lululemon athletica, inc.
lululemon athletica inc. (Form: 10-Q, Received: 06/10/2013 16:31:17)
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

 

(Mark One)

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

For the quarterly period ended May 5, 2013

or

 

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

For the transition period from              to             

 

Commission file number 001-33608

 

 

lululemon athletica inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   20-3842867

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

400-1818 Cornwall Avenue,

Vancouver, British Columbia

  V6J 1C7
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code:

604-732-6124

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

N/A

 

 

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

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 (or for such shorter period that the registrant was required to submit and post such files).    Yes     x     No   ¨

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

 

Large accelerated filer   x    Accelerated filer    ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company    ¨

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

At June 5, 2013, there were 113,517,560 shares of the registrant’s common stock, par value $0.005 per share, outstanding.

Exchangeable and Special Voting Shares:

At June 5, 2013, there were outstanding 31,033,458 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 June 5, 2013, the registrant had outstanding 31,033,458 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.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

          Page  
   PART I. FINANCIAL INFORMATION   
Item 1.   

FINANCIAL STATEMENTS:

     3   
  

CONSOLIDATED BALANCE SHEETS as of May 5, 2013 and February 3, 2013

     3   
  

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME for the thirteen weeks ended May 5, 2013 and April 29, 2012

     4   
  

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY for the thirteen weeks ended May 5, 2013

     5   
  

CONSOLIDATED STATEMENTS OF CASH FLOWS for the thirteen weeks ended May 5, 2013 and April 29, 2012

     6   
  

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

     7   
Item 2.   

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     12   
Item 3.   

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     21   
Item 4.   

CONTROLS AND PROCEDURES

     22   
  

PART II. OTHER INFORMATION

  
Item 1.   

LEGAL PROCEEDINGS

     23   
Item 1A.   

RISK FACTORS

     23   
Item 2.   

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     32   
Item 6.   

EXHIBITS

     33   

SIGNATURES

     34   

 

2


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PART I

FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

lululemon athletica inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

 

     May 5,
2013
     February 3,
2013
 
     (Unaudited)         
     (Amounts in thousands, except per share amounts)  

ASSETS

  

Current assets

     

Cash and cash equivalents

   $ 588,418       $ 590,179   

Accounts receivable

     7,754         6,351   

Inventories

     143,712         155,222   

Prepaid expenses and other current assets

     41,735         35,301   
  

 

 

    

 

 

 
     781,619         787,053   

Property and equipment, net

     222,878         214,639   

Goodwill and intangible assets, net

     29,810         30,201   

Deferred income taxes

     15,005         15,033   

Other non-current assets

     4,164         4,152   
  

 

 

    

 

 

 
   $ 1,053,476       $ 1,051,078   
  

 

 

    

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

     

Current liabilities

     

Accounts payable

   $ 3,756       $ 1,045   

Accrued liabilities

     38,022         30,032   

Accrued compensation and related expenses

     18,942         27,530   

Income taxes payable

     2,190         39,637   

Unredeemed gift card liability

     29,416         35,113   
  

 

 

    

 

 

 
     92,326         133,357   

Non-current liabilities

     31,090         30,422   
  

 

 

    

 

 

 
     123,416         163,779   
  

 

 

    

 

 

 

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, issued and outstanding 32,033 and 32,065

     —          —    

Special voting stock, $0.000005 par value, 60,000 shares authorized, issued and outstanding 32,033 and 32,065

     —          —    

Common stock, $0.005 par value, 400,000 shares authorized, issued and outstanding 112,517 and 112,371

     563         562   

Additional paid-in capital

     221,300         221,372   

Retained earnings

     691,554         644,275   

Accumulated other comprehensive income

     16,643         21,090   
  

 

 

    

 

 

 
     930,060         887,299   
  

 

 

    

 

 

 
   $ 1,053,476       $ 1,051,078   
  

 

 

    

 

 

 

See accompanying notes to the interim consolidated financial statements

 

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lululemon athletica inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

 

     Thirteen Weeks
Ended May 5,
2013
    Thirteen
Weeks Ended
April 29,

2012
 
     (Unaudited)  
     (Amounts in thousands, except per share amounts)  

Net revenue

   $ 345,782      $ 285,698   

Cost of goods sold

     175,057        128,434   
  

 

 

   

 

 

 

Gross profit

     170,725        157,264   

Selling, general and administrative expenses

     104,836        84,199   
  

 

 

   

 

 

 

Income from operations

     65,889        73,065   

Other income (expense), net

     1,501        910   
  

 

 

   

 

 

 

Income before provision for income taxes

     67,390        73,975   

Provision for income taxes

     20,111        27,001   
  

 

 

   

 

 

 

Net income

     47,279        46,974   

Net income attributable to non-controlling interest

     —          331   
  

 

 

   

 

 

 

Net income attributable to lululemon athletica inc.

   $ 47,279      $ 46,643   
  

 

 

   

 

 

 

Basic earnings per share

   $ 0.33      $ 0.32   

Diluted earnings per share

   $ 0.32      $ 0.32   

Basic weighted-average number of shares outstanding

     144,482        143,678   

Diluted weighted-average number of shares outstanding

     145,849        145,637   

Other comprehensive income:

    

Foreign currency translation adjustment

     (4,447     7,545   
  

 

 

   

 

 

 

Comprehensive income

   $ 42,832      $ 54,188   
  

 

 

   

 

 

 

See accompanying notes to the interim consolidated financial statements

 

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lululemon athletica inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

 

     Special                                         
     Exchangeable
Stock
     Voting
Stock
     Common
Stock
                           
     Shares     Par
Value
     Shares     Par
Value
     Shares     Par
Value
     Additional
Paid-in
Capital
    Retained
Earnings
     Accumulated
Other
Comprehensive
Income
    Total  
                                            (Unaudited)                     

Balance at February 3, 2013

     32,065      $ —          32,065      $ —          112,371      $ 562       $ 221,372      $ 644,275       $ 21,090      $ 887,299   

Net income attributable to lululemon athletica inc.

                      47,279           47,279   

Foreign currency translation adjustment

                         (4,447     (4,447

Stock-based compensation

                    4,286             4,286   

Excess tax benefit from stock-based compensation

                    280            280  

Common stock issued upon exchange of exchangeable shares

     (32     —          (32     —          32        —          —              —    

Stock options exercised

               15        —          163             163   

Common stock issued upon settlement of performance share units

               176        1        (1          —    

Shares withheld related to net share settlement of performance share units

               (77     —          (4,800          (4,800
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Balance at May 5, 2013

     32,033      $ —          32,033      $ —          112,517      $ 563       $ 221,300      $ 691,554       $ 16,643      $ 930,060   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

See accompanying notes to the interim consolidated financial statements

 

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lululemon athletica inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     Thirteen Weeks
Ended May 5,
2013
    Thirteen Weeks
Ended
April 29,
2012
 
     (Unaudited)  
     (Amounts in thousands)  

Cash flows from operating activities

    

Net income

   $ 47,279      $ 46,974   

Items not affecting cash

    

Provision for inventories

     17,153        61   

Depreciation and amortization

     11,729        9,798   

Stock-based compensation

     4,286        3,891   

Excess tax benefits from stock-based compensation

     (280     (4,237

Other, including net changes in other non-cash balances

    

Prepaid expenses and other current assets

     (7,706     (8,011

Inventories

     (6,229     (2,810

Accounts payable

     2,709        (10,225

Accrued liabilities

     8,238        (1,533

Sales tax collected

     (391     (6,345

Income taxes payable

     (37,787     82   

Accrued compensation and related expenses

     (8,749     (8,607

Other non-cash balances

     (5,117     (3,086
  

 

 

   

 

 

 

Net cash provided by operating activities

     25,135        15,952   
  

 

 

   

 

 

 

Cash flows from investing activities

    

Purchase of property and equipment

     (20,976     (12,696
  

 

 

   

 

 

 

Net cash used in investing activities

     (20,976     (12,696
  

 

 

   

 

 

 

Cash flows from financing activities

    

Proceeds from exercise of stock options

     163        4,574   

Excess tax benefits from stock-based compensation

     280        4,237   

Taxes paid related to net share settlement of equity awards

     (4,801       
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (4,358     8,811   
  

 

 

   

 

 

 

Effect of exchange rate changes on cash

     (1,562     2,826   
  

 

 

   

 

 

 

Decrease (increased) in cash and cash equivalents

     (1,761     14,893   

Cash and cash equivalents, beginning of period

   $ 590,179      $ 409,437   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 588,418      $ 424,330   
  

 

 

   

 

 

 

See accompanying notes to the interim consolidated financial statements

 

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lululemon athletica inc. and Subsidiaries

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL

STATEMENTS

(Amounts in thousands, except per share and store count information, unless otherwise indicated)

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, manufacture and distribution of healthy lifestyle inspired athletic apparel, which is sold through a chain of corporate-owned and operated retail stores, direct to consumer through e-commerce and through a network of wholesale accounts. The Company’s primary markets are the United States, Canada, Australia, and New Zealand, where 141, 51, 24 and two corporate-owned stores were in operation as at May 5, 2013, respectively. There were a total of 218 and 211 corporate-owned stores in operation as of May 5, 2013 and February 3, 2013, respectively.

Basis of presentation

The unaudited interim consolidated financial statements as of May 5, 2013 and for the thirteen weeks ended May 5, 2013 and April 29, 2012 are presented using the United States dollar and have been prepared by the Company under the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, the financial information is presented in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and, accordingly, do not include all of the information and footnotes required by GAAP for complete financial statements. The financial information as of February 3, 2013 is derived from the Company’s audited consolidated financial statements and notes for the fiscal year ended February 3, 2013, included in Item 8 in the fiscal 2012 Annual Report on Form 10-K filed with the SEC on March 21, 2013. 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 the Company’s 2012 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 2013 is a 52 week year, and will end on February 2, 2014 while fiscal 2012 was a 53 week year, and ended on February 3, 2013.

The Company’s business is affected by the pattern of seasonality common to most retail apparel businesses. The results for the periods presented are not necessarily indicative of future financial results.

NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS

In January 2013, the FASB amended ASC Topic 210 Balance Sheet (“ASC 210”) to clarify the scope of the required enhanced disclosures that will enable financial statement users to evaluate the effect or potential effect of netting arrangements on a company’s financial position, including the effect or potential effect of rights of setoff associated within scope assets and liabilities. The amendment requires enhanced disclosures by requiring improved information about financial instruments and derivative instruments that are either (i) offset in accordance with ASC 210-20-45 or ASC 815-10-45 or (ii) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with ASC 210-20-45 or ASC 815-10-45. This guidance is effective for annual periods beginning on or after January 1, 2013. The Company adopted the amendment in the first quarter of fiscal 2013 with no material impact on the Company’s consolidated financial statements.

 

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NOTE 3. STOCK-BASED COMPENSATION

Share option plans

The Company’s 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 $4,286 and $3,891 for the thirteen weeks ended May 5, 2013 and April 29, 2012, respectively. Total unrecognized compensation cost for all stock-based compensation plans was $27,399 at May 5, 2013, which is expected to be recognized over a weighted-average period of 2.3 years.

Company stock options and performance share units

A summary of the Company’s stock option, performance share unit and restricted share activity as of May 5, 2013 and changes during the thirteen week period then ended is presented below:

 

     Number of
Stock
Options
     Weighted-
Average
Exercise
Price
     Number of
Performance
Units
     Weighted-
Average
Grant
Fair Value
     Number of
Restricted
Shares
     Weighted-
Average
Grant
Fair Value
 

Balance at February 3, 2013

     1,377       $ 19.51         491       $ 45.47         16       $ 63.97   

Granted

     50       $ 63.08         230       $ 51.63         —          —    

Exercised

     15       $ 10.62         176       $ 20.57         1      $ 65.01   

Forfeited

     48       $ 23.40         19       $ 61.89         —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance at May 5, 2013

     1,364       $ 21.09         526       $ 55.91         15       $ 63.94   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Exercisable at May 5, 2013

     849       $ 12.16         —        $ —          —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The Company’s performance share units are awarded to eligible employees and entitle the grantee to receive a maximum of 1.5 shares of common stock per performance share unit if the Company achieves specified performance goals and the grantee remains employed during the vesting period. The fair value of performance share units is based on the closing price of the Company’s common stock on the award date. Expense for performance share units is recognized when it is probable that the performance goal will be achieved.

Employee stock purchase plan

The Company’s Board of Directors and stockholders approved the Company’s Employee Share Purchase Plan (“ESPP”) in September 2007. The ESPP allows for the purchase of common stock of the Company by all eligible employees at a 25% discount from fair market value subject to certain limits as defined in the ESPP. The maximum number of shares available under the ESPP is 6,000 shares. During the thirteen weeks ended May 5, 2013, there were 21 shares purchased under the ESPP, which were funded by the Company through open market purchases.

NOTE 4. EARNINGS PER SHARE

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

 

     Thirteen Weeks
Ended May 5,
2013
     Thirteen Weeks
Ended
April 29,
2012
 

Net income attributable to lululemon athletica inc.

   $ 47,279       $ 46,643   

Basic weighted-average number of shares outstanding

     144,482         143,678   

Effect of stock options assume exercised

     1,367         1,959   
  

 

 

    

 

 

 

Diluted weighted-average number of shares outstanding

     145,849         145,637   

Basic earnings per share

   $ 0.33       $ 0.32   

Diluted earnings per share

   $ 0.32       $ 0.32   

 

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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 thirteen weeks ended May 5, 2013 and April 29, 2012, 57 and 28 stock options, respectively, were anti-dilutive to earnings and therefore have been excluded from the computation of diluted earnings per share.

NOTE 5. INVENTORIES

 

     May 5,
2013
    February 3,
2013
 

Finished goods

   $ 168,656      $ 163,008   

Raw materials

     577        583   

Provision to reduce inventory to market value

     (25,521     (8,369
  

 

 

   

 

 

 
   $ 143,712      $ 155,222   
  

 

 

   

 

 

 

The Company’s calculation of provision to reduce inventory to market value includes a $17,469 charge to cost of sales, related to the pull-back of black luon pants in corporate-owned stores, direct to consumer and other sales channel, as well as inventory held in its warehouse facilities and in-transit.

 

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NOTE 6. SUPPLEMENTARY FINANCIAL INFORMATION

A summary of certain balance sheet accounts is as follows:

 

     May 5,
2013
    February 3,
2013
 

Prepaid expenses and other current assets:

    

Prepaid tax installments

   $ 26,739      $ 21,821   

Prepaid expenses

     14,996        13,480   
  

 

 

   

 

 

 
   $ 41,735      $ 35,301   
  

 

 

   

 

 

 

Property and equipment:

    

Land

   $ 72,072      $ 72,679   

Buildings

     10,882        10,969   

Leasehold improvements

     114,959        109,233   

Furniture and fixtures

     33,096        30,907   

Computer hardware and software

     90,770        81,099   

Equipment and vehicles

     1,499        1,486   

Accumulated amortization and depreciation

     (100,400     (91,734
  

 

 

   

 

 

 
   $ 222,878      $ 214,639   
  

 

 

   

 

 

 

Goodwill and intangible assets:

    

Goodwill

   $ 23,609      $ 23,609   

Changes in foreign currency exchange rates

     2,256        2,451   
  

 

 

   

 

 

 
     25,865        26,060   
  

 

 

   

 

 

 

Reacquired franchise rights

     10,630        10,630   

Accumulated amortization

     (8,304     (8,076

Changes in foreign currency exchange rates

     1,619        1,587   
  

 

 

   

 

 

 
     3,945        4,141   
  

 

 

   

 

 

 
   $ 29,810      $ 30,201   
  

 

 

   

 

 

 

Accrued liabilities:

    

Inventory purchases

   $ 16,746      $ 7,633   

Sales tax collected

     8,139        8,501   

Accrued rent

     4,895        5,688   

Other

     8,242        8,210   
  

 

 

   

 

 

 
   $ 38,022      $ 30,032   
  

 

 

   

 

 

 

Non-current liabilities:

    

Deferred lease liability

   $ 17,125      $ 16,785   

Tenant inducements

     13,965        13,637   
  

 

 

   

 

 

 
   $ 31,090      $ 30,422   
  

 

 

   

 

 

 

 

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NOTE 7. LEGAL PROCEEDINGS

On October 12, 2012, former hourly employees of the Company filed a class action lawsuit in the Superior Court of the State of California entitled Rebakah Geare et al v. lululemon athletica inc . The lawsuit alleges that the Company violated various U.S. labor codes by failing to provide meal and rest breaks, failing to pay minimum wage, failing to pay overtime, failing to pay certain wages, failing to provide reasonable seating and failing to provide unpaid vacation times as wages at time of termination. The Company and the plaintiffs have reached a tentative agreement on settlement terms. The parties must now gain approval from the court and go through the process of obtaining final approval.

