lululemon athletica inc. (Form: 10-Q, Received: 12/06/2012 08:48:25)

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

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 October 28, 2012

¨	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):

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 December 3, 2012, there were 111,777,042 shares of the registrant’s common stock, par value $0.005 per share, outstanding.

Exchangeable and Special Voting Shares:

At December 3, 2012, there were outstanding 32,378,680 exchangeable shares of Lulu Canadian Holding, Inc., a wholly-owned subsidiary of the registrant. Exchangeable shares are exchangeable for an equal number of shares of the registrant’s common stock.

In addition, at December 3, 2012, the registrant had outstanding 32,378,680 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

PART I. FINANCIAL INFORMATION


		Page
Item 1.	FINANCIAL STATEMENTS:		3
	CONSOLIDATED BALANCE SHEETS as of October 28, 2012 and January 29, 2012		3
	CONSOLIDATED STATEMENTS OF OPERATIONS for the thirteen and thirty-nine weeks ended October 28, 2012 and October 30, 2011		4
	CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY for the thirty-nine weeks ended October 28, 2012		5
	CONSOLIDATED STATEMENTS OF CASH FLOWS for the thirty-nine weeks ended October 28, 2012 and October 30, 2011		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		26
Item 4.	CONTROLS AND PROCEDURES		26
PART II. OTHER INFORMATION
Item 1.	LEGAL PROCEEDINGS		28
Item 1A.	RISK FACTORS		28
Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		38
Item 6.	EXHIBITS		38
SIGNATURES			40

PART I

FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

lululemon athletica inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS


	October 28, 2012		January 29, 2012
	(Unaudited)
	(Amounts in thousands, except per share amounts)
ASSETS
Current assets
Cash and cash equivalents	$	439,423	$	409,437
Accounts receivable		8,041		5,202
Inventories		164,726		104,097
Prepaid expenses and other current assets		28,894		8,357

		641,084		527,093
Property and equipment, net		204,052		162,941
Goodwill and intangible assets, net		30,530		31,872
Deferred income taxes		8,934		8,587
Other non-current assets		4,181		4,141

	$	888,781	$	734,634

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	6,569	$	14,536
Accrued liabilities		37,954		34,535
Accrued compensation and related expenses		22,176		22,875
Income taxes payable		6,831		8,720
Unredeemed gift card liability		17,660		22,773

		91,190		103,439
Non-current liabilities		29,770		25,014

		120,960		128,453

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 32,379 and 33,412		—		—
Special voting stock, $0.000005 par value, 60,000 shares authorized, issued and outstanding 32,379 and 33,412		—		—
Common stock, $0.005 par value, 400,000 shares authorized, issued and outstanding 111,777 and 110,135		559		551
Additional paid-in capital		211,194		205,557
Retained earnings		534,900		373,719
Accumulated other comprehensive income		21,168		21,549

		767,821		601,376

Non-controlling interest		—		4,805

	$	888,781	$	734,634

See accompanying notes to the interim consolidated financial statements

lululemon athletica inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS


	Thirteen Weeks Ended October 28, 2012		Thirteen Weeks Ended October 30, 2011			Thirty-nine Weeks Ended October 28, 2012			Thirty-nine Weeks Ended October 30, 2011
			(Unaudited)
	(Amounts in thousands, except per share amounts)
Net revenue	$	316,537	$	230,216		$	884,869		$	629,319
Cost of goods sold		141,237		101,703			396,550			269,013

Gross profit		175,300		128,513			488,319			360,306
Selling, general and administrative expenses		94,689		68,792			264,455			189,415

Income from operations		80,611		59,721			223,864			170,891
Other income (expense), net		1,424		619			3,500			2,120

Income before provision for income taxes		82,035		60,340			227,364			173,011
Provision for income taxes		24,655		21,399			65,308			61,935

Net income		57,380		38,941			162,056			111,076
Net income attributable to non-controlling interest		64		147			875			531

Net income attributable to lululemon athletica inc.	$	57,316	$	38,794		$	161,181		$	110,545

Net basic earnings per share	$	0.40	$	0.27		$	1.12		$	0.77
Net diluted earnings per share	$	0.39	$	0.27		$	1.11		$	0.76
Basic weighted-average number of shares outstanding		144,057		143,370			143,903			143,096
Diluted weighted-average number of shares outstanding		145,748		145,349			145,750			145,230
Other comprehensive income:
Foreign currency translation adjustment		2,642		(14,586	)		(381	)		1,502

Comprehensive income	$	59,958	$	24,208		$	160,800		$	112,047

See accompanying notes to the interim consolidated financial statements

lululemon athletica inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


	Exchangeable Stock					Special Voting Stock					Common Stock				Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive Income			Total			Non- Controlling Interest			Total
	Shares			Par Value		Shares			Par Value		Shares		Par Value		Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive Income			Total			Non- Controlling Interest			Total
	(Unaudited)
	(Amounts in thousands)
Balance at January 29, 2012		33,412		$	—		33,412		$	—		110,135	$	551	$	205,557		$	373,719	$	21,549		$	601,376		$	4,805		$	606,181
Net income																			161,181					161,181						161,181
Foreign currency translation adjustment																					(381	)		(381	)					(381	)
Stock-based compensation																11,828								11,828						11,828
Excess tax benefit from stock-based compensation																7,172								7,172						7,172
Common stock issued upon exchange of exchangeable shares		(1,033	)		—		(1,033	)		—		1,033		5		(5	)							—						—
Restricted stock issuance												14		—		—								—						—
Stock options exercised												595		3		6,975								6,978						6,978
Non-controlling interest:
Net income attributable to non-controlling interests																											875			875
Purchase of non-controlling interest																(20,333	)							(20,333	)		(5,680	)		(26,013	)

Balance at October 28, 2012		32,379		$	—		32,379		$	—		111,777	$	559	$	211,194		$	534,900	$	21,168		$	767,821		$	—		$	767,821

See accompanying notes to the interim consolidated financial statements

lululemon athletica inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Thirty-nine Weeks Ended October 28, 2012			Thirty-nine Weeks Ended October 30, 2011
	(Unaudited)
	(Amounts in thousands)
Cash flows from operating activities
Net income attributable to lululemon athletica inc.	$	161,181		$	110,545
Net income attributable to non-controlling interest	$	875		$	531

Net income	$	162,056		$	111,076
Items not affecting cash
Depreciation and amortization		30,962			20,888
Stock-based compensation		11,828			7,745
Deferred income taxes		(347	)		(10,456	)
Excess tax benefits from stock-based compensation		(7,172	)		(5,613	)
Other, including net changes in other non-cash balances
Prepaid expenses and other current assets		(16,280	)		711
Inventories		(60,538	)		(70,995	)
Accounts payable		(7,958	)		(620	)
Accrued liabilities		11,048			20,264
Sales tax collected		(7,573	)		133
Income taxes payable		(1,858	)		(18,366	)
Accrued compensation and related expenses		(663	)		1,717
Other non-cash balances		(265	)		(2,964	)

Net cash provided by operating activities		113,240			53,520

Cash flows from investing activities
Purchase of property and equipment		(72,041	)		(100,690	)
Reacquisition of franchises		—			(5,654	)

Net cash used in investing activities		(72,041	)		(106,344	)

Cash flows from financing activities
Proceeds from exercise of stock options		6,978			8,861
Excess tax benefits from stock-based compensation		7,172			5,613
Purchase of non-controlling interest		(26,013	)		—

Net cash (used in) provided by financing activities		(11,863	)		14,474

Effect of exchange rate changes on cash		650			(990	)

Increase (decrease) in cash and cash equivalents		29,986			(39,340	)
Cash and cash equivalents, beginning of period	$	409,437		$	316,286

Cash and cash equivalents, end of period	$	439,423		$	276,946

See accompanying notes to the interim consolidated financial statements

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 127, 50, 22 and two corporate-owned stores were in operation as at October 28, 2012, respectively. There were 201 and 174 corporate-owned stores in operation as of October 28, 2012 and January 29, 2012, respectively.

Basis of presentation

The unaudited interim consolidated financial statements as of October 28, 2012 and for the thirty-nine weeks ended October 28, 2012 and October 30, 2011 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 unaudited interim consolidated financial statements are 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 January 29, 2012 is derived from the Company’s audited consolidated financial statements and notes for the fiscal year ended January 29, 2012, included in Item 8 in the fiscal 2011 Annual Report on Form 10-K filed with the SEC on March 22, 2012. 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 2011 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 2012 is a 53 week year, and will end 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 July 2012, the Financial Accounting Standards Board (“FASB”) amended Accounting Standards Codification (“ASC”) Topic 350 Intangibles—Goodwill and Other (“ASC 350”) allow an entity to first assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test. Under these amendments, an entity would not be required to calculate the fair value of an indefinite-lived intangible asset unless the entity determines, based on qualitative assessment, that it is not more likely than not, the indefinite-lived intangible asset is impaired. The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment. The Company adopted the amendment in the second quarter of fiscal 2012 with no material impact on the Company’s consolidated financial statements.

In December 2011, the FASB amended ASC Topic 210 Balance Sheet (“ASC 210”) to require 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 with in 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 will adopt the amendment in the first quarter of fiscal 2013 and expects no material impact on the Company’s consolidated financial statements.

NOTE 3. STOCK-BASED COMPENSATION

Share option plans

The Company’s employees participate in various stock-based compensation plans, which are either provided by a principal stockholder of the Company or by the Company directly.

Stock-based compensation expense charged to income for the plans was $11,828 and $7,745 for the thirty-nine weeks ended October 28, 2012 and October 30, 2011, respectively. Total unrecognized compensation cost as at October 28, 2012 was $24,206 for all stock award plans, which is expected to be recognized over a weighted-average period of 2.1 years.

