0 million shares, respectively, were repurchased under the program at a total cost of ~~$99.3~~$63.7 million and ~~$28.6~~$163.5 million, respectively.

Subsequent to May 3, 2020, and up to June 5, 2020, 0 shares were repurchased.

NOTE 9.8. SUPPLEMENTARY FINANCIAL INFORMATION

For the quarters ended October 29, 2017 and October 30, 2016, there were net foreign exchange and derivative revaluation gains of $2.7 million and $4.3 million, respectively, included within selling, general and administrative expenses.

For the three quarters ended October 29, 2017 and October 30, 2016, there were net foreign exchange and derivative revaluation gains of $6.9 million and losses of $4.1 million, respectively, included within selling, general and administrative expenses.

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A summary of certain consolidated balance sheet accounts is as follows:



	May 3, 2020			February 2, 2020
	(In thousands)
Inventories:
Finished goods	$	648,909		$	540,580
Provision to reduce inventories to net realizable value	(23,060		)	(22,067		)
	$	625,849		$	518,513

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October 29,
2017 January 29,
2017
(In thousands)
Inventories:
Finished goods $ 412,648
$ 306,087
Provision to reduce inventories to net realizable value (15,756 ) (7,655 )
$ 396,892
$ 298,432
Property and equipment, net:
Land $ 79,852
$ 78,561
Buildings 38,144
32,174
Leasehold improvements 289,775
273,801
Furniture and fixtures 88,545
84,479
Computer hardware 63,882
58,270
Computer software 199,601
160,835
Equipment and vehicles 14,858
13,704
Accumulated depreciation and impairment (334,254 ) (278,325 )
$ 440,403
$ 423,499
Goodwill and intangible assets, net:
Goodwill $ 25,496
$ 25,496
Changes in foreign currency exchange rates (1,156 ) (1,263 )
24,340
24,233
Intangibles - reacquired franchise rights 10,150
10,150
Accumulated amortization (10,009 ) (9,807 )
Changes in foreign currency exchange rates (5 ) (19 )
136
324
$ 24,476
$ 24,557
Other non-current assets:
Security deposits $ 10,484
$ 9,009
Deferred lease assets 10,099
10,560
Other 9,056
923
$ 29,639
$ 20,492
Other current liabilities:
Accrued duty, freight, and other operating expenses $ 42,923
$ 27,477
Sales tax collected 11,686
10,182
Accrued rent 5,620
5,562
Other 11,361
9,340
$ 71,590
$ 52,561
Other non-current liabilities:
Deferred lease liabilities $ 26,763
$ 26,648
Tenant inducements 26,199
21,668
Other 5,634
—
$ 58,596
$ 48,316

As of October 29, 2017, as a result of the restructuring of its ivivva operations, the Company had a provision of $4.8 million to reduce the carrying value of certain ivivva branded finished goods inventories to their estimated net realizable value. In addition, the Company had a liability for the losses it expects to incur on certain firm inventory and fabric purchase commitments of $0.3 million. This liability is included within accrued inventory liabilities on the consolidated balance sheets.



	May 3, 2020			February 2, 2020
	(In thousands)
Other prepaid expenses and other current assets:
Other prepaid expenses	$	60,333		$	64,568
Forward currency contract assets	23,511			1,735
Government payroll subsidy receivables	13,442			—
Other current assets	10,404			4,239
	$	107,690		$	70,542
Property and equipment, net:
Land	$	67,545		$	71,829
Buildings	28,984			30,187
Leasehold improvements	490,010			489,202
Furniture and fixtures	108,786			109,533
Computer hardware	95,250			95,399
Computer software	339,827			336,768
Equipment and vehicles	19,302			19,521
Work in progress	51,445			40,930
Property and equipment, gross	1,201,149			1,193,369
Accumulated depreciation	(541,884		)	(521,676		)
	$	659,265		$	671,693
Other non-current assets:
Cloud computing arrangement implementation costs	$	31,929		$	24,648
Security deposits	19,949			19,901
Other	8,981			11,652
	$	60,859		$	56,201
Other current liabilities:
Accrued duty, freight, and other operating expenses	$	76,679		$	59,403
Sales return allowances	33,962			12,897
Deferred revenue	27,775			12,705
Forward currency contract liabilities	23,766			1,920
Accrued capital expenditures	10,747			5,457
Sales tax collected	9,485			17,370
Accrued rent	5,129			8,356
Other	7,037			6,935
	$	194,580		$	125,043

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Please refer to Note 6 of these unaudited interim consolidated financial statements for further details regarding the ivivva restructuring plans, including impairment of property and equipment, net which was recorded during the first quarter of fiscal 2017.

NOTE ~~10. SEGMENT REPORTING~~9. 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.~~websites and mobile apps. Outlets, ~~showrooms,~~ temporary locations, sales to wholesale accounts, license and supply arrangements, and warehouse sale net revenue have been combined into other. ~~Information for these segments is detailed~~During the first quarter of fiscal 2020, the Company reviewed its segment and general corporate expenses and determined certain costs that are more appropriately classified in ~~the table below:~~

Quarter Ended Three Quarters Ended
October 29, 2017 October 30, 2016 October 29, 2017 October 30, 2016
(In thousands)
Net revenue:
Company-operated stores $ 425,084
$ 393,506
$ 1,218,127
$ 1,133,599
Direct to consumer 131,181
104,013
341,453
288,978
Other 62,753
46,897
160,799
131,875
$ 619,018
$ 544,416
$ 1,720,379
$ 1,554,452
Income from operations before general corporate expense:
Company-operated stores $ 97,015
$ 91,497
$ 267,178
$ 245,056
Direct to consumer 52,201
43,588
127,746
114,744
Other 9,319
5,709
19,076
12,430
158,535
140,794
414,000
372,230
General corporate expense 50,762
47,819
168,912
147,707
Restructuring and related costs 22,185
—
45,365
—
Income from operations 85,588
92,975
199,723
224,523
Other income (expense), net 1,052
628
2,771
720
Income before income tax expense $ 86,640
$ 93,603
$ 202,494
$ 225,243

Capital expenditures:
Company-operated stores $ 29,747
$ 18,932
$ 53,549
$ 47,197
Direct to consumer 7,582
3,711
16,423
9,425
Corporate and other 19,910
12,263
37,156
49,546
$ 57,239
$ 34,906
$ 107,128
$ 106,168
Depreciation and amortization:
Company-operated stores $ 16,549
$ 15,735
$ 47,630
$ 44,030
Direct to consumer 3,740
1,854
10,087
4,908
Corporate and other 8,271
6,370
22,412
14,703
$ 28,560
$ 23,959
$ 80,129
$ 63,641

~~The accelerated depreciation related~~different categories. Accordingly, comparative figures have been reclassified to conform to the ~~restructuring of~~financial presentation adopted for the ~~ivivva operations is included in corporate and other in the above breakdown of depreciation and amortization.~~current year.



	Quarter Ended
	May 3, 2020			May 5, 2019
	(In thousands)
Net revenue:
Company-operated stores	$	259,970		$	506,422
Direct to consumer	352,039			209,844
Other	39,953			66,049
	$	651,962		$	782,315
Segmented income (loss) from operations:
Company-operated stores	$	(30,154	)	$	120,911
Direct to consumer	156,947			79,337
Other	(269		)	12,623
	126,524			212,871
General corporate expense	93,773			84,059
Income from operations	32,751			128,812
Other income (expense), net	1,174			2,379
Income before income tax expense	$	33,925		$	131,191

Capital expenditures:
Company-operated stores	$	33,819		$	38,710
Direct to consumer	2,298			6,226
Corporate and other	15,984			23,498
	$	52,101		$	68,434
Depreciation and amortization:
Company-operated stores	$	25,628		$	21,060
Direct to consumer	2,684			2,462
Corporate and other	15,220			9,301
	$	43,532		$	32,823

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



	Quarter Ended
	May 3, 2020		May 5, 2019
	(In thousands)
United States	$	459,352	$	553,647
Canada	99,497		123,645
Outside of North America	93,113		105,023
	$	651,962	$	782,315

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



	Quarter Ended
	May 3, 2020		May 5, 2019
	(In thousands)
Women's product	$	480,313	$	562,983
Men's product	129,129		170,219
Other categories	42,520		49,113
	$	651,962	$	782,315

NOTE ~~11.~~10. LEGAL PROCEEDINGS AND OTHER CONTINGENCIES

In addition to the legal ~~matter~~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, including~~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 ~~current proceeding~~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 entitledRebecca 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. On April 2, 2020, the Court granted the motion of the defendants and the Company to dismiss the lawsuit with prejudice.

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

On April 9, 2020, Aliign Activation Wear, LLC filed a lawsuit in the United States District Court for the Central District of California alleging federal trademark infringement, false designation of original and unfair competition. The plaintiff is seeking injunctive relief, monetary damages and declaratory relief. The Company intends to vigorously defend this matter.

~~NOTE 12. SUBSEQUENT EVENT~~

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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 unaudited interim consolidated financial statements in accordance with ASC Topic 855, ~~Subsequent Events~~ ~~("ASC 855").~~

On November 29, 2017, the Company's board of directors approved a stock repurchase program for up to $200 million of its common shares in the open market at prevailing market prices, including under plans complying with the provisions of Rule 10b5-1 and Rule 10b-18 of the Securities Exchange Act of 1934. The timing and actual number of common shares to be repurchased will depend upon market conditions, eligibility to trade, and other factors, in accordance with Securities and Exchange Commission requirements, and the repurchase program is expected to be completed in two years. Shares may be repurchased from time to time on the open market, through block trades or otherwise. Purchases may be started or stopped at any time without prior notice depending on market conditions and other factors.

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

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

The forward-looking statements contained in this Form 10-Q and any documents incorporated herein by reference reflect our current views about future events and are subject to risks, uncertainties, assumptions, and changes in circumstances that may cause events or our actual activities or results to differ significantly from those expressed in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, actions, levels of activity, performance, or achievements. Readers are cautioned not to place undue reliance on these forward-looking statements. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements, including, but not limited to, those factors described in "Risk Factors" and elsewhere in this report.

The forward-looking statements contained in this Form 10-Q reflect our views and assumptions only as of the date of this Form 10-Q and are expressly qualified in their entirety by the cautionary statements included in this Form 10-Q. Except as required by applicable securities law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

This information should be read in conjunction with the unaudited interim consolidated financial statements and the notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes, and Management's Discussion and Analysis of Financial Condition and Results of Operations, contained in our fiscal ~~2016~~2019 Annual Report on Form 10-K filed with the SEC on March ~~29, 2017.~~

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26, 2020.

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

Overview

lululemon athletica inc. is principally a designer, distributor, and retailer of healthy lifestyle inspired athletic ~~apparel.~~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 ~~developed~~fostered a distinctive corporate ~~culture, and~~culture; we ~~have a mission to produce products which create transformational experiences for people to live happy, healthy, fun lives. We~~ promote a set of core values in our business which include taking personal responsibility, nurturing entrepreneurial spirit, acting with honesty and courage, valuing connection, and choosing to have fun. These core values attract passionate and motivated employees who are driven to ~~succeed~~achieve personal and professional goals, and share our purpose ~~of "elevating~~"to elevate the world ~~from mediocrity to greatness.~~by unleashing the full potential within every one of us."

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. ~~We also offer activewear for girls under our ivivva brand name.~~ Our apparel assortment includes items such as pants, shorts, tops, and jackets designed for a healthy lifestyle ~~and~~including athletic activities such as yoga, running, training, and most other sweaty pursuits. We also offer fitness-related ~~accessories, including an array~~accessories.

COVID-19 Pandemic

The outbreak of ~~items~~a novel strain of coronavirus ("COVID-19") was declared a global pandemic by the World Health Organization in March 2020. The spread of COVID-19 has caused public health officials to recommend precautions to mitigate the spread of the virus, especially when congregating in heavily populated areas, such as ~~bags, socks, underwear, yoga mats,~~malls and ~~water bottles.~~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.

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We have taken actions to close retail locations and to reduce operating hours, and we continue to monitor the situation and work closely with local authorities to prioritize the safety of our people and guests. In February 2020, we temporarily closed all of our retail locations in Mainland China. All of these locations have since reopened. In March 2020, we temporarily closed all of our retail locations in North America, Europe, and certain countries in Asia Pacific. Subsequent to May 3, 2020, we began reopening our retail locations in these markets in line with the guidance from local authorities. As of June ~~1, 2017, we announced a plan to restructure~~10, 2020, 295 of our ~~ivivva operations to a primarily e-commerce focused business, with a select number of~~company-operated stores ~~remaining~~were open. Our distribution centers in ~~key communities across North America. The restructuring was substantially completed~~Columbus, Ohio and Sumner, Washington were temporarily closed for one and two weeks, respectively, during the ~~third~~first quarter of fiscal ~~2017. On August 20, 2017,~~2020 due to COVID-19. As of June 10, 2020, all of our distribution centers were open.

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

There is significant uncertainty regarding the extent and duration of the ~~restructuring plan,~~impact that the COVID-19 pandemic will have on our store operations, the demand for our products, and on our supply chain. It had a material adverse impact on our results of operations for the first quarter of fiscal 2020, and we ~~closed 48 of our 55 ivivva branded company-operated stores. The seven remaining ivivva branded stores remain in operation and are not expected~~expect it to ~~close. All of our ivivva branded showrooms and other temporary locations have been closed. We~~ continue to ~~offer ivivva branded products~~impact our results of operations, financial position, and liquidity. The extent to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19 and the actions taken to contain it or treat its impact.

We remain confident in the long-term growth opportunities and our ~~e-commerce websites.~~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 May 3, 2020, we had cash and cash equivalents of $823.0 million and the capacity under our committed revolving credit facility was $398.2 million.

Financial Highlights

~~The summary below provides both GAAP and adjusted non-GAAP financial measures. In connection with~~For the ~~restructuring of our ivivva operations, we recognized pre-tax costs totaling $22.2 million in the third~~first quarter of fiscal ~~2017. The adjusted financial measures exclude these charges and their related tax effects, and also exclude certain discrete items related~~2020, compared to ~~our transfer pricing arrangements and taxes on repatriation of foreign earnings which were recognized during~~ the ~~third~~first quarter of fiscal ~~2016.~~

~~For the third quarter of fiscal 2017, compared to the third quarter of fiscal 2016:~~2019:

Net revenue ~~increased 14%~~decreased 17% to ~~$619.0~~$652.0 million. On a constant dollar basis, net revenue ~~increased 12%~~decreased 16%.

~~Total comparable sales, which includes comparable store sales and direct~~Direct to consumer net revenue increased ~~8%. On~~68%, or increased 70% on a constant dollar ~~basis, total comparable sales increased 7%.~~basis.


