The company added 17 net new company-operated stores globally since February 2, 2025, reaching 784 stores by August 3, 2025. Notably, China Mainland saw 8 net new stores and Rest of World 2 net new stores, contributing to robust revenue growth of 25% and 19% respectively in Q2 2025.

Americas comparable sales decreased by 4% in Q2 2025 (3% on a constant dollar basis) and 3% in H1 2025 (2% on a constant dollar basis). This was attributed to lower conversion rates and reduced store traffic, indicating challenges in the company's largest market.

The acquisition of lululemon branded retail operations in Mexico on September 10, 2024, contributed to a $56.6 million increase in Americas net revenue from new/expanded stores and other channels. The amortization of intangible assets from this acquisition also contributed $1.7 million in Q2 2025.

Selling, general and administrative (SG&A) expenses increased by 9.1% in Q2 2025 to $951.7 million, growing faster than the 7% net revenue increase. As a percentage of net revenue, SG&A rose 90 basis points to 37.7%, driven by higher employee, digital marketing, and technology costs.

The company is taking steps, including vendor negotiations and selective price increases, to mitigate the financial impact of new tariffs and the removal of the de minimis exemption. However, management anticipates these actions will not fully offset the estimated $240 million reduction in gross profit for 2025.

A reversal of stock-based compensation expense of $26.3 million was recognized in Q2 2025 due to changes in the probability of achieving performance conditions for performance-based restricted stock units. This suggests a reassessment of future performance outlook by management.

The implementation of new U.S. tariffs and the removal of the de minimis exemption are expected to reduce gross profit by approximately $240 million in 2025, net of mitigation efforts. This represents a material adverse effect on product costs and margins.

The Americas segment experienced a 4% decline in comparable sales in Q2 2025, primarily due to lower conversion rates and reduced store traffic. Management attributes this to economic uncertainty, lower consumer confidence, and changes in discretionary spending, exacerbated by inflationary pressures.

The company is facing a purported securities class action and six stockholder derivative complaints, alleging false/misleading statements and breaches of fiduciary duty. These legal proceedings could result in significant monetary damages, divert management resources, and negatively impact reputation.

The company operates in a highly competitive market, facing large diversified apparel companies and smaller specialized retailers. The limited patent protection on its fabrics and manufacturing technology allows competitors to produce similar products, potentially leading to pricing pressures and lost market share.

Lululemon's success is highly dependent on its brand value and reputation in a fragmented industry. The risk factors highlight that failure to innovate or react to new competitors could lead to a struggle to differentiate and sustain growth, potentially driving customers to alternative emerging brands.

The company faces significant pressure on costs from inflation and tariffs, which may necessitate price increases. However, the filing notes that such increases could reduce consumer demand, indicating a delicate balance in maintaining pricing power amidst market conditions.

Gross margin decreased 110 basis points in Q2 2025, primarily due to a 70 basis point net decrease in product margin. This was driven by higher markdowns, tariffs, and other costs, alongside a 40 basis point increase in other cost of sales from higher occupancy and depreciation costs.

Inventories increased by 21% to $1.72 billion as of August 3, 2025, compared to $1.44 billion at February 2, 2025. This substantial increase raises concerns about potential excess inventory levels if guest demand is not accurately forecasted, which could lead to future write-downs or discounting.

Selling, general and administrative expenses increased by $79.7 million in Q2 2025, with notable increases in digital marketing costs ($11.1 million), technology costs ($3.0 million), and employee costs ($23.7 million) for retail employees. These investments aim to support operating channels and head office functions.

Technology costs, including cloud computing amortization, increased by $9.0 million in Q2 2025 and $20.0 million in H1 2025 within head office expenses. This indicates ongoing investment in digital transformation and the underlying technological capabilities to support e-commerce and operations.

The company's business heavily relies on e-commerce websites and mobile apps for customer interaction and sales. The risk factors emphasize that failure to provide effective, user-friendly platforms could lead to competitive disadvantage and loss of sales, underscoring the criticality of technological capabilities.

The filing explicitly states that the company holds 'limited patents and exclusive intellectual property rights in the technology, fabrics or processes underlying our products.' This exposes Lululemon to the risk of competitors manufacturing and selling similar products, potentially eroding its unique product offerings.

The company repurchased 2.5 million shares for $715.7 million in H1 2025, with $0.9 billion remaining under the current authorization. This ongoing share repurchase activity suggests management's view that the stock is undervalued and a commitment to returning capital to shareholders.

Net cash used in investing activities increased by $53.3 million in H1 2025, primarily due to higher capital expenditures for company-operated stores in the Americas. This reflects a continued investment in physical retail presence as a key growth strategy.

Cash and cash equivalents decreased from $1.98 billion at February 2, 2025, to $1.16 billion at August 3, 2025. This substantial reduction in cash, alongside decreased cash flow from operations, indicates a tighter liquidity position, though management believes current balances and credit facilities are adequate for the next 12 months.

The Americas revolving credit facility's interest rates and commitment fees are subject to adjustment based on performance against sustainability key performance indicators (KPIs). These KPIs include greenhouse gas emissions intensity reduction and gender pay equity, directly linking financial terms to ESG performance.

The company acknowledges increasing scrutiny from investors and advocacy groups regarding its ESG policies and disclosures. This creates a risk of reputational damage, operational challenges, or legal consequences if ESG practices are perceived as insufficient, inconsistent, or politically misaligned.

The filing highlights physical and transitional risks related to climate change, including potential disruptions to the supply chain, increased raw material and production costs (e.g., cotton availability), and shifts in consumer purchasing behavior. This underscores the material impact of environmental factors on business operations.

The company explicitly states that its business is 'negatively influenced by macroeconomic conditions, including trade policies, shifting consumer demand, inflation, foreign currency fluctuations, and geopolitical instability.' This has led to lower conversion rates and reduced store traffic in the Americas.

Changes in U.S. tariff and customs policy, particularly the removal of the de minimis exemption, are expected to materially increase product costs and reduce gross profit by an estimated $240 million in 2025. This introduces substantial uncertainty and operational challenges for the global supply chain.

Despite overall macroeconomic challenges, China Mainland and Rest of World segments demonstrated strong comparable sales growth of 17% and 12% respectively in Q2 2025. In contrast, Americas comparable sales declined by 4%, indicating a divergence in regional market performance.