Company stock options and performance stock units

A summary of the Company’s stock option, performance stock unit and restricted share activity as of October 28, 2012 and changes during the thirty-nine 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 January 29, 2012		2,253	$	14.77		384	$	31.90		8	$	46.10
Granted		84	$	75.53		153		74.51		14		63.26
Exercised		595	$	11.73		—		—		8		46.10
Forfeited		86	$	20.43		49		31.81		—		—

Balance at October 28, 2012		1,656	$	18.64		488	$	45.29		14	$	63.26

Exercisable at October 28, 2012		771	$	11.99		—	$	—		—	$	—

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

Stockholder- sponsored stock options

During the thirty-nine weeks ended October 28, 2012, holders of exchangeable shares converted 1,033 exchangeable shares into 1,033 shares of common stock of the Company for no additional consideration. In connection with the exchange of exchangeable shares, an equal number of outstanding shares of the Company’s special voting stock were cancelled.

During the thirty-nine weeks ended October 28, 2012, there were no grants or forfeitures related to the stock options issued and outstanding under the stockholder-sponsored awards.

Employee share purchase plan

The Company’s Employee Share Purchase Plan (“ESPP”) allows for the purchase of common stock of the Company by all eligible employees. Eligible employees may elect to have whatever portion of his or her base

salary equates, after deduction of applicable taxes, to either 3%, 6% or 9% of his or her base salary withheld during each payroll period for purposes of purchasing shares of the Company’s common stock under the ESPP. Additionally, the Company or the subsidiary of the Company employing the participant, will make a cash contribution as additional compensation to each participant equal to one-third of the aggregate amount of that participant’s contribution for that pay period, which will be used to purchase shares of the Company’s common stock, 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 October 28, 2012, there were 22 shares purchased under the ESPP, which were funded by the Company through open market purchases.

NOTE 4. 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 Rebekah 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 all wages twice each month, failing to provide reasonable seating and failing to provide unpaid vacation times as wages at time of termination. The plaintiffs are seeking an unspecified amount of damages. The Company intends to vigorously defend the matter.

On August 10, 2012, customers of the Company filed a class action lawsuit in San Diego Superior Court entitled Laura Chaikin et al v. lululemon athletica inc. The lawsuit alleges that the Company violated California Civil Code sections by requesting and capturing personal information, namely zip code information, along with credit card numbers from guests using credit cards at the point-of-sale in stores. The plaintiffs are seeking an unspecified amount of damages. The Company intends to vigorously defend the matter.

NOTE 5. EARNINGS PER SHARE

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


	Thirteen Weeks Ended October 28, 2012		Thirteen Weeks Ended October 30, 2011		Thirty-nine Weeks Ended October 28, 2012		Thirty-nine Weeks Ended October 30, 2011
Net income	$	57,380	$	38,941	$	162,056	$	111,076
Net income attributable to non-controlling interest	$	64	$	147	$	875	$	531

Net income attributable to lululemon athletica inc.	$	57,316	$	38,794	$	161,181	$	110,545
Basic weighted-average number of shares outstanding		144,057		143,370		143,903		143,096
Effect of stock awards assume exercised		1,691		1,979		1,847		2,134

Diluted weighted-average number of shares outstanding		145,748		145,349		145,750		145,230
Net basic earnings per share	$	0.40	$	0.27	$	1.12	$	0.77
Net diluted earnings per share	$	0.39	$	0.27	$	1.11	$	0.76

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 thirty-nine weeks ended October 28, 2012 and October 30, 2011, 53 and 51 stock options, respectively, were anti-dilutive to earnings and therefore have been excluded from the computation of diluted earnings per share.

NOTE 6. SUPPLEMENTARY FINANCIAL INFORMATION

A summary of certain balance sheet accounts is as follows:


	October 28, 2012			January 29, 2012
Inventories:
Finished goods	$	167,973		$	105,462
Raw materials		1,503			2,531
Provision to reduce inventory to market value		(4,750	)		(3,896	)

	$	164,726		$	104,097

Prepaid expenses and other current assets:
Prepaid tax installments	$	20,595		$	4,109
Prepaid expenses		8,299			4,248

	$	28,894		$	8,357

Property and equipment:
Land	$	71,233		$	60,014
Buildings		12,343			5,018
Leasehold improvements		110,229			113,931
Furniture and fixtures		29,785			22,512
Computer hardware and software		70,940			51,657
Equipment and vehicles		1,491			1,285
Accumulated amortization and depreciation		(91,969	)		(91,476	)

	$	204,052		$	162,941

Goodwill and intangible assets:
Goodwill	$	23,609		$	23,609
Changes in foreign currency exchange rates		2,380			2,727

		25,989			26,336

Reacquired franchise rights		10,709			10,709
Accumulated amortization		(7,748	)		(6,747	)
Changes in foreign currency exchange rates		1,580			1,574

		4,541			5,536

	$	30,530		$	31,872

Accrued liabilities:
Inventory purchases	$	21,051		$	9,648
Sales tax collected		5,161			12,740
Accrued rent		4,209			5,343
Other		7,533			6,804

	$	37,954		$	34,535

Non-current liabilities:
Deferred lease liability	$	16,655		$	15,302
Tenant inducements		13,115			9,712

	$	29,770		$	25,014

NOTE 7. SEGMENT REPORTING

The Company 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 primarily includes sales from the Company’s e-commerce website. Franchise sales, wholesale, showrooms sales and outlet sales have been combined into other. The Company has reviewed its general corporate expenses and determined some costs previously classified as general corporate are direct segment 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 October 28, 2012		Thirteen Weeks Ended October 30, 2011		Thirty-nine Weeks Ended October 28, 2012		Thirty-nine Weeks Ended October 30, 2011
Net revenue:
Corporate-owned stores	$	252,046	$	190,049	$	712,149	$	524,374
Direct to consumer		45,122		23,874		118,991		56,244
Other		19,369		16,293		53,729		48,701

	$	316,537	$	230,216	$	884,869	$	629,319

Income from operations before general corporate expense:
Corporate-owned stores	$	84,699	$	66,331	$	238,783	$	189,368
Direct to consumer		18,373		9,098		49,514		21,552
Other		4,049		3,663		10,912		13,369

		107,121		79,092		299,209		224,289
General corporate expense		26,510		19,371		75,345		53,398

Income from operations		80,611		59,721		223,864		170,891
Other income (expense), net		1,424		619		3,500		2,120

Income before provision for income taxes	$	82,035	$	60,340	$	227,364	$	173,011

Capital expenditures:
Corporate-owned stores	$	23,103	$	9,307	$	52,573	$	21,685
Direct to consumer		1,733		601		2,564		3,737
Corporate		8,159		3,698		16,904		75,507

	$	32,995	$	13,606	$	72,041	$	100,929

Depreciation:
Corporate-owned stores	$	7,514	$	4,345	$	20,001	$	12,842
Direct to consumer		639		656		2,296		1,550
Corporate		3,329		2,325		8,665		6,496

	$	11,482	$	7,326	$	30,962	$	20,888

NOTE 8. PURCHASE OF NON-CONTROLLING INTEREST

In August 2012, the Company purchased the non-controlling interest in lululemon athletica Australia Pty Ltd (“lululemon australia”) for $26,013. lululemon australia is engaged in the distribution of healthy lifestyle inspired athletic apparel, which is sold through a chain of corporate-owned retail locations and through a network of wholesale accounts, in Australia and New Zealand. The Company previously accounted for its 80 percent interest in lululemon australia as a subsidiary with non-controlling interest.

As a result of the transaction, the carrying amount of $5,680 of the non-controlling interest was reduced to $nil. The Company’s equity was reduced by $20,333, the excess of the purchase price over the net adjustments, as a charge to additional paid in capital.

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 2012 is a 53 week year, and will end on February 3, 2013.

Overview

Throughout the first three quarters of fiscal 2012, 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. This sales channel offers a higher operating margin than our other segments and accounted for 13.4% of total revenue in the first three quarters of fiscal 2012 compared to 8.9% of total revenue in the same period of the prior year. Continuing increases in traffic and conversion rates 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 resources to further developing this channel.

We believe that our brand is recognized as premium in our offerings of run and yoga assortment, as well as a leader in technical fabrics and quality construction. This has made our product desirable to our consumers and has driven demand. In fiscal 2012, we have invested in new and legacy information technology systems to gain further efficiencies in our vertical retail strategy. We have also invested in international expansion opportunities where we have determined there is growth opportunity, including adding country-specific e-commerce websites and opening additional showrooms. We believe our strong cash flow generation, solid balance sheet and healthy liquidity provide us with the financial flexibility to continue executing the initiatives which we believe will be beneficial for us.

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 October 28, 2012, our branded apparel was principally sold through 201 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 October 28, 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. In the thirteen week period ended October 30, 2011, 53% of our net revenue was derived from the sales of our products in the United States, 43% of our net revenue was derived from sales of our products in Canada, and 4% of our net revenue was derived from sales of our products outside of North America.

Our net revenue increased from $711.7 million in fiscal 2010 to $1.0 billion in fiscal 2011, representing an annual growth rate of 41%. Our net revenue also increased from $230.2 million in the third quarter of fiscal 2011 to $316.5 million in third quarter of fiscal 2012, representing a 37% increase, and comparable store sales increased 18%. 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.

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 14% of our net revenue in third quarter of fiscal 2012, compared to 10% in the third quarter of fiscal 2011. Our other segment, consisting of franchise sales, wholesale accounts, sales from company-operated showrooms, warehouse sales and outlets, accounted for less than 10% of our net revenue in the third quarters of fiscal 2012 and fiscal 2011.