–	~~Comparable store sales increased 2%, or increased 1% on a constant dollar basis.~~


–	~~Direct to consumer net revenue increased 26%, or increased 25% on a constant dollar basis.~~

Gross profit ~~increased 16%~~decreased 21% to ~~$322.0 million. Adjusted gross profit increased 16% to $323.1~~$334.4 million.

Gross margin ~~increased 90~~decreased 260 basis points to ~~52.0%. Adjusted gross margin increased 110 basis points to 52.2%~~51.3%.

Income from operations decreased 8%75% to ~~$85.6 million. Adjusted income from operations increased 16% to $107.8~~$32.8 million.

Operating margin decreased ~~330~~1,150 basis points to ~~13.8%. Adjusted operating margin increased 30 basis points to 17.4%~~5.0%.

Income tax expense ~~increased 9%~~decreased 85% to ~~$27.7~~$5.3 million. Our effective tax rate for the ~~third~~first quarter of fiscal ~~2017~~2020 was ~~32.0%~~15.6% compared to ~~27.0%~~26.4% for the ~~third~~first quarter of fiscal ~~2016. The adjusted effective tax rate was 30.8% in the third quarter of fiscal 2017 compared to 31.3% in the third quarter of fiscal 2016.~~2019.

Diluted earnings per share were ~~$0.43~~$0.22 compared to ~~$0.50~~$0.74 in the ~~third~~first quarter of fiscal ~~2016. Adjusted diluted earnings per share were $0.56 for~~2019.

As the ~~third quarter~~temporary store closures from COVID-19 have resulted in a significant number of ~~fiscal 2017 compared~~stores being removed from our comparable store base, total comparable sales and comparable store sales are not currently representative of the underlying trends of our business. We do not believe these metrics are currently useful to ~~$0.47 for the third quarter~~investors in understanding performance, therefore we have not included these metrics in our discussion and analysis of ~~fiscal 2016.~~results of operations.

Refer to the non-GAAP reconciliation tables contained in the ~~"Results of Operations"~~"Non-GAAP Financial Measures" section of this ~~"Item~~Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" for reconciliations between constant dollar changes in net revenue ~~total comparable sales, comparable store sales,~~ and direct to consumer net ~~revenue, and adjusted~~revenue.

1920

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~~gross profit, gross margin, income from operations, operating margin, effective tax rates, and diluted earnings per share, and the most directly comparable measures calculated in accordance with GAAP.~~

Results of Operations

~~Third~~First Quarter Results

The following table summarizes key components of our results of operations for the quarters ended ~~October 29, 2017~~May 3, 2020 and ~~October 30, 2016.~~May 5, 2019. The percentages are presented as a percentage of net revenue.


	Quarter Ended								Quarter Ended
	October 29, 2017		October 30, 2016		October 29, 2017		October 30, 2016		May 3, 2020		May 5, 2019		May 3, 2020		May 5, 2019
	(In thousands)				(Percentages)				(In thousands)				(Percentages)
Net revenue	$	619,018	$	544,416	100.0	%	100.0	%	$	651,962	$	782,315	100.0	%	100.0	%
Cost of goods sold	297,056		265,990		48.0		48.9		317,560		360,595		48.7		46.1
Gross profit	321,962		278,426		52.0		51.1		334,402		421,720		51.3		53.9
Selling, general and administrative expenses	215,367		185,451		34.8		34.1		301,651		292,908		46.3		37.4
Asset impairment and restructuring costs	21,007		—		3.4		—
Income from operations	85,588		92,975		13.8		17.1		32,751		128,812		5.0		16.5
Other income (expense), net	1,052		628		0.2		0.1		1,174		2,379		0.2		0.3
Income before income tax expense	86,640		93,603		14.0		17.2		33,925		131,191		5.2		16.8
Income tax expense	27,696		25,318		4.5		4.7		5,293		34,588		0.8		4.4
Net income	$	58,944	$	68,285	9.5	%	12.5	%	$	28,632	$	96,603	4.4	%	12.3	%

Net Revenue

Net revenue ~~increased $74.6~~decreased $130.4 million, or ~~14%~~17%, to ~~$619.0~~$652.0 million for the ~~third~~first quarter of fiscal ~~2017~~2020 from ~~$544.4~~$782.3 million for the ~~third~~first quarter of fiscal ~~2016.~~2019. On a constant dollar basis, assuming the average exchange rates for the ~~third~~first quarter of fiscal ~~2017~~2020 remained constant with the average exchange rates for the ~~third~~first quarter of fiscal ~~2016,~~2019, net revenue ~~increased $67.8~~decreased $122.7 million, or ~~12%~~16%.

The ~~increase~~decrease in net revenue was primarily due to the impact of COVID-19, including temporary closures of company-operated stores. Decreased company-operated store net revenue ~~generated by new company-operated stores~~ as well as ~~increased~~a decrease in net revenue from our other locations contributed to the decrease in net revenue. This was partially offset by an increase in direct to consumer net revenue. Total comparable sales, which includes comparable store sales and direct to consumer, increased 8% in the third quarter of fiscal 2017 compared to the third quarter of fiscal 2016. Total comparable sales increased 7% on a constant dollar basis.

Net revenue on a segment basis for the quarters ended ~~October 29, 2017~~May 3, 2020 and ~~October 30, 2016~~May 5, 2019 is summarized below. The percentages are presented as a percentage of total net revenue.


	Quarter Ended								Quarter Ended
	October 29, 2017		October 30, 2016		October 29, 2017		October 30, 2016		May 3, 2020		May 5, 2019		May 3, 2020		May 5, 2019
	(In thousands)				(Percentages)				(In thousands)				(Percentages)
Company-operated stores	$	425,084	$	393,506	68.7	%	72.3	%	$	259,970	$	506,422	39.9	%	64.7	%
Direct to consumer	131,181		104,013		21.2		19.1		352,039		209,844		54.0		26.8
Other	62,753		46,897		10.1		8.6		39,953		66,049		6.1		8.4
Net revenue	$	619,018	$	544,416	100.0	%	100.0	%	$	651,962	$	782,315	100.0	%	100.0	%

Company-Operated Stores. Net revenue from our company-operated stores segment ~~increased $31.6~~decreased $246.5 million, or 8%49%, to ~~$425.1~~$260.0 million in the ~~third~~first quarter of fiscal ~~2017~~2020 from ~~$393.5~~$506.4 million in the ~~third~~first quarter of fiscal ~~2016.~~2019. The ~~following contributed to the increase~~decrease in net revenue from our company-operated stores ~~segment:~~

~~Net revenue from company-operated stores we opened or significantly expanded subsequent to October 30, 2016, and therefore not included in comparable store sales, contributed $33.7 million~~segment was primarily due to the ~~increase. We opened 46 net new lululemon branded company-operated stores since the third quarter~~impact of ~~fiscal 2016, including 30~~COVID-19. All of our stores in North America, ~~13 stores~~Europe, and certain countries in Asia Pacific ~~and three stores in Europe.~~

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~~A comparable store sales increase of 2% in the third quarter of fiscal 2017 compared to the third quarter of fiscal 2016 resulted in~~were closed for a $6.6 million increase to net revenue. Comparable store sales increased 1%, or $3.0 million on a constant dollar basis. The increase in comparable store sales was primarily a result of improved conversion rates and increased dollar value per transaction. This was partially offset by a decrease in store traffic, due in part to shifting retail traffic trends from in-store to online.

~~The closure of 48 of our ivivva branded company-operated stores as part~~significant portion of the ~~restructuring of our ivivva operations in the third quarter of fiscal 2017 reduced our net revenue from company-operated stores by $8.8 million compared to the third quarter of fiscal 2016.~~quarter.

Direct to Consumer. Net revenue from our direct to consumer segment increased ~~$27.2~~$142.2 million, or ~~26%~~68%, to ~~$131.2~~$352.0 million in the ~~third~~first quarter of fiscal ~~2017~~2020 from ~~$104.0~~$209.8 million in the ~~third~~first quarter of fiscal ~~2016.~~2019. Direct to consumer net revenue increased ~~25%~~70% on a constant dollar basis. ~~This~~The increase in net revenue from our direct to consumer segment was primarily a result of increased website traffic ~~increased~~and improved conversion rates. This was partially offset by a decrease in dollar value per ~~transaction, and improved conversion rates.~~transaction. There was a shift in the way guests shopped in the first quarter of fiscal 2020 as a result of COVID-19, with more guests shopping online instead of in-store, primarily due to temporary store closures.

Other. Net revenue from our other segment ~~increased $15.9~~decreased $26.1 million, or ~~34%~~40%, to ~~$62.7~~$40.0 million in the ~~third~~first quarter of fiscal ~~2017~~2020 from ~~$46.9~~$66.0 million in the ~~third~~first quarter of fiscal ~~2016.~~2019. This ~~increase~~decrease was primarily the result of ~~an increased number~~the temporary closures of outlets and increased net revenue at existing outlets during the third quarter of fiscal 2017 compared to the third quarter of fiscal 2016. There was also an increase in net revenue from warehouse sales and temporary locations. The increase in net revenue from our other ~~segment was partially offset by lower net revenue from showrooms, primarily due to~~retail locations as a ~~decreased number~~result of ~~showrooms open during the third quarter~~COVID-19.

Table of ~~fiscal 2017 compared to the third quarter of fiscal 2016.~~Contents

Gross Profit

Gross profit ~~increased $43.5~~decreased $87.3 million, or ~~16%~~21%, to ~~$322.0~~$334.4 million for the ~~third~~first quarter of fiscal ~~2017~~2020 from ~~$278.4~~$421.7 million for the ~~third~~first quarter of fiscal ~~2016.~~2019.

Gross profit as a percentage of net revenue, or gross margin, ~~increased 90~~decreased 260 basis points to ~~52.0%~~51.3% in the ~~third~~first quarter of fiscal ~~2017~~2020 from ~~51.1%~~53.9% in the ~~third~~first quarter of fiscal ~~2016.~~2019. The ~~increase~~decrease in gross margin was primarily the result of:

an increase in ~~product margin of 70 basis points which was primarily due to a favorable mix of higher margin product and lower product costs, partially offset by higher markdowns;~~

~~a decrease in fixed costs, including~~ occupancy and depreciation costs ~~and~~as a percentage of revenue of 330 basis points, primarily due to lower net revenue;

an increase in costs as a percentage of revenue related to our ~~product and supply chain departments,~~distribution centers of 20100 basis ~~points;~~points primarily due to lower net revenue; and

~~a favorable~~an unfavorable impact of foreign exchange rates of 20 basis points.

This was partially offset by ~~accelerated depreciation charges related~~an increase in product margin of 180 basis points. The increase in product margin was primarily due to ~~the restructuring~~lower product costs, and a favorable mix of ~~our ivivva operations of 20 basis points.~~

During the third quarter of fiscal 2017, as a result of the restructuring of our ivivva operations, we recognized costs totaling $1.2 million within costs of goods sold, as outlined in Note 6 to the unaudited interim consolidated financial statements included in Item 1 of Part I of this report. These costs primarily related to accelerated depreciation on leasehold improvements and furniture and fittings for stores which were closed during the third quarter of fiscal 2017. Excluding these charges, adjusted gross profit increased 16% to $323.1 million, and adjusted grosshigher margin ~~increased 110 basis points to 52.2% compared to the third quarter of fiscal 2016.~~product, partially offset by higher markdowns.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased ~~$29.9~~$8.7 million, or ~~16%~~3%, to ~~$215.4~~$301.7 million in the ~~third~~first quarter of fiscal ~~2017~~2020 from ~~$185.5~~$292.9 million in the ~~third~~first quarter of fiscal ~~2016.~~2019. The increase in selling, general and administrative expenses was primarily due to:

an increase in head office costs ~~related to our operating channels~~ of ~~$25.3~~$7.6 million, comprised of:


–	an increase in other costs of $18.2 million primarily due to increases in depreciation, information technology costs, brand and community costs, and other head office costs; and


–	a decrease in employee costs of ~~$7.7~~$10.6 million primarily ~~from a growth in labor hours~~due to decreased incentive and ~~benefits, mainly associated with new company-operated stores~~stock-based compensation expense; and ~~other new operating locations;~~

an increase in costs related to our operating channels of $16.6 million, comprised of:


–	an increase in variable costs of ~~$3.7~~$10.4 million primarily due to an increase in ~~credit card fees and packaging~~distribution costs as a result of increased direct to consumer net revenue; ~~and~~


–	an increase in other costs of ~~$13.9~~$11.6 million primarily due to ~~an increase in~~increased digital marketing ~~expenses, website related costs including photography costs, brand and community costs, and other costs associated with our operating locations;~~

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~~an increase in head office costs of $3.1 million, comprised of:~~


–	~~an increase in employee costs of $2.1 million primarily due to additional employees to support the growth in our business; and~~expenses;


–	~~an increase~~a decrease in ~~other~~employee costs of ~~$1.0~~$5.4 million primarily due to ~~increases in information technology related costs, an increase in brand and community costs, partially offset by~~lower incentive compensation expenses due to temporary store closures as a ~~decrease in professional fees;~~result of COVID-19; and

~~a decrease~~The increase in selling, general and administrative expenses was partially offset by $14.3 million of government payroll subsidies which were recognized during the first quarter of fiscal 2020, and by an increase in net foreign exchange and derivative revaluation gains of ~~$1.6~~$1.2 million. There were net foreign exchange and derivative revaluation gains of $2.7 million in the third quarter of fiscal 2017 compared to net foreign exchange revaluation gains of $4.3 million in the third quarter of fiscal 2016. The net foreign exchange gains and losses primarily relate to the revaluation of U.S. dollar denominated monetary assets and liabilities held by Canadian subsidiaries, and the derivatives are designed to economically hedge these gains and losses.

As a percentage of net revenue, selling, general and administrative expenses increased 70890 basis points, to ~~34.8%~~46.3% in the ~~third~~first quarter of fiscal ~~2017~~2020 from ~~34.1%~~37.4% in the ~~third~~first quarter of fiscal ~~2016.~~

~~Asset Impairment and Restructuring Costs~~

As a result of the restructuring of our ivivva operations, we recognized restructuring costs of $21.0 million in the third quarter of fiscal 2017. This included lease termination costs of $19.4 million, employee related costs of $0.8 million, and other restructuring costs of $0.8 million. We did not have any asset impairment and restructuring costs in the third quarter of fiscal 2016. Please refer to Note 6 to the unaudited interim consolidated financial statements included in Item 1 of Part I of this report.2019.

