Lululemon Athletica · 10-Q · Item 2 MD&A

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the unaudited interim consolidated financial statements and related notes in Item 1 of this Quarterly Report on Form 10-Q, as well as the audited consolidated financial statements and MD&A in our Annual Report on Form 10-K for fiscal 2025.

This Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about our financial condition, results of operations, business strategies, growth opportunities, market trends, and future performance. Forward-looking statements can often be identified by words such as "may," "will," "expects," "plans," "anticipates," "believes," "estimates," "intends," and similar expressions.

These forward-looking statements are based on our current expectations and assumptions, are subject to risks and uncertainties, and may differ materially from actual results due to various factors, including those described under "Risk Factors" and elsewhere in this report. We undertake no obligation to update any forward-looking statements, except as required by applicable law.

Our fiscal year ends on the Sunday closest to January 31 of the following year, typically resulting in a 52-week year, but occasionally giving rise to an additional week, resulting in a 53-week year. Fiscal 2026 will end on January 31, 2027 and will be a 52-week year. Fiscal 2025 was a 52-week year and ended on February 1, 2026. Fiscal 2026 and fiscal 2025 are referred to as "2026," and "2025," respectively. The first two quarters of 2026 and 2025 ended on August 2, 2026 and August 3, 2025, respectively.

Table of Contents

Components of this MD&A include:

•Overview

•Financial Highlights and Market Conditions and Trends

•Quarter-to-Date Results of Operations

•Year-to-Date Results of Operations

•Comparable Sales

•Non-GAAP Financial Measures

•Seasonality

•Liquidity and Capital Resources

•Critical Accounting Policies and Estimates

•Operating Locations

We use comparable sales as a metric to evaluate the performance of our business. Refer to the Comparable Sales section of this MD&A for further information.

We provide constant dollar changes, which is a non-GAAP financial measure, as supplemental information to help investors understand the underlying growth rate of net revenue excluding the impact of changes in foreign currency exchange rates. Refer to the Non-GAAP Financial Measures section of this MD&A for reconciliations between the non-GAAP financial measures and the most directly comparable measures calculated in accordance with GAAP.

We disclose material non-public information through one or more of the following channels: our investor relations website (http://corporate.lululemon.com/investors), the social media channels identified on our investor relations website, press releases, SEC filings, public conference calls, and webcasts. Information contained on or accessible through our websites is not incorporated into, and does not form a part of, this quarterly report or any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only.

Overview

lululemon athletica inc. is principally a designer, distributor, and retailer of technical athletic apparel, footwear, and accessories. Our mission is to inspire the world to sweat, grow, and connect. Since our inception, we have fostered a distinctive corporate culture; we promote a set of core values in our business which include taking personal responsibility, acting with courage, valuing connection and inclusion, and choosing to have fun. These core values attract passionate and motivated employees who are driven to achieve personal and professional goals, and share our purpose to "elevate human potential by helping people feel their best."

We offer a comprehensive line of technical athletic apparel, footwear, and accessories marketed under the lululemon brand which includes:

•Pants, shorts, tops, and jackets designed for a healthy lifestyle including athletic activities such as yoga, running, training, and most other activities;

•Apparel designed for being on the move; and

•Fitness-inspired accessories.

Financial Highlights

The summary below compares the second quarter of 2026 to the second quarter of 2025 and includes $134.5 million of International Emergency Economic Power Act ("IEEPA") tariff refunds and $4.1 million of associated interest received during the second quarter of 2026. Refer to the Import Tariffs section for more information.

•Net revenue decreased 4% to $2.4 billion. On a constant dollar basis, net revenue decreased 5%.

•Comparable sales decreased 9%, or 10% on a constant dollar basis.

–Americas comparable sales decreased 12%.

–China Mainland comparable sales decreased 2%, or 8% on a constant dollar basis.

–Rest of World comparable sales decreased 4%, or 3% on a constant dollar basis.

•Gross profit decreased 1% to $1.5 billion, which includes $134.5 million of IEEPA tariff refunds.

Table of Contents

•Gross margin increased 200 basis points to 60.5%, which includes an increase of 560 basis points related to IEEPA tariff refunds.

•Income from operations decreased 13% to $453.7 million, which includes $134.5 million of IEEPA tariff refunds.

•Operating margin decreased 190 basis points to 18.8%, which includes an increase of 560 basis points related to IEEPA tariff refunds.