Results of Operations

Thirteen Week Results

The following table summarizes key components of our results of operations for the thirteen week periods ended October 28, 2012 and October 30, 2011. The operating results are expressed in dollar amounts as well as relevant percentages, presented as a percentage of net revenue.


	Thirteen Weeks Ended October 28, 2012 and October 30, 2011
	2012		2011		2012		2011
	(In thousands)				(Percentages)
Net revenue	$	316,537	$	230,216		100.0		100.0
Cost of goods sold		141,237		101,703		44.6		44.2

Gross profit		175,300		128,513		55.4		55.8
Selling, general and administrative expenses		94,689		68,792		29.9		29.9

Income from operations		80,611		59,721		25.5		25.9
Other income (expense), net		1,424		619		0.4		0.3

Income before provision for income taxes		82,035		60,340		25.9		26.2
Provision for income taxes		24,655		21,399		7.8		9.3

Net income		57,380		38,941		18.1		16.9
Net income attributable to non-controlling interest		64		147		0.0		0.0

Net income attributable to lululemon athletica inc.	$	57,316	$	38,794		18.1		16.9

Net Revenue

Net revenue increased $86.3 million, or 37%, to $316.5 million for the third quarter of fiscal 2012 from $230.2 million for the third quarter of fiscal 2011. Assuming the average exchange rates for the third quarter of fiscal 2012 remained constant with the average exchange rates for the third quarter of fiscal 2011, our net revenue would have increased $84.7 million, or 37%, for the third quarter of fiscal 2012.

The net revenue increase was driven by increased sales at locations in our comparable stores base, sales from new stores opened and the growth of our e-commerce website sales included in our direct to consumer segment. 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.

Our net revenue on a segment basis for the thirteen week periods ended October 28, 2012 and October 30, 2011 are expressed in dollar amounts as well as relevant percentages, presented as a percentage of total net revenue below.


	Thirteen Weeks Ended October 28, 2012 and October 30, 2011
	2012		2011		2012		2011
	(In thousands)				(Percentages)
Corporate-owned stores	$	252,046	$	190,049		79.6		82.6
Direct to consumer		45,122		23,874		14.3		10.4
Other		19,369		16,293		6.1		7.0

Net revenue	$	316,537	$	230,216		100.0		100.0

Corporate-Owned Stores. Net revenue from our corporate-owned stores segment increased $62.0 million, or 33%, to $252.0 million in the third quarter of fiscal 2012 from $190.0 million in the third quarter of fiscal 2011. The following contributed to the increase in net revenue from our corporate-owned stores segment:

•

Comparable store sales increase of 18% in the third quarter of fiscal 2012 resulted in a $30.4 million increase to net revenue, including the effect of foreign currency fluctuations. Excluding the effect of foreign currency fluctuations, comparable store sales increased 18%, or $29.2 million, in the third quarter of fiscal 2012; and

•

Net revenue from corporate-owned stores we opened subsequent to October 30, 2011, and therefore not included in the comparable store sales growth, contributed $31.6 million of the increase. Net new store openings since the third quarter of fiscal 2011 included 21 stores in the United States, five ivivva athletica branded stores in Canada, eight stores in Australia and two stores in New Zealand.

Direct to Consumer. Net revenue from our direct to consumer segment increased $21.2 million, or 89%, to $45.1 million in the third quarter of fiscal 2012 from $23.9 million in the third quarter of fiscal 2011. The increase in net revenue was primarily the result of increasing traffic and conversion rates on our e-commerce website.

Other. Net revenue from our other segment increased $3.1 million, or 19%, to $19.4 million in the third quarter of fiscal 2012 from $16.3 million in the third quarter of fiscal 2011. A higher number of showrooms open during the third quarter of fiscal 2012 compared to the third quarter of fiscal 2011 contributed to the increase in net revenue from our other segment. Increased revenue from outlets, both through growth at existing locations and through the addition of a new location also contributed to the increase in net revenue from our other segment. The increase was partially offset by decreased revenue from wholesales. We continue to employ our other segment strategy to increase interest in our product in markets we have not otherwise entered with corporate-owned stores.

Gross Profit

Gross profit increased $46.8 million, or 36%, to $175.3 million for the third quarter of fiscal 2012 from $128.5 million for the third quarter of fiscal 2011. Increased net revenues in our operating segments resulted in an increased gross profit.

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

Gross profit as a percentage of net revenue, or gross margin, decreased by 40 basis points, to 55.4% in the third quarter of fiscal 2012 from 55.8% in the third quarter of fiscal 2011. The decrease in gross margin resulted primarily from:

•

an increase in product costs of 60 basis points due to increased labor and raw material costs related to increased product innovation, function and garment complexity, as well as an increase in markdowns and discounts due to a more balanced inventory position in the third quarter of fiscal 2012 compared to the third quarter of fiscal 2011;

•

weakening of the Canadian and Australian dollars when inventory was purchased, relative to the U.S. dollar, increased foreign exchange impacts on product costs and contributed to decrease in gross margin of 20 basis points; and

•

an increase in fixed costs of 10 basis points such as expenses related to our product and supply chain departments and partially offset by a decrease in occupancy costs and depreciation relative to the increase in net revenue.

The decrease in gross margin was partially offset by a decrease in air freight of 50 basis points due to lower air freight usage than in the third quarter of fiscal 2011.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $25.9 million, or 38%, to $94.7 million in the third quarter of fiscal 2012 from $68.8 million in the third quarter of fiscal 2011. The increase in selling, general and administrative expenses was principally comprised of:

•

an increase in employee costs of $10.4 million as we experience natural growth in labor hours associated with new and existing corporate-owned stores, outlets and other, as well as an increase in wages as we invest in our employees;

•

an increase in head office employee costs, including stock-based compensation expense and management incentive-based compensation, of $5.6 million incurred in order to position us for long-term growth;

•

an increase in administrative costs related to our direct to consumer segment of $2.5 million associated with the growth in this channel;

•

an increase in other costs, including occupancy costs, depreciation and distribution not included in cost of goods sold, of $2.5 million as a result of the expansion of our business;

•

an increase in variable costs related to our direct to consumer segment of $2.2 million as a result of increased sales volume;

•

an increase in variable store costs of $1.5 million as a result of increased sales volume from new and existing corporate-owned stores, outlets and other; and

•

an increase in other head office costs of $1.2 million as a result of the overall growth of our business and investment in strategic initiatives and projects.

As a percentage of net revenue, selling, general and administrative expenses remained unchanged at 29.9% in both the third quarters of fiscal 2012 and fiscal 2011.

Income from Operations

Income from operations increased $20.9 million, or 35%, to $80.6 million in the third quarter of fiscal 2012 from $59.7 million in the third quarter of fiscal 2011. The increase was a result of increased gross profit of $46.8 million, partially offset by increased selling, general and administrative costs of $25.9 million. The increase in selling, general and administrative costs was primarily driven by the increase in our business, as seen in our net revenue increases.

On a segment basis, we determine income from operations without taking into account our general corporate expenses. We have reviewed our general corporate expenses and determined some costs previously classified as general corporate are direct segment expenses. Accordingly, all prior year comparable information has been reclassified to conform to the current year classification.

Income from operations before general corporate expenses for the thirteen weeks ended October 28, 2012 and October 30, 2011 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 October 28, 2012 and October 30, 2011
	2012		2011		2012		2012
	(In thousands)				(Percentages)
Corporate-owned stores	$	84,699	$	66,331		33.6		34.9
Direct to consumer		18,373		9,098		40.7		38.1
Other		4,049		3,663		20.9		22.5

Income from operations before general corporate expense	$	107,121	$	79,092

General corporate expense		26,510		19,371

Income from operations	$	80,611	$	59,721

Corporate-Owned Stores. Income from operations from our corporate-owned stores segment increased $18.4 million, or 28%, to $84.7 million for the third quarter of fiscal 2012 from $66.3 million for the third quarter of fiscal 2011 primarily due to an increase of $32.0 million in gross profit, which was partially offset by a natural increase in selling, general and administrative expenses related to employee costs as well as operating expenses associated with new stores, including reacquired franchised stores, and net revenue growth at existing stores.

Direct to Consumer. Income from operations from our direct to consumer segment increased $9.3 million, or 102%, to $18.4 million for the third quarter of fiscal 2012 from $9.1 million for the third quarter of fiscal 2011. This increase was primarily the result of increased sales through our e-commerce website, with gross profit increasing $13.2 million over the third quarter of fiscal 2011. Income from operations as a percentage of direct to consumer revenue increased 260 basis points primarily due to leverage gained over fixed costs.

Other. Income from operations from our other segment increased $0.4 million, or 11%, to $4.0 million for the third quarter of fiscal 2012 from $3.7 million for the third quarter of fiscal 2011. Gross profit related to our other segment increased $1.6 million in the third quarter of fiscal 2012 from the third quarter of fiscal 2011. This increase was partially the result of a higher number of showrooms open during the third quarter of fiscal 2012 compared to the third quarter of fiscal 2011, as well as growth from our outlets. This increase was partially offset by decreased wholesales. We continue to employ our other segment strategy to increase interest in our product in markets we have not otherwise entered with corporate-owned stores.

General Corporate Expense. General corporate expense increased $7.1 million, or 37%, to $26.5 million for the third quarter of fiscal 2012 from $19.4 million for the third quarter of fiscal 2011. 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 $0.8 million, or 130%, to $1.4 million in the third quarter of fiscal 2012 from $0.6 million in the third quarter of fiscal 2011. The increase was primarily a result of increased interest income.

Provision for Income Taxes

Provision for income taxes increased $3.3 million, or 15%, to $24.7 million in the third quarter of fiscal 2012 from $21.4 million in the third quarter of fiscal 2011. In the third quarter of fiscal 2012, our effective tax

rate was 30.1% compared to 35.5% in the third quarter of fiscal 2011. The lower effective rate reflects the ongoing impact of revised intercompany pricing agreements.