Income from Operations

Income from operations decreased ~~$7.4~~$96.1 million, or 8%75%, to ~~$85.6~~$32.8 million in the ~~third~~first quarter of fiscal ~~2017~~2020 from ~~$93.0~~$128.8 million in the ~~third~~first quarter of fiscal ~~2016.~~2019. Operating margin decreased ~~330~~1,150 basis points to ~~13.8%~~5.0% compared to ~~17.1%~~16.5% in the ~~third~~first quarter of fiscal ~~2016.~~

In connection with the restructuring of our ivivva operations, we recognized pre-tax costs totaling $22.2 million in the third quarter of fiscal 2017. This includes restructuring costs of $21.0 million and costs recognized in cost of goods sold totaling $1.2 million. Excluding these charges, adjusted income from operations increased 16% to $107.8 million and adjusted operating margin increased 30 basis points to 17.4%.2019.

On a segment basis, we determine income from operations without taking into account our general corporate expenses. During the first quarter of fiscal 2020, we reviewed our segment and general corporate expenses and determined certain costs that are more appropriately classified in different categories. Accordingly, comparative figures have been reclassified to conform to the ~~costs we incur in connection with~~financial presentation adopted for the ~~restructuring~~current year.

Table of ~~our ivivva operations.~~Contents

Segmented income (loss) from operations for the quarters ended ~~October 29, 2017~~May 3, 2020 and ~~October 30, 2016~~May 5, 2019 is summarized below. The percentages are presented as a percentage of net revenue of the respective operating segments.


	Quarter Ended								Quarter Ended
	October 29, 2017		October 30, 2016		October 29, 2017		October 30, 2016		May 3, 2020			May 5, 2019		May 3, 2020		May 5, 2019
	(In thousands)				(Percentages)				(In thousands)					(Percentage of segment revenue)
Segmented income (loss) from operations:
Company-operated stores	$	97,015	$	91,497	22.8	%	23.3	%	$	(30,154	)	$	120,911	(11.6	)%	23.9	%
Direct to consumer	52,201		43,588		39.8		41.9		156,947			79,337		44.6		37.8
Other	9,319		5,709		14.9		12.2		(269		)	12,623		(0.7	)	19.1
Segmented income from operations	158,535		140,794
									126,524			212,871
General corporate expense	50,762		47,819						93,773			84,059
Restructuring and related costs	22,185		—
Income from operations	$	85,588	$	92,975					$	32,751		$	128,812

Company-Operated Stores. Income from operations from our company-operated stores segment ~~increased $5.5~~decreased $151.1 million, or 6%125%, to ~~$97.0~~a loss of $30.2 million for the ~~third~~first quarter of fiscal ~~2017~~2020 from ~~$91.5~~income of $120.9 million for the ~~third~~first quarter of fiscal ~~2016.~~2019. The ~~increase~~decrease was primarily the result of ~~increased~~decreased gross profit of ~~$14.5~~$177.5 million which was primarily due to ~~increased~~temporary store closures resulting from COVID-19, and lower gross margin, which was primarily due to deleverage on occupancy and depreciation costs as a result of lower net revenue. This was partially offset by ~~an increase~~a decrease in selling, general and administrative expenses, primarily due to decreased store operating expenses including ~~increased store~~the recognition of government payroll subsidies, and lower credit card fees, distribution costs, and packaging costs primarily as a result of lower net revenue. Additionally, there was a decrease in employee costs, ~~increased brand and community costs, and increased~~primarily due to lower incentive compensation expenses due to temporary store ~~operating expenses.~~closures. Income from operations as a percentage of company-operated stores net revenue decreased ~~50 basis points~~ primarily due to lower gross margin and deleverage ofon selling, general and administrative expenses.

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Direct to Consumer. Income from operations from our direct to consumer segment increased ~~$8.6~~$77.6 million, or ~~20%~~98%, to ~~$52.2~~$156.9 million for the ~~third~~first quarter of fiscal ~~2017~~2020 from ~~$43.6~~$79.3 million for the ~~third~~first quarter of fiscal ~~2016.~~2019. The increase was primarily the result of increased gross profit of ~~$21.3~~$103.2 million which was primarily due to increased net revenue as more guests shopped online in the first quarter of fiscal 2020 as a result of COVID-19, and due to higher gross margin. This was partially offset by an increase in selling, general and administrative expenses ~~including higher digital marketing expenses and website related costs, and~~primarily due to higher variable costs ~~such as packaging,~~including distribution costs and credit card fees as a result of higher net ~~revenue.~~revenue, as well as higher digital marketing expenses. Income from operations as a percentage of direct to consumer net revenue ~~decreased 210~~increased 680 basis points primarily due to ~~deleverage of~~higher gross margin and leverage on selling, general and administrative ~~expenses, partially offset by increased gross margin.~~expenses.

Other. ~~Other income~~ Income from operations ~~increased $3.6~~from our other channels decreased $12.9 million, or ~~63%~~102%, to ~~$9.3~~a loss of $0.3 million for the ~~third~~first quarter of fiscal ~~2017~~2020 from ~~$5.7~~income of $12.6 million for the ~~third~~first quarter of fiscal ~~2016.~~2019. The ~~increase~~decrease was primarily the result of ~~increased~~decreased gross profit of ~~$8.8~~$13.0 million which was primarily due to ~~increased~~decreased net revenue, and higher gross margin. The increase in gross profit was partially offset by an increase in selling, general and administrative expenses, including increased employee costs, increased brand and community costs, and increased other operating costs.primarily due to temporary store closures resulting from COVID-19. Income from operations as a percentage of other net revenue ~~increased 270 basis points~~decreased primarily due to ~~an increase in~~deleverage on selling, general and administrative expenses and lower gross margin.

General Corporate Expense. General corporate expense increased ~~$2.9~~$9.7 million, or 6%12%, to ~~$50.8~~$93.8 million for the ~~third~~first quarter of fiscal ~~2017~~2020 from ~~$47.8~~$84.1 million for the ~~third~~first quarter of fiscal ~~2016.~~2019. This increase was primarily due to increases in depreciation, information technology costs, ~~head office employee costs,~~ and other brand and community costs, partially offset by decreased professional fees. There was also a decrease in net foreign exchange and derivative revaluation gains of $1.6 million. There were net foreign exchange and derivative revaluation gains of $2.7 million in the third quarter of fiscal 2017 compared to net foreign exchange revaluation gains of $4.3 million in the third quarter of fiscal 2016. The net foreign exchange gains and losses primarily relate to the revaluation of U.S. dollar denominated monetary assets and liabilities held by Canadian subsidiaries, and the derivatives are designed to economically hedge these gains and losses.

~~Other Income (Expense), Net~~

Other income, net increased $0.4 million, or 68%, to $1.1 million for the third quarter of fiscal 2017 from income of $0.6 million for the third quarter of fiscal 2016. The third quarter of fiscal 2016 included a net interest expense of $0.2 million in relation to certain tax adjustments that are outlined in Note 7 to the unaudited interim consolidated financial statements included in Item 1 of Part I of this report.

~~Income Tax Expense~~

~~Income tax expense increased $2.4 million, or 9%, to $27.7 million for the third quarter of fiscal 2017 from $25.3 million for the third quarter of fiscal 2016.~~

The third quarters of fiscal 2017 and fiscal 2016 included certain adjustments which resulted in net income tax recoveries of $5.8 million and $4.0 million, respectively. As outlined in Notes 6 and 7 to the unaudited interim consolidated financial statements included in Item 1 of Part I of this report, the tax recovery recognized in the third quarter of fiscal 2017 relates to the tax effect of the costs recognized in connection with the ivivva restructuring, and the tax recovery recognized in the third quarter of fiscal 2016 relates to our transfer pricing arrangements and taxes on repatriation of foreign earnings.

The effective tax rate for the third quarter of fiscal 2017 was 32.0% compared to 27.0% for the third quarter of fiscal 2016. The adjusted effective tax rate was 30.8% for the third quarter of fiscal 2017 compared to 31.3% for the third quarter of fiscal 2016. The decrease in the adjusted effective tax rate compared to the third quarter of fiscal 2016 is primarily due to certain adjustments which were recorded during the third quarter of fiscal 2017 following the finalization of our U.S. tax return.

~~Net Income~~

Net income decreased $9.3 million, or 14%, to $58.9 million for the third quarter of fiscal 2017 from $68.3 million for the third quarter of fiscal 2016. This was primarily due to an increase in selling, general and administrative expenses of $29.9 million, asset impairment and restructuring costs of $21.0 million, an increase in income tax expense of $2.4 million, partially offset by an increase in gross profit of $43.5 million and an increase in other income (expense), net of $0.4 million.

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~~First Three Quarters Results~~

~~The following table summarizes key components of our results of operations for the first three quarters ended October 29, 2017 and October 30, 2016. The percentages are presented~~ as a ~~percentage~~result of ~~net revenue.~~

Three Quarters Ended
October 29, 2017 October 30, 2016 October 29, 2017 October 30, 2016
(In thousands) (Percentages)
Net revenue $ 1,720,379
$ 1,554,452
100.0 % 100.0 %
Cost of goods sold 844,100
782,734
49.1
50.4
Gross profit 876,279
771,718
50.9
49.6
Selling, general and administrative expenses 640,032
547,195
37.2
35.2
Asset impairment and restructuring costs 36,524
—
2.1
—
Income from operations 199,723
224,523
11.6
14.4
Other income (expense), net 2,771
720
0.2
0.1
Income before income tax expense 202,494
225,243
11.8
14.5
Income tax expense 63,593
57,997
3.7
3.7
Net income $ 138,901
$ 167,246
8.1 % 10.8 %

~~Net Revenue~~

~~Net revenue increased $165.9 million, or 11%,~~donations made through our Ambassador Relief Fund that provided grants to $1.720 billion for the first three quarters of fiscal 2017 from $1.554 billion for the first three quarters of fiscal 2016. On a constant dollar basis, assuming the average exchange rates for the first three quarters of fiscal 2017 remained constant with the average exchange rates for the first three quarters of fiscal 2016, net revenue increased $162.9 million, or 10%.

fitness studio owners impacted by COVID-19. The increase in net revenue was primarily due to net revenue generated by new company-operated stores as well as increased direct to consumer net revenue. Total comparable sales, which includes comparable store sales and direct to consumer, increased 5% in the first three quarters of fiscal 2017 compared to the first three quarters of fiscal 2016. Total comparable sales increased 4% on a constant dollar basis.

~~Net revenue on a segment basis for the first three quarters ended October 29, 2017 and October 30, 2016 is summarized below. The percentages are presented as a percentage of total net revenue.~~

Three Quarters Ended
October 29, 2017 October 30, 2016 October 29, 2017 October 30, 2016
(In thousands) (Percentages)
Company-operated stores $ 1,218,127
$ 1,133,599
70.8 % 72.9 %
Direct to consumer 341,453
288,978
19.8
18.6
Other 160,799
131,875
9.4
8.5
Net revenue $ 1,720,379
$ 1,554,452
100.0 % 100.0 %

~~Company-Operated Stores~~. Net revenue from our company-operated stores segment increased $84.5 million, or 7%, to $1.218 billion in the first three quarters of fiscal 2017 from $1.134 billion in the first three quarters of fiscal 2016. The following contributed to the increase in net revenue from our company-operated stores segment:

Net revenue from company-operated stores we opened or significantly expanded subsequent to October 30, 2016, and therefore not included in comparable store sales, contributed $89.0 million to the increase. We opened 46 net new lululemon branded company-operated stores since the third quarter of fiscal 2016, including 30 stores in North America, 13 stores in Asia Pacific, and three stores in Europe.

A comparable store sales increase of 1% in the first three quarters of fiscal 2017 compared to the first three quarters of fiscal 2016 which resulted in a $4.3 million increase to net revenue. Comparable store sales increased 1%, or $2.3 million on a constant dollar basis. The increase in comparable store sales was primarily a result of increased dollar value per transaction and improved conversion rates. Thisgeneral corporate expense was partially offset by a decrease in ~~store traffic, due in part to shifting retail traffic trends from in-store to online.~~

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The closure of 48 of our ivivva branded company-operated stores as part of the restructuring of our ivivva operations in the third quarter of fiscal 2017 reduced our net revenue from company-operated stores by $8.8 million compared to the first three quarters of fiscal 2016.

~~Direct to Consumer.~~ Net revenue from our direct to consumer segment increased $52.5 million, or 18%, to $341.5 million in the first three quarters of fiscal 2017 from $289.0 million in the first three quarters of fiscal 2016. Direct to consumer net revenue increased 18% on a constant dollar basis. This was primarily a result of increased website traffic and increased dollar value per transaction, partially offset by lower conversion rates. During the second quarter of fiscal 2017, we held online warehouse sales in the United States and Canada which generated net revenue of $12.3 million. We did not hold any online warehouse sales during the first three quarters of fiscal 2016. Excluding the impact of the online warehouse sales, direct to consumer net revenue increased 14%.

~~Other.~~ Net revenue from our other segment increased $28.9 million, or 22%, to $160.8 million in the first three quarters of fiscal 2017 from $131.9 million in the first three quarters of fiscal 2016. This increase was primarily the result of increased net revenue at existing outlets, and an increased number of outlets and temporary locations open during the first three quarters of fiscal 2017 compared to the first three quarters of fiscal 2016. The increase in net revenue from our other segment was partially offset by lower net revenue from showrooms, primarily due a decreased number of showrooms open during the first three quarters of fiscal 2017 compared to the first three quarters of fiscal 2016.

~~Gross Profit~~

~~Gross profit increased $104.6 million, or 14%, to $876.3 million for the first three quarters of fiscal 2017 from $771.7 million for the first three quarters of fiscal 2016.~~

Gross profit as a percentage of net revenue, or gross margin, increased 130 basis points, to 50.9% in the first three quarters of fiscal 2017 from 49.6% in the first three quarters of fiscal 2016. The increase in gross margin was primarily the result of:

~~an increase in product margin of 230 basis points which was primarily due to a favorable mix of higher margin product and lower product costs, partially offset by higher markdowns; and~~

~~a favorable impact of foreign exchange rates of 10 basis points.~~

~~This was partially offset by an increase in fixed costs, including occupancy and depreciation~~head office employee costs, and ~~costs related to our product and supply chain departments, of 60 basis points and costs incurred in connection with the restructuring of our ivivva operations of 50 basis points.~~

During the first three quarters of fiscal 2017, as a result of the restructuring of our ivivva operations, we recognized costs totaling $8.8 million within costs of goods sold, as outlined in Note 6 to the unaudited interim consolidated financial statements included in Item 1 of Part I of this report. Excluding these charges, adjusted gross profit increased 15% to $885.1 million and adjusted gross margin increased 180 basis points to 51.4% compared to the first three quarters of fiscal 2016.