•Income tax expense decreased 15% to $138.1 million. Our effective tax rate for the second quarter of 2026 was 29.6%, compared to 30.5% for the second quarter of 2025.

•Diluted earnings per share were $2.92 compared to $3.10 in the second quarter of 2025, including $0.86 per share related to IEEPA tariff refunds and associated interest, net of tax.

Market Conditions and Trends

T1Net revenue in the Americas decreased 8%, and comparable sales in the Americas decreased 12%. T2We experienced reduced traffic and lower conversion rates, as well as a decrease in average order value in the Americas. We have initiated an action plan to drive net revenue growth in the Americas, structured around three strategic pillars: product creation, product activation, and enterprise enablement. This includes a plan to increase the reliance of full price selling to drive sustainable revenue growth.

Net revenue in China Mainland and Rest of World increased 4% and 5%, respectively, or decreased 2% and increased 6% on a constant dollar basis, respectively. China Mainland and Rest of World comparable sales decreased by 2% and 4%, respectively. We experienced lower conversion in these markets which led to a decrease in comparable sales. We opened 15 net new stores in China Mainland and 10 net new stores in Rest of World since the second quarter of 2025.

Across all markets, our business continues to be impacted by shifting consumer demand and brand sentiment and macroeconomic conditions, including trade policies, foreign currency fluctuations, and geopolitical instability. These factors have had varying effects across our markets and are expected to continue to impact our business throughout the remainder of 2026 and beyond.

Import Tariffs

During 2025, the United States implemented a series of trade-related policies, including removing the de minimis exemption for low-value shipments imported into the United States, and implementing higher tariffs under different statutes, including under the IEEPA. These changes in tariffs, including the de minimis exemption removal, have had a significant adverse effect on our business and results of operations in 2025 and 2026.

On February 20, 2026, the U.S. Supreme Court invalidated tariffs imposed under the IEEPA. The U.S. Administration has initiated new tariffs at different rates under alternative legislative powers. The U.S. Administration also confirmed that the IEEPA decision does not impact the removal of the de minimis exemption, and this was upheld by the U.S. Court of International Trade on August 13, 2026. We paid $230 million of tariffs under the IEEPA and have submitted refund claims for eligible IEEPA tariffs paid, including associated interest. T3During the second quarter of 2026, we received $134.5 million of IEEPA tariff refunds, which has been recognized in cost of goods sold, and $4.1 million of associated interest, which has been recognized in other income (expense), net. However, the ultimate additional amounts that we may be refunded, if any, remain uncertain, and as of August 2, 2026, we have not recognized an asset in relation to further IEEPA tariff refund claims.

There remains significant uncertainty regarding the duration and scope of newly initiated tariffs and whether the United States will pursue additional trade actions or impose further tariffs, or currently enforced tariffs may be invalidated through legal challenges. Additionally, our U.S. operating entity was named as a defendant in purported consumer class actions relating to alleged tariff-related pricing actions and potential governmental tariff reimbursements.

Because this is an evolving area, future developments may change our expectations materially. For additional information on related risks, please see “Risk Factors” in this report.

Other Factors Affecting Our Business

Foreign currency fluctuations positively impacted our financial results during the first two quarters of 2026, increasing net revenue by $69.6 million compared to the first two quarters of 2025. T4We expect ongoing exchange rate volatility to continue to affect our financial results.

Table of Contents

Quarter-to-Date Results of Operations: Second Quarter Results

The following table summarizes key components of our results of operations for the periods indicated:

Second Quarter

(In thousands)

(Percentage of net revenue)

Net revenue

$

$

%

%

Cost of goods sold

Gross profit

Selling, general and administrative expenses

Amortization of intangible assets

Income from operations

Other income (expense), net

Income before income tax expense

Income tax expense

Net income

$

$

%

%

Net Revenue

Second Quarter

Year over year change

(In thousands)

(Percentage of net revenue)

(In thousands)

(Percentage)

(Constant dollar change)

Americas

$

$

%

%

$

(8)

%

(8)

%

China Mainland

4

%

(2)

%

Rest of World

5

%

6

%

Net revenue

$

$

%

%

$

(4)

%

(5)

%

The decrease in net revenue was primarily due to decreased Americas net revenue, partially offset by increased Rest of World and China Mainland net revenue. Global comparable sales decreased 9%, or 10% on a constant dollar basis, primarily as a result of lower conversion rates, as well as reduced store traffic and a decrease in average order value, partially offset by higher e-commerce traffic.