Net Income

Net income increased $18.5 million to $57.3 million for the third quarter of fiscal 2012 from $38.8 million for the third quarter of fiscal 2011. The increase in net income of $18.5 million for the third quarter of fiscal 2012 was a result of an increase in gross profit of $46.8 million resulting from increased product sales and improved foreign exchange differences and an increase in other income (expense), net of $0.8 million, offset by an increase in selling, general and administrative expenses of $25.9 million and an increase in provision for income taxes of $3.3 million.

Thirty-nine Week Results

The following table summarizes key components of our results of operations for the thirty-nine week periods ended October 28, 2012 and October 30, 2011. The operating results are expressed in dollar amounts as well as relevant percentages, presented as a percentage of net revenue.


	Thirty-nine Weeks Ended October 28, 2012 and October 30, 2011
	2012		2011		2012		2011
	(In thousands)				(Percentages)
Net revenue	$	884,869	$	629,319		100.0		100.0
Cost of goods sold		396,550		269,013		44.8		42.7

Gross profit		488,319		360,306		55.2		57.3
Selling, general and administrative expenses		264,455		189,415		29.9		30.1

Income from operations		223,864		170,891		25.3		27.2
Other income (expense), net		3,500		2,120		0.4		0.3

Income before provision for income taxes		227,364		173,011		25.7		27.5
Provision for income taxes		65,308		61,935		7.4		9.8

Net income		162,056		111,076		18.3		17.7
Net income attributable to non-controlling interest		875		531		0.1		0.1

Net income attributable to lululemon athletica inc	$	161,181	$	110,545		18.2		17.6

Net Revenue

Net revenue increased $255.6 million, or 41%, to $884.9 million for the first three quarters of fiscal 2012 from $629.3 million for the first three quarters of fiscal 2011. Assuming the average exchange rates for the first three quarters of fiscal 2012 remained constant with the average exchange rates for the first three quarters of fiscal 2011, our net revenue would have increased $261.5 million, or 42%, for the first three quarters of fiscal 2012.

The net revenue increase was driven by increased sales at locations in our comparable stores base, sales from new stores opened, sales from franchised stores that were reacquired during the third quarter of fiscal 2011 and the growth of our e-commerce website sales included in our direct to consumer segment. The constant dollar increase in comparable store sales was driven primarily by the strength of our existing product lines, our successful introduction of new products and increasing recognition of the lululemon athletica brand name, especially at our U.S. stores.

Our net revenue on a segment basis for the thirty-nine week periods ended October 28, 2012 and October 30, 2011 are expressed in dollar amounts as well as relevant percentages, presented as a percentage of total net revenue below.


	Thirty-nine Weeks Ended October 28, 2012 and October 30, 2011
	2012		2011		2012		2011
	(In thousands)				(Percentages)
Corporate-owned stores	$	712,149	$	524,374		80.5		83.4
Direct to consumer		118,991		56,244		13.4		8.9
Other		53,729		48,701		6.1		7.7

Net revenue	$	884,869	$	629,319		100.0		100.0

Corporate-Owned Stores. Net revenue from our corporate-owned stores segment increased $187.8 million, or 36%, to $712.1 million in the first three quarters of fiscal 2012 from $524.4 million in the first three quarters of fiscal 2011. The following contributed to the $187.8 million increase in net revenue from our corporate-owned stores segment:

•

Comparable store sales increase of 18% in the first three quarters of fiscal 2012 resulted in a $88.1 million increase to net revenue, including the effect of foreign currency fluctuations. Excluding the effect of foreign currency fluctuations, comparable store sales increased 19%, or $92.8 million, in the first three quarters of fiscal 2012; and

•

Net revenue from corporate-owned stores we opened subsequent to October 30, 2011, and therefore not included in the comparable store sales growth, contributed $99.7 million of the increase. Net new store openings since the third quarter of fiscal 2011 included 21 stores in the United States, five ivivva athletica branded stores in Canada, eight stores in Australia and two stores in New Zealand.

Direct to consumer. Net revenue from our direct to consumer segment increased $62.7 million, or 112%, to $119.0 million in the first three quarters of fiscal 2012 from $56.2 million in the first three quarters of fiscal 2011. The increase in net revenue was primarily the result of increased traffic at our e-commerce website, as well as higher conversion rates and average order value.

Other. Net revenue from our other segment increased $5.0 million, or 10%, to $53.7 million in the first three quarters of fiscal 2012 from $48.7 million in the first three quarters of fiscal 2011. This increase was a result of increased net revenues from showrooms and outlets, partially offset by decreased net revenues from our franchise operating channel and from wholesales. The four remaining franchised stores that we reacquired in the third quarter of fiscal 2011 are now included in the corporate-owned stores segment. Our other segment continues to grow year over year through new showroom locations, new wholesale customers and net revenue growth at existing locations attributable to a strong product offering and brand interest. We continue to employ our other segment strategy to increase interest in our product in markets we have not otherwise entered with corporate-owned stores.

Gross Profit

Gross profit increased $128.0 million, or 36%, to $488.3 million for the first three quarters of fiscal 2012 from $360.3 million for the first three quarters of fiscal 2011. Increased net revenues in our operating segments resulted in an increased gross profit.

Gross profit as a percentage of net revenue, or gross margin, decreased by 210 basis points, to 55.2% in the first three quarters of fiscal 2012 from 57.3% in the first three quarters of fiscal 2011. The decrease in gross margin resulted primarily from:

•

an increase in product costs of 180 basis points due to increased labor and raw material costs as a result of inflation as well as increased product innovation, function and garment complexity, and an increased mix of seasonal items compared to core items;

•

an increase in markdowns and discounts of 60 basis points due to a more balanced inventory position in the first three quarters of fiscal 2012 compared to the first three quarters of fiscal 2011;

•

a non-recurring adjustment for the recognition of input tax credits from previous periods of 40 basis points;

•

an increase in expenses related to our product and supply chain departments, relative to the increase in net revenue, which had a deleveraging effect on gross margin and contributed to a decrease in gross margin of 30 basis points; and

•

weakening of the Canadian and Australian dollars, relative to the U.S. dollar, increased foreign exchange impacts on product costs and contributed to a decrease in gross margin of 20 basis points.

The decrease in gross margin was partially offset by a decrease in air freight of 70 basis points due to lower air freight usage in the first three quarters of fiscal 2012 than in the first three quarters of fiscal 2011 and a decrease in fixed costs, such as occupancy costs and depreciation, relative to the increase in net revenue, which had a leveraging effect on gross margin and contributed to an increase in gross margin of 50 basis points.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $75.0 million, or 40%, to $264.5 million in the first three quarters of fiscal 2012 from $189.4 million in the first three quarters of fiscal 2011. The $75.0 million increase in selling, general and administrative expenses was principally comprised of:

•

an increase in employee costs of $28.8 million as we experience natural growth in labor hours associated with new and existing corporate-owned stores, outlets and other, as well as an increase in wages as we invest in our employees;

•

an increase in head office employee costs, including stock-based compensation and management incentive-based compensation, of $15.2 million incurred in order to position us for long-term growth;

•

an increase in other head office costs of $7.8 million as a result of the overall growth of our business and investment in strategic initiatives and projects;

•

an increase in variable costs related to our direct to consumer segment of $7.0 million as a result of increased sales volume;

•

an increase in administrative costs related to our direct to consumer segment of $5.1 million associated with the growth in this channel;

•

an increase in other costs, including occupancy costs, depreciation and distribution not included in cost of goods sold, of $6.4 million as a result of the expansion of our business; and

•

an increase in variable store costs of $4.7 million as a result of increased sales volume from new and existing corporate-owned stores, outlets and other.

As a percentage of net revenue, selling, general and administrative expenses decreased 20 basis points, to 29.9% in the first three quarters of fiscal 2012 from 30.1% in the first three quarters of fiscal 2011.

Income from Operations

Income from operations increased $53.0 million, or 31%, to $223.9 million in the first three quarters of fiscal 2012 from $170.9 million in the first three quarters of fiscal 2011. The increase was a result of increased gross profit of $128.0 million, partially offset by increased selling, general and administrative costs of $75.0 million. The increase in selling, general and administrative costs was primarily driven by the increase in our business, as seen in our net revenue increases.

Income from operations before general corporate expenses for the thirty-nine week periods ended October 28, 2012 and October 30, 2011 are expressed in dollar amounts as well as percentages, presented as a percentage of net revenue of their respective operating segments below.


	Thirty-nine Weeks Ended October 28, 2011 and October 30, 2011
	2012		2011		2012		2011
	(In thousands)				(Percentages)
Corporate-owned stores	$	238,783	$	189,368		33.5		36.1
Direct to consumer		49,514		21,552		41.6		38.3
Other		10,919		13,369		20.3		27.5

Income from operations before general corporate expense	$	299,209	$	224,289

General corporate expense		75,345		53,398

Income from operations	$	223,864	$	170,891

Corporate-Owned Stores. Income from operations from our corporate-owned stores segment increased $49.4 million, or 26%, to $238.8 million for the first three quarters of fiscal 2012 from $189.4 million for the first three quarters of fiscal 2011 primarily due to an increase of $89.2 million in gross profit, which was partially offset by a natural increase in selling, general and administrative expenses related to employee costs as well as operating expenses associated with new stores, included reacquired franchised stores, and net revenue growth at existing stores.

Direct to Consumer. Income from operations from our direct to consumer segment increased $28.0 million, or 130%, to $49.5 million for the first three quarters of fiscal 2012 from $21.6 million for the first three quarters of fiscal 2011. This increase was primarily the result of increased sales through our e-commerce website, with gross profit increasing $38.4 million over the third quarter of fiscal 2011. Income from operations as a percentage of direct to consumer revenue increased 330 basis points primarily due to leverage gained over fixed costs.