~~Selling, General and Administrative Expenses~~

Selling, general and administrative expenses increased $92.8 million, or 17%, to $640.0 million in the first three quarters of fiscal 2017 from $547.2 million in the first three quarters of fiscal 2016. The increase in selling, general and administrative expenses was primarily due to:

~~an increase in costs related to our operating channels of $63.3 million, comprised of:~~


–	~~an increase in employee costs of $26.8 million, primarily from a growth in labor hours and benefits, mainly associated with new company-operated stores and other new operating locations;~~


–	~~an increase in variable costs of $6.8 million, primarily due to an increase in credit card fees and distribution costs as a result of increased net revenue; and~~


–	an increase in other costs of $29.7 million, primarily due to an increase in digital marketing expenses, website related costs, brand and community costs, and other costs associated with our operating locations; and

~~an increase in head office costs of $40.6 million, comprised of:~~


–	~~an increase in employee costs of $13.4 million primarily due to additional employees to support the growth in our business; and~~

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–	an increase in other costs of $27.2 million primarily due to a global brand campaign, increases in other brand and community costs, professional fees, depreciation, and information technology related costs.

~~The increase in selling, general and administrative expenses was partially offset by~~ an increase in net foreign exchange and derivative revaluation gains of ~~$11.0~~$1.2 million. There were net foreign exchange and derivative revaluation gains of $6.9 million in the first three quarters of fiscal 2017 compared to net foreign exchange revaluation losses of $4.1 million in the first three quarters of fiscal 2016. The net foreign exchange gains and losses primarily relate to the revaluation of U.S. dollar denominated monetary assets and liabilities held by Canadian subsidiaries, and the derivatives are designed to economically hedge these gains and losses.

As a percentage of net revenue, selling, general and administrative expenses increased 200 basis points, to 37.2% in the first three quarters of fiscal 2017 from 35.2% in the first three quarters of fiscal 2016.

~~Asset Impairment and Restructuring Costs~~

As a result of the restructuring of our ivivva operations, we recognized asset impairment and restructuring costs of $36.5 million in the first three quarters of fiscal 2017. This includes lease termination costs of $19.9 million, long-lived asset impairment charges of $11.6 million, employee related costs of $4.0 million, and other restructuring costs of $1.0 million. We did not have any asset impairment and restructuring costs in the first three quarters of fiscal 2016. Please refer to Note 6 to the unaudited interim consolidated financial statements included in Item 1 of Part I of this report.

~~Income from Operations~~

Income from operations decreased $24.8 million, or 11%, to $199.7 million in the first three quarters of fiscal 2017 from $224.5 million in the first three quarters of fiscal 2016. Operating margin decreased 280 basis points to 11.6% compared to 14.4% in the first three quarters of fiscal 2016.

In connection with the restructuring of our ivivva operations, we recognized pre-tax costs totaling $45.4 million in the first three quarters of fiscal 2017. This includes asset impairment and restructuring costs of $36.5 million and costs recognized in cost of goods sold totaling $8.8 million. Excluding these charges, adjusted income from operations increased 9% to $245.1 million and adjusted operating margin decreased 20 basis points to 14.2%.

~~On a segment basis, we determine income from operations without taking into account our general corporate expenses and the costs we incur in connection with the restructuring of our ivivva operations.~~

Segmented income from operations for the first three quarters ended October 29, 2017 and October 30, 2016 is summarized below. The percentages are presented as a percentage of net revenue of the respective operating segments.

Three Quarters Ended
October 29, 2017 October 30, 2016 October 29, 2017 October 30, 2016
(In thousands) (Percentages)
Company-operated stores $ 267,178
$ 245,056
21.9 % 21.6 %
Direct to consumer 127,746
114,744
37.4
39.7
Other 19,076
12,430
11.9
9.4
Segmented income from operations 414,000
372,230

General corporate expense 168,912
147,707

Restructuring and related costs 45,365
—

Income from operations $ 199,723
$ 224,523

~~Company-Operated Stores.~~ Income from operations from our company-operated stores segment increased $22.1 million, or 9%, to $267.2 million for the first three quarters of fiscal 2017 from $245.1 million for the first three quarters of fiscal 2016. The increase was primarily the result of increased gross profit of $55.4 million which was primarily due to increased net revenue and higher gross margin. The increase in gross profit was partially offset by an increase in selling, general and administrative expenses, including increased store employee costs, increased brand and community costs, and increased operating expenses associated with higher net revenues and new stores. Income from operations as a percentage of company-operated stores net revenue increased by 30 basis points, primarily due to an increase in gross margin, partially offset by deleverage of selling, general and administrative expenses.

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~~Direct to Consumer.~~ Income from operations from our direct to consumer segment increased $13.0 million, or 11%, to $127.7 million for the first three quarters of fiscal 2017 from $114.7 million for the first three quarters of fiscal 2016. The increase was primarily the result of increased gross profit of $40.6 million which was primarily due to increased net revenue and higher gross margin. The increase in gross profit was partially offset by an increase in selling, general and administrative expenses including higher digital marketing expenses, website related costs, and higher variable costs such as packaging and distribution and credit card fees as a result of higher net revenue. Income from operations as a percentage of direct to consumer net revenue decreased 230 basis points primarily due to deleverage of selling, general and administrative expenses, partially offset by increased gross margin.

~~Other.~~ Other income from operations increased $6.6 million, or 53%, to $19.1 million for the first three quarters of fiscal 2017 from $12.4 million for the first three quarters of fiscal 2016. The increase was primarily the result of increased gross profit of $17.4 million which was primarily due to increased net revenue and higher gross margin. The increase in gross profit was partially offset by an increase in selling, general and administrative expenses, including increased employee costs, increased brand and community costs, and increased operating expenses associated with new locations and higher net revenues. Income from operations as a percentage of other net revenue increased 250 basis points primarily due to an increase in gross margin partially offset by deleverage of selling, general and administrative expenses as a percentage of other net revenue.

~~General Corporate Expense.~~ General corporate expense increased $21.2 million, or 14%, to $168.9 million for the first three quarters of fiscal 2017 from $147.7 million for the first three quarters of fiscal 2016. This increase was primarily due to increased head office employee costs, a global brand campaign, increases in other brand and community costs, professional fees, depreciation, and information technology related costs. These increases were partially offset by an increase in net foreign exchange and derivative revaluation gains of $11.0 million. There were net foreign exchange and derivative revaluation gains of $6.9 million in the first three quarters of fiscal 2017 compared to net foreign exchange losses of $4.1 million in the first three quarters of fiscal 2016. The net foreign exchange gains and losses primarily relate to the revaluation of U.S. dollar denominated monetary assets and liabilities held by Canadian subsidiaries, and the derivatives are designed to economically hedge these gains and losses.

Other Income (Expense), Net

Other income, net ~~increased $2.1~~decreased $1.2 million, or ~~285%~~51%, to ~~$2.8~~$1.2 million for the first ~~three quarters~~quarter of fiscal ~~2017~~2020 from income of ~~$0.7~~$2.4 million for the first ~~three quarters~~quarter of fiscal ~~2016.~~2019. The ~~increase~~decrease was primarily due to a decrease in net interest expense of $1.7 million which was recorded in the first three quarters of fiscal 2016 in relation to certain tax adjustments that are outlined in Note 7 to the unaudited interim consolidated financial statements included in Item 1 of Part I of this report.income.

Income Tax Expense

Income tax expense ~~increased $5.6~~decreased $29.3 million, or ~~10%~~85%, to ~~$63.6~~$5.3 million for the first ~~three quarters~~quarter of fiscal ~~2017~~2020 from ~~$58.0~~$34.6 million for the first ~~three quarters~~quarter of fiscal ~~2016.~~

The first three quarters of fiscal 2017 and fiscal 2016 included certain tax adjustments which resulted in net income tax recoveries of $11.9 million and $11.6 million, respectively. As outlined in Notes 6 and 7 to the unaudited interim consolidated financial statements included in Item 1 of Part I of this report, the tax recovery recognized in the first three quarters of fiscal 2017 relates to the tax effect of the costs recognized in connection with the ivivva restructuring, and the tax recovery recognized in the first three quarters of fiscal 2016 relates to our transfer pricing arrangements and taxes on repatriation of foreign earnings.

2019. The effective tax rate for the first ~~three quarters~~quarter of fiscal ~~2017~~2020 was ~~31.4%~~15.6% compared to ~~25.7%~~26.4% for the first ~~three quarters~~quarter of fiscal ~~2016.~~2019. The ~~adjusted~~decrease in the effective tax rate was 30.5% for the first three quarters of fiscal 2017 compared to 30.7% for the first three quarters of fiscal 2016. The decrease in the adjusted effective tax rate compared to first three quarters of fiscal 2016 is primarily due to ~~certain adjustments~~an increase in tax deductions related to stock-based compensation which, ~~were recorded during~~as a result of the ~~first three quarters~~lower pre-tax income for the quarter, represented a higher proportion of ~~fiscal 2017 following~~income before income tax expense and so reduced the ~~finalization~~overall effective tax rate.

Table of ~~our U.S. and Canadian tax returns.~~Contents

Net Income

Net income decreased ~~$28.3~~$68.0 million, or ~~17%~~70%, to ~~$138.9~~$28.6 million for the first ~~three quarters~~quarter of fiscal ~~2017~~2020 from ~~$167.2~~$96.6 million for the first ~~three quarters~~quarter of fiscal ~~2016.~~2019. This was primarily due to a decrease in gross profit of $87.3 million, an increase in selling, general and administrative expenses of ~~$92.8 million, long-lived asset impairment and restructuring costs of $36.5~~$8.7 million, and ~~an increase in income tax expense of $5.6 million, partially offset by an increase in gross profit of $104.6 million, and an increase~~a decrease in other income (expense), net of ~~$2.1~~$1.2 million, partially offset by a decrease in income tax expense of $29.3 million.

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Comparable Store Sales and Total 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 ~~months, or open for at least 12 months after being significantly expanded.~~full fiscal months. Net revenue from a store is included in comparable store sales beginning with the first fiscal month for which the store has a full fiscal month of sales in the prior year. Comparable store sales exclude sales from new stores that have not been open for at least 12 full fiscal months, from stores which have not been in their significantly expanded space for at least 12 full fiscal months, and from stores which have been temporarily relocated for ~~renovations.~~renovations or temporarily closed for at least 30 days. Comparable store sales also exclude sales from direct to consumer ~~outlets, showrooms, temporary locations, wholesale accounts, license~~ and ~~supply arrangements, warehouse sales, and~~other segments, as well as sales from company-operated stores that we have closed.

Total comparable sales combines comparable store sales and direct to consumer sales. We are evolving towards an omni-channel approach to support the shopping behavior of our guests. This involves country and region specific websites, mobile 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.

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.

The comparable sales measures we report may not be equivalent to similarly titled measures reported by other companies.

We typically use comparable store sales to assess the performance of our existing stores as it allows us to monitor the performance of our business without the impact of recently opened or expanded stores. We typically use total comparable sales to evaluate the performance of our business from an omni-channel perspective. We therefore typically believe that investors would similarly find these metrics useful in assessing the performance of our business. However, as the temporary store closures from COVID-19 have resulted in a significant number of stores being removed from our comparable store base, we believe total comparable sales and comparable store sales are not currently representative of the underlying trends of our business. We do not believe these metrics are currently useful to investors in understanding performance, therefore we have not included these metrics in our discussion and analysis of results of operations.

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 these measures on a constant dollar basis is useful to investors because it enables them to better understand the level of growth of our business.

Adjusted gross profit, gross margin, income from operations, operating margin, effective tax rates, and diluted earnings per share exclude the costs recognized in connection with the restructuring of our ivivva operations, its related tax effects, and certain discrete items related to our transfer pricing arrangements and taxes on repatriation of foreign earnings. We believe these adjusted financial measures are useful to investors as the adjustments do not directly relate to our ongoing business operations and therefore do not contribute to a meaningful evaluation of the trend in our operating performance. Furthermore, we do not believe the adjustments are reflective of our expectations of our future operating performance and believe these non-GAAP measures are useful to investors because of their comparability to our historical information.

The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or with greater prominence to, the financial information prepared and presented in accordance with GAAP. A reconciliation of the non-GAAP financial measures follows, which includes more detail on the GAAP financial measure that is most directly comparable to each non-GAAP financial measure, and the related reconciliations between these financial measures.

~~The below~~

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Constant dollar changes in net revenue ~~total comparable sales, comparable store sales,~~ and direct to consumer net revenue

The below changes in net revenue show the change compared to the corresponding period in the prior year.

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~~Constant dollar changes in net revenue, total comparable sales, comparable store sales, and direct to consumer net revenue~~

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

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

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

Quarter Ended
October 29, 2017 Three Quarters Ended
October 29, 2017
(Percentages)
Change in direct to consumer net revenue 26 % 18 %
Adjustments due to foreign exchange rate changes (1 ) —
Change in direct to consumer net revenue in constant dollars 25 % 18 %

~~__________~~

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

²~~Comparable store sales reflects net revenue from company-operated stores that have been open for at least 12 months, or open for at least 12 months after being significantly expanded.~~

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~~Adjusted financial measures~~

The following tables reconcile adjusted financial measures with the most directly comparable measures calculated in accordance with GAAP. The amounts are in thousands, except for the per share amounts.

Quarter Ended
October 29, 2017 Quarter Ended
October 30, 2016
GAAP Results Adjustments Adjusted Results
(Non-GAAP) GAAP Results Adjustments
Adjusted Results
(Non-GAAP)
Gross profit¹
$ 321,962
$ 1,178
$ 323,140
$ 278,426
$ —
$ 278,426
Gross margin¹
52.0 % 0.2 % 52.2 % 51.1 % — % 51.1 %
Income from operations^1,2
85,588
22,186
107,774
92,975
—
92,975
Operating margin^1,2
13.8 % 3.6 % 17.4 % 17.1 % — % 17.1 %
Income before income tax expense^1,2,3
86,640
22,185
108,825
93,603
186
93,789
Income tax expense^3,4
27,696
5,813
33,509
25,318
4,005
29,323
Effective tax rate^3,4
32.0 % (1.2 )% 30.8 % 27.0 % 4.3 % 31.3 %
Diluted earnings per share^1,2,3,4
$ 0.43
$ 0.13
$ 0.56
$ 0.50
$ (0.03 ) $ 0.47

Three Quarters Ended
October 29, 2017 Three Quarters Ended
October 30, 2016
GAAP Results Adjustments Adjusted Results
(Non-GAAP) GAAP Results Adjustments
Adjusted Results
(Non-GAAP)
Gross profit¹
$ 876,279
$ 8,841
$ 885,120
$ 771,718
$ —
$ 771,718
Gross margin¹
50.9 % 0.5 % 51.4 % 49.6 % — % 49.6 %
Income from operations^1,2
199,723
45,365
245,088
224,523
—
224,523
Operating margin^1,2
11.6 % 2.6 % 14.2 % 14.4 % — % 14.4 %
Income before income tax expense^1,2,3
202,494
45,365
247,859
225,243
1,696
226,939
Income tax expense^3,4
63,593
11,886
75,479
57,997
11,576
69,573
Effective tax rate^3,4
31.4 % (0.9 )% 30.5 % 25.7 % 5.0 % 30.7 %
Diluted earnings per share^1,2,3,4
$ 1.02
$ 0.24
$ 1.26
$ 1.22
$ (0.07 ) $ 1.15

~~__________~~

¹During the quarter and three quarters ended October 29, 2017, we recognized costs totaling $1.2 million and $8.8 million, respectively, within cost of goods sold related to the restructuring of our ivivva operations.