NOTE 8. SEGMENT REPORTING

The Company applies ASC Topic 280, Segment Reporting (“ASC 280”), in determining reportable segments for its financial statement disclosure. reports segments based on the financial information it uses in managing its business. The Company’s reportable segments are comprised of corporate-owned stores, direct to consumer and other. Direct to consumer includes sales from the Company’s e-commerce websites. Sales to wholesale accounts, showrooms sales and outlet sales have been combined into other. The Company has reviewed the classification of its expenses amongst its reportable segments and has updated the classification of some of these expenses. Accordingly, all prior year comparable information has been reclassified to conform to the current year classification. Information for these segments is detailed in the table below:

 

     Thirteen Weeks
Ended May 5,
2013
     Thirteen Weeks
Ended
April 29,
2012
 

Net revenue:

     

Corporate-owned stores

   $ 269,357       $ 228,789   

Direct to consumer

     53,967         38,447   

Other

     22,458         18,462   
  

 

 

    

 

 

 
   $ 345,782       $ 285,698   
  

 

 

    

 

 

 

Income from operations before general corporate expense:

     

Corporate-owned stores

   $ 69,559       $ 76,520   

Direct to consumer

     21,216         17,407   

Other

     4,404         4,151   
  

 

 

    

 

 

 
     95,179         98,078   

General corporate expense

     29,290         25,013   
  

 

 

    

 

 

 

Income from operations

     65,889         73,065   

Other income (expense), net

     1,501         910   
  

 

 

    

 

 

 

Income before provision for income taxes

   $ 67,390       $ 73,975   
  

 

 

    

 

 

 

Capital expenditures:

     

Corporate-owned stores

   $ 10,589       $ 8,525   

Direct to consumer

     371         392   

Corporate

     10,016         3,779   
  

 

 

    

 

 

 
   $ 20,976       $ 12,696   
  

 

 

    

 

 

 

Depreciation:

     

Corporate-owned stores

   $ 7,494       $ 6,675   

Direct to consumer

     995         850   

Corporate

     3,240         2,273   
  

 

 

    

 

 

 
   $ 11,729       $ 9,798   
  

 

 

    

 

 

 

 

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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 Section 27A of the Securities Act of 1933 and the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, included or incorporated in this Form 10-Q are forward-looking statements, particularly statements which relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts, such as statements regarding our future financial condition or results of operations, our prospects and strategies for future growth, the development and introduction of new products, and the implementation of our marketing and branding strategies. In many cases, you can identify forward-looking statements by 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.

Our fiscal year ends on the Sunday closest to January 31 of the following year, typically resulting in a 52 week year, but occasionally gives rise to an additional week, resulting in a 53 week year. Fiscal 2013 is a 52 week year, and will end on February 2, 2014 while fiscal 2012 was a 53 week year, and ended on February 3, 2013.

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

Overview

Our results for the first quarter of fiscal 2013 demonstrate our organization’s solid foundations. We remain committed to our brand and core values, which we believe drove year over year growth across all of our selling channels as well as our net income. We believe our strong cash flow generation, solid balance sheet and healthy liquidity provide us with the financial flexibility to execute the initiatives which will continue to lead to quality growth.

In mid-March 2013, we determined that certain shipments of women’s black luon bottoms received from our factories and available in our stores from March 1, 2013, did not meet our specifications. As we became aware of this issue, we pulled what we believe to be all of the affected items from our stores, showrooms and e-commerce sites and began working with our supplier to replace the fabric and with our other manufacturers to replace these items as quickly as possible. The lost revenue in the remaining seven weeks of the first quarter of

 

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fiscal 2013, as well as additional costs incurred and the write down of affected product on hand from this issue have negatively impacted our results from operations in the first quarter of fiscal 2013. During the first quarter of fiscal 2013 we recorded a $17.5 million inventory provision for the affected luon.

We believe the pull-back of black luon pants reiterates our quality standards. Our brand is recognized as premium in our offerings of women and men’s run and yoga assortment, as well as a leader in technical fabrics and functionality. Delivering quality to our customers is a critical factor in our market place differentiation and we believe removing items that do not meet our standards is key to maintaining our brand reputation. In fiscal 2013, we plan on investing in new and legacy information technology systems to develop new capabilities to support our vertical retail strategy.

Throughout the first quarter of fiscal 2013, we were able to grow our e-commerce business which has further increased our brand awareness and has made our product available in new markets, including those outside of North America. While the pull-back of black luon pants from our e-commerce sites negatively affected sales, net revenue from our direct to consumer channel increased 40% and represented 15.6% of total revenue in the first quarter of fiscal 2013 compared to 13.5% of total revenue in the same period of the prior year. Continuing increases in traffic on our e-commerce website lead us to believe that there is potential for our direct to consumer segment to become an increasingly substantial part of our business and we plan to continue to commit a portion of our resources to further developing this channel. In fiscal 2012, we launched country and region specific websites in Australia, Europe and Asia to provide our online guests with local content, assortment and pricing.

We increased our store base through execution of our real estate strategy, when and where we saw opportunities for success. For example, we have opened 38 net new corporate-owned stores in North America, Australia, and New Zealand since the first quarter of fiscal 2012. Where we find opportunities for growth through opening showrooms, or other community presence efforts, we expect to expand our store base and therefore our business. Our growth strategy relies on positive comparable store sales and expansion in North America, particularly in the United States. We also believe that international growth is an opportunity and are expanding our foothold in markets by establishing local community connections, distributing to strategic sales partners and opening showrooms where we believe our guests are shopping.

Operating Segment Overview

lululemon is a designer and retailer of technical athletic apparel operating primarily in North America and Australia. Our yoga-inspired apparel is marketed under the lululemon athletica and ivivva athletica brand names. We offer a comprehensive line of apparel and accessories including pants, shorts, tops and jackets designed for athletic pursuits such as yoga, running and general fitness, and dance-inspired apparel for female youth. As of May 5, 2013, our branded apparel was principally sold through 218 corporate-owned stores that are located in the United States, Canada, Australia and New Zealand and via our e-commerce websites included in our direct to consumer sales channel. We believe our vertical retail strategy allows us to interact more directly with and gain insights from our customers while providing us with greater control of our brand. In the thirteen week period ended May 5, 2013, 66% of our net revenue was derived from the sales of our products in the United States, 29% of our net revenue was derived from sales of our products in Canada, and 5% of our net revenue was derived from sales of our products outside of North America. In the thirteen week period ended April 29, 2012, 60% of our net revenue was derived from the sales of our products in the United States, 35% of our net revenue was derived from sales of our products in Canada, and 5% of our net revenue was derived from sales of our products outside of North America.

Our net revenue increased from $1.0 billion in fiscal 2011 to $1.4 billion in fiscal 2012, representing an annual growth rate of 37%. Our net revenue also increased from $285.7 million in the first quarter of fiscal 2012 to $345.8 million in first quarter of fiscal 2013, representing a 21% increase, and comparable store sales increased 6%. Our ability to open new stores and grow sales in existing stores has been driven by increasing demand for our technical athletic apparel and a growing recognition of the lululemon athletica brand. We believe our superior products, strategic store locations, inviting store environment and distinctive corporate culture are responsible for our strong financial performance.

 

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We have three reportable segments: corporate-owned stores, direct to consumer and other. We report our segments based on the financial information we use in managing our businesses. While we receive financial information for each corporate-owned store, we have aggregated all of the corporate-owned stores into one reportable segment due to the similarities in the economic and other characteristics of these stores. Our direct to consumer segment accounted for 15.6% of our net revenue in first quarter of fiscal 2013, compared to 13.5% in the first quarter of fiscal 2012. Our other segment, consisting of sales to wholesale accounts, sales from company-operated showrooms, warehouse sales and outlets, accounted for less than 10% of our net revenue in the first quarters of fiscal 2013 and fiscal 2012.

Results of Operations

Thirteen Week Results

The following table summarizes key components of our results of operations for the thirteen week periods ended May 5, 2013 and April 29, 2012. The operating results are expressed in dollar amounts as well as relevant percentages, presented as a percentage of net revenue.

 

     Thirteen Weeks Ended May 5, 2013 and
April 29, 2012
 
     2013      2012      2013      2012  
     (In thousands)      (Percentages)  

Net revenue

   $ 345,782       $ 285,698         100.0         100.0   

Cost of goods sold

     175,057         128,434         50.6         45.0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit

     170,725         157,264         49.4         55.0   

Selling, general and administrative expenses

     104,836         84,199         30.3         29.4   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income from operations

     65,889         73,065         19.1         25.6   

Other income (expense), net

     1,501         910         0.4         0.3   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income before provision for income taxes

     67,390         73,975         19.5         25.9   

Provision for income taxes

     20,111         27,001         5.8         9.5   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

     47,279         46,974         13.7         16.4   

Net income attributable to non-controlling interest

     —          331         —          0.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income attributable to lululemon athletica inc.

   $ 47,279       $ 46,643         13.7         16.3   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net Revenue

Net revenue increased $60.1 million, or 21%, to $345.8 million for the first quarter of fiscal 2013 from $285.7 million for the first quarter of fiscal 2012. Assuming the average exchange rates for the first quarter of fiscal 2013 remained constant with the average exchange rates for the first quarter of fiscal 2012, our net revenue would have increased $62.7 million, or 22%.

The net revenue increase was driven by sales from new stores opened, the growth of our e-commerce website sales included in our direct to consumer segment, and increased sales at locations in our comparable stores base. The constant dollar increase in comparable store sales was driven primarily by the strength of our existing product lines, successful introduction of new products and increasing recognition of the lululemon athletica brand name, especially at our U.S. stores. The shortage of black luon pants in our stores and on our e-commerce sites for seven weeks of the first quarter of fiscal 2013 negatively impacted sales.

 

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Our net revenue on a segment basis for the thirteen week periods ended May 5, 2013 and April 29, 2012 is expressed in dollar amounts as well as relevant percentages, presented as a percentage of total net revenue below.

 

     Thirteen Weeks Ended May 5, 2013 and
April 29, 2012
 
     2013      2012      2013      2012  
     (In thousands)      (Percentages)  

Corporate-owned stores

   $ 269,357       $ 228,789         77.9         80.1   

Direct to consumer

     53,967         38,447         15.6         13.5   

Other

     22,458         18,462         6.5         6.4   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net revenue

   $ 345,782       $ 285,698         100.0         100.0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Corporate-Owned Stores.  Net revenue from our corporate-owned stores segment increased $40.6 million, or 18%, to $269.4 million in the first quarter of fiscal 2013 from $228.8 million in the first quarter of fiscal 2012. The following contributed to the increase in net revenue from our corporate-owned stores segment:

 

   

Comparable store sales increase of 6% in the first quarter of fiscal 2013 resulted in a $12.9 million increase to net revenue, including the effect of foreign currency fluctuations. Excluding the effect of foreign currency fluctuations, comparable store sales would have increased 7%, or $14.9 million, in the first quarter of fiscal 2013; and

 

   

Net revenue from corporate-owned stores we opened subsequent to April 29, 2012, and therefore not included in the comparable store sales growth, contributed $27.7 million of the increase. Net new store openings since the first quarter of fiscal 2012 included 29 stores in the United States, two stores in Canada, six in Australia and one in New Zealand.

Direct to Consumer.  Net revenue from our direct to consumer segment increased $15.5 million, or 40%, to $54.0 million in the first quarter of fiscal 2013 from $38.4 million in the first quarter of fiscal 2012. The increase in net revenue was primarily the result of increasing traffic on our e-commerce websites. This was partially offset by decreased conversion rates and average order value on our e-commerce website. The decrease in conversion rates and average order value is largely due to the pull-back of our black luon pants which impacted our product assortment.

Other.  Net revenue from our other segment increased $4.0 million, or 22%, to $22.5 million in the first quarter of fiscal 2013 from $18.5 million in the first quarter of fiscal 2012. This increase was primarily the result of four new outlets opened since the first quarter of fiscal 2012 as well as increased net revenues from existing outlets. Increased revenue from our showrooms also contributed to the increase in net revenue from our other segment. We operate our other segment to increase interest in our product in markets we have not otherwise entered with corporate-owned stores.

Gross Profit

Gross profit increased $13.5 million, or 9%, to $170.7 million for the first quarter of fiscal 2013 from $157.3 million for the first quarter of fiscal 2012. Increased net revenues were offset by increased cost of goods sold, which decreased gross profit in our corporate-owned stores and direct to consumer segments. A $17.5 million inventory provision related to the black luon pants that did not meet our specifications was recorded in cost of sales during the first quarter of fiscal 2013.

The increase in gross profit was also partially offset by increases in fixed costs, such as occupancy costs and depreciation, and increased costs related to our design, merchandising, and production departments.

 

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Gross profit as a percentage of net revenue, or gross margin, decreased by 560 basis points, to 49.4% in the first quarter of fiscal 2013 from 55.0% in the first quarter of fiscal 2012. This was primarily a result of:

 

   

an increase in provision for inventories, charged to cost of sales, of 510 basis points, including a non-recurring charge related to the pull-back of black luon pants in the first quarter of fiscal 2013; and

 

   

a decrease in product margin of 90 basis points due to a lower sales mix of higher margin core items such as luon, along with higher markdowns associated with some exit of prior season inventory.

The decrease was partially offset by leverage on fixed costs, such as depreciation and costs related to our head office which contributed to an increase in gross margin of 40 basis points.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $20.6 million, or 25%, to $104.8 million in the first quarter of fiscal 2013 from $84.2 million in the first quarter of fiscal 2012. The increase in selling, general and administrative expenses was principally comprised of:

 

   

an increase in employee costs of $5.6 million as we experienced natural growth in labor hours associated with new and existing corporate-owned stores, outlets, showrooms and other, as well as an increase in wages as we invested in our employees;

 

   

an increase in variable store costs of $1.9 million as a result of increased sales volume from new and existing corporate-owned stores, outlets, showrooms and other;

 

   

an increase in head office employee costs, including stock-based compensation expense and management incentive-based compensation, of $3.7 million from increased head count incurred in order to position us for long-term growth;

 

   

an increase in other head office costs of $3.5 million as a result of the overall growth of our business and investment in strategic initiatives and projects;

 

   

an increase in variable costs such as distribution costs, credit card fees and packaging related to our direct to consumer segment of $1.9 million as a result of increased sales volume;

 

   

an increase in administrative costs related to our direct to consumer segment of $2.2 million associated with the growth in this channel and increased head count to support it; and

 

   

an increase in other costs, including occupancy costs and depreciation not included in cost of goods sold, of $1.8 million as a result of the expansion of our business and in order to position us for long-term growth.

As a percentage of net revenue, selling, general and administrative expenses increased 90 basis points, to 30.3% from 29.4%. The increase in selling, general and administrative expenses as a percentage of net revenue was largely due to the increase in overall employee costs relative to the increase in net revenue.