Other. Income from operations from our other segment decreased $2.5 million, or 18%, to $10.9 million for the first three quarters of fiscal 2012 from $13.4 million for the first three quarters of fiscal 2011. This decrease was primarily the result of our reacquisition of our four remaining franchised locations during the third quarter of fiscal 2011 as income from operations from the reacquired stores is now included in our corporate-owned stores segment. We continue to employ our other segment strategy to increase interest in our product in markets we have not otherwise entered with corporate-owned stores.

General Corporate Expense. General corporate expense increased $21.9 million, or 41%, to $75.3 million for the first three quarters of fiscal 2012 from $53.4 million for the first three quarters of fiscal 2011. 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 $1.4 million, or 65%, to $3.5 million in the first three quarters of fiscal 2012 from $2.1 million in the first three quarters of fiscal 2011. The increase was primarily the result of increased interest income.

Provision for Income Taxes

Provision for income taxes increased $3.4 million, or 5%, to $65.3 million in the first three quarters of fiscal 2012 from $61.9 million in the first three quarters of fiscal 2011. In the first three quarters of fiscal 2012, our effective tax rate was 28.7% compared to 35.8% in the first three quarters of fiscal 2011. The lower effective rate reflects the ongoing impact of revised intercompany pricing agreements.

Net Income

Net income increased $50.6 million to $161.2 million for the first three quarters of fiscal 2012 from $110.5 million for the first three quarters of fiscal 2011. The increase in net income of $50.6 million for the first three quarters of fiscal 2012 was a result of an increase in gross profit of $128.0 million resulting from increased sales, and an increase in other income (expense), net of $1.4 million, offset by an increase in selling, general and administrative expenses of $75.0 million and an increase of $3.4 million in provision for income taxes.

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 primary cash needs are capital expenditures for opening new stores and remodeling existing stores, making information technology system enhancements and funding working capital requirements. Cash and cash equivalents in excess of our needs are held in interest bearing accounts with financial institutions.

At October 28, 2012, our working capital (excluding cash and cash equivalents) was $110.4 million and our cash and cash equivalents were $439.4 million.

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


	Thirty-nine Weeks Ended October 28, 2012			Thirty-nine Weeks Ended October 30, 2011
	(In thousands)
Total cash provided by (used in):
Operating activities	$	113,240		$	53,520
Investing activities		(72,041	)		(106,344	)
Financing activities		(11,863	)		14,474
Effect of exchange rate changes		650			(990	)

Increase (decrease) in cash and cash equivalents	$	29,986		$	(39,340	)

Operating Activities

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

Cash provided by operating activities increased $59.7 million, to $113.2 million for the first three quarters of fiscal 2012 compared to $53.5 million for the first three quarters of fiscal 2011. The $59.7 million increase was primarily a result of increased net income and lower income taxes paid in the first three quarters of fiscal 2012 compared to fiscal 2011.

Investing Activities

Investing Activities relate to the purchase of property and equipment and the reacquisition of franchises.

Cash used in investing activities decreased $34.3 million, to $72.0 million for the first three quarters of fiscal 2012 from $106.3 million for the first three quarters of fiscal 2011. The cash used in investing activities for the first three quarters of fiscal 2011 included $65.1 million plus acquisition-related costs for the purchase of our principal executive and administrative offices. In the first three quarters of fiscal 2012 we opened or acquired 27 new corporate-owned stores compared to 32 new corporate-owned stores we opened in the first three quarters of fiscal 2011.

Financing Activities

Financing Activities consist primarily of cash received on the exercise of stock options, excess tax benefits from stock-based compensation and cash paid to acquire non-controlling interest. Cash provided by financing activities decreased $26.3 million to $11.9 million used for financing activities for the first three quarters of fiscal 2012 from $14.5 million provided by financing activities for the first three quarters of fiscal 2011. The cash used in financing activities for the first three quarters of fiscal 2012 included $26.0 million for the purchase of the non-controlling interest in lululemon australia.

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 CA$ 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 October 28, 2012, 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 October 28, 2012, letters of credit and letters of guarantee totaling $1.4 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.

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 2011 fiscal year end filed with the SEC on March 22, 2012 and in Note 2 included in Item 1 of Part I of this Quarterly Report on Form 10-Q.

Operating Locations

Our operating locations by U.S. state, Canadian province, Australian state and in New Zealand, and the overall totals as of October 28, 2012 and January 29, 2012, are summarized in the table below. While most of our stores are branded lululemon athletica, seven of our corporate-owned stores are branded ivivva athletica and specialize in dance-inspired apparel for female youth.


	October 28, 2012		January 29, 2012
United States
Alabama		1		1
Arizona		3		3
California		24		23


	October 28, 2012		January 29, 2012
Colorado		3		3
Connecticut		3		3
District of Columbia		2		2
Florida		8		7
Georgia		2		1
Hawaii		1		1
Illinois		9		8
Indiana		1		1
Kansas		1		1
Maryland		3		2
Massachusetts		6		5
Michigan		1		1
Minnesota		3		3
Missouri		1		1
Nebraska		1		0
Nevada		1		1
New Jersey		6		5
New Mexico		1		0
New York		9		8
North Carolina		3		2
Ohio		5		3
Oregon		2		2
Pennsylvania		5		4
South Carolina		1		0
Tennessee		3		1
Texas		10		10
Utah		1		0
Virginia		3		3
Washington		3		3
Wisconsin		1		0

Total United States		127		108

Canada
Alberta		12		11
British Columbia		12		12
Manitoba		2		1
Nova Scotia		1		1
Ontario		18		17
Québec		4		4
Saskatchewan		1		1

Total Canada		50		47

Australia
New South Wales		7		6
Queensland		3		2
South Australia		1		1
Tasmania		1		0
Victoria		7		6
Western Australia		3		3

Total Australia		22		18

New Zealand		2		1

Total		201		174

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 October 28, 2012, we operated 50 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 three quarters of fiscal 2012, 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 partially 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 lost income from operations of approximately $15.8 million in the first three quarters of fiscal 2012. 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. Additionally, 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 $0.6 million in the first three quarters of fiscal 2012. 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 October 28, 2012, we had no outstanding borrowings under our revolving facility and we do not believe that we are 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 October 28, 2012. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, at October 28, 2012, our disclosure controls and procedures were effective.

There was no change in internal control over financial reporting during the thirteen weeks ended October 28, 2012 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

PART II

OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

We are a party to various legal proceedings arising in the ordinary course of our business, but we are not currently a party to any legal proceeding that management believes would have a material adverse effect on our consolidated financial position or results of operations. Refer to Note 4 included in Item 1 of Part I of this Quarterly Report on From 10-Q for information regarding specific legal proceedings.

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 2011 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, our ability to provide a consistent, high quality guest experience and our ability to develop and introduce innovative and high-quality products. 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 quality of our products or the production methods of any of our suppliers or manufacturers could adversely affect our reputation and sales. In some cases we may be forced 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 the United States and Canada, 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.

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 affect 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. Our failure to anticipate and respond in a timely manner to changing consumer preferences could lead to, among other things, lower sales and excess inventory levels. Even if we are successful in anticipating consumer preferences, our ability to adequately react to and address those preferences will in part depend upon our continued ability to develop and introduce innovative, high-quality products. If we fail to introduce technical innovation in our products, consumer demand for our products could decline. If we experience problems with the quality of our products or negative publicity regarding the quality of our products, consumer demand for our products may decline and we may incur substantial expenses to remedy the problems. 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 guests.

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.

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 $1,000.8 million in fiscal 2011. 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 mills we use by a single manufacturer in Taiwan, and the fibers used in manufacturing Luon fabric are supplied to our Taiwanese manufacturer by a single company. In fiscal 2011, approximately 67% of our products were produced by our top five manufacturing suppliers. 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 may experience a significant disruption in the supply of fabrics or raw materials from current sources or, in the event of a disruption, 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 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 their 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. 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. In that event, 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.

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 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.

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 website, 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 delays in the delivery of merchandise to our stores and customers or lost sales, which could reduce demand for our merchandise 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 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.

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 2011, approximately 49% 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;

•

assimilate 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.

We may be subject to claims related to our human resources policies or other practices that could result in monetary damages, disrupt our business and lead to negative publicity.

Our stores are located in the United States, Canada, Australia and New Zealand, and as a result, we are subject to the federal, state, provincial and local employment and other laws of each of those countries. We have in the past, and may in the future, be subject to claims that certain of our human resources policies, or other practices, violate such employment or other laws. If our policies or practices fail to comply with any of these laws, we could be subject to monetary damages, and may also be required to modify our policies, which could harm our ability to meet our guest expectations. In addition, such claims may lead to negative publicity regarding our stores and policies, which could impact our brand image and have a material adverse effect on our financial condition.

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 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.

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 37%, 36% and 39% of our full year gross profit during the fourth quarters of fiscal 2011, fiscal 2010 and fiscal 2009, 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.

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 three quarters of fiscal 2012, 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 partially 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 lost income from operations of approximately $15.8 million in the first three quarters of fiscal 2012 and approximately $8.4 million in the first three quarters of fiscal 2011. Similarly, 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 $0.6 million in the first three quarters of fiscal 2012 and approximately $0.2 million in the first three quarters of fiscal 2011. We have not historically engaged in hedging transactions and do not currently contemplate engaging in hedging transactions 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 the United States. During fiscal 2011, approximately 3% of our products were produced in Canada, approximately 49% in China, approximately 41% in South and South East Asia and the remainder in the United States, 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.