²During the quarter and three quarters ended October 29, 2017, we recognized asset impairment and restructuring costs related to the restructuring of our ivivva operations totaling $21.0 million and $36.5 million, respectively.

³The adjustments in the quarter and three quarters ended October 30, 2016 relate to our transfer pricing arrangements and the associated repatriation of foreign earnings and were recorded in other income (expense), net and income tax expense.

⁴The adjustment to income tax expense for the quarter and three quarters ended October 29, 2017 represents the tax effect of the ivivva related restructuring adjustments, calculated based on the expected annual tax rate of the applicable tax jurisdictions.

~~Please refer to Notes 6 and 7 to the unaudited interim consolidated financial statements included in Item 1 of Part I of this report for further information on these adjustments.~~



	Quarter Ended May 3, 2020
	Net Revenue					Direct to Consumer Net Revenue
	(In thousands)			(Percentages)		(Percentages)
Change	$	(130,353	)	(17	)%	68	%
Adjustments due to foreign exchange rate changes	7,674			1		2
Change in constant dollars	$	(122,679	)	(16	)%	70	%

Seasonality

Our business is affected by the general seasonal trends common to the retail apparel industry. Our annual net revenue is weighted more heavily toward our fourth fiscal quarter, reflecting our historical strength in sales during the holiday season, while our operating expenses are more equally distributed throughout the year. As a result, a substantial portion of our operating profits are generated in the fourth quarter of our fiscal year. For example, we generated approximately 47%~~, 45%, and 42%~~ of our full year operating profit during each of the fourth quarters of fiscal ~~2016, fiscal 2015,~~2019 and fiscal ~~2014, respectively.~~2018.

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Liquidity and Capital Resources

Our primary sources of liquidity are our current balances of cash and cash equivalents, cash flows from operations, and capacity under our revolving credit ~~facility.~~facilities. Our primary cash needs are capital expenditures for opening new stores and remodeling or relocating existing stores, making information technology system investments and enhancements, funding working capital requirements, and making other strategic ~~capital~~ investments both in North America and internationally. We may also use cash to repurchase shares of our common stock. Cash and cash equivalents in excess of our needs are held in interest bearing accounts with financial ~~institutions.~~institutions, as well as in money market funds, treasury bills, and term deposits.

As of ~~October 29, 2017,~~May 3, 2020, our working capital, ~~(excluding~~excluding cash and cash ~~equivalents)~~equivalents, was ~~$297.7~~$240.0 million, our cash and cash equivalents were ~~$650.1~~$823.0 million, and our capacity under our committed revolving facility was ~~$148.9~~$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:


	Three Quarters Ended						Quarter Ended
	October 29, 2017			October 30, 2016			May 3, 2020			May 5, 2019
	(In thousands)						(In thousands)
Total cash provided by (used in):
Total cash (used in) provided by:
Operating activities	$	131,309		$	98,659		$	(121,243	)	$	(62,803	)
Investing activities	(120,051		)	(106,168		)	(45,626		)	(63,908		)
Financing activities	(100,707		)	(25,288		)	(90,587		)	(170,292		)
Effect of exchange rate changes on cash	4,657			11,701			(13,043		)	(8,076		)
(Decrease) increase in cash and cash equivalents	$	(84,792	)	$	(21,096	)
Decrease in cash and cash equivalents							$	(270,499	)	$	(305,079	)

Operating Activities

Cash flows ~~provided by~~used in operating activities consist primarily of net income adjusted for certain items including depreciation and amortization, stock-based compensation expense, and the effect of changes in operating assets and liabilities.

Cash ~~provided by~~used in operating activities increased ~~$32.7~~$58.4 million, to ~~$131.3~~$121.2 million for the first ~~three quarters~~quarter of fiscal ~~2017~~2020 compared to ~~$98.7~~$62.8 million for the first ~~three quarters~~quarter of fiscal ~~2016. This increase was~~2019, primarily ~~the~~as a result of a decrease of $68.0 million in net ~~cash outflows from~~income primarily due to the impact of COVID-19, including temporary closures of company-operated stores. This was partially offset by the following:

an increase of $6.0 million in non-cash expenses primarily related to an increase in depreciation, partially offset by a decrease in stock-based compensation expense; and

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an increase of $3.5 million in changes in operating assets and liabilities, ~~of $47.0 million,~~ primarily due to the following:


–	an increase of $92.9 million related to income taxes, primarily due to the deferral of Canadian income tax payments to the third quarter of fiscal 2020 as well as payments for withholding taxes on repatriated foreign earnings in the first quarter of fiscal 2019;


–	an increase of $61.9 million related to other current and non-current liabilities primarily due to an increase in forward currency contract liabilities as a result of foreign exchange fluctuations, and an increase in the sales return allowance as a result of COVID-19 reducing in-period returns; and


–	an increase of $7.6 million related to accounts payable.

The increase in ~~depreciation~~changes in operating assets and ~~amortization of $16.5 million, and asset impairment related to our ivivva restructuring of $11.6 million. This~~liabilities was partially offset by ~~a decrease in net income of $28.3 million and a change in deferred income taxes of $18.4 million.~~the following:


–	a decrease of $69.0 million related to inventories, primarily due to lower than expected net revenue as a result of the temporary store closures from COVID-19;


–	a decrease of $37.2 million related to other prepaid expenses and other current and non-current assets, primarily due to an increase in forward currency contract assets as a result of foreign exchange fluctuations;


–	a decrease of $27.6 million related to accrued compensation related expenses; and


–	a decrease of $25.1 million related to right-of-use lease assets and current and non-current lease liabilities.

Investing Activities

Cash flows used in investing activities relate to capital expenditures, the settlement of net investment hedges, and other investing activities. The capital expenditures were primarily for opening new company-operated stores, remodeling or relocating certain stores, and ongoing store refurbishment. We also had capital expenditures related to information technology and business systems, related to corporate buildings, and for opening retail locations other than company-operated stores.

Cash used in investing activities ~~increased $13.9~~decreased $18.3 million to ~~$120.1~~$45.6 million for the first ~~three quarters~~quarter of fiscal ~~2017~~2020 from ~~$106.2~~$63.9 million for the first ~~three quarters~~quarter of fiscal ~~2016. This increase~~2019. The decrease was primarily the result of ~~an increase~~adjusting our investments in light of COVID-19. This included decreasing our corporate capital expenditures on information technology and business systems as well as decreasing our capital expenditures for renovations and relocations of our ~~direct to consumer and~~ company-operated stores segments, primarily related to our new website and an increased number of stores opened during the first three quarters of fiscal 2017 compared to the first three quarters of fiscal 2016. The increase in cash used in investing activities was partially offset by a decrease in capital expenditures at our corporate level. In the second quarter of fiscal 2016, we purchased a land parcel in Vancouver, BC for $19.7 million for general corporate purposes.stores.

Financing Activities

Cash flows used in ~~or provided by~~ financing activities consist primarily of cash used to repurchase shares of our common stock, ~~and~~ certain cash flows related to stock-based ~~compensation.~~compensation, and other financing activities.

Cash used in financing activities ~~increased $75.4~~decreased $79.7 million to ~~$100.7~~$90.6 million for the first ~~three quarters~~quarter of fiscal ~~2017~~2020 compared to ~~$25.3~~$170.3 million for the first ~~three quarters of fiscal 2016.~~

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On June 11, 2014, our board of directors approved a program to repurchase shares of our common stock up to an aggregate value of $450.0 million. This stock repurchase program was completed during the second quarter of fiscal ~~2016. On December 1, 2016,~~2019. The decrease was primarily the result of a decrease in our ~~board of directors approved a program to repurchase shares of our common~~ stock ~~up to an aggregate value of $100.0 million. This stock repurchase program was completed during the third quarter of fiscal 2017.~~repurchases.

Our cash used in financing activities for the first ~~three quarters~~quarter of fiscal ~~2017~~2020 included ~~$99.3~~$63.7 million to repurchase ~~1.8~~0.4 million shares of our common stock compared to ~~$28.6~~$163.5 million to repurchase ~~0.4~~1.0 million shares for the first ~~three quarters~~quarter of fiscal ~~2016.~~2019. During the first quarter of fiscal 2019, we repurchased 1.0 million shares in a private transaction. We did not purchase any shares in a private transaction during the first quarter of fiscal 2020. 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. As of March 31, 2020, we temporarily paused our share repurchase program.

We believe that our cash and cash equivalent balances, cash ~~generated~~flows from operations, and borrowings available to us under our revolving credit ~~facility~~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, the continuing impact of COVID-19, as well as the other factors described in Item 1 of Part II of this Quarterly Report on Form 10-Q. In addition, we may make discretionary capital improvements with respect to our stores, distribution facilities, headquarters, or systems, or we may make strategic investments or repurchase shares under an approved stock repurchase program, which we would expect to fund through the use of cash, issuance of debt or equity securities or other external financing sources to the extent we were unable to fund such capital expenditures out of our cash and cash equivalents and cash generated from operations.

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Revolving Credit ~~Facility~~Facilities

North America revolving credit facility

On December 15, 2016, we entered into a credit agreement for $150.0 million under ana 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 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. As of May 3, 2020, we were in compliance with the covenants of the credit facility.

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

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

As of ~~October 29, 2017,~~May 3, 2020, aside from letters of credit of ~~$1.1~~$1.8 million, we had no other borrowings outstanding under this credit facility.

Mainland China revolving credit facility

In December 2019, we entered into an uncommitted and unsecured 130.0 million Chinese Yuan revolving credit facility. The terms are reviewed on an annual basis. The facility includes a revolving loan of up to 100.0 million Chinese Yuan as well as a financial bank guarantee facility of up to 30.0 million Chinese Yuan, or its equivalent in another currency. In U.S. dollars, the uncommitted and unsecured revolving credit facility is equivalent to $18.4 million, the revolving loan is equivalent of up to $14.2 million, and the financial bank guarantee facility is equivalent of up to $4.2 million. Loans are available in Chinese Yuan for a period not to exceed 12 months, and interest accrues on them at a rate equal to 105% of the applicable PBOC Benchmark Lending Rate. Guarantees have a commission equal to 1% per annum of the outstanding amount. We are required to follow certain covenants. As of May 3, 2020, we were in compliance with the covenants. As of May 3, 2020, there were immaterial borrowings outstanding under this credit facility.

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Off-Balance Sheet Arrangements

We enter into standby letters of credit to secure certain of our obligations, including leases, taxes, and duties. As of ~~October 29, 2017,~~May 3, 2020, letters of credit and letters of guarantee totaling ~~$1.1~~$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

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interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity, (iii) any obligation under derivative instruments that are indexed to our shares and classified as equity in our consolidated balance sheets, or (iv) any obligation arising out of a variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions. Predicting future events is inherently an imprecise activity and, as such, requires the use of judgment. Actual results may vary from our estimates in amounts that may be material to the financial statements. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact our consolidated financial statements. Our critical accounting policies and estimates are discussed in our fiscal ~~2016~~2019 Annual Report on Form 10-K filed with the SEC on March ~~29, 2017,~~26, 2020, and in Notes 1, 2, 4,5, and 56, included in Item 1 of Part I of this Quarterly Report on Form 10-Q.

Operating Locations

Our company-operated stores by ~~brand and by~~ country as of ~~October 29, 2017~~May 3, 2020 and ~~January 29, 2017,~~February 2, 2020 are summarized in the table below.


	October 29, 2017	January 29, 2017	May 3, 2020	February 2, 2020
lululemon
United States	263	245	301	305
Canada	54	51	61	63
People's Republic of China⁽¹⁾			41	38
Australia	27	27	31	31
United Kingdom	9	9	14	14
China	6	3
Japan			7	7
New Zealand	6	5	7	7
Hong Kong	3	3
Germany			6	6
South Korea			6	5
Singapore	3	3	4	4
South Korea	3	2
Germany	2	1
France			3	3
Malaysia			2	2
Sweden			2	2
Ireland	1	—	1	1
Japan	1	—
Puerto Rico	1	1
Netherlands			1	1
Norway			1	1
Switzerland	1	1	1	1
Taiwan	1	—
	381	351
ivivva
United States	4	42
Canada	3	13
	7	55
Total	388	406
Total company-operated stores			489	491

__________

⁽¹⁾

Included within PRC as of May 3, 2020, were seven company-operated stores in the Hong Kong Special Administrative Region, two company-operated stores in the Macao Special Administration Region, and one company-operated store in Taiwan, PRC. As of February 2, 2020, there were six company-operated stores in the Hong Kong Special Administrative Region, two company-operated stores in the Macao Special Administration Region, and one company-operated store in Taiwan, PRC.

As of May 3, 2020, all of our retail locations in North America, Europe, and certain countries in Asia Pacific were temporarily closed as a result of COVID-19.

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Retail locations operated by third parties under license and supply arrangements are not included in the above table. As of ~~October 29, 2017,~~May 3, 2020, there were ~~five~~eight licensed ~~stores,~~locations, including four in Mexico, three in the United Arab Emirates, ~~one in Mexico,~~ and one in Qatar.

On August 20, 2017, as part of the restructuring of our ivivva operations, we closed 48 of our 55 ivivva branded company-operated stores. The seven remaining ivivva branded stores remain in operation and are not expected to close.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Exchange Risk. The functional currency of our 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 ~~October 29, 2017~~May 3, 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 56 to the unaudited interim consolidated financial statements included in Item 1 of Part I of this report for further information, including details of the notional amounts outstanding.

In the future, in an effort to reduce foreign 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 ~~weakening~~strengthening of the U.S. dollar against the Canadian dollar results in:

the following impacts to the consolidated statements of operations:


–	~~an increase~~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;


–	~~an increase~~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 ~~losses~~gains by our Canadian subsidiaries on U.S. dollar denominated monetary assets and liabilities; and


–	derivative valuation ~~gains~~losses on forward currency contracts not designated in a hedging relationship;

the following impacts to the consolidated balance sheets:


–	~~an increase~~a decrease in the foreign currency translation adjustment which arises on the translation of our Canadian subsidiaries' balance sheets into U.S. dollars; and


–	~~a decrease~~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.