Income from Operations

Income from operations decreased $7.2 million, or 10%, to $65.9 million in the first quarter of fiscal 2013 from $73.1 million in the first quarter of fiscal 2012. The decrease was a result of increased selling, general and administrative costs of $20.6 million, partially offset by increased gross profit of $13.5 million. The increase in selling, general and administrative costs was driven principally by the overall growth of our business.

On a segment basis, we determine income from operations without taking into account our general corporate expenses. We have reviewed our classification of our expenses amongst our reportable segments and have updated the classification of some of these expenses. Accordingly, all prior year comparable information has been reclassified to conform to the current year classification.

 

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Income from operations before general corporate expenses for the thirteen weeks ended May 5, 2013 and April 29, 2012 are expressed in dollar amounts as well as percentages, presented as a percentage of net revenue of their respective operating segments below.

 

     Thirteen Weeks Ended May 5, 2013 and
April 29, 2012
 
     2013      2012      2013      2012  
     (In thousands)      (Percentages)  

Corporate-owned stores

   $ 69,559       $ 76,520         25.8         33.4   

Direct to consumer

     21,216         17,407         39.3         45.3   

Other

     4,404         4,151         19.6         22.5   
  

 

 

    

 

 

       

Income from operations before general corporate expense

     95,179         98,078         
  

 

 

    

 

 

       

General corporate expense

     29,290         25,013         
  

 

 

    

 

 

       

Income from operations

   $ 65,889       $ 73,065         
  

 

 

    

 

 

       

Corporate-Owned Stores.  Income from operations from our corporate-owned stores segment decreased $7.0 million, or 9%, to $69.6 million for the first quarter of fiscal 2013 from $76.5 million for the first quarter of fiscal 2012 primarily due to an increase in selling, general and administrative expenses related to employee costs as well as operating expenses associated with new stores and net revenue growth at existing stores, partially offset by an increase in gross profit of $4.0 million. Income from operations as a percentage of corporate-owned stores revenue decreased by 760 basis points primarily from a decrease in gross margin due to a non-recurring charge to cost of sales related to the pull-back of black luon pants in the first quarter of fiscal 2013.

Direct to Consumer.  Income from operations from our direct to consumer segment increased $3.8 million, or 22%, to $21.2 million for the first quarter of fiscal 2013 from $17.4 million for the first quarter of fiscal 2012. This increase was primarily the result of increased gross profit of $7.7 million, offset by a non-recurring charge to cost of sales related to the pull-back of black luon pants in the first quarter of fiscal 2013 and increased selling, general and administrative expenses related to the our long-term strategy for developing this channel. Income from operations as a percentage of direct to consumer revenue decreased by 600 basis points.

Other.  Income from operations from our other segment increased $0.3 million, or 6%, to $4.4 million for the first quarter of fiscal 2013 from $4.2 million for the first quarter of fiscal 2012. Gross profit related to our other segment increased $2.0 million in the first quarter of fiscal 2013 from the first quarter of fiscal 2012.

General Corporate Expense.  General corporate expense increased $4.2 million, or 17%, to $29.3 million for the first quarter of fiscal 2013 from $25.0 million for the first quarter of fiscal 2012. This was primarily due to increased head office employee costs, including stock-based compensation expense and management incentive-based compensation, as well as other head office costs as a result of the overall growth of our business and investment in strategic initiatives and projects.

Other Income (Expense), Net

Other income (expense), net, increased $0.6 million, or 65%, to $1.5 million for the first quarter of fiscal 2013 from $0.9 million for the first quarter of fiscal 2012. The increase was primarily the result of increased interest income, a result of higher average cash balances in the first quarter of fiscal 2013 compared to the first quarter of fiscal 2012.

Provision for Income Taxes

Provision for income taxes decreased $6.9 million, or 26%, to $20.1 million in the first quarter of fiscal 2013 from $27.0 million in the first quarter of fiscal 2012. In the first quarter of fiscal 2013, our effective tax rate was 29.8% compared to 36.5% in the first quarter of fiscal 2012. The lower effective tax rate was due to the ongoing impact of revised intercompany pricing agreements.

 

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Net Income

Net income increased $0.6 million to $47.3 million for the first quarter of fiscal 2013 from $46.6 million for the first quarter of fiscal 2012. The increase in net income was a result of an increase in gross profit of $13.5 million resulting from increased sales and a decrease in provision for income taxes of $6.9 million, offset by increases in selling, general and administrative expenses of $20.6 million.

Seasonality

Historically, we have recognized a significant portion of our income from operations in the fourth fiscal quarter of each year as a result of increased sales during the holiday selling season. Despite the fact that we have experienced a significant amount of our net revenue and gross profit in the fourth quarter of each fiscal year, we believe that the true extent of the seasonality or cyclical nature of our business may have been overshadowed by our rapid growth to date.

Liquidity and Capital Resources

Our primary sources of liquidity are our current balances of cash and cash equivalents, cash flows from operations and borrowings available under our revolving credit facility. Our cash needs are primarily capital expenditures for opening new stores and remodeling existing stores, international expansion, making information technology system investments and enhancements, real estate acquisitions and funding working capital requirements. Cash and cash equivalents in excess of our needs are held in interest bearing accounts with financial institutions.

At May 5, 2013, our working capital (excluding cash and cash equivalents) was $100.9 million and our cash and cash equivalents were $588.4 million.

The following table summarizes our net cash flows provided by and used in operating, investing and financing activities for the periods indicated:

 

     Thirteen Weeks
Ended May 5,
2013
    Thirteen Weeks
Ended
April 29,
2012
 
     (In thousands)  

Total cash provided by (used in):

    

Operating activities

   $ 25,135      $ 15,952   

Investing activities

     (20,976     (12,696

Financing activities

     (4,358     8,811   

Effect of exchange rate changes

     (1,562     2,826   
  

 

 

   

 

 

 

(Decrease) increase in cash and cash equivalents

   $ (1,761   $ 14,893   
  

 

 

   

 

 

 

Operating Activities

Operating Activities consist primarily of net income adjusted for certain non-cash items, including provision for inventories, depreciation and amortization, deferred income taxes, stock-based compensation expense and the effect of the changes in non-cash working capital items, principally accounts payable, prepaid expenses, sales tax collected, and accrued compensation and related expenses.

Cash provided by operating activities increased $9.2 million, to $25.1 million for the first quarter of fiscal 2013 compared to $16.0 million for the first quarter of fiscal 2012. The increase was primarily a result of increased net income after certain non-cash items, including provision for inventories, offset by a larger amount of income taxes paid during the first quarter of fiscal 2013 compared to the first quarter of fiscal 2012.

 

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Investing Activities

Investing Activities relate entirely to capital expenditures.

Cash used in investing activities increased $8.3 million to $21.0 million for the first quarter of fiscal 2013 from $12.7 million for the first quarter of fiscal 2012. The increase was primarily the result of increased corporate store openings and capital expenditures related to ongoing store refurbishment as well as capital projects at our head office.

Financing Activities

Financing Activities consists of cash received on the exercise of stock options, excess tax benefits from stock-based compensation, and taxes paid related to the net share settlement of equity awards. Cash used in financing activities increased by $13.2 million to $4.4 million for the first quarter of fiscal 2013 from cash provided by financing activities of $8.8 million for the first quarter of fiscal 2012.

We believe that our cash from operations and borrowings available to us under our revolving credit facility will be adequate to meet our liquidity needs and capital expenditure requirements for at least the next 24 months. Our cash from operations may be negatively impacted by a decrease in demand for our products as well as the other factors described in “Risk Factors” and elsewhere in this report. In addition, we may make discretionary capital improvements with respect to our stores, distribution facility, headquarters, or other systems, which we would expect to fund through the 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 from operations.

Revolving Credit Facility

In April 2007, we executed a credit facility with the Royal Bank of Canada that provided for a CDN$20.0 million uncommitted demand revolving credit facility to fund our working capital requirements. Borrowings under this uncommitted credit facility are made on a when-and-as-needed basis at our discretion.

Borrowings under the credit facility can be made either as i)  Revolving Loans — Revolving loan borrowings will bear interest at a rate equal to the bank’s CDN$ or US$ annual base rate (defined as zero% plus the lender’s annual prime rate) per annum, ii)  Offshore Loans — Offshore rate loan borrowings will bear interest at a rate equal to a base rate based upon LIBOR for the applicable interest period, plus 1.125% per annum, iii)  Bankers Acceptances — Bankers acceptance borrowings will bear interest at the bankers acceptance rate plus 1.125% per annum, or iv)  Letters of Credit and Letters of Guarantee — Borrowings drawn down under letters of credit or guarantee issued by the banks will bear a 1.125% per annum fee.

At May 5, 2013, aside from letters of credit and guarantees, there were no borrowings outstanding under this credit facility.

Off-Balance Sheet Arrangements

We enter into documentary letters of credit to facilitate the international purchase of merchandise. We also enter into standby letters of credit to secure certain of our obligations, including insurance programs and duties related to import purchases. As of May 5, 2013, letters of credit and letters of guarantee totaling $1.0 million have been issued.

Other than these standby letters of credit and guarantee, we do not have any off-balance sheet arrangements, investments in special purpose entities or undisclosed borrowings or debt. In addition, we have not entered into any derivative contracts or synthetic leases.

 

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Critical Accounting Policies

The preparation of financial statements in conformity with GAAP 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 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 Annual Report on Form 10-K for our 2012 fiscal year end filed with the SEC on March 21, 2013 and in Note 2 included in Item 1 of Part I of this Quarterly Report on Form 10-Q.

Operating Locations

Our corporate-owned stores by U.S. state, Canadian province, Australian state and in New Zealand as of May 5, 2013 and February 3, 2013, are summarized in the table below. While most of our stores are branded lululemon athletica, eight of our corporate-owned stores are branded ivivva athletica and specialize in dance-inspired apparel for female youth.

 

     May 5,
2013
     February 3,
2013
 

United States

     

Alabama

     1         1   

Arizona

     4         3   

California

     24         24   

Colorado

     3         3   

Connecticut

     3         3   

District of Columbia

     2         2   

Florida

     8         8   

Georgia

     3         3   

Hawaii

     1         1   

Illinois

     10         9   

Indiana

     1         1   

Kansas

     1         1   

Louisiana

     1         1   

Maryland

     3         3   

Massachusetts

     7         6   

Michigan

     2         2   

Minnesota

     3         3   

Missouri

     2         2   

Nebraska

     1         1   

Nevada

     1         1   

New Jersey

     6         6   

New Mexico

     1         1   

New York

     11         9   

North Carolina

     4         4   

Ohio

     5         5   

Oregon

     2         2   

Pennsylvania

     6         6   

Rhode Island

     1           

South Carolina

     1         1   

Tennessee

     3         3   

Texas

     10         10   

Utah

     1         1   

Vermont

     1         1   

Virginia

     3         3   

Washington

     3         3   

Wisconsin

     2         2   
  

 

 

    

 

 

 

Total United States

     141         135   
  

 

 

    

 

 

 

 

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     May 5,
2013
     February 3,
2013
 

Canada

     

Alberta

     12         12   

British Columbia

     11         12   

Manitoba

     2         2   

Nova Scotia

     1         1   

Ontario

     18         18   

Québec

     5         4   

Saskatchewan

     2         2   
  

 

 

    

 

 

 

Total Canada

     51         51   
  

 

 

    

 

 

 

Australia

     

Australian Capital Territory

     1         1   

New South Wales

     7         7   

Queensland

     3         3   

South Australia

     1         1   

Tasmania

     1         1   

Victoria

     8         7   

Western Australia

     3         3   
  

 

 

    

 

 

 

Total Australia

     24         23   
  

 

 

    

 

 

 

New Zealand

     2         2   
  

 

 

    

 

 

 

Total

     218         211   
  

 

 

    

 

 

 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in interest rates and foreign currency exchange rates. We do not hold or issue financial instruments for trading purposes.

Foreign Currency Exchange Risk.  We currently generate a significant portion of our net revenue in Canada. The reporting currency for our consolidated financial statements is the U.S. dollar. Historically, our operations were based largely in Canada. As of May 5, 2013, we operated 51 stores in Canada. As a result, we have been impacted by changes in exchange rates and may be impacted materially for the foreseeable future. As we recognize net revenue from sales in Canada in Canadian dollars, and the U.S. dollar has strengthened during the first quarter of fiscal 2013, it has had a negative impact on our Canadian operating results upon translation of those results into U.S. dollars for the purposes of consolidation. However, the loss in net revenue was offset by lower cost of sales and lower selling, general and administrative expenses that are generated in Canadian dollars. A 10% depreciation in the relative value of the Canadian dollar compared to the U.S. dollar would have resulted in additional income from operations of approximately $0.2 million in the first quarter of fiscal 2013. To the extent the ratio between our net revenue generated in Canadian dollars increases as compared to our expenses generated in Canadian dollars, we expect that our results of operations will be further impacted by changes in exchange rates. A portion of our net revenue is generated in Australia. A 10% depreciation in the relative value of the Australian dollar compared to the U.S. dollar would have resulted in lost income from operations of approximately $0.1 million in the first quarter of fiscal 2013. We do not currently hedge foreign currency fluctuations. However, in the future, 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. We do not, and do not intend to, engage in the practice of trading derivative securities for profit.

Interest Rate Risk.  In April 2007, we entered into an uncommitted senior secured demand revolving credit facility with Royal Bank of Canada. The revolving credit facility provides us with available borrowings in an amount up to CDN$20.0 million. Because our revolving credit facility bears interest at a variable rate, we will be exposed to market risks relating to changes in interest rates, if we have a meaningful outstanding balance. As of May 5, 2013, we had no outstanding borrowings under our revolving facility and we do not believe we are

 

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significantly exposed to changes in interest rate risk. We currently do not engage in any interest rate hedging activity and currently have no intention to do so in the foreseeable future. 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 sales contracts, option contracts, and interest rate swaps. We do not, and do not intend to, engage in the practice of trading derivative securities for profit.

Inflation

Inflationary factors such as increases in the cost of our product and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of net revenue if the selling prices of our products do not increase with these increased costs.

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 executive officer) and Chief Financial Officer (principal financial 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 and Chief Financial 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 May 5, 2013. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, at May 5, 2013, our disclosure controls and procedures were effective.

There was no change in internal control over financial reporting during the thirteen weeks ended May 5, 2013 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

 

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PART II

OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

On October 12, 2012, former hourly employees of lululemon filed a class action lawsuit in the Superior Court of the State of California entitled Rebekah Geare et al v. lululemon athletica inc. The lawsuit alleges that we violated various U.S. labor codes by failing to provide meal and rest breaks, failing to pay minimum wage, failing to pay overtime, failing to pay certain wages, failing to provide reasonable seating and failing to provide unpaid vacation times as wages at time of termination. We and the plaintiffs have reached alternative agreement on settlement terms. The parties must now gain approval from the court and go through the process of obtaining final approval.

We are, from time to time, involved in routine legal matters incidental to our business. Management believes that 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 2012 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 athletica brand. The lululemon athletica 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 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 could be adversely affected if we fail to achieve these objectives or if our public image or reputation were to be tarnished by negative publicity. 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, which could have a material adverse effect on our financial condition.

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

Many of our products may be considered discretionary items for consumers. Factors affecting the level of consumer spending for such discretionary items include general economic conditions, particularly those in North America and other factors such as consumer confidence in future economic conditions, fears of recession, the availability of consumer credit, levels of unemployment, tax rates and the cost of consumer credit. 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. The current volatility in the United States economy in particular has resulted in an overall slowing in growth in the retail sector because of decreased consumer spending, which may remain depressed for the foreseeable future. These unfavorable economic conditions may lead consumers to delay or reduce purchase of our products. Consumer demand for our products may not reach our sales 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.