Gross Margin

Second Quarter

Year over year change

(In thousands)

(In thousands)

(Percentage)

Gross profit

$

$

$

%

Gross margin

%

%

The increase in gross margin was primarily due to a net increase in product margin of 430 basis points, comprised of:

•an increase of 560 basis points related to IEEPA tariff refunds;

•a net decrease of 150 basis points primarily from higher tariffs, as well as markdowns including credit card affiliate programs, partially offset by higher pricing and lower product costs; and

•a favorable impact of foreign currency exchange rates of 20 basis points.

Table of Contents

The increase in gross margin was partially offset by a net increase in other cost of sales as a percentage of net revenue of 230 basis points, comprised of:

•T5an increase in occupancy and depreciation costs of 180 basis points, driven by new and expanded company-operated stores, as well as increased penetration in China Mainland and Rest of World; and

•an increase in costs related to our distribution centers and product departments of 50 basis points.

Selling, General and Administrative Expenses

Second Quarter

Year over year change

(In thousands)

(In thousands)

(Percentage)

Selling, general and administrative expenses

$

$

$

%

Selling, general and administrative expenses as a % of net revenue

%

%

The increase in selling, general and administrative expenses was primarily due to:

•a net increase in head office costs of $45.8 million, comprised of:

–an increase in contractor, advisory, and professional services of $14.6 million, which includes costs associated with proxy contest matters of $13.4 million in the second quarter of 2026;

–an increase in brand and community expenses of $14.1 million;

–an increase in employee costs of $7.6 million primarily due to the reversal of stock-based compensation recorded in the second quarter of 2025 and higher wage rates. The increase was partially offset by lower bonus expense due to business performance;

–an increase in technology costs, including cloud computing amortization, of $6.9 million;

–an increase in depreciation of $6.4 million; and

–a decrease in other head office costs of $3.8 million.

•a net increase in costs related to our operating channels of $7.7 million, comprised of:

–an increase in employee costs of $5.1 million;

–an increase in technology costs of $1.7 million;

–an increase in digital marketing expenses of $0.9 million;

–an increase in other operating costs of $4.2 million; and

–a decrease in variable costs of $4.2 million primarily due to lower packaging costs and credit card fees.

•a decrease in net foreign currency exchange and derivative revaluation gains of $1.2 million.

Selling, general and administrative expenses as a percentage of net revenue increased 400 basis points primarily due to an increase in head office costs of 260 basis points and an increase in costs related to our operating channels of 130 basis points.

Segment Results

On a segment basis, we determine income from operations without taking into account corporate expenses. Corporate expenses include the cost of centrally managed support functions including product design, raw material development, product innovation, sourcing, supply chain, and global merchandising which are included in other cost of sales. Administrative corporate expenses include technology, brand and marketing, finance, human resources, legal, and other head office costs.

Table of Contents

Americas

Second Quarter

Year over year change

(In thousands)

(In thousands)

(Percentage)

Net revenue

$

$

$

%

Product costs

Other cost of sales

Gross profit

Selling, general and administrative expenses

Segmented income from operations

$

$

$

%

Product margin

%

%

Gross margin

%

%

Selling, general and administrative expenses as a % of net revenue

%

%

Segmented income from operations as a % of net revenue

%

%

The decrease in net revenue was primarily due to a decrease in comparable sales, which decreased 12%. The decrease in comparable sales was primarily a result of reduced traffic and lower conversion rates, as well as a decrease in average order value. The decrease in net revenue was partially offset by a $29.5 million increase from new or expanded company-operated stores and our other channels, including from sales to wholesale accounts and outlets. We have opened 16 net new company-operated stores in the Americas since the second quarter of 2025.

The increase in gross margin was primarily due to higher product margin driven by an increase of 830 basis points related to IEEPA tariff refunds, partially offset by higher other tariffs. The increase in gross margin was partially offset by higher occupancy, depreciation, and distribution center costs as a percentage of net revenue.

The decrease in selling, general and administrative expenses was primarily due to lower employee costs as well as lower variable costs.