During the first ~~three quarters~~quarter of fiscal ~~2017,~~2020, the change in the relative value of the U.S. dollar against the Canadian dollar resulted in a ~~$30.4~~$74.4 million increase in accumulated other comprehensive loss within stockholders' equity. During the first ~~three quarters~~quarter of fiscal ~~2016,~~2019, the change in the relative value of the U.S. dollar against the Canadian dollar resulted in a ~~$25.3~~$16.8 million ~~reduction~~increase in accumulated other comprehensive loss within stockholders' equity.

A 10% ~~depreciation~~appreciation in the relative value of the U.S. dollar against the Canadian dollar compared to the exchange rates in effect for the first ~~three quarters~~quarter of fiscal ~~2017~~2020 would have resulted in ~~lower~~additional income from operations of approximately ~~$4.4~~$1.6 million in the first ~~three quarters~~quarter of fiscal ~~2017.~~2020. This assumes a consistent 10% appreciation in the U.S. dollar against the Canadian dollar ~~throughout~~over the first ~~three quarters~~quarter of fiscal ~~2017.~~2020. The timing of changes in the relative value of the U.S. dollar combined with the

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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 ~~$150.0~~$400.0 million in the aggregate. Because our revolving credit ~~facility bears~~facilities bear interest at a variable rate, we will be exposed to market risks

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relating to changes in interest rates, if we have a meaningful outstanding balance. As of ~~October 29, 2017,~~May 3, 2020, aside from letters of credit of ~~$1.1~~$1.8 million, ~~we had no other~~there were immaterial borrowings outstanding under ~~this~~these credit ~~facility.~~facilities. We currently do not engage in any interest rate hedging activity and currently have no intention to do so. However, in the future, if we have a meaningful outstanding balance under our revolving facility, in an effort to mitigate losses associated with these risks, we may at times enter into derivative financial instruments, although we have not historically done so. These may take the form of forward contracts, option contracts, or interest rate swaps. We do not, and do not intend to, engage in the practice of trading derivative securities for profit.

Our cash and cash equivalent balances are held in the form of cash on hand, bank balances, 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 ~~primarily~~also exposed to credit-related losses in the event of nonperformance by the financial institutions that are counterparties to ~~the~~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. ~~Our forward currency contracts are entered~~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 ~~large,~~credit worthy and reputable financial institutions ~~that are monitored for counterparty risk.~~and by monitoring the credit standing of the financial institutions with whom we transact. We seek to limit the amount of exposure with any one counterparty.

Inflation

Inflationary factors such as increases in the cost of our product 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.

ITEM 4. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our ~~Chief Executive Officer (principal~~principal executive ~~officer) and Chief Financial Officer (principal financial~~ officer and principal financial and accounting ~~officer),~~officer, to allow timely decisions to be made regarding required disclosure. We have established a Disclosure Committee, consisting of certain members of management, to assist in this evaluation. The Disclosure Committee meets on a quarterly basis, and as needed.

Our management, including our ~~Chief Executive Officer~~principal executive officer and ~~Chief Financial Officer,~~principal financial and accounting officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) at ~~October 29, 2017.~~May 3, 2020. Based on that evaluation, our ~~Chief Executive Officer~~principal executive officer and ~~Chief Financial Officer~~principal financial and accounting officer concluded that, at ~~October 29, 2017,~~May 3, 2020, our disclosure controls and procedures were effective.

There were no changes in our internal control over financial reporting during the quarter ended ~~October 29, 2017~~May 3, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In addition to the legal matters described in Note 1110 to the unaudited interim consolidated financial statements included in Item 1 of Part I of this report and in our fiscal ~~2016~~2019 Annual Report on Form 10-K, we are, from time to time, involved in routine legal matters incidental to the conduct of our business, including legal matters such as initiation and defense of proceedings to protect intellectual property rights, personal injury claims, product liability claims, employment claims, and similar matters. We believe the ultimate resolution of any such current proceeding will not have a material adverse effect on our continued financial position, results of operations or cash flows.

ITEM 1A. RISK FACTORS

In addition to the other information contained in this Form 10-Q and in our Annual Report on Form 10-K for our ~~2016~~2019 fiscal year, the following risk factors should be considered carefully in evaluating our business. Our business, financial condition, or results of operations could be materially adversely affected by any of these risks. Please note that additional risks not presently known to us or that we currently deem immaterial could also impair our business and operations.

Our success depends on our ability to maintain the value and reputation of our brand.

Our success depends on the value and reputation of the lululemon brand. The lululemon name is integral to our business as well as to the implementation of our strategies for expanding our business. Maintaining, promoting, and positioning our brand will depend largely on the success of our marketing and merchandising efforts and our ability to provide a consistent, high quality product, and guest experience. We rely on social media, as one of our marketing strategies, to have a positive impact on both our brand value and reputation. Our brand and reputation could be adversely affected if we fail to achieve these objectives, if our public image was to be tarnished by negative publicity, which could be amplified by social media, if we fail to deliver innovative and high quality products acceptable to our guests, or if we face or mishandle a product recall. Negative publicity regarding the production methods of any of our suppliers or manufacturers could adversely affect our reputation and sales and force us to locate alternative suppliers or manufacturing sources. Additionally, while we devote considerable efforts and resources to protecting our intellectual property, if these efforts are not successful the value of our brand may be harmed. Any harm to our brand and reputation could have a material adverse effect on our financial condition.

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

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

The spread of COVID-19 has caused public health officials to recommend precautions to mitigate the spread of the virus, especially when congregating in heavily populated areas, such as malls and lifestyle centers. In February 2020, we temporarily closed all of our retail locations in Mainland China. All of these locations have since reopened. In March 2020, we temporarily closed all of our retail locations in North America, Europe, and certain countries in Asia Pacific. We have started to reopen stores in certain markets with precautionary measures such as limited operating hours and maximum occupancy levels, in line with the guidance from local authorities. There is significant uncertainty around the breadth and duration of our store closures and the restrictions in place once they do reopen.

There is significant uncertainty regarding the pace of stores reopening and what their results of operations will be once they do. We do not know what the duration and severity of potential restrictions on the operations of reopened stores will be. These restrictions could include precautionary measures such as limitations on the number of guests allowed in our stores at a time, minimum distancing requirements, and limited operating hours. A resurgence in COVID-19 cases could cause additional restrictions, including temporarily closing the stores again. An outbreak at one of our locations, even if we follow appropriate precautionary measures, could negatively impact our employees, guests, and brand. There is uncertainty over the impact of COVID-19 on the U.S., Canadian, and global economies, consumer willingness to visit stores, malls, and lifestyle centers, and employee willingness to staff our stores once they reopen. There is also uncertainty regarding potential long-term changes to consumer shopping behavior and preferences and whether consumer demand will recover when stay-at-home restrictions are lifted.

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

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

The COVID-19 situation is changing rapidly and the extent to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19 and the actions taken to contain it or treat its impact.

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

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

We operate in a highly competitive market and the size and resources of some of our competitors may allow them to compete more effectively than we can, resulting in a loss of our market share and a decrease in our net revenue and profitability.

The market for technical athletic apparel is highly competitive. Competition may result in pricing pressures, reduced profit margins or lost market share, or a failure to grow or maintain our market share, any of which could substantially harm our business and results of operations. We compete directly against wholesalers and direct retailers of athletic apparel, including large, diversified apparel companies with substantial market share and established companies expanding their production and marketing of technical athletic apparel, as well as against retailers specifically focused on women's athletic apparel. We also face competition from wholesalers and direct retailers of traditional commodity athletic apparel, such as cotton T-shirts and sweatshirts. Many of our competitors are large apparel and sporting goods companies with strong worldwide brand recognition. Because of the fragmented nature of the industry, we also compete with other apparel sellers, including those specializing in yoga apparel and other activewear. Many of our competitors have significant competitive advantages, including longer operating histories, larger and broader customer bases, more established relationships with a broader set of suppliers, greater brand recognition and greater financial, research and development, store development, marketing, distribution, and other resources than we do.

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Our competitors may be able to achieve and maintain brand awareness and market share more quickly and effectively than we can. In contrast to our ~~"grassroots"~~grassroots community-based marketing approach, many of our competitors promote their brands through traditional forms of advertising, such as print media and television commercials, and through celebrity endorsements, and have substantial resources to devote to such efforts. Our competitors may also create and maintain brand awareness using traditional forms of advertising more quickly than we can. Our competitors may also be able to increase sales in their new and existing markets faster than we do by emphasizing different distribution channels than we do, such as catalog sales or an extensive franchise network.

In addition, because we hold limited patents and exclusive intellectual property rights in the technology, fabrics or processes underlying our products, our current and future competitors are able to manufacture and sell products with performance characteristics, fabrication techniques, and styling similar to our products.

Our reliance on suppliers to provide fabrics for and to produce our products could cause problems in our supply chain.

We do not manufacture our products or the raw materials for them and rely instead on suppliers. Many of the specialty fabrics used in our products are technically advanced textile products developed and manufactured by third parties and may be available, in the short-term, from only one or a very limited number of sources. ~~In fiscal 2016, approximately 63% of our products were produced by our top five manufacturing suppliers, and 40% of raw materials were produced by a single manufacturer.~~ We have no long-term contracts with any of our suppliers or ~~manufacturing sources~~manufacturers for the production and supply of our ~~fabrics~~raw materials and ~~garments,~~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

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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 ~~continue to~~ experience, a significant disruption in the supply of fabrics or raw materials from current sources and we may be unable to locate alternative materials suppliers of comparable quality at an acceptable price, or at all. In addition, if we experience significant increased demand, or if we need to replace an existing supplier or manufacturer, we may be unable to locate additional supplies of fabrics or raw materials or additional manufacturing capacity on terms that are acceptable to us, or at all, or we may be unable to locate any supplier or manufacturer with sufficient capacity to meet our requirements or to fill our orders in a timely manner. Identifying a suitable supplier is an involved process that requires us to become satisfied with its quality control, responsiveness and service, financial stability, and labor and other ethical practices. Even if we are able to expand existing or find new manufacturing or fabric sources, we may encounter delays in production and added costs as a result of the time it takes to train our suppliers and manufacturers in our methods, products, and quality control standards. Our supply of fabric or the manufacturing of our products could be disrupted or delayed by the impact of global health pandemics, including the current COVID-19 coronavirus pandemic, and the related government and private sector responsive actions such as border closures, restrictions on product shipments, and travel restrictions. Delays related to supplier changes could also arise due to an increase in shipping times if new suppliers are located farther away from our markets or from other participants in our supply chain. Any delays, interruption, or increased costs in the supply of fabric or manufacture of our products could have an adverse effect on our ability to meet guest demand for our products and result in lower net revenue and income from operations both in the short and long term.

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

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

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

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

the imposition of new laws and regulations, including those relating to labor conditions, quality and safety standards, imports, duties, taxes and other charges on imports, as well as trade restrictions and restrictions on currency exchange or the transfer of funds;

reduced protection for intellectual property rights, including trademark protection, in some countries, particularly in the PRC; and

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

These and other factors beyond our control could interrupt our suppliers' production in offshore facilities, influence the ability of our suppliers to export our products cost-effectively or at all and inhibit our suppliers' ability to procure certain materials, any of which could harm our business, financial condition, and results of operations.

Our business could be harmed if our suppliers and manufacturers do not comply with our Vendor Code of Ethics or applicable laws.

While we require our suppliers and manufacturers to comply with our Vendor Code of Ethics, which includes labor, health and safety, and environment standards, we do not control their practices. If suppliers or contractors do not comply with these standards or applicable laws or there is negative publicity regarding the production methods of any of our suppliers or manufacturers, even if unfounded or not material to our supply chain, our reputation and sales could be adversely affected, we could be subject to legal liability, or we could be forced to locate alternative suppliers or manufacturing sources.

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An economic recession, depression, downturn or economic uncertainty in our key markets may adversely affect consumer discretionary spending and demand for our products.

Many of our products may be considered discretionary items for consumers. ~~Factors affecting~~Some of the ~~level of~~factors that may influence consumer spending ~~for such~~on discretionary items include general economic conditions ~~particularly~~(particularly those in North ~~America, and other factors such as consumer confidence in future economic conditions, fears of recession, the availability and cost of consumer credit,~~America), high levels of unemployment, health pandemics (such as the impact of the current COVID-19 coronavirus pandemic, including reduced store traffic and widespread temporary store closures), higher consumer debt levels, reductions in net worth based on market declines and uncertainty, home foreclosures and reductions in home values, fluctuating interest and foreign currency rates and credit availability, government austerity measures, fluctuating fuel and other energy costs, fluctuating commodity prices, tax ~~rates.~~rates and general uncertainty regarding the overall future economic environment. To date, COVID-19 and related precautions and mitigation measures have negatively impacted the global economy and created significant volatility and disruption of financial markets. While the duration and severity of the economic impact of COVID-19 is unknown, any recession, depression or general downturn in the global economy will negatively affect consumer confidence and discretionary spending. As global economic conditions continue to be volatile or economic uncertainty remains, trends in consumer discretionary spending also remain unpredictable and subject to reductions due to credit constraints and uncertainties about the future. Unfavorable economic conditions may lead consumers to delay or reduce purchases of our products. Consumer demand for our products may not reach our targets, or may decline, when there is an economic downturn or economic uncertainty in our key markets, particularly in North America. Our sensitivity to economic cycles and any related fluctuation in consumer demand may have a material adverse effect on our financial condition.

Our sales and profitability may decline as a result of increasing product costs and decreasing selling prices.

Our business is subject to significant pressure on costs and pricing caused by many factors, including intense competition, constrained sourcing capacity and related inflationary pressure, pressure from consumers to reduce the prices we charge for our products, and changes in consumer demand. These factors may cause us to experience increased costs, reduce our prices to consumers or experience reduced sales in response to increased prices, any of which could cause our operating margin to decline if we are unable to offset these factors with reductions in operating costs and could have a material adverse effect on our financial ~~conditions,~~condition, operating results, and cash flows.