 

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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 pricing and costs 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 sales prices to consumers or experience reduced sales in response to increased prices, any of which could cause our operating margin to decline if we are unable to offset these factors with reductions in operating costs and could have a material adverse effect on our financial conditions, operating results and cash flows.

If we are unable to anticipate consumer preferences and successfully develop and introduce new, innovative and updated products, we may not be able to maintain or increase our sales and profitability.

Our success depends on our ability to identify and originate product trends as well as to anticipate and react to changing consumer demands in a timely manner. All of our products are subject to changing consumer preferences that cannot be predicted with certainty. If we are unable to introduce new products or novel technologies in a timely manner or our new products or technologies are not accepted by our customers, 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. 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 customer 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 customer demand for our products or for products of our competitors, our failure to accurately forecast customer acceptance of new products, product introductions by competitors, unanticipated changes in general market conditions, and weakening of economic conditions or consumer confidence in future economic conditions. If we fail to accurately forecast customer demand we may experience excess inventory levels or a shortage of products available for sale in our stores or for delivery to customers.

Inventory levels in excess of customer demand may result in inventory write-downs or write-offs and the sale of excess inventory at discounted prices, which would cause our gross margin to suffer and could impair the strength and exclusivity of our brand. Conversely, if we underestimate customer 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 customer relationships.

Any material disruption of our information systems could disrupt our business and reduce our sales.

We are increasingly dependent on information systems to operate our e-commerce websites, process transactions, respond to guest inquiries, manage inventory, purchase, sell and ship goods on a timely basis and maintain cost-efficient operations. Any material disruption or slowdown of our systems, including a disruption or slowdown caused by our failure to successfully upgrade our systems, system failures, viruses, computer “hackers” or other causes, could cause information, including data related to customer orders, to be lost or delayed which could—especially if the disruption or slowdown occurred during the holiday season—result in

 

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delays in the delivery of products to our stores and customers or lost sales, which could reduce demand for our products and cause our sales to decline. If changes in technology cause our information systems to become obsolete, or if our information systems are inadequate to handle our growth, we could lose customers.

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 $1,370.4 million in fiscal 2012. 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 serious 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.

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 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 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.

We rely on third-party suppliers to provide fabrics for and to produce our products, and we have limited control over them and may not be able to obtain quality products on a timely basis or in sufficient quantity.

We do not manufacture our products or the raw materials for them and rely instead on third-party 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. For example, luon fabric, which is included in many of our products, is supplied to the garment factories we use by a limited number of manufacturers, and the components used in manufacturing Luon fabric may each be supplied to our manufacturers by single companies. In fiscal 2012, approximately 60% of our products were produced by our top five manufacturing suppliers, and 45% of raw materials were produced by a single manufacturer. We have no long term contracts with our suppliers or manufacturing sources, and we compete with other companies for fabrics, raw materials, production and import quota capacity.

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 meet our technical specifications but that are nonetheless unacceptable to us. 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 defects in the manufacture of our products are not discovered until after such products are purchased by our guests, our guests could lose confidence in the technical attributes of our products and our results of operations could suffer and our business could be harmed.

 

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

Our limited operating experience and limited brand recognition in new international markets may limit our expansion strategy and cause our business and growth to suffer.

Our future growth depends in part on our international expansion efforts. 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 new international markets or disappointing growth outside of existing markets will harm our business and results of operations.

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 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, such as Nike, Inc., adidas AG, which includes the adidas and Reebok brands, and The Gap, Inc, which includes the Athleta brand. Because of the fragmented nature of the industry, we also compete with other apparel sellers, including those specializing in yoga apparel. Many of our competitors have significant competitive advantages, including longer operating histories, larger and broader customer bases, more established relationships with a broader set of suppliers, greater brand recognition and greater financial, research and development, store development, marketing, distribution and other resources than we do. In addition, our technical athletic apparel is sold at a price premium to traditional athletic apparel.

Our competitors may be able to achieve and maintain brand awareness and market share more quickly and effectively than we can. In contrast to our “grassroots” marketing approach, many of our competitors promote their brands through traditional forms of advertising, such as print media and television commercials, and through celebrity endorsements, and have substantial resources to devote to such efforts. Our competitors may

 

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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, as opposed to distribution through retail stores, wholesale or internet, and many of our competitors have substantial resources to devote toward increasing sales in such ways.

In addition, because we own no patents or 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.

If we encounter problems with our distribution system, our ability to deliver our products to the market and to meet guest expectations could be harmed.

We rely on our distribution facilities for substantially all of our product distribution. Our distribution facilities include computer controlled and automated equipment, which means their operations are complicated and may be subject to a number of risks related to security or computer viruses, the proper operation of software and hardware, electronic or power interruptions or other system failures. In addition, because substantially all of our products are distributed from three 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. For example, severe weather conditions in Sumner, Washington in 2011, including snow and freezing rain, resulted in disruption in our distribution facilities and the local transportation system. 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 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 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 currently own no patents or exclusive intellectual property rights in the technology, fabrics or processes underlying our products. As a result, our current and future competitors are able to manufacture and sell products with performance characteristics, fabrics and styling similar to our products. Because many of our competitors have significantly greater financial, distribution, marketing and other resources than we do, they may be able to manufacture and sell products based on our fabrics and manufacturing technology at lower prices than we can. If our competitors do sell similar products to ours at lower prices, our net revenue and profitability could suffer.

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

We currently rely on a combination of copyright, trademark, trade dress and unfair competition laws, as well as confidentiality procedures and licensing arrangements, to establish and protect our intellectual property rights. We cannot assure you that the steps taken by us to protect our intellectual property rights will be adequate to prevent infringement of such 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.

 

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

We lease the majority of our corporate-owned stores under operating leases and our inability to secure appropriate real estate or lease terms could impact our ability to grow. Our leases generally have initial terms of between five and ten years, and generally can be extended only in five-year increments if at all. We generally cannot cancel these leases at our option. If an existing or new store is not profitable, and we decide to close it, as we have done in the past and may do in the future, we may nonetheless be committed to perform our obligations under the applicable lease including, among other things, paying the base rent for the balance of the lease term. Similarly, we may be committed to perform our obligations under the applicable leases even if current locations of our stores become unattractive as demographic patterns change. In addition, as each of our leases expire, we may fail to negotiate renewals, either on commercially acceptable terms or at all, which could require us to close stores in desirable locations.

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

During fiscal 2012, approximately 34% of our products were produced in China and increases in the costs of labor and other costs of doing business in China could significantly increase our costs to produce our products and could have a negative impact on our operations, revenue and earnings. Factors that could negatively affect our business include a potential significant revaluation of the Chinese Yuan, which may result in an increase in the cost of producing products in China, labor shortage and increases in labor costs in China, and difficulties in moving products manufactured in China out of Asia 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 impacting China. Also, the imposition of trade sanctions or other regulations against products imported by us from, or the loss of “normal trade relations” status with, China, could significantly increase our cost of products imported into North America and/or Australia and harm our business.

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

Our growth will largely depend on our ability to successfully open and operate new stores. Our approach to identifying locations for our stores typically favors street locations, lifestyle centers and malls where we can be a part of the community. As a result, our stores are typically located near retailers or fitness facilities that we believe are consistent with our guests’ lifestyle choices. Sales at these stores are derived, in part, from the volume of foot traffic in these locations. Our ability to successfully open and operate new stores depends on many factors, including, among others, our ability to:

 

   

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

 

   

negotiate acceptable lease terms, including desired tenant improvement allowances;

 

   

hire, train and retain store personnel and field management;

 

   

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

 

   

source sufficient inventory levels; and

 

   

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

Successful new store openings may also be affected by our ability to initiate our grassroots marketing efforts in advance of opening our first store in a new market. We typically rely on our grassroots marketing efforts to build awareness of our brand and demand for our products. Our grassroots marketing efforts are often lengthy and must be tailored to each new market based on our emerging understanding of the market. Accordingly, there can be no assurance that we will be able to successfully implement our grassroots marketing efforts in a particular market in a timely manner, if at all. Additionally, we may be unsuccessful in identifying new markets where our technical athletic apparel and other products and brand image will be accepted or the performance of our stores will be considered successful.

 

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

The labeling, distribution, importation, marketing and sale of our products are subject to extensive regulation by various federal agencies, including the Federal Trade Commission, Consumer Product Safety Commission and state attorneys general in the United States, the Competition Bureau and Health Canada in Canada, as well as by various other federal, state, provincial, local and international regulatory authorities in the countries in which our products are distributed or sold. If we fail to comply with any of these regulations, we could become subject to enforcement actions or the imposition of significant penalties or claims, which could harm our results of operations or our ability to conduct our business. In addition, the adoption of new regulations or changes in the interpretation of existing regulations may result in significant compliance costs or discontinuation of product sales and could impair the marketing of our products, resulting in significant loss of net sales.

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, there can be no assurance that all of our employees, agents and other channel partners, as well as those companies to which we outsource certain of our business operations, will not take actions in violation of our policies. Any such violation could have a material and adverse effect on our business.

Our future success is substantially dependent on the continued service of our senior management.

Our future success is substantially dependent on the continued service of our senior management and other key employees. The loss of the services of our senior management or other key employees could make it more difficult to successfully operate our business and achieve our business goals.

We also may be unable to retain existing management, technical, sales and client support personnel that are critical to our success, which could result in harm to our customer and employee relationships, loss of key information, expertise or know-how and unanticipated recruitment and training costs.

We do not maintain a key person life insurance policy on Ms. Day or any of the other 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. Our annual net sales are 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 35%, 37% and 36% of our full year gross profit during the fourth quarters of fiscal 2012, fiscal 2011 and fiscal 2010, respectively. This seasonality may adversely affect our business and cause our results of operations to fluctuate, and, as a result, we believe that comparisons of our operating results between different quarters within a single fiscal year are not necessarily meaningful and that results of operations in any period should not be considered indicative of the results to be expected for any future period.

 

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

The reporting currency for our consolidated financial statements is the U.S. dollar. In the future, we expect to continue to derive a significant portion of our net revenue and incur a significant portion of our operating costs in Canada, and changes in exchange rates between the Canadian dollar and the U.S. dollar may have a significant, and potentially adverse, effect on our results of operations. Additionally, a portion of our net revenue is generated in Australia and New Zealand. Our primary risk of loss regarding foreign currency exchange rate risk is caused by fluctuations in the exchange rates between the U.S. dollar, Canadian dollar, Australian dollar and New Zealand dollar. As we recognize net revenue from sales in Canada in Canadian dollars, and the U.S. dollar has strengthened during the first quarter of fiscal 2013, it has had a negative impact on our Canadian operating results upon translation of those results into U.S. dollars for the purposes of consolidation. However, the loss in net revenue was offset by lower cost of sales and lower selling, general and administrative expenses that are generated in Canadian dollars. A 10% depreciation in the relative value of the Canadian dollar compared to the U.S. dollar would have resulted in additional income from operations of approximately $0.2 million in the first quarter of fiscal 2013. A 10% depreciation in the relative value of the Australian dollar compared to the U.S. dollar would have resulted in lost income from operations of approximately $0.1 million in the first quarter of fiscal 2013. We have not historically engaged in hedging transactions but in the future may at times enter into derivative financial instruments to mitigate foreign exchange risks. As we continue to recognize gains and losses in foreign currency transactions, depending upon changes in future currency rates, such gains or losses could have a significant, and potentially adverse, effect on our results of operations.

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 2012, approximately 54% of our products were produced in South and South East Asia, approximately 34% in China, approximately 3% in North America and the remainder in the Peru, Israel, Egypt and other countries. As a result of our international suppliers, we are subject to risks associated with doing business abroad, including:

 

   

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

   

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

 

   

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

 

   

disruptions or delays in shipments; and

 

   

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

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

 

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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.

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

Our success depends in large part on our brand image. We believe that our trademarks and other proprietary rights have significant value and are important to identifying and differentiating our products from those of our competitors and creating and sustaining demand for our products. We have obtained and applied for some United States and foreign trademark registrations, and will continue to evaluate the registration of additional trademarks as appropriate. However, we cannot guarantee that any of our pending trademark applications will 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 cannot assure you that obstacles will not arise as we expand our product line and the geographic scope of our sales and marketing. Third parties may assert intellectual property claims against us, particularly as we expand our business and the number of products we offer. Our defense of any claim, regardless of its merit, could be expensive and time consuming and could divert management resources. Successful infringement claims against us could result in significant monetary liability or prevent us from selling some of our products. In addition, resolution of claims may require us to redesign our products, license rights from third parties or cease using those rights altogether. Any of these events could harm our business and cause our results of operations, liquidity and financial condition to suffer.

Our founder controls a significant percentage of our stock and is able to exercise significant influence over our affairs.

Our founder, Dennis Wilson, beneficially owns approximately 28% of our common stock. As a result, Mr. Wilson is able to influence or control matters requiring approval by our stockholders, including the election of directors and the approval of mergers, acquisitions or other extraordinary transactions. This concentration of ownership may have various effects including, but not limited to, delaying, preventing or deterring a change of control of our company.

 

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

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

 

   

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

 

   

prohibiting cumulative voting in the election of directors;

 

   

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

 

   

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

 

   

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

 

   

prohibiting stockholder action by written consent; and

 

   

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

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

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

The following table provides information regarding our purchases of our common stock during the thirteen-week period ended May 5, 2013:

 

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(3)
     Maximum Number
of Shares that
May Yet Be
Purchased Under
the Plans
or Programs(2,3)
 

February 4, 2013 — March 3, 2013

     6,699       $ 69.00         6,699         5,515,224   

March 4, 2013 — April 7, 2013

     7,233         63.33         7,233         5,507,991   

April 8, 2013 — May 5, 2013

     6,683         72.34         6,683         5,501,308   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     20,615            20,615      
  

 

 

       

 

 

    

 

(1) Monthly information is presented by reference to our fiscal months during our first quarter of fiscal 2013.
(2) Excluded from this disclosure are shares repurchased to settle statutory employee tax withholding related to the vesting of performance share unit awards.
(3) 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 Toronto Stock Exchange or 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.

 

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ITEM 6.  EXHIBITS

         Incorporated by Reference

Exhibit

No.

 

Exhibit Title

   Filed
Herewith
     Form    Exhibit
No.
   File No.    Filing
Date
10.1   Supply Agreement, dated April 20, 2011*      X               
10.2   Exclusivity Agreement — Garments, dated August 27, 2012*      X               
10.3   Exclusivity Agreement — Raw Materials, dated August 27, 2012*      X               
31.1   Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a)      X               
31.2   Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a)      X               
32.1   Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002      X               
101**   The following financial statements from the Company’s 10-Q for the fiscal quarter ended May 5, 2013, formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations and Comprehensive Income, (iii) Consolidated Statements of Stockholders’ Equity, (iv) Consolidated Statements of Cash Flows (v) Notes to the Consolidated Financial Statements               

 

* This exhibit (or portions thereof) has been filed separately with the Commission pursuant to an application for confidential treatment. The confidential portions of this exhibit have been omitted and are marked by an asterisk.
** Furnished herewith

 

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SIGNATURES

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

 

lululemon athletica inc.
By:   / S / J OHN E. C URRIE
  John E. Currie
 

Chief Financial Officer

(Principal Financial Officer and

Principal Accounting Officer)

Dated: June 10, 2013

 

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Exhibit Index

 

         Incorporated by Reference

Exhibit

No.

