The company increased its total company-operated store count to 770 as of May 4, 2025, up from 767 in February 2025. Notably, China Mainland added 27 net new stores and Rest of World added 10 net new stores since Q1 2024, contributing significantly to regional revenue growth.

Lululemon acquired its branded retail locations and operations in Mexico on September 10, 2024, which contributed to the Americas' net revenue increase of $57.1 million from new or expanded company-operated stores. This move consolidates control over a key regional market.

Management explicitly states the expectation to continue broadening merchandise offerings through expansion across product areas, indicating an ongoing commitment to diversify and capture wider consumer segments beyond core apparel.

While gross margin improved, SG&A expenses grew 11.9% year-over-year, outpacing revenue growth and leading to operating margin contraction. This increase was driven by higher head office costs ($51.6 million) and operating channel costs ($38.1 million), including employee, technology, and marketing expenses.

The company actively uses derivative financial instruments to manage exposure to foreign currency exchange rate risks, including hedging against changes in CAD, CNY, EUR, and AUD to USD/CAD. Despite a negative impact of $21.3 million on net revenue growth from FX fluctuations, management continues to assess hedge effectiveness.

Management acknowledges the adverse effect of recently imposed tariffs (since April 2025) on product costs and is implementing mitigation steps such as sourcing optimization, vendor negotiations, cost reductions, and selective price increases to minimize financial impact.

The company explicitly states that its business is negatively influenced by macroeconomic conditions, including inflation and lower consumer confidence. This is evidenced by a 2% decrease in Americas comparable sales, primarily due to lower store traffic and conversion rates.

Lululemon is facing a purported securities class action and six stockholder derivative complaints, alleging false/misleading statements and breaches of fiduciary duty related to business, product offerings, and inventory allocation. While the company intends to defend vigorously, these proceedings could be costly and divert management attention.

A significant portion of products (49%) and fabrics (52%) are supplied by a small number of top vendors, creating concentration risk. The company also highlights ongoing risks from trade restrictions, political instability, labor shortages, and fluctuating raw material costs, which could disrupt supply and increase costs.

Global comparable sales increased by only 1%, with Americas comparable sales decreasing 2%. In contrast, China Mainland and Rest of World comparable sales grew 7% and 6% respectively, indicating varying competitive pressures and market receptiveness across regions.

The company's success relies heavily on maintaining its brand value, providing consistent high-quality products, and delivering a strong guest experience. Management acknowledges that failure to innovate or react to changing consumer preferences could lead to lost market share.

Lululemon notes that its fabrics and manufacturing technology generally lack patents, making them susceptible to imitation by competitors. This could lead to competitors selling similar products at lower prices, potentially impacting Lululemon's net revenue and profitability.

Selling, general and administrative expenses increased by $100.4 million, or 11.9%, significantly higher than the 7% net revenue growth. This led to a 170 basis point increase in SG&A as a percentage of net revenue, indicating a decline in operational efficiency relative to sales.

Inventory increased 23% year-over-year to $1.7 billion as of May 4, 2025. This substantial increase raises concerns about potential future inventory write-downs or increased discounting if demand forecasts are not accurately met, impacting gross margins.

Capital expenditures increased in Q1 2025, partly due to increased investment in supply chain infrastructure. This suggests efforts to improve logistics and distribution, which could enhance future operational efficiency and product delivery.

Technology costs, including cloud computing amortization, increased by $11.0 million in head office costs and $2.6 million in operating channels. This indicates ongoing investment in digital infrastructure and capabilities to support business functions and customer engagement.

Digital marketing costs increased by $9.4 million, contributing to the rise in SG&A expenses. This investment aligns with the company's omni-channel strategy and supports the 6.1% year-over-year growth in e-commerce net revenue to $960.9 million.

The company is increasingly dependent on networks and technology systems for e-commerce, transactions, and inventory management. Any failure or disruption of these systems due to cyber-attacks or other causes could materially harm business operations and reputation.

Lululemon repurchased 1.4 million shares for $434.4 million in Q1 2025, significantly more than the 0.8 million shares for $299.5 million in Q1 2024. This reflects an ongoing commitment to return capital to shareholders and potentially signals management's confidence in the company's valuation.

Purchase of property and equipment increased to $152.3 million in Q1 2025 from $130.7 million in Q1 2024. These investments are directed towards supply chain infrastructure, company-operated stores in North America, and e-commerce-related technology systems, supporting long-term growth initiatives.

Despite a decrease in cash and cash equivalents from $1.98 billion to $1.33 billion during the quarter, the company believes its cash balances, cash from operations, and $400 million revolving credit facility (with only $6.6 million outstanding letters of credit) are adequate for liquidity needs over the next 12 months.

The company's Americas revolving credit facility includes sustainability key performance indicators (KPIs) related to greenhouse gas emissions intensity reduction and gender pay equity. Performance against these targets can result in positive or negative adjustments to interest rates and commitment fees, incentivizing ESG progress.

Lululemon acknowledges increasing scrutiny from institutional investors and advocacy organizations regarding its ESG policies and disclosures. Perceived insufficiency or inconsistency in ESG practices could lead to reputational damage, operational challenges, or legal exposure.

The company requires suppliers and manufacturers to comply with its Vendor Code of Ethics, which includes labor, health, safety, and environmental standards. While this demonstrates a commitment to responsible sourcing, negative publicity related to production methods could still harm reputation and sales.

The company's business continues to be negatively influenced by macroeconomic conditions, including consumer demand, inflation, and foreign currency fluctuations. Lower store traffic in the Americas, attributed to economic uncertainty and inflationary pressures, reflects these challenges.

The filing highlights risks from trade restrictions, political instability, and tariffs, particularly those imposed since April 2025, which have increased inventory costs and could reduce gross margins. Ongoing exchange rate volatility is also expected to continue affecting financial results.

Consistent with the retail apparel industry, Lululemon's annual net revenue is typically weighted towards the fourth fiscal quarter due to the holiday season. This seasonality means a substantial portion of operating profits are generated in Q4, making Q1 performance less indicative of full-year profitability.