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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

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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 ~~respect to~~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, ~~technology systems could disrupt~~including credit card information, and information about our ~~operations.~~

customers, our employees, job applicants, and other third parties. Our business employs systems and websites that allow for the storage and transmission of ~~proprietary or confidential information regarding~~this information. However, despite our ~~business, guests~~safeguards and ~~employees including credit card information. Security~~security processes and protections, security breaches could expose us to a risk of ~~loss~~theft or misuse of this information, and could result in litigation and potential liability. The retail industry, in particular, has been the target of many recent cyber-attacks. We may not have the resources or technical sophistication to be able to anticipate or prevent rapidly evolving types of cyber-attacks. Attacks may be targeted at us, our vendors or customers, or others who have entrusted us with information. In addition, despite taking measures to safeguard our information security and privacy environment from security breaches, our customers and our business could still be exposed to risk. Actual or anticipated attacks may cause us to incur increasing costs including costs to deploy additional personnel and protection technologies, train employees and engage third party experts and consultants. Advances in computer capabilities, new technological discoveries or other developments may result in the technology used by us to protect transaction or other data being breached or compromised. Measures we implement to protect against cyber-attacks may also have the potential to impact our customers' shopping experience or decrease activity on our websites by making them more difficult to use. Data and security breaches can also occur as a result of non-technical issues including intentional or inadvertent breach by employees or persons with whom we have commercial relationships that result in the unauthorized release of personal or confidential information. Any compromise or breach of our security could result in a violation of applicable privacy and other laws, significant ~~litigation~~legal and ~~potential liability~~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,~~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

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lose guests. We have limited back-up systems and redundancies, and our information technology systems and websites have experienced system failures and electrical outages in the past which have disrupted our operations. Any significant disruption in our information technology systems or websites could harm our reputation and credibility, and could have a material adverse effect on our business, financial condition, and results of operations.

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If the technology-based systems that give our customers the ability to shop with us online do not function effectively, our operating results, as well as our ability to grow our e-commerce business globally, could be materially adversely affected.

Many of our customers shop with us through our e-commerce ~~website~~websites and mobile ~~commerce applications.~~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 ~~applications~~apps to interact with our customers and as a means to enhance their shopping experience. Any failure on our part to provide attractive, effective, reliable, user-friendly e-commerce platforms that offer a wide assortment of merchandise with rapid delivery options and that continually meet the changing expectations of online shoppers could place us at a competitive disadvantage, result in the loss of e-commerce and other sales, harm our reputation with customers, have a material adverse impact on the growth of our e-commerce business globally and could have a material adverse impact on our business and results of operations.

~~Risks~~Temporary store closures due to COVID-19, changes in consumer shopping preferences, and shifts in distribution channels could materially impact our results of operations.

We sell our products through a variety of trade channels, with a significant portion through traditional brick-and-mortar retail channels. Many of our stores remain temporarily closed due to the impacts of COVID-19, and we are unable to predict the breadth and duration of these store closures and the restrictions that will be in place once they do reopen. As strong e-commerce channels emerge and develop, we are evolving towards an omni-channel approach to support the shopping behavior of our guests. This involves country and region specific websites, social media, product notification emails, mobile apps, including mobile apps on in-store devices that allow demand to be fulfilled via our ~~e-commerce business also include~~distribution centers, and online order fulfillment through stores. The diversion of sales from our company-operated stores could adversely impact our return on investment and could lead to store closures and impairment charges. We could have difficulty in recreating the in-store experience through direct ~~channels and~~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 ~~affect sales in~~impact our ~~e-commerce~~ 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 ~~experiencing~~ disappointing growth outside of existing markets could harm our business and results of operations.

Global economic and political conditions and global events such as health pandemics could adversely impact our results of operations.

Uncertain or challenging global economic and political conditions could impact our performance, including our ability to successfully expand internationally. Global economic conditions could impact levels of consumer spending in the markets in which we operate, which could impact our sales and profitability. Political unrest could negatively impact our guests and employees, reduce consumer spending, and adversely impact our business and results of operations. Health pandemics, such as the current COVID-19 coronavirus pandemic, and the related governmental, private sector and individual consumer responsive actions could contribute to a recession, depression, or global economic downturn, reduce store traffic and consumer spending, result in temporary or permanent closures of stores, offices, and factories, and could negatively impact the flow of goods.

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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, ~~because substantially all of our products are distributed from four locations,~~ our operations could also be interrupted by labor difficulties, extreme or severe weather conditions or by floods, fires, or other natural disasters near our distribution centers. If we encounter problems with our distribution system, our ability to meet guest expectations, manage inventory, complete sales, and achieve objectives for operating efficiencies could be harmed.

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

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technology, fabrics or processes underlying our products. As a result, our current and future competitors are able to manufacture and sell products with performance characteristics, fabrics and styling similar to our products. Because many of our competitors have significantly greater financial, distribution, marketing, and other resources than we do, they may be able to manufacture and sell products based on our fabrics and manufacturing technology at lower prices than we can. If our competitors do sell similar products to ours at lower prices, our net revenue and profitability could suffer.

Our failure or inability to protect our intellectual property rights could diminish the value of our brand and weaken our competitive position.

We currently rely on a combination of copyright, trademark, trade dress, and unfair competition laws, as well as confidentiality procedures and licensing arrangements, to establish and protect our intellectual property rights. The steps we take to protect our intellectual property rights may not be adequate to prevent infringement of these rights by others, including imitation of our products and misappropriation of our brand. In addition, intellectual property protection may be unavailable or limited in some foreign countries where laws or law enforcement practices may not protect our intellectual property rights as fully as in the United States or Canada, and it may be more difficult for us to successfully challenge the use of our intellectual property rights by other parties in these countries. If we fail to protect and maintain our intellectual property rights, the value of our brand could be diminished, and our competitive position may suffer.

Our ability to source and sell our merchandise profitably or at all could be hurt if new trade restrictions are imposed or existing trade restrictions become more burdensome.

The United States and the countries in which our products are produced or sold internationally have imposed and may impose additional quotas, duties, tariffs, or other restrictions or regulations, or may adversely adjust prevailing quota, duty, or tariff levels. The results of any audits or related disputes regarding these restrictions or regulations could have an adverse effect on our financial statements for the period or periods for which the applicable final determinations are made. Countries impose, modify, and remove tariffs and other trade restrictions in response to a diverse array of factors, including global and national economic and political conditions, which make it impossible for us to predict future developments regarding tariffs and other trade restrictions. Trade restrictions, including tariffs, quotas, embargoes, safeguards, and customs restrictions, could increase the cost or reduce the supply of products available to us, could increase shipping times, or may require us to modify our supply chain organization or other current business practices, any of which could harm our business, financial condition, and results of operations.

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.

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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 ~~international~~foreign jurisdictions. Our effective income tax rates could be unfavorably impacted by a number of factors, including changes in the mix of earnings amongst countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax laws, new tax interpretations and guidance, the outcome of income tax audits in various jurisdictions around the world, and any repatriation of unremitted earnings for which we have not previously accrued applicable U.S. income taxes and foreign withholding taxes.

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

We and our subsidiaries engage in a number of intercompany transactions across multiple tax jurisdictions. Although we believe that these transactions reflect the accurate economic allocation of profit and that proper transfer pricing documentation is in place, the profit allocation and transfer pricing terms and conditions may be scrutinized by local tax authorities during an audit and any resulting changes may impact our mix of earnings in countries with differing statutory tax rates.

Current economic and political conditions make tax rules in any jurisdiction, including the United States and Canada, subject to significant change. ~~Proposals to reform~~Changes in applicable U.S. ~~and~~, Canadian, or other foreign tax laws ~~have included, among other things, changes to~~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. federal tax rate, imposing limitations on the deductibility of interest, the transition from a "worldwide" system of taxation to a territorial system, a one-time tax on accumulated foreign earnings, significant taxes on foreign earningsTax Cuts and payments to foreign related parties, and certain other base erosion prevention measures. There is substantial uncertainty regarding both the timing and the details of any such tax reform. The impact of any potential tax reform on our business is uncertain and could be adverse.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 ~~$2.3~~$4.0 billion in fiscal ~~2016.~~2019. If our operations continue to grow at a rapid pace, we may experience difficulties in obtaining sufficient raw materials and manufacturing capacity to produce our products, as well as delays in production and shipments, as our products are subject to risks associated with overseas sourcing and manufacturing. We could be required to continue to expand our sales and marketing, product development and distribution functions, to upgrade our management information systems and other processes and technology, and to obtain more space for our expanding workforce. This expansion could increase the strain on our resources, and we could experience operating difficulties, including difficulties in hiring, training, and managing an increasing number of employees. These difficulties could result in the erosion of our brand image which could have a material adverse effect on our financial condition.

We are subject to risks associated with leasing retail and distribution space subject to long-term and non-cancelable leases.

We lease the majority of our stores under operating leases and our inability to secure appropriate real estate or lease terms could impact our ability to grow. Our leases generally have initial terms of between five and ~~ten~~15 years, and generally can be extended ~~only~~ in five-year increments if at all. We generally cannot cancel these leases at our option. If an existing or new store is not profitable, and we decide to close it, as we have done in the past and may do in the future, we may nonetheless be committed to perform our obligations under the applicable lease including, among other things, paying the base rent for the balance of the lease term. Similarly, we may be committed to perform our obligations under the applicable leases even if

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current locations of our stores become unattractive as demographic patterns change. In addition, as each of our leases expire, we may fail to negotiate renewals, either on commercially acceptable terms or at all, which could require us to close stores in desirable locations.

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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.

~~Our ability to source our merchandise profitably or at all could be hurt if new trade restrictions are imposed or existing trade restrictions become more burdensome.~~

The United States and the countries in which our products are produced or sold internationally have imposed and may impose additional quotas, duties, tariffs, or other restrictions or regulations, or may adversely adjust prevailing quota, duty or tariff levels. We have expanded our relationships with suppliers outside of China, which among other things has resulted in increased costs and shipping times for some products. Countries impose, modify and remove tariffs and other trade restrictions in response to a diverse array of factors, including global and national economic and political conditions, which make it impossible for us to predict future developments regarding tariffs and other trade restrictions. Trade restrictions, including tariffs, quotas, embargoes, safeguards, and customs restrictions, could increase the cost or reduce the supply of products available to us or may require us to modify our supply chain organization or other current business practices, any of which could harm our business, financial condition and results of operations.

We are dependent on international trade agreements and regulations. If the United States were to withdraw from or materially modify certain international trade agreements, our business could be adversely affected.

Increasing labor costs and other factors associated with the production of our products in South and South East Asia could increase the costs to produce our products.

A significant portion of our products are produced in South and South East Asia and increases in the costs of labor and other costs of doing business in the countries in this area could significantly increase our costs to produce our products and could have a negative impact on our operations ~~net revenue,~~ and earnings. Factors that could negatively affect our business include a potential significant revaluation of the currencies used in these countries, which may result in an increase in the cost of producing products, labor shortage and increases in labor costs, and difficulties and additional costs in ~~moving~~transporting products manufactured ~~out of the~~from these countries ~~in which they are manufactured and through the ports on the western coast of North America, whether due~~ to port congestion, labor disputes, product regulations and/or inspections or other factors, and natural disasters or health pandemics. A labor strike or other transportation disruption affecting these ports could significantly disrupt our ~~business.~~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 ~~imported into North America and/or Australia~~ and harm our business.

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

Almost all of our suppliers are located outside of North America. During fiscal 2016, approximately 47% of our products were produced in South East Asia, approximately 28% in South Asia, approximately 15% in China, approximately 1% in North America, and the remainder in other regions. As a result of our international suppliers, we are subject to risks associated with doing business abroad, including:

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

~~reduced protection for intellectual property rights, including trademark protection, in some countries, particularly China;~~

~~disruptions or delays in shipments; and~~

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

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We may not be able to successfully open new store locations in a timely manner, if at all, which could harm our results of operations.

Our growth will largely depend on our ability to successfully open and operate new stores, which depends on many factors, including, among others, our ability to:

identify suitable store locations, the availability of which is outside of our control;

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

negotiate acceptable lease terms, including desired tenant improvement allowances;

hire, train and retain store personnel and field management;

immerse new store personnel and field management into our corporate culture;

source sufficient inventory levels; and

successfully integrate new stores into our existing operations and information technology systems.

~~Successful new store openings may also be affected by our ability to initiate our grassroots marketing efforts in advance of opening our first store in a new market.~~ We typically rely on our grassroots marketing efforts to build awareness of our brand and demand for our products. Our grassroots marketing efforts are often lengthy and must be tailored to each new market based on our emerging understanding of the market. We may not be able to successfully implement our grassroots marketing efforts in a particular market in a timely manner, if at all. Additionally, we may be unsuccessful in identifying new markets where our technical athletic apparel and other products and brand image will be ~~accepted~~accepted. In addition, we may not be able to open or profitably operate new stores in existing, adjacent, or new markets due to the ~~performance~~impact of ~~our stores will be considered successful.~~COVID-19, which could have a material adverse effect on us.

Our failure to comply with trade and other regulations could lead to investigations or actions by government regulators and negative publicity.

The labeling, distribution, importation, marketing, and sale of our products are subject to extensive regulation by various federal agencies, including the Federal Trade Commission, Consumer Product Safety Commission and state attorneys general in the United States, the Competition Bureau and Health Canada in Canada, as well as by various other federal, state, provincial, local, and international regulatory authorities in the countries in which our products are distributed or sold. If we fail to comply with any of these regulations, we could become subject to enforcement actions or the imposition of significant penalties or claims, which could harm our results of operations or our ability to conduct our business. In addition, any audits and inspections by governmental agencies related to these matters could result in significant settlement amounts, damages, fines, or other penalties, divert financial and management resources, and result in significant legal fees. An unfavorable outcome of any particular proceeding could have an adverse impact on our business, financial condition, and results of operations. In addition, the adoption of new regulations or changes in the interpretation of existing regulations may result in significant compliance costs or discontinuation of product sales and could impair the marketing of our products, resulting in significant loss of net revenue.

Our international operations are also subject to compliance with the U.S. Foreign Corrupt Practices Act, or FCPA, and other anti-bribery laws applicable to our operations. In many foreign countries, particularly in those with developing economies, it may be a local custom that businesses operating in such countries engage in business practices that are prohibited by the FCPA or other U.S. and foreign laws and regulations applicable to us. Although we have implemented procedures designed to ensure compliance with the FCPA and similar laws, some of our employees, agents, or other channel partners, as well as those companies to which we outsource certain of our business operations, could take actions in violation of our policies. Any such violation could have a material and adverse effect on our business.

~~Our future success is substantially dependent on the continued service~~

Table of ~~our senior management.~~Contents

Our future success is substantially dependent on the ~~continued~~ service of our senior management and other key employees.

In the last ~~several~~few years, ~~several members~~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 ~~have left us~~ and ~~we have focused time~~other key employees may not meet our needs and ~~resources on recruiting the new members of our current management team. The continued turnover of senior management and~~expectations. Also, the loss of services of any of these key ~~members of~~employees, or any negative public perception with respect to these individuals, may be disruptive to, or cause uncertainty in, our ~~executive team~~business and could have a negative impact on our ability to manage and grow our business effectively. ~~In addition, if we're not effective with our succession planning, it may~~Such disruption could have a ~~negative~~material adverse impact on our ~~ability to fill senior management roles in a timely manner.~~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

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our operating results between different quarters within a single fiscal year are not necessarily meaningful and that results of operations in any period should not be considered indicative of the results to be expected for any future period.