 

Exhibit Title

   Filed
Herewith
     Form    Exhibit
No.
   File No.    Filing
Date
10.1   Supply Agreement, dated April 20, 2011*      X               
10.2   Exclusivity Agreement – Garments, dated August 27, 2012*      X               
10.3   Exclusivity Agreement – Raw Materials, dated August 27, 2012*      X               
31.1   Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a)      X               
31.2   Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a)      X               
32.1   Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002      X               
101**   The following financial statements from the Company’s 10-Q for the fiscal quarter ended May 5, 2013, formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations and Comprehensive Income, (iii) Consolidated Statements of Stockholders’ Equity, (iv) Consolidated Statements of Cash Flows (v) Notes to the Consolidated Financial Statements               

 

* This exhibit (or portions thereof) has been filed separately with the Commission pursuant to an application for confidential treatment. The confidential portions of this exhibit have been omitted and are marked by an asterisk.
** Furnished herewith

 

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Exhibit 10.1

Portions of this document have been redacted pursuant to a Request for Confidential Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. Redacted portions are indicated with the notation “[**]”.

 

LOGO

PROVIDING COMPONENTS FOR PEOPLE TO LIVE A LONGER, HEALTHIER AND MORE FUN LIFE

lululemon athletica Supply Agreement

This Agreement is made on April 20th, 2011 between lululemon athletica canada inc. (“lululemon athletica”) and                     [**]                     (“Supplier”).

    (print name)

 

1. DEFINITIONS: In this Agreement:

 

  (a) Agreement ” means this Agreement and all Appendices attached hereto, and includes the terms and conditions of the Vendor Information Package, which are incorporated herein by reference.

 

  (b) B-Grade Products ” means Products that are classified as B-Grade Products by lululemon athletica pursuant to the criteria specified in the Quality Manual and that exhibit defects or non-conformities that, in lululemon athletica’s sole discretion, (i) do not render the Products un-wearable, (ii) do not create a risk of potential injury or discomfort to the user, (iii) are not likely to require repair or replacement or result in defective returns from consumers, (iv) will not discredit the lululemon athletica brand in the marketplace and (v) can be economically resold by lululemon athletica through existing retail stores.

 

  (c) C-Grade Products ” means Products that are classified as C-Grade Products by lululemon athletica pursuant to the criteria specified in the Quality Manual and that exhibit defects or non-conformities that render the Products unacceptable to lululemon athletica.

 

  (d) Confidential Information ” means any information in whatever form or medium (including any copies of such information that Supplier is authorized by lululemon athletica to make) that is identified by lululemon athletica as confidential or proprietary or which, in the circumstances, ought to be treated as confidential or proprietary, including non-public information related to lululemon athletica’s (and/or an affiliate’s) business, employees, techniques, technology, technical data, technical assistance, development work, art work, design work, plans, sketches, patent applications, trade secrets, know-how, designs, manufacturing, products, marketing plans, sales strategies, research and development activities, financial affairs, data and information systems, vendors and customers and, for greater certainty, includes the lululemon IP, Vendor Information Package, the Quality Manual, the Specifications and the terms of this Agreement.

 

  (e) Hand over Date ” means the date for delivery of Products to lululemon athletica specified in a Purchase Order.

 

  (f) Delivery Location ” means the location specified in a Purchase Order to which the Products will be delivered.

 

  (g) First Quality Products ” means Products that conform to the Specifications and otherwise meet the criteria for First Quality Products as specified in the Quality Manual.

 

  (h)

Force Majeure ” means any circumstance beyond the reasonable control of a party, other than the inability to meet financial obligations, including acts of God, acts or restraints of governments or public authorities, wars, revolutions, riots or civil commotions, strikes, lock-outs or other industrial


  actions, failure of supplies of power or fuel and damage to premises or storage facilities by explosion, fire, corrosion, flood or natural disaster.

 

  (i) Improvements ” has the meaning ascribed to that term in Section 22.

 

  (j) Indemnitee ” has the meaning ascribed to that term in Section 19.

 

  (k) lululemon IP ” means all intellectual property rights of lululemon athletica, including all copyrights, patents, trademarks, trade secrets, industrial designs, logos, commercial symbols, product designs and know how and all applications, continuations, extensions, notices, licenses, sublicenses, agreements and registrations thereof in any jurisdiction.

 

  (l) Manufacturing Standards ” has the meaning ascribed to that term in Section 14.

 

  (m) Overruns ” means First Quality Products manufactured in excess of the quantity set out in the Purchase Order relating to such Products.

 

  (n) Products ” means all products for which Specifications or other proposals, requirements, concepts, designs, technology, technical data, technical assistance or specifications are submitted by lululemon athletica to Supplier and all other products supplied by Supplier to lululemon athletica.

 

  (o) Purchase Order ” means a purchase order issued by lululemon athletica to Supplier for the purchase of Products, which complies with the terms and conditions set out in the Vendor Information Package.

 

  (p) Quality Manual ” means lululemon athletica’s manual which sets out the overall quality standards and requirements with which all suppliers must comply, and which includes the criteria for classifying the quality of products manufactured by or for lululemon athletica as First Quality Product, B-Grade Products or C-Grade Products.

 

  (q) Specifications ” means functional, technical, operational, performance, design, quality and similar specifications relating to a Product and any raw materials used in respect of the Product, including product drawings, sketches, samples, material and component specifications, packaging, marketing, labelling, test procedures, functional and quality goals, schematics and other specifications, as applicable, whether in written or electronic formats, as delivered or approved by lululemon athletica.

 

  (r) Vendor Information Package ” means the vendor information package provided by lululemon athletica to Supplier and as amended or replaced by lululemon athletica from time to time in its sole discretion.

Whenever the words “include”, “includes” or “including” are used in this Agreement they will be deemed to be followed by the words “without limitation”.

 

2. TERM AND TERMINATION OF AGREEMENT: This Agreement will commence on the date first above written and will remain in effect thereafter until terminated in accordance with the provisions of this Agreement. lululemon athletica may terminate this Agreement and/or cancel any Purchase Order, without charge:

 

  (a) immediately on notice if Supplier breaches any material term of this Agreement and (i) such breach is not corrected within thirty (30) days of the date of lululemon athletica’s notice of the breach, or (ii) if full correction is not reasonably possible within such thirty (30) day period, Supplier is not making reasonable efforts, at lululemon’s sole discretion, to correct such breach; or

 

  (b) on ninety (90) days’ written notice to Supplier.

 

3. SUPPLY COMMITMENT: During the term of this Agreement, Supplier will manufacture and supply Products to lululemon athletica in accordance with the terms and conditions set out in this Agreement.

 

4.

PURCHASE ORDERS: When lululemon athletica elects to purchase Products from Supplier, lululemon athletica will issue a Purchase Order. Purchase Orders will be deemed to be accepted by Supplier at the end of the third business day following Supplier’s receipt of the Purchase Order unless Supplier provides

 

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  lululemon athletica with notice of its rejection of the Purchase Order prior to that time. Supplier will fulfill all Purchase Orders received from lululemon athletica in accordance with the provisions of this Agreement and the Purchase Order. Supplier will not make substitutions or modifications to Products ordered unless lululemon athletica has consented in writing to the modification. In the event that Products are ordered, sold or delivered without the issuance of a formal Purchase Order for any reason whatsoever, such order, sale or delivery will be subject to the terms of this Agreement. Notwithstanding any provision of this Agreement, lululemon athletica will have no obligation to issue Purchase Orders. In the event of any conflict between the terms set out in any Purchase Order and the terms of this Agreement, the terms of the Purchase Order will govern.

 

5. PRICE: Supplier will supply each Product at the prices set out in the applicable Purchase Order accepted by Supplier in accordance with Section 4 hereto unless otherwise agreed to by the parties in writing. If a Purchase Order specifies a per unit price and quantity of Products and does not specify hourly rates or estimates for services, any and all engineering and other services incidental to or associated with the production of the Products will be deemed to be included in the per unit price of the Products.

 

6. TAXES: Prices for Products will be inclusive of all taxes, with the exception of Goods and Services Tax (“GST”). Where applicable, GST will be shown as a separate line on Supplier’s invoice and Supplier will clearly indicate its GST registration number.

 

7. CHARGES PRIOR TO IMPORTATION: Supplier will be liable for the payment of any duties, taxes and other charges levied on Products prior to their importation into the destination country.

 

8. PAYMENT: Unless otherwise provided in the Purchase Order, lululemon athletica will pay Supplier in accordance with the terms and conditions set out in the Vendor Information Package or with terms negotiated in writing between lululemon and supplier. Payment will not constitute acceptance of Products and will be subject to adjustment for shortages, defects, non-conformance and other failures of Supplier to meet any terms or conditions of this Agreement.

 

9. DELIVERY: Supplier will deliver the Products ordered by lululemon athletica, and all necessary accompanying documentation, to the Delivery Location by the Delivery Date. Delivery will be deemed to be complete only when the Products and all necessary accompanying documentation have been actually received at the FCA Freight Forwarder by lululemon athletica or its agent, consolidator or carrier, as applicable. Unless otherwise provided in the Purchase Order, title to and risk of loss of the Products will pass to lululemon athletica upon delivery to the Delivery Location for shipments within Canada and shipments within the USA and upon arrival to the port of departure for Products to be shipped from outside of Canada or from outside the USA.

 

10. LATE SHIPMENTS: Where Supplier reasonably determines that any shipment of Products will be delivered after the “hand over” Date, Supplier will immediately notify lululemon athletica. lululemon athletica will have the right to cancel, without charge or cost to lululemon athletica, any Purchase Order in respect of which notice of late delivery is given if (i) lululemon athletica determines, acting reasonably, that the late delivery is likely to prevent lululemon athletica from fulfilling its obligations its retail outlets or (ii) Supplier has not delivered the Products within fourteen (14) days of the Delivery Date. If lululemon does not exercise its right to cancel a Purchase Order, or if lululemon otherwise accepts a delivery after the Delivery Date, then the amount outstanding under a Purchase Order for Products delivered by Supplier after the Delivery Date will be reduced in accordance with the following:

 

Delay

  

Discount

1-7 days

   Cost of Factory Air Freight

8-14 days

   5% + Factory Air freight

15-21 days

   15% + Factory Air Freight

21-28 days plus

   30% + Factory Air Freight

 

3


11. INSPECTION AND ACCEPTANCE: lululemon athletica will perform an inspection of the Products within a reasonable time after delivery. If in the inspection lululemon athletica determines that the Products or a sampling thereof are not First Quality Products, in addition to any of the rights and remedies otherwise available to lululemon athletica, lululemon athletica may, at its election, (i) send the defective Products back to Supplier to be replaced with Products that are First Quality Products or (ii) require Supplier to provide lululemon athletica with a complete refund of or credit for the aggregate price of such defective products. lululemon athletica will have no obligation to purchase Products that are not First Quality Products.

 

12. DEFECTIVE PRODUCTS: lululemon athletica will have the right, but not the obligation, to purchase B-Grade Products at a unit price equal to fifty percent (50%) of the unit price specified in the Purchase Order. lululemon athletica will advise Supplier of its election to purchase B-Grade Products within five (5) business days of notification by Supplier of an inventory of B-Grade Products or, where such notification is not provided, delivery of B-Grade Products to lululemon. Any Products determined by lululemon athletica to be C-Grade Products and any B-Grade Products not purchased by lululemon athletica will be destroyed pursuant to Section 16 of this Agreement.

 

13. COMPLIANCE WITH LAWS: Supplier will ensure that the manufacturing and supply of the Products, the Products, the destruction of any Products pursuant to Section 16 of this Agreement and the disposal of any materials created or used in the manufacturing process for the Products comply with all applicable laws and regulations, including laws relating to occupational health and safety, waste management and the environment. Supplier agrees to take all actions to comply with all applicable customs and trade laws as they relate to the manufacturing and supply of the Products to lululemon athletica, including determination of (i) manufacturing country of origin, (ii) component and value information supporting duty preference programs or trade preference programs and (iii) quota or visa restrictions. Upon request by lululemon athletica, Supplier will provide information related to the value, origin of materials and origin of components used in the manufacture of Products and any information necessary to substantiate the manufacturing country of origin. If lululemon athletica or any customs authority determines that any information provided by Supplier is incorrect, inaccurate or incomplete, then Supplier will be liable for any fines, penalties, additional duties or other fees resulting from such incorrect, inaccurate or incomplete information. Supplier will maintain records, whether paper or electronic, relating to Purchase Orders and deliveries of Products for a period of 7 (seven) years from the actual date of delivery of the relevant Products or as otherwise required by applicable law, whichever is longer. Supplier will notify lululemon athletica immediately upon becoming aware of any concerns relating to compliance with this Section 13.

 

14. MANUFACTURING STANDARDS: lululemon athletica will provide Supplier, from time to time, with Quality Manuals, Specifications, Vendor Information Packages, supplier manuals, restricted substances lists, health and safety manuals and other written documentation setting out lululemon athletica’s requirements for manufacturing of Products, including Product packaging (collectively, the “ Manufacturing Standards ”). Unless Supplier objects in writing to the Manufacturing Standards within thirty (30) days after receipt of any such Manufacturing Standards, the Manufacturing Standards will and will be deemed to apply to all Purchase Orders received by Supplier after the date of Supplier’s receipt of such Manufacturing Standards. If the terms of any Manufacturing Standard conflict or are inconsistent with the terms of this Agreement, the terms and conditions of this Agreement will govern. lululemon athletica and its employees, directors, officers and agents may, during regular business hours, enter and inspect the facilities where the Products are manufactured, assembled, packaged or stored.

 

15. OVERRUNS: In order to assist in the avoidance of waste and inefficiency in Supplier’s manufacturing process, lululemon athletica will accept and pay for Overruns at 100% of the price specified in the Purchase Order PROVIDED that (i) the quantity of Overruns does not exceed five percent (5%) of the quantity specified in the Purchase Order, (ii) if Overruns exceed five percent (5%), Supplier must notify lululemon athletica who, at its sole discretion, may accept or reject such quantities and (iii) the Product size distribution of the Overruns must be reasonably consistent, at lululemon’s sole discretion, with the Product size distribution specified in the Purchase Order.

 

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16. DESTRUCTION OF PRODUCT: Upon (i) termination of this Agreement or any Purchase Order, (ii) the rejection of B-Grade Products or C-Grade Products pursuant to Section 12 of this Agreement or (iii) the rejection of any Overruns pursuant to Section 15 of this Agreement, lululemon athletica will have the right to require Supplier to destroy Products in Supplier’s possession at the time of such termination or rejection, as well as any components or raw materials bearing lululemon athletica’s trademarks, trade names or logos. Supplier will complete such destruction in a manner acceptable to lululemon athletica, acting reasonably, and lululemon athletica will have the right to witness such destruction. Upon request, Supplier will provide lululemon athletica with a certificate of destruction in a form acceptable to lululemon athletica.

 

17. PACKAGING AND QUALITY ASSURANCE: Supplier will securely pack the Products for domestic and international shipment and for any required warehouse storage. Packaging will be sufficient to ensure safe arrival of the Products. Supplier will firmly attach and provide all relevant shipping documentation stipulated in Vendor information package including a copy of the detailed packing list, referencing the Purchase Order number(s), to the outside of the shipping container. Supplier will provide a QA audit certificate, signed by Supplier’s quality assurance supervisor or similar personnel, itemizing all of the Products shipped and certifying that the Products conform to the Specifications.

 

18. REPRESENTATIONS, WARRANTIES AND COVENANTS: Without limiting the other provisions of this Agreement, Supplier represents, warrants and covenants that:

 

  (a) it has full corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder;

 

  (b) the execution, delivery and performance of this Agreement and any Purchase Order will not violate or conflict with any other agreement or commitment of Supplier;

 

  (c) the Products will, at the time of delivery to lululemon athletica, be free and clear of all liens, charges and encumbrances;

 

  (d) upon delivery to lululemon athletica, the Products will be of merchantable quality free from all defects in design, workmanship and materials, conform to the Specifications, be fit for their intended purpose, be constructed of new materials and have been designed and manufactured in accordance with the Manufacturing Standards; and

 

  (e) the Products will be manufactured and sold by Supplier to lululemon athletica in compliance with all applicable laws, ordinances, rules and regulations, whether federal, provincial, municipal or otherwise.