China Mainland

Second Quarter

Year over year change

(In thousands)

(In thousands)

(Percentage)

Net revenue

$

$

$

%

Product costs

Other cost of sales

Gross profit

Selling, general and administrative expenses

Segmented income from operations

$

$

$

%

Product margin

%

%

Gross margin

%

%

80 basis points

Selling, general and administrative expenses as a % of net revenue

%

%

Segmented income from operations as a % of net revenue

%

%

The increase in net revenue was primarily due to a $23.0 million increase in net revenue from new or expanded company-operated stores and our other channels. We have opened 15 net new company-operated stores in China Mainland since the second quarter of 2025. The increase in net revenue was partially offset by a decrease in comparable sales, which decreased 2%, or 8% on a constant dollar basis. The decrease in comparable sales was primarily a result of lower conversion rates, partially offset by higher traffic.

The increase in gross margin was primarily due to higher product margin driven by a favorable impact of foreign currency exchange rates, partially offset by higher depreciation and occupancy costs as a percentage of net revenue.

Table of Contents

The increase in selling, general and administrative expenses was primarily due to higher marketing expenses as well as higher employee costs.

Rest of World

Second Quarter

Year over year change

(In thousands)

(In thousands)

(Percentage)

Net revenue

$

$

$

%

Product costs

Other cost of sales

Gross profit

Selling, general and administrative expenses

Segmented income from operations

$

$

$

%

Product margin

%

%

(40) basis points

Gross margin

%

%

Selling, general and administrative expenses as a % of net revenue

%

%

60 basis points

Segmented income from operations as a % of net revenue

%

%

The increase in net revenue was primarily due to a $30.2 million increase in net revenue from new or expanded company-operated stores and our other channels, including from outlets and an increased number of locations operated by third parties under license and supply arrangements. We have opened 10 net new company-operated stores in Rest of World since the second quarter of 2025. The increase in net revenue was partially offset by a decrease in comparable sales, which decreased 4%, or 3% on a constant dollar basis. The decrease in comparable sales was primarily a result of lower conversion rates as well as reduced store traffic, partially offset by higher e-commerce traffic and an increase in average order value.

The decrease in gross margin was primarily due to higher occupancy, depreciation, and distribution center costs as a percentage of net revenue, as well as lower product margin.

The increase in selling, general and administrative expenses was primarily due to higher employee costs.

Corporate

Corporate expenses increased $37.7 million to $367.0 million in the second quarter of 2026 compared to the second quarter of 2025. The net increase was primarily due to higher employee costs, professional fees, technology costs, and depreciation. Corporate expenses also increased due to a decrease in net foreign currency exchange and derivative gains of $1.2 million.

Other Income (Expense), Net

Second Quarter

Year over year change

(In thousands)

(In thousands)

(Percentage)

Other income (expense), net

$

$

$

%

The increase in other income (expense), net was primarily due to an increase in interest income driven by $4.1 million in interest associated with IEEPA tariff refunds.

Table of Contents

Income Tax Expense

Second Quarter

Year over year change

(In thousands)

(In thousands)

(Percentage)

Income tax expense

$

$

$

%

Effective tax rate

%

%

(90) basis points

The decrease in the effective tax rate was primarily due to a decrease in non-deductible expenses in international jurisdictions, partially offset by adjustments upon the filing of income tax returns and lower research and development tax credits.

Net Income

Second Quarter

Year over year change

(In thousands)

(In thousands)

(Percentage)

Net income

$

$

$

%

The decrease in net income was primarily due to an increase in selling, general and administrative expenses of $54.7 million and a decrease in gross profit of $15.3 million, which included $134.5 million of IEEPA tariff refunds. The decrease in net income was partially offset by a decrease in income tax expense of $24.5 million and an increase in other income (expense), net of $4.0 million.

Year-to-Date Results of Operations: First Two Quarters Results

The following table summarizes key components of our results of operations for the periods indicated:

First Two Quarters

(In thousands)

(Percentage of net revenue)

Net revenue

$

$

%

%

Cost of goods sold

Gross profit

Selling, general and administrative expenses

Amortization of intangible assets

Income from operations

Other income (expense), net

Income before income tax expense

Income tax expense

Net income

$

$

%

%

Net Revenue

First Two Quarters

Year over year change

(In thousands)

(Percentage of net revenue)

(In thousands)

(Percentage)

(Constant dollar change)

Americas

$

$

%

%

$

(6)

%

(6)

%

China Mainland

%

%

Rest of World

9

%

7

%

Net revenue

$

$

%

%

$

—

%

(2)

%

Table of Contents

The decrease in net revenue was primarily due to decreased Americas net revenue, partially offset by increased China Mainland and Rest of World net revenue. Global comparable sales decreased 4%, or 6% on a constant dollar basis, primarily as a result of lower conversion rates as well as a decrease in average order value and reduced store traffic, partially offset by higher e-commerce traffic.