Because a significant portion of our net revenue and expenses are generated in countries other than the United States, fluctuations in foreign currency exchange rates have affected our results of operations and may continue to do so in the future.

The functional currency of our 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.

~~From time~~We have, and may continue to, ~~time, we may~~ enter into forward currency contracts, or other derivative instruments, in an effort to mitigate the foreign exchange risks which we are exposed to. This may include entering into forward currency contracts to hedge against the foreign exchange gains and losses which arise on translation of our foreign subsidiaries' balance sheets into U.S. dollars, or entering into forward currency contracts in an effort to reduce our exposure to foreign exchange revaluation gains and losses that arise on monetary assets and liabilities held by our subsidiaries in a currency other than their functional currency.

Although we use financial instruments to hedge certain foreign currency risks, these measures may not succeed in fully offsetting the negative impact of foreign currency rate movements.

We are exposed to credit-related losses in the event of nonperformance by the counterparties to the forward currency contracts.

~~We may see higher than anticipated costs associated with, or not realize the benefits of, our efforts to restructure our ivivva business.~~

In June 2017, we announced a plan to restructure our ivivva operations to a primarily e-commerce focused business. In August 2017, as part of this effort, we closed 48 of our 55 ivivva branded company-operated stores. The estimated costs and benefits associated with our restructuring efforts may vary materially based on various factors, including the timing of our execution of the programs, the outcome of negotiations with landlords and other third parties, the accuracy of our sales forecasts, inventory levels, the diversion of management attention from ongoing business activities or a decrease in employee morale, potential employment or other claims and litigation, and changes in management's assumptions and projections. As a result of these events and circumstances, delays and unexpected costs may occur, which could result in higher costs than we anticipate or our not realizing all, or any, of the anticipated benefits of these restructuring efforts.

Our trademarks and other proprietary rights could potentially conflict with the rights of others and we may be prevented from selling some of our products.

Our success depends in large part on our brand image. We believe that our trademarks and other proprietary rights have significant value and are important to identifying and differentiating our products from those of our competitors and creating and sustaining demand for our products. We have ~~obtained~~applied for and ~~applied for~~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.

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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.

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We are subject to periodic claims and litigation that could result in unexpected expenses and could ultimately be resolved against us.

From time to time, we are involved in litigation and other proceedings, including matters related to product liability claims, stockholder class action and derivative claims, commercial disputes and intellectual property, as well as trade, regulatory, employment, and other claims related to our business. Any of these proceedings could result in significant settlement amounts, damages, fines, or other penalties, divert financial and management resources, and result in significant legal fees. An unfavorable outcome of any particular proceeding could exceed the limits of our insurance policies or the carriers may decline to fund such final settlements and/or judgments and could have an adverse impact on our business, financial condition, and results of operations. In addition, any proceeding could negatively impact our reputation among our guests and our brand image.

Our business could be negatively affected as a result of actions of activist stockholders ~~and such activism could impact~~or others.

We may be subject to actions or proposals from stockholders or others that may not align with our business strategies or the ~~trading value~~interests of our ~~securities.~~

other stockholders. Responding to such actions ~~by activist stockholders~~ can be costly and time-consuming, ~~disrupting~~disrupt our business and operations, and ~~diverting~~divert the attention of our board of directors, management, and employees from the pursuit of our ~~employees.~~business strategies. Such activities could interfere with our ability to execute our strategic plan. Activist stockholders or others may create perceived uncertainties as to the future direction of our business or strategy which may be exploited by our competitors and may make it more difficult to attract and retain qualified personnel and potential guests, and may affect our relationships with current guests, vendors, investors, and other third parties. In addition, a proxy contest for the election of directors at our annual meeting would require us to incur significant legal fees and proxy solicitation expenses and require significant time and attention by management and our board of directors. The perceived uncertainties as to our future direction also could affect the market price and volatility of our securities.

Anti-takeover provisions of Delaware law and our certificate of incorporation and bylaws could delay and discourage takeover attempts that stockholders may consider to be favorable.

Certain provisions of our certificate of incorporation and bylaws and applicable provisions of the Delaware General Corporation Law may make it more difficult or impossible for a third-party to acquire control of us or effect a change in our board of directors and management. These provisions include:

the classification of our board of directors into three classes, with one class elected each year;

prohibiting cumulative voting in the election of directors;

the ability of our board of directors to issue preferred stock without stockholder approval;

the ability to remove a director only for cause and only with the vote of the holders of at least 66 2/3% of our voting stock;

a special meeting of stockholders may only be called by our chairman or Chief Executive Officer, or upon a resolution adopted by an affirmative vote of a majority of the board of directors, and not by our stockholders;

prohibiting stockholder action by written consent; and

our stockholders must comply with advance notice procedures in order to nominate candidates for election to our board of directors or to place stockholder proposals on the agenda for consideration at any meeting of our stockholders.

In addition, we are governed by Section 203 of the Delaware General Corporation Law which, subject to some specified exceptions, prohibits "business combinations" between a Delaware corporation and an "interested stockholder," which is generally defined as a stockholder who becomes a beneficial owner of 15% or more of a Delaware corporation's voting stock, for a three-year period following the date that the stockholder became an interested stockholder. Section 203 could have the effect of delaying, deferring, or preventing a change in control that our stockholders might consider to be in their best interests.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information regarding our purchases of shares of our common stock during the quarter ended ~~October 29, 2017~~May 3, 2020 related to our stock repurchase program:

Period⁽¹⁾

Total Number of Shares Purchased⁽²⁾
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽²⁾

Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs⁽²⁾
July 31, 2017 - August 27, 2017 92,188
$ 60.64
92,188
$ 2,873,628
August 28, 2017 - October 1, 2017 48,236
59.57
48,236
45
October 2, 2017 - October 29, 2017 —
—
—
45
Total 140,424
140,424



Period⁽¹⁾	Total Number of Shares Purchased⁽²⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽²⁾	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs⁽²⁾
February 3, 2020 - March 1, 2020	—	$	—	—	$	327,302,004
March 2, 2020 - April 5, 2020	368,630	172.68		368,630	263,646,016
April 6, 2020 - May 3, 2020	—	—		—	263,646,016
Total	368,630			368,630

__________


⁽¹⁾	Monthly information is presented by reference to our fiscal periods during our ~~third~~first quarter of fiscal ~~2017.~~2020.

⁽²⁾

~~Our stock repurchase program was approved by~~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 ~~December 2016.~~privately negotiated transactions. Common shares ~~were~~ repurchased inon the open market are at prevailing market prices, including under plans complying with the provisions of Rule 10b5-1 and Rule 10b-18 of the Securities Exchange Act of ~~1934, with the~~1934. The timing and actual number of common shares to be repurchased ~~depending~~will depend upon market conditions, eligibility to trade, and other factors. ~~The maximum dollar value~~As of ~~shares to be repurchased was $100.0 million and the program was completed in the third quarter of fiscal 2017.~~March 31, 2020, we temporarily paused our share repurchase program.

The following table provides information regarding our purchases of shares of our common stock during the quarter ended ~~October 29, 2017~~May 3, 2020 related to our Employee Share Purchase Plan:

Period⁽¹⁾

Total Number of Shares Purchased⁽²⁾
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽²⁾

Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs⁽²⁾
July 31, 2017 - August 27, 2017 11,514
$ 60.44
11,514
4,951,449
August 28, 2017 - October 1, 2017 11,943
60.20
11,943
4,939,506
October 2, 2017 - October 29, 2017 10,749
60.59
10,749
4,928,757
Total 34,206
34,206



Period⁽¹⁾	Total Number of Shares Purchased⁽²⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽²⁾	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs⁽²⁾
February 3, 2020 - March 1, 2020	5,366	$	246.17	5,366	4,721,280
March 2, 2020 - April 5, 2020	10,444	191.46		10,444	4,710,836
April 6, 2020 - May 3, 2020	6,287	218.32		6,287	4,704,549
Total	22,097			22,097

__________


⁽¹⁾	Monthly information is presented by reference to our fiscal periods during our ~~third~~first quarter of fiscal ~~2017.~~2020.

⁽²⁾

Our Employee Share Purchase Plan (ESPP) was approved by our board of directors and stockholders in September 2007. All shares purchased under the ESPP are purchased on the Nasdaq Global Select Market (or such other stock exchange as we may designate from time to time). Unless our board of directors terminates the ESPP earlier, the ESPP will continue until all shares authorized for purchase under the ESPP have been purchased. The maximum number of shares authorized to be purchased under the ESPP is 6,000,000.

Excluded from this disclosure are shares withheld to settle statutory employee tax withholding related to the vesting of stock-based compensation awards.

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ITEM 6. EXHIBITS

Incorporated by Reference

Exhibit

No.

Exhibit Title

Filed

Herewith

Form

Exhibit

No.

File No.

Filing

Date

~~31.1~~10.1*

~~Certification~~Form of ~~Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a)~~Annual Cash Performance Bonus Award Agreement

31.1

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

31.2

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

32.1**

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

101

The following unaudited interim consolidated financial statements from the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended ~~October 29, 2017,~~May 3, 2020, formatted in ~~XBRL:~~iXBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations and Comprehensive (Loss) Income, (iii) Consolidated Statements of Stockholders' Equity, (iv) Consolidated Statements of Cash Flows (v) Notes to the Unaudited Interim Consolidated Financial Statements



*	Denotes a compensatory plan, contract, or arrangement, in which our directors or executive officers may participate.
**	Furnished ~~herewith~~herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		lululemon athletica inc.

By:		/s/ S~~TUART~~ H~~ASELDEN~~CALVIN MCDONALD
		~~Stuart Haselden~~Calvin McDonald
		Chief ~~Financial Officer~~ ~~(Principal Financial~~Executive Officer and ~~Principal Accounting Officer)~~ Director
		(principal financial and accounting officer)

Dated: ~~December 6, 2017~~June 11, 2020

4744

Table of Contents

Exhibit Index

Incorporated by Reference

Exhibit

No.

Exhibit Title

Filed

Herewith

Form

Exhibit

No.

File No.

Filing

Date

10.1*

Form of Annual Cash Performance Bonus Award Agreement

31.1

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

31.2

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

32.1**

101



*	Denotes a compensatory plan, contract, or arrangement, in which our directors or executive officers may participate.
**	Furnished ~~herewith~~herewith.

4845



Note 1	Nature of Operations and Basis of Presentation	8
Note 2	Recent Accounting Pronouncements	8
~~Note 3~~	~~Stock-Based Compensation and Benefit Plans~~	9
Note 43	~~Fair Value Measurement~~Credit Facilities	1110
Note 4	Stock-Based Compensation and Benefit Plans	10
Note 5	~~Derivative Financial Instruments~~Fair Value Measurement	1112
Note 6	~~Asset Impairment and Restructuring~~Derivative Financial Instruments	13
Note 7	~~Income Taxes~~Earnings Per Share	15
Note 8	~~Earnings Per Share~~Supplementary Financial Information	15
Note 9	~~Supplementary Financial~~Segmented Information	15
~~Note 10~~	~~Segment Reporting~~ and Disaggregated Net Revenue	17
Note 1110	Legal Proceedings	18
~~Note 12~~	~~Subsequent Event~~ and Other Contingencies	18



		Page
PART I. FINANCIAL INFORMATION

Item 1.	FINANCIAL STATEMENTS:	3
	CONSOLIDATED BALANCE SHEETS	3
	CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME	4
	CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY	5
	CONSOLIDATED STATEMENTS OF CASH FLOWS	6
	INDEX FOR NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS	7
Item 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	1819
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	3429
Item 4.	CONTROLS AND PROCEDURES	3530

PART II. OTHER INFORMATION

Item 1.	LEGAL PROCEEDINGS	3631
Item 1A.	RISK FACTORS	3631
Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	4542
Item 6.	EXHIBITS	4643

SIGNATURES		4744



	Quarter Ended October 29, 2017			Three Quarters Ended October 29, 2017
	(In thousands)
Costs recorded in cost of goods sold:
Provision to reduce inventories to net realizable value	$	1,934		$	4,838
Loss (reversal of loss) on committed inventory purchases	(2,286		)	250
Accelerated depreciation	1,530			3,753
	1,178			8,841
Costs recorded in operating expenses:
Lease termination costs	19,441			19,884
Impairment of property and equipment	—			11,593
Employee related costs	804			4,000
Other restructuring costs	762			1,047
Asset impairment and restructuring costs	21,007			36,524
Restructuring and related costs	$	22,185		$	45,365



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



	Quarter Ended October 29, 2017									Quarter Ended October 30, 2016
	GAAP Results			Adjustments			Adjusted Results (Non-GAAP)			GAAP Results			Adjustments			Adjusted Results (Non-GAAP)
Gross profit¹	$	321,962		$	1,178		$	323,140		$	278,426		$	—		$	278,426
Gross margin¹	52.0		%	0.2		%	52.2		%	51.1		%	—		%	51.1		%
Income from operations^1,2	85,588			22,186			107,774			92,975			—			92,975
Operating margin^1,2	13.8		%	3.6		%	17.4		%	17.1		%	—		%	17.1		%
Income before income tax expense^1,2,3	86,640			22,185			108,825			93,603			186			93,789
Income tax expense^3,4	27,696			5,813			33,509			25,318			4,005			29,323
Effective tax rate^3,4	32.0		%	(1.2		)%	30.8		%	27.0		%	4.3		%	31.3		%
Diluted earnings per share^1,2,3,4	$	0.43		$	0.13		$	0.56		$	0.50		$	(0.03	)	$	0.47



	Three Quarters Ended October 29, 2017									Three Quarters Ended October 30, 2016
	GAAP Results			Adjustments			Adjusted Results (Non-GAAP)			GAAP Results			Adjustments			Adjusted Results (Non-GAAP)
Gross profit¹	$	876,279		$	8,841		$	885,120		$	771,718		$	—		$	771,718
Gross margin¹	50.9		%	0.5		%	51.4		%	49.6		%	—		%	49.6		%
Income from operations^1,2	199,723			45,365			245,088			224,523			—			224,523
Operating margin^1,2	11.6		%	2.6		%	14.2		%	14.4		%	—		%	14.4		%
Income before income tax expense^1,2,3	202,494			45,365			247,859			225,243			1,696			226,939
Income tax expense^3,4	63,593			11,886			75,479			57,997			11,576			69,573
Effective tax rate^3,4	31.4		%	(0.9		)%	30.5		%	25.7		%	5.0		%	30.7		%
Diluted earnings per share^1,2,3,4	$	1.02		$	0.24		$	1.26		$	1.22		$	(0.07	)	$	1.15