These representations, warranties and covenants will survive inspection, acceptance, payment, on-sale and termination of this Agreement. lululemon athletica reserves the right to cancel any Purchase Order if it reasonably believes Product to be delivered does not comply with the requirements of this Section 18.

 

19. INDEMNIFICATION: Without in any way limiting any of the rights or remedies otherwise available to lululemon athletica, Supplier will indemnify and hold harmless lululemon athletica, each affiliate of lululemon athletica and each of their successors and past, present and future assigns, directors, officers, employees, agents, attorneys and representatives (each an “ Indemnitee ”) against and from any loss, damage, injury, harm, detriment, lost opportunity, liability, exposure, claim, demand, settlement, judgment, award, fine, penalty, tax, fee, charge or expense (including legal fees) that is directly or indirectly suffered or incurred at any time by an Indemnitee, or to which an Indemnitee otherwise becomes subject at any time, and that arises directly or indirectly out of or by virtue of, or relates directly or indirectly to (i) any breach of any representation or warranty made by Supplier pursuant to this Agreement, (ii) any failure by Supplier to perform of fulfill any of its covenants or agreements set forth in this Agreement or (iii) any litigation, proceeding or claim by any third party relating in any way whatsoever to the obligations of Supplier under this Agreement.

 

5


20. INSURANCE: Supplier will, at Supplier’s own expense, obtain and keep in effect during the term of this Agreement and any Purchase Order the following minimum insurance coverage:

 

  (a) Commercial General Liability Insurance, including coverage for premises, operations, independent contractors, personal injury, products liability, property damage and contractual liability, with a limit of not less than two million dollars ($2,000,000) per occurrence; and

 

  (b) Workers’ Compensation Insurance or local equivalent (in compliance with applicable local, provincial, state and federal laws) covering all of Supplier’s employees engaged in the provision of services under this Agreement, and Employers’ Liability Insurance with a limit of not less than one million dollars ($1,000,000) per occurrence.

All insurance policies will be endorsed to name lululemon athletica and its affiliates and their respective directors, officers, employees and agents as additional insureds and will be written on an occurrence basis. Insurance policies will be available for inspection by lululemon athletica at any time. Failure on the part of lululemon athletica to inspect or identify discrepancies in the insurance certificates will not be construed as a waiver of Supplier’s obligation to maintain the required insurance.

 

21. TRADE MARKS AND TRADE NAMES: Supplier agrees that trade marks, trade names and logos used to identify lululemon athletica and lululemon athletica merchandise are the exclusive property of lululemon athletica, and Supplier has no interest, and will acquire no interest, in such trade marks, trade names or logos except for the right to use them in accordance with the Specifications or as otherwise expressly permitted under this Agreement or a Purchase Order. Upon termination of this Agreement or upon request by lululemon athletica, Supplier agrees to immediately cease all use of lululemon athletica’s trade marks, trade names and logos and to return to lululemon athletica all copies of advertising, marketing, promotional or other material in the possession or control of Supplier bearing such trade marks, trade names or logos.

 

22. INTELLECTUAL PROPERTY: Supplier acknowledges and agrees that lululemon athletica owns and will remain the owner of all lululemon IP, including any intellectual property developed during the term of this Agreement. In the event that Supplier or any of its employees, subcontractors or agents develops, either independently or jointly with lululemon athletica, any design elements, production techniques or improvements (the “ Improvements ”) based on the Specifications or any other proposals, concepts, designs or specifications provided by lululemon athletica, such Improvements and all rights associated therewith are and will remain the exclusive property of lululemon athletica or its nominees, whether or not patented or copyrighted and without regard to any termination of this Agreement. Supplier hereby assigns and transfers, and will ensure that its employees, subcontractors or agents assign and transfer, to lululemon athletica all of its right, title and interest in and to any Improvements, effective upon creation thereof. If for any reason this Agreement does not qualify as an assignment of all of Supplier’s rights, or all of the rights of its employees, subcontractors or agents, in and to any Improvements, Supplier agrees to assign, and to ensure that its employees, subcontractors or agents assign, such rights to lululemon athletica.

 

23. INTELLECTUAL PROPERTY RIGHTS COOPERATION: Supplier will, and will ensure that its employees, subcontractors and agents will, assist lululemon athletica and its nominees in every proper way during and subsequent to the term of this Agreement, at lululemon athletica’s or its nominee’s expense, to obtain, for lululemon athletica’s or its nominee’s benefit, patents, copyrights or other forms of legal protection for the Improvements in any and all countries of the world.

 

24. USE OF NAME; ADVERTISING: Supplier will not use lululemon athletica’s name, logos, trademarks or any other proprietary information for any purpose whatsoever, including in connection with advertising or publicity, without the prior written consent of lululemon athletica. Supplier will be liable to lululemon athletica for damages caused by the unauthorized use or other misappropriation of such names, logos, trademarks or other proprietary information by Supplier or its employees, subcontractors or agents and will pay reasonable legal fees and other costs lululemon athletica may incur in enforcing this provision.

 

6


25. CONFIDENTIAL INFORMATION: Supplier acknowledges and agrees that all Confidential Information has been and will be received in the strictest confidence and will be held and used only in accordance with and subject to the terms of this Agreement. During the terms of this Agreement and at all times thereafter, Supplier will not disclose, and will maintain the confidentiality of, all Confidential Information. Supplier will use at least the same degree of care as it uses to protect its own confidential information, but no less than a reasonable degree of care, to maintain in confidence the Confidential Information. Supplier will ensure that each of its employees, consultants, agents and representatives who have had or will have access to the Confidential Information comply with these confidentiality obligations. Supplier will not disclose or make available any Confidential Information to any subcontractor retained by Supplier without first obtaining (i) written consent from lululemon athletica and (ii) written agreement from the subcontractor to abide by these confidentiality obligations. All Confidential Information will be owned by and remain the sole and exclusive property of lululemon athletica. The foregoing obligations will not apply to any item of Confidential Information that Supplier can establish (i) is at the time of disclosure, or thereafter becomes, part of the public domain by any means other than Supplier’s breach of its obligations hereunder, (ii) was known to Supplier at the time of disclosure as evidence by Supplier’s written records or (iii) is, at any time, disclosed to Supplier by any third party having the right to disclose the same. To the extent that Supplier is required by law to disclose any Confidential Information it will be permitted to do so for the limited purpose so required provided that notice is first delivered to lululemon athletica in a timely manner so that it has the opportunity to contest the potential disclosure.

 

26. RETURN OF CONFIDENTIAL INFORMATION: Upon termination of this Agreement or upon request by lululemon athletica, Supplier will promptly return to lululemon athletica all Confidential Information in Supplier’s possession, custody or control and cease any further use of the Confidential Information. For greater certainty, failure of lululemon athletica to make a request for the return of Confidential Information will not entitle Supplier to make any further use of the Confidential Information.

 

27. ENFORCEMENT: Supplier acknowledges and agrees that lululemon athletica would be irreparably harmed and would have no adequate remedy at law for breach of the confidentiality provisions set out in this Agreement and that lululemon athletica will be entitled to injunctive or other affirmative relief, in addition to any of the rights or remedies otherwise available to lululemon athletica. Supplier’s obligations with respect to Confidential Information under this Agreement expire five (5) years from the date of this Agreement or the date of its disclosure hereunder, whichever is later (except for trade secrets, which will remain subject to the terms of this agreement for so long as they constitute trade secrets).

 

28. GIFTS POLICY: Supplier acknowledges that it has received a copy of and has reviewed lululemon athletica’s policy regarding monetary and non-monetary gifts to its directors, officers and employees, and relatives, friends and associates of such individuals, a copy of which is attached as Appendix A hereto. Supplier understands this policy and will strictly comply with its terms and any amendments thereto provided by lululemon athletica from time to time hereafter. In addition to any other remedies it may have under this Agreement, lululemon athletica may terminate this Agreement and any Purchase Order if Supplier violates this policy.

 

29. CODE OF CONDUCT: Supplier acknowledges that it has a received a copy of and had reviewed lululemon athletica’s code of conduct, a copy of which is attached as Appendix B hereto. Supplier understands this code of conduct and will strictly comply with its terms and any amendments thereto provided by lululemon athletica from time to time hereafter. Supplier will require and certify that all of its suppliers, contractors, subcontractors, employees and vendors that manufacture or assemble the Products or components of the Products comply with this code of conduct. Supplier will post this code in all areas where work is performed for lululemon athletica and will train employees on their rights and obligations defined by this code of conduct. Supplier will maintain such documents and records as are necessary to demonstrate compliance with this code of conduct and will make such documents and records available to lululemon or its agents upon request. In addition to any other remedies it may have under this Agreement, lululemon athletica may terminate this Agreement and any Purchase Order if Supplier violates this code of conduct or breaches the provisions of this Section 29.

 

7


30. FORCE MAJEURE: Neither party will be liable to the other party for any delay or failure to perform its obligations under this Agreement where such delay or failure is caused by Force Majeure, provided that the party claiming Force Majeure notifies the other party as soon as reasonably possible specifying the nature and probable duration of the Force Majeure and makes reasonable commercial efforts to minimize the effects of the Force Majeure.

 

31. SUBCONTRACTING: Supplier will not subcontract or purport to subcontract any of Supplier’s obligations under this Agreement without first obtaining lululemon athletica’s written consent. Supplier will provide lululemon athletica with the names, locations and other relevant details of any subcontractors Supplier proposes to use in connection with its obligations under this Agreement. Regardless of any subcontract to which lululemon athletica provides its consent, (i) Supplier will remain responsible for obligations under this Agreement performed by subcontractors to the same extent as if such obligations were performed by Supplier’s employees, including the obligations with respect to Confidential Information, (ii) Supplier will remain lululemon athletica’s primary point of contact with respect to the subject matter of this Agreement and (iii) Supplier will require all of its subcontractors to comply with all applicable terms of this Agreement, including the obligations with respect to Confidential Information. If consent is given for a subcontract on any particular occasion, it will still be required for all subsequent subcontracts.

 

32. NO ASSIGNMENT. Supplier will not assign this Agreement to any other person, corporation or entity whatsoever without the prior written consent of lululemon athletica.

 

33. AMENDMENTS AND WAIVERS: No amendment to this Agreement will be valid or binding unless set forth in writing and duly executed by both parties. No waiver of any breach of any provision of this Agreement will be effective or binding unless made in writing and signed by the party purporting to give the same and, unless otherwise provided in the written waiver, will be limited to the specific breach waived.

 

34. RELATIONSHIP BETWEEN THE PARTIES. Nothing in this Agreement creates any employment, partnership, joint venture, agency, franchise or sales representative relationship between the parties.

 

35. FURTHER ASSURANCES: Each party hereto will at any time and from time to time, upon the reasonable request of the other party and at the other party’s expense, execute and deliver such further documents and do such further things as the other party may reasonably request to evidence, carry out and give full effect to the terms, conditions, intent and meaning of this Agreement.

 

36. NOTICES: All notices or other communications required or permitted under this Agreement will be in writing and may be given by delivering or faxing same during normal business hours to the address or fax number set forth below (or to such other address or fax number as a party may specify by notice in writing to the other party). Any such notice or other communication will, if delivered, be deemed to have been given or made and received on the date delivered, and if faxed (with confirmation received), will be deemed to have been given or made and received on the day on which it was so faxed.

 

37. SEVERABILITY: If any provision of this Agreement is determined to be invalid or unenforceable in whole or in part, such invalidity or unenforceability will attach only to such provision or part thereof and the remaining part of such provision and all other provisions hereof will continue in full force and effect.

 

38.

GOVERNING LAW: JURISDICTION AND VENUE: Regardless of any conflict of law or choice of law principles that might otherwise apply, lululemon athletica and Supplier agree that this Agreement will be governed by and construed in all respects in accordance with the laws of the Province of British Columbia. Each of the parties also expressly agrees and acknowledges that the Province of British Columbia has a reasonable relationship to each of the parties and/or this Agreement. As to any dispute, claim, or litigation arising out of or relating in any way to this Agreement or the transaction at issue in this Agreement, each of the parties agrees and consents to the non-exclusive jurisdiction of the courts of the Province of British Columbia located in Vancouver, British Columbia, Canada and irrevocably waives, to the fullest extent permitted by law (i) any objection that it may now or hereafter have to laying venue and any suit, action or proceeding brought in such court, (ii) any claim that any suit action or proceeding brought in such court has

 

8


  been brought in an inconvenient forum and (iii) any defence that it may now or hereafter have based on lack of personal jurisdiction in such forum.

 

39. WAIVER OF TRIAL BY JURY: EACH OF THE PARTIES HEREBY AGREES THAT IT WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY.

 

40. ENTIRE AGREEMENT: This Agreement, including the documents described herein, is the entire agreement between the parties with respect to the subject matter hereof and supersedes any and all written, electronic, oral or other communications between the parties with respect to such subject matter.

 

41. COUNTERPARTS: This Agreement may be executed in any number of counterparts, each of which will be deemed to be an original and all of which taken together will be deemed to constitute one and the same instrument.

 

42. ELECTRONIC EXECUTION: Delivery of an executed signature page to this Agreement by any party by electronic transmission will be as effective as delivery of a manually executed copy of this Agreement by such party.

[SIGNATURE PAGE FOLLOWS]

 

LULULEMON ATHLETICA CANADA INC.

    

[**]

     (print name of Supplier)

Per:

        Per:     

address:

        address:     

phone no.

        phone no.     

fax no.:

        fax no.:     

email:

        email:     

 

9


APPENDIX A to lululemon athletica Authorized Supplier Agreement

GIFTS POLICY

Relationship with persons or companies doing business with Lululemon

This shall set the policy of lululemon on the taking of gifts presented by our contract suppliers, our vendors, and any other companies or persons associated with lululemon in any business capacity. The following provisions apply to all lululemon employees.

In recognizing that in the culture and environment of certain countries, the giving of gifts is established custom, the following standards are established as guidelines to our employees.

 

1. No employee of lululemon shall accept a cash gift at any time. Any employees offered a cash gift shall immediately report the fact to their manager and/or the Head of Global Sourcing & Manufacturing. In those instances when the return of cash gifts may result in undue embarrassment or the donor of the cash gift cannot be readily identified, these amounts must be turned over to the lululemon Chief Financial Officer for deposit into the company’s cash accounts.

 

2. Gifts for relatives, friends, or other associates of lululemon employees cannot be accepted.

 

3. With respect to non cash gifts to lululemon employees, these must be reported to the direct manager and/or Head of Global Sourcing & Manufacturing when the values exceed US$100. They will decide whether such items can be retained by the recipient or turned over to the custody of lululemon. Where there are questions regarding the value of the gifts, a report to the direct manager or Head of Global Sourcing & Manufacturing must be made.

 

10


APPENDIX B to lululemon athletica Authorized Supplier Agreement

CODE OF CONDUCT

At lululemon athletica, we value: Quality, Product, Integrity, Balance, Entrepreneurship, Fun and Greatness. When choosing vendors and manufacturers, we will work with people who have common values and operate using responsible business practices.

In our business, we can only deliver quality products if we retain satisfied employees who are treated with respect. Ultimately, our employees have a choice to work with us and we will only attract the best people if we are committed to fairness and honesty. As such, we select vendors that have open, direct relationships with their workers. We will choose vendors and manufacturers that manage their business within the following Workplace Code of Conduct.

Non-discrimination: No person shall be subject to any discrimination in employment, including hiring, salary, benefits, advancement, discipline, termination or retirement, on the basis of gender, race, religion, age, disability, sexual orientation, nationality, political opinion, or social or ethnic origin.

Forced Labour: There shall not be any use of forced labour including prison, indentured or bonded labour.

Child Labour: No person shall be employed at an age younger than 16 or the age for completing compulsory education, or the local legal age limit, whichever is higher. As a measure of increased compliance to age standards, manufacturers shall not use homework of any kind for Lululemon production.