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. For example, under the provisions of the World Trade Organization, or the WTO, Agreement on Textiles and Clothing, effective as of January 1, 2005, the United States and other WTO member countries eliminated quotas on textiles and apparel-related products from WTO member countries. In 2005, China’s exports into the United States surged as a result of the eliminated quotas. In response to the perceived disruption of the market, the United States imposed new quotas, which remained in place through the end of 2008, on certain categories of natural-fiber products that we import from China. These quotas were lifted on January 1, 2009, but 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 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, to an extent, 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 initial expansion efforts in Japan, we encountered 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.

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 30% 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.

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 October 28, 2012:


Period(1)	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2)		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(2)
July 30, 2012 — August 26, 2012		7,064	$	59.85		7,064		5,559,479
August 27, 2012 — September 30, 2012		8,901		72.20		8,901		5,550,578
October 1, 2012 — October 28, 2012		6,158		70.78		6,158		5,544,420

Total		22,123				22,123

(1)	Monthly information is presented by reference to our fiscal months during our third quarter of fiscal 2012.

(2)

Our Employee Share Purchase Plan (ESPP) was approved by our Board of Directors and stockholders in September 2007. All shares purchased under the ESPP are purchased on the 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.

ITEM 6.

EXHIBITS

Incorporated by Reference

Exhibit

No.

Exhibit Title

Filed
Herewith

Form

Exhibit
No.

File No.

Filing
Date

10.1

Form of Non-Qualified Stock Option Agreement (standard)

10.2

Form of Non-Qualified Stock Option Agreement (for outside directors)

10.3

Form of Non-Qualified Stock Option Agreement (with clawback provision)

10.4

Form of Notice of Grant of Performance Shares and Performance Shares Agreement

10.5

Form of Notice of Grant of Performance Shares and Performance Shares Agreement (with clawback provision)

31.1

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

31.2

Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a)

32.1

Certification of Chief Executive Officer and Chief Financial Officer Pursuant to18 U.S.C Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Incorporated by Reference

Exhibit

No.

Exhibit Title

Filed
Herewith

Form

Exhibit
No.

File No.

Filing
Date

101*

The following financial statements from the Company’s 10-Q for the fiscal quarter ended October 28, 2012, 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

*	Furnished herewith

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: December 5, 2012

Exhibit Index

Incorporated by Reference

Exhibit

No.

Exhibit Title

Filed
Herewith

Form

Exhibit
No.

File No.

Filing
Date

10.1

Form of Non-Qualified Stock Option Agreement (standard)

10.2

Form of Non-Qualified Stock Option Agreement (for outside directors)

10.3

Form of Non-Qualified Stock Option Agreement (with clawback provision)

10.4

Form of Notice of Grant of Performance Shares and Performance Shares Agreement

10.5

Form of Notice of Grant of Performance Shares and Performance Shares Agreement (with clawback provision)

31.1

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

31.2

Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a)

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

101*

*	Furnished herewith

Exhibit 10.1

NON-QUALIFIED STOCK OPTION AGREEMENT

UNDER THE

LULULEMON ATHLETICA INC. 2007 EQUITY INCENTIVE PLAN

THIS NON-QUALIFIED STOCK OPTION AGREEMENT (this “ Agreement ”) is made between lululemon athletica inc. (the “ Company ”) and (the “ Optionee ”).

WHEREAS, the Company maintains the lululemon athletica inc. 2007 Equity Incentive Plan (the “ Plan ”) for the benefit of the employees of the Company and its Affiliates; and

WHEREAS, the Plan permits the award of Non-Qualified Stock Options to purchase Shares, subject to the terms of the Plan; and

WHEREAS, in connection with the Company’s employment of the Optionee, the Company desires to grant the Optionee Non-Qualified Stock Options under the Plan to compensate the Optionee and to further align the Optionee’s financial interests with those of the Company’s stockholders.

NOW, THEREFORE, in consideration of these premises and the agreements set forth herein and intending to be legally bound hereby, the parties agree as follows:

1. Award of Option . This Agreement evidences the grant to the Optionee of an option (the “ Option ”) to purchase ( ) Shares (the “ Option Shares ”). The Option is subject to the terms set forth herein, and in all respects is subject to the terms and provisions of the Plan applicable to Non-Qualified Stock Options, which terms and provisions are incorporated herein by this reference. Except as otherwise specified herein or unless the context herein requires otherwise, the terms defined in the Plan will have the same meanings herein.

2. Nature of the Option . The Option is intended to be a nonstatutory stock option and is not intended to be an Incentive Stock Option within the meaning of Section 422 of the Internal Revenue Code (the “ Code ”), or to otherwise qualify for any special tax benefits to the Optionee.

3. Date of Grant; Term of Option . The Option was approved by the Company’s Board of Directors to be effective on (the “ Effective Date ”) and may not be exercised later than the date that is seven (7) years after the Effective Date, subject to earlier termination in accordance with the Plan and this Agreement.

4. Option Exercise Price . The per share exercise price of the Option is $ (the “ Exercise Price ”), which amount is intended to be not less than the Fair Market Value per Share on the Effective Date.

5. Exercise of Option . The Option will become exercisable only in accordance with the terms and provisions of the Plan and this Agreement, as follows:

(a) Right to Exercise . The Option will become exercisable with respect to 25% of the Option Shares on each of the first, second, third and fourth anniversaries of the Effective Date, provided in each case that the Optionee remains continuously in Service with the Company or an Affiliate through the applicable anniversary. For the purposes of this Agreement, “ Service ” means an Optionee’s employment or service with the Company or an Affiliate, whether in the capacity of an employee of the Company or an Affiliate, or as a Director or a Consultant. An Optionee’s Service shall not be deemed to have terminated merely because of a change in the capacity in which the Optionee renders Service to the Company or an Affiliate or a change in the corporation for which the Optionee renders such Service, provided that there is no interruption or termination of the Optionee’s Service. Furthermore, an Optionee’s Service shall not be deemed to have terminated if the Optionee takes any military leave, sick leave, or other bona fide leave of absence approved by the Company; provided, however, that if any such leave exceeds ninety (90) days, on the one hundred eighty-first (181st) day following the commencement of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and instead shall be treated thereafter as a Non-Qualified Stock Option unless the Optionee’s right to return to Service is guaranteed by statute or contract. The Optionee’s Service shall be deemed to have terminated either upon an actual termination of Service (notwithstanding any statutory, contractual or common law period of notice of termination, or compensation in lieu of such notice, to which the Optionee may be entitled) or upon the corporation for which the Optionee performs Service ceasing to be an Affiliate (if other than the Company). For greater certainty, the Optionee’s Service shall be deemed to have terminated on the date which any notice of termination of employment provided to the Optionee is stated to be effective (or in the case of an alleged constructive dismissal, the date on which the alleged constructive dismissal is alleged to have occurred), and not during or as of the end of any period following such date during which the Optionee is in receipt of, or entitled to receive, statutory, contractual or common law notice of termination or any compensation in lieu of such notice. Subject to the foregoing, the Board, in its discretion, shall determine whether the Optionee’s Service has terminated and the effective date of such termination.

(b) Method of Exercise . The Optionee may exercise the Option by providing written notice to the Company stating the election to exercise the Option. Such written notice shall be signed by the Optionee and shall be delivered in person or by certified mail to the Secretary of the Company or such other person as may be designated by the Company, and shall be accompanied by payment of the Exercise Price and an amount equal to any required tax withholding. Payment of the Exercise Price may be made in cash. In addition, this Option may be exercised through means of a “net settlement,” whereby no Exercise Price will be due and where the number of Shares issued upon such exercise will be equal to: (A) the product of (i) the number of Option Shares as to which the Option is then being exercised, and (ii) the difference between (a) the then current Fair Market Value per Share and (b) the Exercise Price, divided by (B) the then current Fair Market Value per Share. A number of Shares equal to the difference between the number of Option Shares as to which the Option is then being exercised and the number of Shares actually issued to the Optionee upon such net settlement will be deemed to have been retained by the Company in satisfaction of the Exercise Price.

(c) Share Legends . Any certificate evidencing an Option Share will contain such legends as may be required or appropriate under any applicable stockholder agreement or stock purchase agreement, in addition to any other legend that may be required or appropriate under applicable law, the Plan or otherwise.

- 2 -

(d) Partial Exercise . The Option may be exercised in whole or in part; provided , however , that any exercise may apply only with respect to a whole number of Option Shares.

(e) Restrictions on Exercise . The Option may not be exercised, and any purported exercise will be void, if the issuance of the Option Shares upon such exercise would constitute a violation of any applicable federal or state securities laws, exchange listing requirements or other laws or regulations.

6. Effect of Termination of Service on Exercisability of Option . Except as otherwise provided below, any portion of the Option that is not exercisable upon termination of Service will expire immediately and automatically upon such termination and any portion of an Option that is exercisable upon termination of Service will expire on the date it ceases to be exercisable in accordance with this Section 6.

(a) Termination for Cause . If the Optionee’s Service is terminated for Cause: (i) any Option held by the Optionee will immediately and automatically expire as of the date of such termination, and (ii) any Shares for which the Company has not yet delivered share certificates will be immediately and automatically forfeited and the Company will refund to the Participant the Option exercise price paid for such Shares, if any.

(b) Termination by Reason of Retirement. In the event of the termination of the Optionee’s Service by reason of Retirement, the Option will continue to vest and become exercisable for twelve months following the date of Retirement in accordance with the terms and provisions of the Plan and this Agreement as if the Optionee had continued in Service for a period of twelve months following the date of Retirement. If the Optionee’s Service terminates by reason of Retirement, the Option may thereafter be exercised by the Optionee, to the extent it was exercisable at the time of such termination or becomes exercisable pursuant to the terms of this Section 6, for a period ending three years following the date of such termination (or, if sooner, on the last day of the stated term of the Option as provided in Section 3 of this Agreement). For purposes of this Agreement, “ Retirement ” means an Optionee’s termination of Service (other than a termination for Cause) after the earlier of (i) the Optionee’s completion of twenty five (25) years of such Service or (ii) the date on which the Optionee reaches at least the age 55 and has completed at least ten (10) years of such Service.