Gross Margin

First Two Quarters

Year over year change

(In thousands)

(In thousands)

(Percentage)

Gross profit

$

$

$

%

Gross margin

%

%

The decrease in gross margin was primarily due to a net increase in other cost of sales as a percentage of net revenue of 190 basis points, comprised of:

•an increase in occupancy and depreciation costs of 160 basis points, driven by new and expanded company-operated stores, as well as increased penetration in China Mainland and Rest of World; and

•an increase in costs related to our distribution centers and product departments of 30 basis points.

The decrease in gross margin was partially offset by a net increase in product margin of 80 basis points, comprised of:

•an increase of 280 basis points related to IEEPA tariff refunds;

•a net decrease of 240 basis points primarily from higher tariffs as well as markdowns including credit card affiliate programs, partially offset by higher pricing and lower product costs; and

•a favorable impact of foreign currency exchange rates of 40 basis points.

Selling, General and Administrative Expenses

First Two Quarters

Year over year change

(In thousands)

(In thousands)

(Percentage)

Selling, general and administrative expenses

$

$

$

%

Selling, general and administrative expenses as a % of net revenue

%

%

The increase in selling, general and administrative expenses was primarily due to:

•a net increase in head office costs of $109.0 million, comprised of:

–an increase in employee costs of $37.3 million primarily due to higher wage rates and the reversal of stock-based compensation recorded in the second quarter of 2025. The increase was partially offset by lower bonus expense due to business performance;

–an increase in brand and community expenses of $36.7 million;

–an increase in contractor, advisory, and professional services of $15.7 million, which includes costs associated with proxy contest matters of $24.8 million in the first two quarters of 2026, partially offset by lower other advisory and professional fees;

–an increase in technology costs, including cloud computing amortization, of $13.4 million;

–an increase in depreciation of $10.9 million; and

–a decrease in other head office costs of $5.0 million.

Table of Contents

•an increase in costs related to our operating channels of $64.1 million, comprised of:

–an increase in employee costs of $36.2 million primarily due to increased salaries and wages expense for retail employees;

–an increase in variable costs of $10.1 million primarily due to increased distribution costs, partially offset by lower packaging costs;

–an increase in technology costs of $4.6 million;

–an increase in digital marketing expenses of $4.4 million; and

–an increase in other operating costs of $8.8 million primarily due to increased repairs and maintenance costs and occupancy costs.

The increase in selling, general and administrative expenses was partially offset by a decrease in net foreign currency exchange and derivative revaluation losses of $1.3 million.

Selling, general and administrative expenses as a percentage of net revenue increased 360 basis points due to an increase in head office costs of 230 basis points and an increase in costs related to our operating channels of 130 basis points.

Segment Results

On a segment basis, we determine income from operations without taking into account corporate expenses. Corporate expenses include the cost of centrally managed support functions including product design, raw material development, product innovation, sourcing, supply chain, and global merchandising which are included in other cost of sales. Administrative corporate expenses include technology, brand and marketing, finance, human resources, legal, and other head office costs.

Americas

First Two Quarters

Year over year change

(In thousands)

(In thousands)

(Percentage)

Net revenue

$

$

$

%

Product costs

Other cost of sales

Gross profit

Selling, general and administrative expenses

Segmented income from operations

$

$

$

%

Product margin

%

%

50 basis points

Gross margin

%

%

Selling, general and administrative expenses as a % of net revenue

%

%

Segmented income from operations as a % of net revenue

%

%

The decrease in net revenue was primarily due to a decrease in comparable sales, which decreased 8%, or 9% on a constant dollar basis. The decrease in comparable sales was primarily a result of lower conversion rates as well as reduced store traffic and a decrease in average order value, partially offset by higher e-commerce traffic. The decrease in net revenue was partially offset by a $45.3 million increase from new or expanded company-operated stores and our other channels, including from outlets and sales to wholesale accounts. We opened 16 net new company-operated stores in the Americas since the second quarter of 2025.

The decrease in gross margin was primarily due to higher occupancy, depreciation, and distribution center costs as a percentage of net revenue. The decrease in gross margin was partially offset by higher product margin driven by an increase of 420 basis points related to IEEPA tariff refunds, partially offset by higher other tariffs.

The increase in selling, general and administrative expenses was primarily due to higher marketing expenses as well as higher variable costs.