Harassment or Abuse: Every employee shall be treated with respect and dignity. No employee shall be subject to any physical, sexual, psychological or verbal harassment or abuse.

Health and Safety: Employers shall provide and promote a safe and healthy working environment. Employer has written health and safety policies and standards and implements system to reduce worker injury and accidents at employer workplace and living facilities.

Freedom of Association and Collective Bargaining: Employers shall recognize the right of employees to freedom of association and collective bargaining.

Wages and Benefits: Employers recognize that wages are essential to meeting employees’ basic needs. Employers shall pay employees, at least the minimum wage required by local law or the prevailing industry wage, whichever is higher, and shall provide legally mandated benefits.

Hours of Work and Overtime: Workers shall not be required to work more than 60 hours per week, including overtime, except in extraordinary circumstances. Local standards will apply in countries where the maximum workweek is less. Workers shall be entitled to at least one day off in every seven-day period. In accordance with country laws, employees shall be compensated for overtime hours at a premium above their regular hourly rate. Employer must keep complete and accurate employee work and pay records.

Environmental Responsibility: Manufacturers and vendors must be working towards environmental improvements (may include: waste reduction, pollution prevention, proper waste disposal, sustainable and efficient use of natural resources) in their operations.

Manufacturer agrees, in addition to complying with all applicable local laws, to comply with this Workplace Code of Conduct. Manufacturer agrees to maintain, on file, all documentation necessary to demonstrate compliance with this Code of Conduct and agrees to make these documents available for lululemon or its agents, and agrees to submit to inspections with or without prior notice.

 

11


LOGO

lululemon athletica Amendment Agreement

This amendment agreement is made on April 20, 2011 between lululemon athletica canada inc. (“lululemon athletica”) and [**] (the “Supplier”) (the “Amendment Agreement)”).

Whereas:

 

  (a) lululemon athletica and the Supplier entered into a supply agreement on April 20, 2011 (the “Supply Agreement”);

 

  (b) lululemon athletica and the Supplier have agreed to modify and amend the Supply Agreement on the terms and conditions set forth herein;

Now therefore, in consideration of the recitals above, and of the mutual covenants and agreements contained in the Supply Agreement, the parties covenant and agree as follows:

 

1.1 If the Supplier ships Products to a Delivery Location located in the U.S., then the Supply Agreement shall be deemed to be as between the Supplier and lululemon usa inc.

 

1.2 If the Supplier ships Products to a Delivery Location located in Canada, then the Supply Agreement shall be deemed to be as between the Supplier and lululemon athletica canada inc.

 

1.3 Unless otherwise defined herein, all capitalized terms used in this Amendment Agreement shall have the meanings ascribed to them in the Supply Agreement.

 

1.4 All other terms of the Supply Agreement will remain in effect, unamended.

lululemon athletica canada inc.

 

 

Per:

 

 

[**]

 

 

Per:

 

12


LOGO

lululemon athletica Amendment Agreement #2

This Amendment Agreement #2 is made on October 31, 2011 between lululemon athletica canada inc. (“lululemon athletica”) and [**](“Supplier”).

Whereas:

 

  (a) lululemon athletica and the Supplier entered into a Supply Agreement on April 20th, 2011 (the “ Supply Agreement ”);

 

  (b) lululemon athletica and the Supplier entered into an Amendment Agreement on April 20th, 2011 (the “ Amendment Agreement ”),

 

  (c) lululemon athletica’s affiliates intend to issue Purchase Orders pursuant to the Supply Agreement and the Supplier intends to fulfill such Purchase Orders;

 

  (d) lululemon athletica and the Supplier have agreed to modify and amend the Supply Agreement on the terms and conditions set forth herein;

Now therefore, in consideration of the recitals above, and of the mutual covenants and agreements contained in the Supply Agreement the parties covenant and agree as follows:

 

1. Section 1 of the Supply Agreement is revised by adding the definition of “Affiliate” as subsection(s):

Affiliate ” means an affiliated body corporate as defined in the Canada Business Corporations Act, and in the case of lululemon athletica specifically includes, lululemon usa inc., ivivva athletica canada inc and ivivva usa inc.

 

2. Section 1(o) of the Supply Agreement is revised to read: “Purchase Order” means a purchase order issued by lululemon athletica or its Affiliates to Supplier for the Purchase of Products, which complies with the terms and conditions set out in the Vendor Information Package.

 

3. Section 4 of the Supply Agreement is revised to read as follows:

PURCHASE ORDERS: When lululemon athletica or its Affiliates elects to purchase Products from Supplier, lululemon athletica or its Affiliates will issue a Purchase Order. Purchase Orders will be deemed to be accepted by Supplier at the end of the third business day following Supplier’s receipt of the Purchase Order unless Supplier provides lululemon athletica with notice of its rejection of the Purchase Order prior to that time. Supplier will fulfill all Purchase Orders received from lululemon athletica or its Affiliates in accordance with the provisions of this Agreement and the Purchase Order and all such Purchase Orders will be governed by the terms of this Agreement. Supplier will not make substitutions or modifications to Products ordered unless lululemon athletica or its Affiliates has consented in writing to the modification. In the event that Products are ordered, sold or delivered without the issuance of a formal Purchase Order for any reason whatsoever, such order, sale or delivery will be subject to the terms of this Agreement. Notwithstanding any provision of this Agreement, lululemon athletica or its Affiliates will have no obligation to issue Purchase Orders. In the event of any conflict between the terms set out in any Purchase Order and the terms of this Agreement, the terms of the Purchase Order will govern.

 

13


4. The parties agree to rescind the Amendment Agreement.

 

5. All other terms of the Supply Agreement will remain in effect, unamended.

 

lululemon athletica canada inc.

    Supplier
   

Per:

        Per:     

Name:

        Name:     

Title:

        Title:     

Date:

        Date:     

 

14

Exhibit 10.2

Portions of this document have been redacted pursuant to a Request for Confidential Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. Redacted portions are indicated with the notation “[**]”.

 

LOGO

PROVIDING COMPONENTS FOR PEOPLE TO LIVE A LONGER, HEALTHIER AND MORE FUN LIFE

Exclusivity Agreement — Garments

THIS AGREEMENT (this “ Agreement ”) is made on August 27th, 2012 (the “ Effective Date ”) between LULULEMON ATHLETICA CANADA INC. (“ lululemon athletica ”), a company incorporated under the laws of the Province of British Columbia, having an address at 400 – 1818 Cornwall Ave, Vancouver, British Columbia and [**] (“ [**] ”), a company incorporated under the laws of [**], having an address at [**].

WHEREAS, the parties agree that [**] shall manufacture and supply certain fabrics materials and products for lululemon athletica on an exclusive basis on the terms set out herein;

AND WHEREAS, the parties wish to protect their respective designs, materials and other intellectual property;

NOW THEREFORE in consideration of ten dollars and other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged by each of the parties hereto), the parties agree as follows:

 

1. Definitions

In this Agreement,

 

  (a) Affiliate ” means, with respect to any person, any other person that controls or is controlled by or is under common control with such person.

 

  (b) “Competing Business” means any business engaged in the design, manufacture or distribution of athletic apparel or accessories, similar to or competitive with the products of lululemon athletica or any of its Affiliates. For illustration only, as of the date of this Agreement, Competing Businesses include, but are not limited to [**], [**], [**], [**] and [**].

 

  (c) “Confidential Information” shall include information which [**] obtains about lululemon athletica, whether in oral, tangible or documented form, that is of value to lululemon athletica and is not generally known in the industry or to a Competing Business of lululemon athletica. Confidential Information of lululemon athletica shall include: all technical know-how and information relating to its business, employees, techniques, technology, technical data, technical assistance, financial affairs, information systems, marketing plans, sales strategies, research and development activities, art work, designs, plans, sketches, products, models and prototypes of products, the configuration and assembly of components, measurements, material (whether developed or acquired by lululemon athletica or its affiliates), trade secrets, manufacturing, manufacturing information (whether or not patentable or patented), patent applications, practical experience, methodology, specifications, photographs and other compilations of the aforesaid whether in software, written, visual or oral form regardless of whether the information is marked as, or otherwise indicated to be, confidential at the time of disclosure and includes the terms of this Agreement.

 

  (d) Supplier Agreement ” means the supplier agreement between the parties dated April 20, 2011 and any amendments thereto or any successor agreement entered into between the parties for the manufacturing and supply of fabric, materials and products for lululemon athletica.


2. Term

This Agreement shall commence on the Effective Date and shall remain in effect for a period of five (5) years, unless either party breaches the Agreement and the non-breaching party provides prompt written notice of such breach of the Agreement, or until the Supplier Agreement has been terminated in accordance with its terms. The parties expressly acknowledge that a breach of this Agreement shall be considered a material breach of the Supplier Agreement.

 

3. Exclusivity

[**] shall:

 

  (a) not disclose any Confidential Information, including any intellectual property rights related thereto, or furnish any information with respect to Confidential Information, to any person other than lululemon athletica and its Affiliates.

 

  (b) not produce or manufacture any similar style and/or similarly constructed athletic garments, materials or products for a Competing Business without the prior written consent of lululemon athletica, such consent not to be unreasonably withheld by lululemon athletica.

 

  (c) not manufacture, replicate, supply, copy, modify or otherwise reproduce Confidential Information or a portion thereof for any person other than lululemon athletica and its Affiliates.

 

  (d) reject any request from other customers to copy the Confidential Information and notify lululemon athletica of any such request.

 

  (e) [**] agrees to educate its employees of its product development center for lululemon athletica to use their best efforts to prevent replication of lululemon athletica’s Confidential Information.

 

  (f) [**] agrees to only accept from its customers artwork and tech packs for product development which are original design.

 

4. Representations and Warranties

[**] represents and warrants that [**] has not replicated the Confidential Information for any third party and that it will not manufacture, replicate, supply, copy, modify or otherwise reproduce Confidential Information or a portion thereof for any third party. Once per year during each year of this Agreement, upon receiving reasonable prior written request from lululemon athletica, but in no event no less than ten (10) business days after receiving such written notice, an officer of [**] shall certify in writing that [**] has continuously complied and shall continue to comply with each of the covenants, representations and warranties set out in Sections 3 and 4 of this Agreement.

 

5. Confidentiality

 

  (a)

[**] acknowledges and agrees that all Confidential Information shared with [**] has been and shall be received by [**] in the strictest confidence and shall be held and used by [**] only in accordance with and subject to the terms of this Agreement. During the term of this Agreement and at all times thereafter, [**] shall not disclose, and shall maintain the confidentiality of, all Confidential Information. [**] shall use at least the same degree of care as it uses to protect its own confidential information, but no less than a reasonable degree of care, to maintain in confidence the Confidential Information. [**] shall ensure that each of its employees, consultants, agents and representatives who have had or shall have access to the Confidential Information comply with this Agreement. [**] shall not disclose or make available any Confidential Information to any subcontractor retained by [**] without first obtaining (i) written consent from lululemon athletica and (ii) written agreement from the subcontractor to abide by these confidentiality obligations. All Confidential Information shall be owned by and remain the sole and exclusive property of lululemon athletica. The foregoing obligations

 

- 2 -


  shall not apply to any item of Confidential Information that (i) is at the time of disclosure, or thereafter becomes, part of the public domain by any means other than [**]’s breach of its obligations hereunder, (ii) was known to [**] at the time of disclosure as evidenced by [**]’s written records or (iii) is, at any time, disclosed to [**] by any third party having the right to disclose the same. To the extent that [**] is required by law to disclose any Confidential Information it shall be permitted to do so for the limited purpose so required provided that notice is first delivered to lululemon athletica in a timely manner so that it has the opportunity to contest the potential disclosure.

 

  (b) To secure the confidentiality attaching to the Confidential Information, [**] shall:

 

  i. keep separate all Confidential Information and all information generated by [**] based thereon from all documents and other records of [**];

 

  ii. keep all documents and any other material bearing or incorporating any of the Confidential Information at the place of business of [**] listed above or such other place as is agreed in writing between the parties;

 

  iii. not use, reproduce, transform, or store any of the Confidential Information in an externally accessible computer or electronic information retrieval system or transmit it in any form or by any means whatsoever outside of [**]’s place of business listed above, or between the said places of business of [**] and lululemon athletica, and any such transfer or transmission shall be by private and exclusive means agreed to between the parties;

 

  iv. restrict access to the Confidential Information exclusively to those individuals who have a need to know the information and who are parties to this Agreement and then only where they have a reasonable need to see and use it solely for the purpose fulfilling [**]’s obligations under the Supplier Agreement.

 

  v. make no copies of any of the Confidential Information without the prior written consent of lululemon athletica; and

 

  vi. when so requested upon receiving written notice from lululemon athletica, deliver up to lululemon athletica all documents, samples and all other material in the possession, custody or control of [**] that bear or incorporate any part of the Confidential Information including all copies made by [**] and, in the case of material in software form, delete the same from all [**] computer or electronic information retrieval systems.

 

  (c) Upon termination of this Agreement or upon receiving reasonable prior written request from lululemon athletica, but in no event no less than ten (10) business days after receiving such written notice,, [**] shall promptly return to lululemon athletica all Confidential Information in [**]’s possession, custody or control and cease any further use of the Confidential Information. Failure of lululemon athletica to make a request for the return of Confidential Information does not and shall not entitle [**] to make any further use of the Confidential Information.

 

  (d) [**] acknowledges and agrees that lululemon athletica would be irreparably harmed and would have no adequate remedy at law for breach of the confidentiality provisions set out in this Agreement and that lululemon athletica shall be entitled to injunctive or other affirmative relief in addition to any of the rights or remedies otherwise available to lululemon athletica.

 

6. Indemnity

[**] shall indemnify, hold harmless and defend lululemon athletica, its Affiliates, servants, agents, employees, invitees and representatives from and against any and all losses, damages, expenses, claims, suits and demands (including legal fees and expenses on a solicitor and client basis) resulting from damages or injuries caused by or arising out any breach of [**]’s representations, warranties or covenants contained in this Exclusivity Agreement.

 

- 3 -


7. Acknowledgement

[**] acknowledges that the exclusivity rights granted to lululemon athletica in this Agreement are fair and reasonable and that [**] has received adequate consideration for the grant of such rights pursuant to the Supplier Agreement.

 

8. Entire Agreement

This Agreement represents the entire agreement between the parties with respect to the subject matter hereof and supersedes any and all written, electronic, oral or other communications between the parties with respect to such subject matter. Notwithstanding the foregoing, the rights and obligations set out in this Agreement are in addition to, and not a replacement of, those set out in the Supplier Agreement.

 

9. Severability

If any provision in this Agreement shall be held to be illegal, invalid or unenforceable, in whole or in part, under any law, such provision or part shall to the extent of the illegality, invalidity or unenforceability be deemed not be form part of this Agreement and shall not affect the legality, validity and enforceability of the remainder of this Agreement.

 

10. Successors

This Agreement shall enure to the benefit of and be binding upon the parties hereto and their respective administrators, successors and permitted assigns.

 

11. Governing Law, Jurisdiction and Venue

Regardless of any conflict of law or choice of law principles that might otherwise apply, lululemon athletica and Supplier agree that this Agreement shall be governed by and construed in all respects in accordance with the laws of the Province of British Columbia. Each of the parties also expressly agrees and acknowledges that the Province of British Columbia has a reasonable relationship to each of the parties and/or this Agreement. As to any dispute, claim, or litigation arising out of or relating in any way to this Agreement or the transaction at issue in this Agreement, each of the parties agrees and consents to the non-exclusive jurisdiction of the courts of the Province of British Columbia located in Vancouver, British Columbia, Canada and irrevocably waives, to the fullest extent permitted by law (i) any objection that it may now or hereafter have to laying venue and any suit, action or proceeding brought in such court, (ii) any claim that any suit action or proceeding brought in such court has been brought in an inconvenient forum and (iii) any defence that it may now or hereafter have based on lack of personal jurisdiction in such forum.