(c) Termination by Reason of Death . If the Optionee’s Service terminates by reason of death, the Option may thereafter be exercised in full with respect to 100% of the Option Shares by the legal representative of the estate or by the legatee of the Optionee under the will of the Optionee, as applicable for a period ending twelve months following the date of death (or, if sooner, on the last day of the stated term of the Option as provided in Section 3 of this Agreement).

(d) Termination by Reason of Disability . If the Optionee’s Service terminates by reason of Disability, the Option may thereafter be exercised by the Optionee or his or her personal representative, to the extent it was exercisable at the time of termination, for a period ending 12 Months following the date of termination (or, if sooner, on the last day of the stated term of such Option as provided in Section 3 of this Agreement).

- 3 -

(e) Other Termination . If the Optionee’s Service terminates for any reason other than death, Disability, Retirement or Cause, any Option held by such Optionee may thereafter be exercised by the Optionee, to the extent it was exercisable at the time of such termination, for a period ending 90 days following the date of such termination (or, if sooner, on the last day of the stated term of the Option as provided in Section 3 of this Agreement).

7. Investment Representations. The Optionee represents and warrants to the Company that:

(a) unless the Option Shares have been registered under the Securities Act of 1933, as amended (the “ Securities Act ”), he or she is acquiring the Option (and upon exercise of the Option, will be acquiring the Option Shares) for investment for his or her own account, not as a nominee or agent, and not with a view to, or for resale in connection with, any distribution thereof;

(b) unless the Option Shares have been registered under the Securities Act, he or she has a preexisting personal or business relationship with the Company or one of its directors, officers or controlling persons and by reason of his or her business or financial experience, has, and could be reasonably assumed to have, the capacity to protect his or her interests in connection with the acquisition of this Option and the Option Shares;

(c) he or she is an employee, executive officer, director or consultant of the Company or, unless resident in a Province of Canada other than British Columbia, an Affiliated Company, has the benefit of an exemption from the prospectus and registration requirements of applicable Canadian provincial securities laws; and

(d) the Optionee has voluntarily received this Option.

In addition, as a further condition to the exercise of the Option, the Company may require the Optionee to make any representation or warranty to the Company as may be required by or advisable under any applicable law or regulation.

8. Market Stand-Off .

(a) The Optionee hereby agrees that, in connection with any registration of securities under the Securities Act by the Company, the Optionee (and the Optionee’s permitted transferees, if any) shall not sell or otherwise transfer (including through short-sales, hedging, or similar transactions) any Option Shares during the period that the Board specifies (a “ Holdback ”); provided, however, that such period shall not exceed one hundred eighty (180) days (or other such period that the underwriters reasonably require) following the effective date of the applicable registration statement filed under the Securities Act (the “ Market Stand-Off Period ”). Until the end of such Market Stand-Off Period, the Company may impose, with respect to any Shares held by the Optionee or his or her permitted transferee, stop-transfer instructions consistent with the foregoing restrictions.

- 4 -

(b) Optionee also agrees to be bound by any restriction agreed to by holders of not less than a majority of the then outstanding Shares (giving effect to the pro forma conversion of all outstanding preferred shares and other convertible securities and the pro forma exercise of all stock options, warrants and other rights, to the extent then exercisable).

(c) In addition, if any managing underwriter or book runner of any such offering or registration (the “ Underwriter ”) requests, the Optionee will execute and deliver to the Underwriter such documents, agreements, and instruments that the Underwriter shall reasonably require to enable the Underwriter to obtain the benefit of the Holdback during the Market Stand-Off Period. In connection with the foregoing, the Optionee hereby appoints the Company’s Chief Executive Officer as the Optionee’s attorney-in-fact, with full power of substitution, to execute and deliver all documents, agreements and instruments to be executed and delivered by the Optionee, and to take all actions to be taken by the Optionee in each case in connection with effecting any Holdback.

9. Non-Transferability of Option . The Option may not be sold, pledged, assigned, hypothecated, gifted, transferred or disposed of in any manner either voluntarily or involuntarily by operation of law, other than by will or by the laws of descent or distribution. During the Optionee’s lifetime, the Option is exercisable only by the Optionee. Subject to the foregoing and the terms of the Plan, the terms of the Option will be binding upon the executors, administrators and heirs of the Optionee.

10. Tax Consequences . The Optionee has reviewed with the Optionee’s own tax advisors the federal, state, local and foreign tax consequences of the Option. The Optionee is relying solely on such advisors and not on any statements or representations of the Company or any of its agents or affiliates. The Optionee understands that he or she (and not the Company) will be responsible for his or her own tax liabilities arising in connection with this award or the transactions contemplated by this Agreement.

11. Modification and Amendment . The Option granted hereunder is intended to be exempt from the application of Section 409A of the Code. Notwithstanding the foregoing, the Optionee hereby agrees that the Company may, without the consent of the Optionee, modify or amend the terms of the Option in any manner it deems reasonably necessary in its discretion, to cause this Option to be exempt from the application of Section 409A of the Code. For avoidance of doubt, however, the Company makes no representation or warranty regarding the tax treatment of this Option or the transactions contemplated by this Agreement and assumes no obligation to take any action to cause this Option or such transactions to be subject to any particular tax treatment.

12. No Continuation of Service . Neither the Plan nor this Option will confer upon the Optionee any right to continue in the Service of the Company or any of its Affiliates, or limit in any respect the right of the Company or its Affiliates to discharge the Optionee at any time, with or without Cause and with or without notice.

- 5 -

Plan, the Board is authorized to interpret the Plan and to adopt rules and regulations not inconsistent with the Plan as it deems appropriate. The Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board with respect to questions arising under the Plan or this Award Agreement.

14. Entire Agreement . This Agreement, together with the Plan, and other exhibits attached thereto or hereto, represents the entire agreement between the parties and supersedes any and all prior or contemporaneous discussions, understandings or any agreements of any nature, written or otherwise, relating to the subject matter hereof.

15. Governing Law . This Agreement will be construed in accordance with the laws of the State of Delaware, without regard to the application of the principles of conflicts of laws.

16. Execution . This Agreement may be executed, including execution by facsimile signature, in one or more counterparts, each of which will be deemed an original, and all of which together shall be deemed to be one and the same instrument.

[This space intentionally left blank; signature page follows.]

- 6 -

IN WITNESS WHEREOF, this Agreement has been executed by the parties on the day of .


lululemon athletica inc.


By:
Its:

[OPTIONEE]

Signature

Address

[ Signature Page to Non-Qualified Stock Option Agreement ]

- 7 -

Exhibit 10.2

NON-QUALIFIED STOCK OPTION AGREEMENT

UNDER THE

LULULEMON ATHLETICA INC. 2007 EQUITY INCENTIVE PLAN

THIS NON-QUALIFIED STOCK OPTION AGREEMENT (this “ Agreement ”) is made between lululemon athletica inc. (the “ Company ”) and [NAME] (the “ Optionee ”).

WHEREAS, the Company maintains the lululemon athletica inc. 2007 Equity Incentive Plan (the “ Plan ”) for the benefit of the employees of the Company and its Affiliates; and

WHEREAS, the Plan permits the award of Non-Qualified Stock Options to purchase Shares, subject to the terms of the Plan; and

NOW, THEREFORE, in consideration of these premises and the agreements set forth herein and intending to be legally bound hereby, the parties agree as follows:

1. Award of Option . This Agreement evidences the grant to the Optionee of an option (the “ Option ”) to purchase [NUMBER ( )] Shares (the “ Option Shares ”). The Option is subject to the terms set forth herein, and in all respects is subject to the terms and provisions of the Plan applicable to Non-Qualified Stock Options, which terms and provisions are incorporated herein by this reference. Except as otherwise specified herein or unless the context herein requires otherwise, the terms defined in the Plan will have the same meanings herein.

3. Date of Grant; Term of Option . The Option was approved by the Company’s Board of Directors on [DATE], to be effective on [DATE] (the “ Effective Date ”) and may not be exercised later than the date that is seven (7) years after the Effective Date, subject to earlier termination in accordance with the Plan and this Agreement.

4. Option Exercise Price . The per share exercise price of the Option is [PRICE] (the “ Exercise Price ”), which amount is intended to be not less than the Fair Market Value per Share on the Effective Date.

5. Exercise of Option . The Option will become exercisable only in accordance with the terms and provisions of the Plan and this Agreement, as follows:

(a) Right to Exercise . The Option will become exercisable with respect to 100% of the Option Shares on [CHOOSE ONE: [the first anniversary of the Effective Date] [the date that is six (6) months following the Effective Date], provided in each case that the Optionee remains continuously in Service with the Company or an Affiliate through the applicable anniversary. For the purposes of this Agreement, “ Service ” means an Optionee’s employment or service with the Company or an Affiliate, whether in the capacity of an employee of the Company or an Affiliate, or as a Director or a Consultant. An Optionee’s Service shall not be deemed to have terminated merely because of a change in the capacity in which the Optionee renders Service to the Company or an Affiliate or a change in the corporation for which the Optionee renders such Service, provided that there is no interruption or termination of the Optionee’s Service. Furthermore, an Optionee’s Service shall not be deemed to have terminated if the Optionee takes any military leave, sick leave, or other bona fide leave of absence approved by the Company; provided, however, that if any such leave exceeds ninety (90) days, on the one hundred eighty-first (181st) day following the commencement of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and instead shall be treated thereafter as a Non-Qualified Stock Option unless the Optionee’s right to return to Service is guaranteed by statute or contract. The Optionee’s Service shall be deemed to have terminated either upon an actual termination of Service (notwithstanding any statutory, contractual or common law period of notice of termination, or compensation in lieu of such notice, to which the Optionee may be entitled) or upon the corporation for which the Optionee performs Service ceasing to be an Affiliate (if other than the Company). For greater certainty, the Optionee’s Service shall be deemed to have terminated on the date which any notice of termination of employment provided to the Optionee is stated to be effective (or in the case of an alleged constructive dismissal, the date on which the alleged constructive dismissal is alleged to have occurred), and not during or as of the end of any period following such date during which the Optionee is in receipt of, or entitled to receive, statutory, contractual or common law notice of termination or any compensation in lieu of such notice. Subject to the foregoing, the Board, in its discretion, shall determine whether the Optionee’s Service has terminated and the effective date of such termination.