Table of Contents

China Mainland

First Two Quarters

Year over year change

(In thousands)

(In thousands)

(Percentage)

Net revenue

$

$

$

%

Product costs

Other cost of sales

Gross profit

Selling, general and administrative expenses

Segmented income from operations

$

$

$

%

Product margin

%

%

Gross margin

%

%

Selling, general and administrative expenses as a % of net revenue

%

%

Segmented income from operations as a % of net revenue

%

%

(20) basis points

The increase in net revenue was primarily due to a $68.2 million increase in net revenue from new or expanded company-operated stores and our other channels. We have opened 15 new company-operated stores in China Mainland since the second quarter of 2025. The increase in net revenue was also driven by an increase in comparable sales, which increased 8%, or 2% on a constant dollar basis. The increase in comparable sales was primarily a result of higher traffic, partially offset by lower conversion rates.

The increase in gross margin was primarily due to higher product margin driven by a favorable impact of foreign currency exchange rates, as well as lower distribution center costs as a percentage of net revenue, partially offset by higher depreciation and occupancy costs as a percentage of net revenue.

The increase in selling, general and administrative expenses was primarily due to higher employee costs as well as higher marketing expenses.

Rest of World

First Two Quarters

Year over year change

(In thousands)

(In thousands)

(Percentage)

Net revenue

$

$

$

%

Product costs

Other cost of sales

Gross profit

Selling, general and administrative expenses

Segmented income from operations

$

$

$

%

Product margin

%

%

10 basis points

Gross margin

%

%

Selling, general and administrative expenses as a % of net revenue

%

%

Segmented income from operations as a % of net revenue

%

%

The increase in net revenue was primarily due to a $59.7 million increase in net revenue from new or expanded company-operated stores and our other channels, including from outlets and an increased number of locations operated by third parties under license and supply arrangements. We have opened 10 net new company-operated stores in Rest of World since the second quarter of 2025. Comparable sales were flat, or decreased 1% on a constant dollar basis, compared to the first two quarters of 2025. This was primarily a result of lower conversion rates, partially offset by higher e-commerce traffic and an increase in average order value.

The decrease in gross margin was primarily due to higher occupancy, depreciation, and distribution center costs as a percentage of net revenue.

Table of Contents

The increase in selling, general and administrative expenses was primarily due to higher employee costs as well as higher marketing expenses.

Corporate

Corporate expenses increased $64.5 million to $771.0 million in the first two quarters of 2026 compared to the first two quarters of 2025. The net increase was primarily due to higher employee costs, as well as higher technology costs and depreciation. The increase in corporate expenses was partially offset by a decrease in net foreign currency exchange and derivative losses of $1.3 million.

Other Income (Expense), Net

First Two Quarters

Year over year change

(In thousands)

(In thousands)

(Percentage)

Other income (expense), net

$

$

$

%

A net increase in interest income contributed to the increase in other income (expense), net. The net increase in interest income was primarily due to $4.1 million in interest associated with IEEPA tariff refunds, partially offset by lower average cash balances and lower interest rates.

Income Tax Expense

First Two Quarters

Year over year change

(In thousands)

(In thousands)

(Percentage)

Income tax expense

$

$

$

%

Effective tax rate

%

%

10 basis points

The increase in the effective tax rate was primarily due to a decrease in tax benefits related to stock-based compensation, partially offset by a decrease in non-deductible expenses in international jurisdictions.

Net Income

First Two Quarters

Year over year change

(In thousands)

(In thousands)

(Percentage)

Net income

$

$

$

%

The decrease in net income was primarily due to an increase in selling, general and administrative expenses of $171.8 million and a decrease in gross profit of $59.6 million, which included $134.5 million of IEEPA tariff refunds. The decrease in net income was partially offset by a decrease in income tax expense of $69.3 million and an increase in other income (expense), net of $1.3 million.

Comparable Sales

We use comparable sales to evaluate the performance of our company-operated store and e-commerce businesses from an omni-channel perspective. It allows us to monitor the performance of our business without the impact of recently opened or expanded stores. We believe investors would similarly find these metrics useful in assessing the performance of our business. The comparable sales measures we report may not be equivalent to similarly titled measures reported by other companies.