 

12. Arbitration

In the event of any controversy or claim arising out of or relating to this agreement, including its validity or a breach thereof, the parties hereto shall consult and negotiate with each other and shall attempt to reach a satisfactory solution. If the parties do not resolve their dispute within a period of 30 days after written notice of the dispute by either party to the other, any unresolved controversy or claim shall be settled by arbitration administered by the International Centre for Dispute Resolution in accordance with its International Arbitration Rules. The number of arbitrators shall one. The place of arbitration shall be Vancouver, British Columbia, and the language of the arbitration shall be English. The arbitrator may award to the prevailing party, if any, as determined by the arbitrator, its costs and expenses, including attorneys’ fees. Judgment upon any award rendered by the arbitrator may be entered in any court of competent jurisdiction. No information concerning an arbitration, beyond the names of the parties and the relief requested, may be unilaterally disclosed to a third party by any party unless required by law. Any documentary or other evidence given by a party or witness in the arbitration shall be maintained as confidential by any party whose access to such evidence arises exclusively as a result of its participation in the arbitration, and shall not be disclosed to any third party (other than a witness or expert), except as may be required by law.

 

- 4 -


13. Waiver Of Trial By Jury

Each of the parties hereby agrees that it waives all right to trial by jury in any proceeding arising out of or relating to this Agreement and the transactions contemplated hereby.

 

14. Counterparts

This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which taken together shall be deemed to constitute one and the same instrument.

 

15. Electronic Execution

Delivery of an executed signature page to this Agreement by any party by electronic transmission shall be as effective as delivery of a manually executed copy of this Agreement by such party.

IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed as of the date first above written.

 

LULULEMON ATHLETICA CANADA INC.    [**]

By:

 

 

   By:  

 

  Authorized Signatory      Authorized Signatory

Name: 

 

 

   Name:   

 

Title: 

 

 

   Title:   

 

Date: 

 

 

   Date:   

 

 

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Exhibit 10.3

Portions of this document have been redacted pursuant to a Request for Confidential Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. Redacted portions are indicated with the notation “[**]”.

 

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Exclusivity Agreement — Raw Materials

THIS AGREEMENT (this “ Agreement ”) is made on August 27th, 2012 (the “ Effective Date ”) between LULULEMON ATHLETICA CANADA INC. (“ lululemon athletica ”), a company incorporated under the laws of the Province of British Columbia, having an address at 400 – 1818 Cornwall Ave, Vancouver, British Columbia and [**] (“ [**] ”), a company incorporated under the laws of [**], having an address at [**].

WHEREAS, the parties agree that [**] shall manufacture and supply certain fabrics materials and products for lululemon athletica on an exclusive basis on the terms set out herein;

AND WHEREAS, the parties wish to protect their respective designs, materials and other intellectual property;

NOW THEREFORE in consideration of ten dollars and other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged by each of the parties hereto), the parties agree as follows:

 

1. Definitions

In this Agreement,

 

  (a) Affiliate ” means, with respect to any person, any other person that controls or is controlled by or is under common control with such person.

 

  (b) “Competing Business” means any business engaged in the design, manufacture or distribution of athletic apparel or accessories, similar to or competitive with the products of lululemon athletica or any of its Affiliates. For illustration only, as of the date of this Agreement, Competing Businesses include, but are not limited to: [**], [**], [**], [**] and [**].

 

  (c) “Confidential Information” shall include information which [**] obtains about lululemon athletica, whether in oral, tangible or documented form, that is of value to lululemon athletica and is not generally known in the industry or to a Competing Business of lululemon athletica. Confidential Information of lululemon athletica shall include: all technical know-how and information relating to its business, employees, techniques, technology, technical data, technical assistance, financial affairs, information systems, marketing plans, sales strategies, research and development activities, art work, designs, plans, sketches, products, models and prototypes of products, the configuration and assembly of components, measurements, material (whether developed or acquired by lululemon athletica or its affiliates), trade secrets, manufacturing, manufacturing information (whether or not patentable or patented), patent applications, practical experience, methodology, specifications, photographs and other compilations of the aforesaid whether in software, written, visual or oral form regardless of whether the information is marked as, or otherwise indicated to be, confidential at the time of disclosure and includes the Exclusive Materials and the terms of this Agreement.

 

  (d) Exclusive Materials ” means any material or fabric developed by [**] for or with lululemon athletica or its Affiliates, including, but not limited to those listed in Schedule A to this Agreement;

 

  (e) Supplier Agreement ” means the supplier agreement between the parties dated April 20, 2011 and any amendments thereto or any successor agreement entered into between the parties for the manufacturing and supply of fabric for lululemon athletica.


2. Term

This Agreement shall commence on the Effective Date and shall remain in effect for a period of five (5) years, unless either party breaches the Agreement and the non-breaching party provides prompt written notice of such breach of the Agreement, or until the Supplier Agreement has been terminated in accordance with its terms. The parties expressly acknowledges that a breach of this Agreement shall be considered a material breach of the Supplier Agreement. Notwithstanding the foregoing the parties agree to review and update Schedule A once every 6 months.

 

3. Exclusivity

[**] shall:

 

  (a) manufacture and supply the Exclusive Materials and any item manufactured using the Exclusive Materials exclusively for lululemon athletica and its Affiliates.

 

  (b) not solicit, or endeavour to solicit, the sale, license or other disposition of any Exclusive Materials to any person other than lululemon athletica and its Affiliates, whether as a raw material or as part of a manufactured item.

 

  (c) not disclose the Exclusive Materials or any Confidential Information, including any intellectual property rights related thereto, or furnish any information with respect to the Exclusive Materials or the Confidential Information, to any person other than lululemon athletica and its Affiliates.

 

  (d) not manufacture, replicate, supply, copy, modify or otherwise reproduce the Exclusive Materials or Confidential Information for any person other than lululemon athletica and its Affiliates.

 

4. Ownership

 

  (a) [**] acknowledges and agrees that lululemon athletica owns all right, title and interest in and to the Exclusive Materials, and all intellectual property rights related thereto, and as between lululemon athletica and [**], lululemon athletica shall have the sole right to take any and all steps necessary to obtain the entire right, title and interest in, to and under the Exclusive Materials, and the intellectual property rights related thereto, including any patents and patent applications worldwide, except that [**] is granted a limited license to use the Exclusive Materials, and all intellectual property rights related thereto, to the extent required for [**] to perform its obligations under this Agreement and any other agreement entered into between [**] and lululemon athletica and its Affiliates with respect to the Exclusive Materials.

 

  (b) Lululemon athletica acknowledges and agrees that [**] owns all right, title and interest in and to any materials which [**] develops independently from lululemon athletica and which is not based in whole or in part on the Exclusive Materials or work done with lululemon athletica in the development of the Exclusive Materials (the “[**] Materials”). [**] shall offer lululemon the first right to use the [**] Materials on an exclusive basis, in advance of offering the [**] Materials to any other customer. Lululemon athletica shall not knowingly disclose to any third party fabric suppliers or permit the duplication of [**] Materials by its other suppliers without the prior written consent of [**].

 

  (c) Notwithstanding the foregoing, in the event that lululemon athletica chooses not to commercialize an item of the Exclusive Materials within 18 months from the date that such Exclusive Material was fully developed, lululemon athletica shall provide [**] with written notice, identifying which items it does not intend to commercialize, and, upon the written request of [**], lululemon athletica shall transfer all right, title and interest in and to the identified item and the intellectual property rights related thereto to [**] and shall no longer be considered Exclusive Materials.

 

  (d) For the [**] Materials in which lululemon athletica selects for bulk order production, [**] shall continue to hold all right, title and interest in and to any such [**] Materials, including all intellectual property rights related thereto.

 

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5. Confidentiality

 

  (a) The parties acknowledge and agree that all confidential information shared with each party has been and shall be received by the other party in the strictest confidence and shall be held and used by the parties only in accordance with and subject to the terms of this Agreement. During the term of this Agreement and at all times thereafter, neither party shall disclose, and shall maintain the confidentiality of, all confidential information. The parties shall use at least the same degree of care as it uses to protect its own confidential information, but no less than a reasonable degree of care, to maintain in confidence the confidential information. Each party shall ensure that each of its employees, consultants, agents and representatives who have had or shall have access to the confidential information comply with this Agreement. The parties shall not disclose or make available any confidential information to any subcontractor retained by the other party without first obtaining (i) written consent from the party whose confidential information is sought to be disclosed and (ii) written agreement from the subcontractor to abide by these confidentiality obligations. All confidential information shall be owned by and remain the sole and exclusive property of the disclosing party . The foregoing obligations shall not apply to any item of confidential information that (i) is at the time of disclosure, or thereafter becomes, part of the public domain by any means other either party’s breach of its obligations hereunder, (ii) was known to the other party at the time of disclosure as evidenced by written records or (iii) is, at any time, disclosed to the other party by any third party having the right to disclose the same. To the extent that either party is required by law to disclose any confidential information it shall be permitted to do so for the limited purpose so required provided that notice is first delivered to lululemon athletica in a timely manner so that it has the opportunity to contest the potential disclosure.

 

  (b) To secure the confidentiality attaching to the confidential information, each party shall:

 

  i. keep separate all confidential information and all information generated by either party based thereon from all documents and other records of the disclosing party;

 

  ii. keep all documents and any other material bearing or incorporating any of the confidential information at the place of business of either party listed above or such other place as is agreed in writing between the parties;

 

  iii. restrict access to the confidential information exclusively to those individuals who have a need to know the information and who are parties to this Agreement and then only where they have a reasonable need to see and use it solely for the purpose fulfilling the parties’ obligations under the Supplier Agreement.

 

  iv. make no copies of any of the confidential information without the prior written consent of the other party; and

 

  v. upon receiving written notice from either party, deliver up to the requesting party all documents, samples and all other material in the possession, custody or control of the other party that bear or incorporate any part of the confidential information including all copies made by either party and, in the case of material in software form, delete the same from all parties’computer or electronic information retrieval systems.

 

  (c) Upon termination of this Agreement or upon receiving reasonable prior written request from either party, but in no event no less than ten (10) business days after receiving such written notice, the other party shall promptly return to the requesting party all Confidential Information in the other party’s possession, custody or control and cease any further use of the confidential information.

 

  (d) Each party acknowledges and agrees that the other party may be irreparably harmed and may have no adequate remedy at law for breach of the confidentiality provisions set out in this Agreement and that the other party shall be entitled to seek injunctive or other affirmative relief in addition to any of the rights or remedies otherwise available at law

 

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6. Indemnity

Each party shall indemnify, hold harmless and defend the other party, its Affiliates, servants, agents, employees, invitees and representatives from and against any and all losses, damages, expenses, claims, suits and demands (including legal fees and expenses on a solicitor and client basis) resulting from damages or injuries caused by or arising out any breach of the representations, warranties or covenants contained in this Exclusivity Agreement.

 

7. Acknowledgement

Each party acknowledges that the rights granted to in this Agreement are fair and reasonable and that each party has received adequate consideration for the grant of such rights pursuant to this Agreement and the Supplier Agreement.

 

8. Entire Agreement

This Agreement represents the entire agreement between the parties with respect to the subject matter hereof and supersedes any and all written, electronic, oral or other communications between the parties with respect to such subject matter. Notwithstanding the foregoing, the rights and obligations set out in this Agreement are in addition to, and not a replacement of, those set out in the Supplier Agreement.

 

9. Severability

If any provision in this Agreement shall be held to be illegal, invalid or unenforceable, in whole or in part, under any law, such provision or part shall to the extent of the illegality, invalidity or unenforceability be deemed not be form part of this Agreement and shall not affect the legality, validity and enforceability of the remainder of this Agreement.

 

10. Successors

This Agreement shall enure to the benefit of and be binding upon the parties hereto and their respective administrators, successors and permitted assigns.

 

11. Governing Law, Jurisdiction and Venue

Regardless of any conflict of law or choice of law principles that might otherwise apply, lululemon athletica and Supplier agree that this Agreement shall be governed by and construed in all respects in accordance with the laws of the Province of British Columbia. Each of the parties also expressly agrees and acknowledges that the Province of British Columbia has a reasonable relationship to each of the parties and/or this Agreement. As to any dispute, claim, or litigation arising out of or relating in any way to this Agreement or the transaction at issue in this Agreement, each of the parties agrees and consents to the non-exclusive jurisdiction of the courts of the Province of British Columbia located in Vancouver, British Columbia, Canada and irrevocably waives, to the fullest extent permitted by law (i) any objection that it may now or hereafter have to laying venue and any suit, action or proceeding brought in such court, (ii) any claim that any suit action or proceeding brought in such court has been brought in an inconvenient forum and (iii) any defence that it may now or hereafter have based on lack of personal jurisdiction in such forum.

 

12. Arbitration

In the event of any controversy or claim arising out of or relating to this agreement, including its validity or a breach thereof, the parties hereto shall consult and negotiate with each other and shall attempt to reach a satisfactory solution. If the parties do not resolve their dispute within a period of 30 days after written notice of the dispute by either party to the other, any unresolved controversy or claim shall be settled by arbitration administered by the International Centre for Dispute Resolution in accordance with its International Arbitration Rules. The number of arbitrators shall one. The place of arbitration shall be Vancouver, British Columbia, and

 

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the language of the arbitration shall be English. The arbitrator may award to the prevailing party, if any, as determined by the arbitrator, its costs and expenses, including attorneys’ fees. Judgment upon any award rendered by the arbitrator may be entered in any court of competent jurisdiction. No information concerning an arbitration, beyond the names of the parties and the relief requested, may be unilaterally disclosed to a third party by any party unless required by law. Any documentary or other evidence given by a party or witness in the arbitration shall be maintained as confidential by any party whose access to such evidence arises exclusively as a result of its participation in the arbitration, and shall not be disclosed to any third party (other than a witness or expert), except as may be required by law.

 

13. Waiver Of Trial By Jury

Each of the parties hereby agrees that it waives all right to trial by jury in any proceeding arising out of or relating to this Agreement and the transactions contemplated hereby.

 

14. Counterparts

This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which taken together shall be deemed to constitute one and the same instrument.

 

15. Electronic Execution

Delivery of an executed signature page to this Agreement by any party by electronic transmission shall be as effective as delivery of a manually executed copy of this Agreement by such party.

IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed as of the date first above written.

 

LULULEMON ATHLETICA CANADA INC.     [**]
By:  

 

    By:  

 

  Authorized Signatory       Authorized Signatory
Name:   

 

    Name:   

 

Title:   

 

    Title:   

 

Date:   

 

    Date:   

 

 

- 5 -

Exhibit 31.1

I, Christine M. Day, certify that:

1. I have reviewed this quarterly report on Form 10-Q of lululemon athletica inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

By:   / S /    C HRISTINE M. D AY
  Christine M. Day
  Chief Executive Officer and Director
  (Principal Executive Officer)

Date: June 10, 2013

Exhibit 31.2

I, John E. Currie, certify that:

1. I have reviewed this quarterly report on Form 10-Q of lululemon athletica inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

By:   / S /    J OHN E. C URRIE
  John E. Currie
  Chief Financial Officer
  (Principal Financial Officer and
  Principal Accounting Officer)

Date: June 10, 2013

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF

THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of lululemon athletica inc (the “Company”) on Form 10-Q for the first quarter of fiscal 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to such officer’s knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

By:   / S /    C HRISTINE M. D AY
  Christine M. Day
  Chief Executive Officer and Director
  (Principal Executive Officer)

Date: June 10, 2013

 

By:   / S /    J OHN E. C URRIE
  John E. Currie
  Chief Financial Officer
  (Principal Financial Officer)

Date: June 10, 2013

The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separate disclosure document.