Comparable sales includes comparable company-operated store and all e-commerce net revenue. E-commerce net revenue includes buy online pick up in store, back-back room, and ship from store net revenue in addition to our websites, other region-specific websites, third-party online marketplaces, and mobile apps. Our back-back room capability allows our store educators to access inventory located at our other locations and have product shipped directly to a guest's address or a store. Comparable company-operated stores have been open, or open after being significantly expanded, for at least 12 full fiscal months. Net revenue from a company-operated store is included in comparable sales beginning with the month for

Table of Contents

which the store has a full fiscal month of sales in the prior year. Comparable sales excludes sales from new stores that have not been open for at least 12 full fiscal months, from stores which have not been in their significantly expanded space for at least 12 full fiscal months, from stores which have been temporarily relocated for renovations or temporarily closed, and sales from company-operated stores that have closed. Comparable sales also excludes sales from our selling channels other than company-operated stores and e-commerce.

In fiscal years with 53 weeks, the 53rd week of net revenue is excluded from the calculation of comparable sales. In the year following a 53-week year, the prior year period is shifted by one week to compare similar calendar weeks.

Non-GAAP Financial Measures

We report certain financial metrics on a constant dollar basis, which is a non-GAAP financial measure.

A constant dollar basis assumes the average foreign currency exchange rates for the period remained constant with the average foreign currency exchange rates for the same period of the prior year. We use constant dollar metrics to facilitate comparison of underlying performance excluding the impact of changes in foreign currency exchange rates. Management uses these constant currency metrics internally when reviewing and assessing financial performance.

These non-GAAP financial measures are provided in addition to, and not a substitute for, the corresponding financial measures calculated in accordance with GAAP. A reconciliation of the non-GAAP financial measures follows, which includes more detail on the GAAP financial measure that is most directly comparable to each non-GAAP financial measure, and the related reconciliations between these financial measures. Our non-GAAP financial measures may be calculated differently from, and therefore may not be directly comparable to, similarly titled measures reported by other companies.

Constant Dollar Changes

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

Change

Foreign exchange changes

Change in constant dollars

Change

Foreign exchange changes

Change in constant dollars

Net Revenue

Americas

(8)

%

—

%

(8)

%

(6)

%

—

%

(6)

%

China Mainland

4

(6)

(2)

(6)

Rest of World

5

1

6

9

(2)

7

Total net revenue

(4)

%

(1)

%

(5)

%

—

%

(2)

%

(2)

%

Comparable sales(1)

Americas

%

—

%

%

(8)

%

(1)

%

(9)

%

China Mainland

(2)

(6)

(8)

8

(6)

2

Rest of World

(4)

1

(3)

—

(1)

(1)

Total comparable sales

(9)

%

(1)

%

%

(4)

%

(2)

%

(6)

%

__________

(1)Comparable sales includes comparable company-operated store and e-commerce net revenue.

Seasonality

Our business is affected by the general seasonal trends common to the retail apparel industry. Net revenue is typically higher during our fourth fiscal quarter, reflecting our historical strength in sales during the holiday season in the Americas, while our operating expenses are generally more equally distributed throughout the year. As a result, a substantial portion of our operating profits are typically generated in the fourth quarter of our fiscal year. For example, we generated approximately 37% of our full year operating profit during the fourth quarter of 2025. Events predominantly impacting our international net revenue, such as those related to Lunar New Year and Singles Day, can fall in different fiscal quarters from year to year.

Table of Contents

Liquidity and Capital Resources

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

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

First Two Quarters

Year over year change

(In thousands)

Total cash provided by (used in):

Operating activities

$

$

$

Investing activities

Financing activities

Effect of foreign currency exchange rate changes on cash and cash equivalents

Decrease in cash and cash equivalents

$

$

$

Operating Activities

Net income decreased $161.2 million. The increase in cash provided by operating activities was primarily due to an increase in cash flows from changes in operating assets and liabilities of $464.7 million, driven by changes in inventories and the timing of income tax payments, as well as changes in accrued liabilities and accounts receivable, partially offset by the timing of accounts payable and changes in other current assets. The increase in cash provided by operating activities was also a result of increased depreciation and stock-based compensation expense.

Investing Activities

The decrease in cash used in investing activities was primarily due to decreased capital expenditures, partially offset by the settlement of net investment hedges. The decrease in capital expenditures was primarily due to decreased investment in supply chain infrastructure and e-commerce related technology system capital expenditures, partially offset by an increase in capital expenditures for opening, remodeling, and relocating company-operated stores, primarily in the Americas and EMEA.

Financing Activities

The decrease in cash used in financing activities was primarily due to a decrease in cash paid for our stock repurchases as well as a decrease in taxes paid related to the net share settlement of stock-based compensation. T6During the first two quarters of 2026, we repurchased 4.9 million shares at a total cost including commissions and excise taxes of $695.1 million. During the first two quarters of 2025, we repurchased 2.5 million shares at a total cost including commissions and excise taxes of $715.7 million. The common stock was repurchased in the open market at prevailing market prices, including under plans complying with the provisions of Rule 10b5-1 and Rule 10b-18 of the Securities Exchange Act of 1934, with the timing and actual number of shares repurchased depending upon market conditions, eligibility to trade, and other factors.

Liquidity Outlook

We believe our cash and cash equivalent balances, cash generated from operations, and borrowings available to us under our committed revolving credit facility will be adequate to meet our liquidity needs and capital expenditure requirements for at least the next 12 months. Our ability to access borrowings under the credit facility depends on our ongoing compliance with the covenants in the credit agreement, and a failure to maintain such compliance could adversely affect our liquidity. Our cash from operations may be negatively impacted by a decrease in demand for our products as well as the other factors described in "Item 1A. Risk Factors". In addition, we may make discretionary capital improvements with respect to our stores, distribution facilities, headquarters, or systems, or we may repurchase shares under an approved stock repurchase program, which we would expect to fund through the use of cash, issuance of debt or equity securities or other

Table of Contents

external financing sources to the extent we were unable to fund such expenditures out of our cash and cash equivalents and cash generated from operations.

The following table includes certain measures of our liquidity:

(In thousands)

Cash and cash equivalents

$

Working capital excluding cash and cash equivalents(1)

Capacity under committed revolving credit facility

__________

(1)Working capital excluding cash and cash equivalents is calculated as current assets of $3.9 billion less cash and cash equivalents of $1.4 billion and current liabilities of $1.8 billion.

We enter into standby letters of credit and guarantee to secure certain of our obligations, including leases, taxes, and duties. As of August 2, 2026, letters of credit and guarantee totaling $20.2 million had been issued, including $6.3 million under our committed revolving credit facility.

Our existing Americas credit facility provides for $600.0 million in commitments under an unsecured five-year revolving credit facility. The credit facility has a maturity date of October 15, 2030. As of August 2, 2026, no borrowings were outstanding under this facility other than letters of credit and guarantee of $6.3 million. Further information regarding our credit facilities and associated covenants is outlined in Note 4. Revolving Credit Facilities included in Item 1 of Part I of this report.

The timing and cost of our inventory purchases will vary depending on a variety of factors such as revenue growth, assortment and purchasing decisions, product costs including freight and duty, and the availability of production capacity and speed. Our inventory balance as of August 2, 2026 was $1.7 billion, a decrease of 1% from August 3, 2025.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions. Predicting future events is inherently an imprecise activity and, as such, requires the use of significant judgment. Actual results may vary from our estimates in amounts that may be material to the financial statements. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact our consolidated financial statements. Management has reviewed these critical accounting policies and estimates and discussed them with the audit committee.

Our critical accounting policies, estimates, and judgments are discussed within "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 2025 Annual Report on Form 10-K filed with the SEC on March 17, 2026.

Table of Contents

Operating Locations

Our company-operated stores by market as of August 2, 2026 and February 1, 2026 are summarized in the table below.

Number of company-operated stores by market

August 2,

February 1,

United States

Canada

Mexico

Americas

China Mainland

Australia

South Korea

Hong Kong SAR

Japan

Singapore

9

9

New Zealand

8

8

Taiwan

8

7

Thailand

7

5

Malaysia

5

5

Macau SAR

3

3

APAC

United Kingdom

Germany

9

9

France

6

6

Ireland

4

4

Spain

3

3

Netherlands

2

2

Sweden

2

2

Italy

1

1

Norway

1

1

Switzerland

1

1

EMEA

Rest of World

Total company-operated stores

Table of Contents

Retail locations operated by third parties by market as of August 2, 2026 and February 1, 2026 are summarized in the table below.

Number of retail locations operated by third parties by market

August 2,

February 1,

United Arab Emirates

Israel

8

8

Saudi Arabia

8

9

Turkey

7

3

Kuwait

4

4

Qatar

4

4

Belgium

2

2

Greece

2

—

Bahrain

1

1

Denmark

1

1

Hungary

1

—

Poland

1

—

Romania

1

—

Total locations operated by third parties under license and supply arrangements