(d) Partial Exercise . The Option may be exercised in whole or in part; provided , however , that any exercise may apply only with respect to a whole number of Option Shares.

(d) (b) Termination by Reason of Disability. If the Optionee’s Service terminates by reason of Disability, the Option may thereafter be exercised by the Optionee or his or her personal representative, to the extent it was exercisable at the time of termination, for a period ending 12 Months following the date of termination (or, if sooner, on the last day of the stated term of such Option as provided in Section 3 of this Agreement).

7. Investment Representations . The Optionee represents and warrants to the Company that:

(d) the Optionee has voluntarily received this Option.

8. Market Stand-Off .

13. The Plan . The Optionee has received a copy of the Plan (a copy of which is attached hereto), has read the Plan and is familiar with its terms, and hereby accepts the Option subject to the terms and provisions of the Plan, as amended from time to time. Pursuant to the Plan, the Board is authorized to interpret the Plan and to adopt rules and regulations not inconsistent with the Plan as it deems appropriate. The Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board with respect to questions arising under the Plan or this Award Agreement.

15. Governing Law . This Agreement will be construed in accordance with the laws of the State of Delaware, without regard to the application of the principles of conflicts of laws.

[This space intentionally left blank; signature page follows.]

IN WITNESS WHEREOF, this Agreement has been executed by the parties on the day of . 20


lululemon athletica inc.

By:
Its:

[NAME]

Signature

Address

[ Signature Page to Non-Qualified Stock Option Agreement ]

Exhibit 10.3

NON-QUALIFIED STOCK OPTION AGREEMENT

UNDER THE

LULULEMON ATHLETICA INC. 2007 EQUITY INCENTIVE PLAN

THIS NON-QUALIFIED STOCK OPTION AGREEMENT (this “ Agreement ”) is made between lululemon athletica inc. (the “ Company ”) and (the “ Optionee ”).

WHEREAS, the Company maintains the lululemon athletica inc. 2007 Equity Incentive Plan (the “ Plan ”) for the benefit of the employees of the Company and its Affiliates; and

WHEREAS, the Plan permits the award of Non-Qualified Stock Options to purchase Shares, subject to the terms of the Plan; and

NOW, THEREFORE, in consideration of these premises and the agreements set forth herein and intending to be legally bound hereby, the parties agree as follows:

5. Exercise of Option . The Option will become exercisable only in accordance with the terms and provisions of the Plan and this Agreement, as follows:

Company or an Affiliate through the applicable anniversary. For the purposes of this Agreement, “ Service ” means an Optionee’s employment or service with the Company or an Affiliate, whether in the capacity of an employee of the Company or an Affiliate, or as a Director or a Consultant. An Optionee’s Service shall not be deemed to have terminated merely because of a change in the capacity in which the Optionee renders Service to the Company or an Affiliate or a change in the corporation for which the Optionee renders such Service, provided that there is no interruption or termination of the Optionee’s Service. Furthermore, an Optionee’s Service shall not be deemed to have terminated if the Optionee takes any military leave, sick leave, or other bona fide leave of absence approved by the Company; provided, however, that if any such leave exceeds ninety (90) days, on the one hundred eighty-first (181st) day following the commencement of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and instead shall be treated thereafter as a Non-Qualified Stock Option unless the Optionee’s right to return to Service is guaranteed by statute or contract. The Optionee’s Service shall be deemed to have terminated either upon an actual termination of Service (notwithstanding any statutory, contractual or common law period of notice of termination, or compensation in lieu of such notice, to which the Optionee may be entitled) or upon the corporation for which the Optionee performs Service ceasing to be an Affiliate (if other than the Company). For greater certainty, the Optionee’s Service shall be deemed to have terminated on the date which any notice of termination of employment provided to the Optionee is stated to be effective (or in the case of an alleged constructive dismissal, the date on which the alleged constructive dismissal is alleged to have occurred), and not during or as of the end of any period following such date during which the Optionee is in receipt of, or entitled to receive, statutory, contractual or common law notice of termination or any compensation in lieu of such notice. Subject to the foregoing, the Board, in its discretion, shall determine whether the Optionee’s Service has terminated and the effective date of such termination.

(d) Partial Exercise . The Option may be exercised in whole or in part; provided , however , that any exercise may apply only with respect to a whole number of Option Shares.

7. Investment Representations . The Optionee represents and warrants to the Company that:

(d) the Optionee has voluntarily received this Option.

8. Market Stand-Off .

12. The Clawback Policy . The Optionee has received a copy of the Company’s Policy for Recoupment of Incentive Compensation (the “ Clawback Policy ”), a copy of which is attached hereto, has read the Clawback Policy and is familiar with its terms, and hereby accepts the Option subject to the terms and provisions of the Clawback Policy, as amended from time to time.

13. No Continuation of Service . Neither the Plan nor this Option will confer upon the Optionee any right to continue in the Service of the Company or any of its Affiliates, or limit in any respect the right of the Company or its Affiliates to discharge the Optionee at any time, with or without Cause and with or without notice.

14. The Plan . The Optionee has received a copy of the Plan (a copy of which is attached hereto), has read the Plan and is familiar with its terms, and hereby accepts the Option subject to the terms and provisions of the Plan, as amended from time to time. Pursuant to the Plan, the Board is authorized to interpret the Plan and to adopt rules and regulations not inconsistent with

the Plan as it deems appropriate. The Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board with respect to questions arising under the Plan or this Award Agreement.

15. Entire Agreement . This Agreement, together with the Plan, and other exhibits attached thereto or hereto, represents the entire agreement between the parties and supersedes any and all prior or contemporaneous discussions, understandings or any agreements of any nature, written or otherwise, relating to the subject matter hereof.

16. Governing Law . This Agreement will be construed in accordance with the laws of the State of Delaware, without regard to the application of the principles of conflicts of laws.

17. Execution . This Agreement may be executed, including execution by facsimile signature, in one or more counterparts, each of which will be deemed an original, and all of which together shall be deemed to be one and the same instrument.

[ This space intentionally left blank; signature page follows. ]

IN WITNESS WHEREOF, this Agreement has been executed by the parties on the day of .


		lululemon athletica inc.

		By:
		Its:

		[OPTIONEE]

		Signature


		Address

[ Signature Page to Non-Qualified Stock Option Agreement ]

LULULEMON ATHLETICA INC.

POLICY FOR RECOUPMENT OF INCENTIVE COMPENSATION

In the event lululemon athletica inc. (the “ Company ”) determines it must restate its financial results as reported in a Form 10-K, Form 10-Q or other report filed with the Securities and Exchange Commission to correct an accounting error due to material noncompliance with any financial reporting requirement under the U. S. federal securities laws within three (3) years after the date of the first public issuance or filing of such financial results, the Company will seek to recover, at the direction of the Management Development and Compensation Committee (the “ Committee ”) of the Board of Directors after it has reviewed the facts and circumstances that led to the requirement for the restatement and the costs and benefits of seeking recovery, incentive compensation awarded or paid to a covered officer whose intentional misconduct caused or contributed to the need for the restatement for a fiscal period if a lower award or payment would have been made to such covered officer based upon the restated financial results. The Committee will determine in its discretion the amount, if any, the Company will seek to recover from such covered officer. The Company may offset the recoupment amount against current or future incentive and non-incentive compensation and through cancellation of unvested or vested equity awards. In addition, the Committee may, to the extent permitted by law, take other remedial and recovery action, as determined by the Committee. The recoupment of incentive compensation under this policy is in addition to any other right or remedy available to the Company.

For purposes of this policy, the term “ covered officer ” shall mean executive officers of the Company as defined under the Securities Exchange Act of 1934, as amended, and such other senior executives as may be determined by the Committee. This policy extends to individuals who were covered officers on or after adoption of the policy but ceased being a covered officer before a restatement triggering recoupment under this policy occurs.

The Committee shall have full and final authority to make all determinations under this policy. The Company shall take such action as it deems necessary or appropriate to implement this Policy, including requiring all covered officers to acknowledge the rights and powers of the Company and the Committee hereunder.

This policy shall be effective as of the date adopted by the Board of Directors as set forth below and shall apply to incentive compensation that is approved, awarded or granted on or after that date.

Adopted September 8, 2010

Board of Directors

lululemon athletica inc.

Exhibit 10.4

LULULEMON ATHLETICA INC.

NOTICE OF GRANT OF PERFORMANCE SHARES

The Participant has been granted an award of Performance Shares (the “ Award ” ) pursuant to the lululemon athletica inc. 2007 Equity Incentive Plan (the “ Plan ” ) and the Performance Share Agreement attached hereto (the “ Agreement ” ), as follows:


Participant:		Employee ID:

Grant Date:		Grant No.:

Target Number of Performance Shares:	[ ], subject to adjustment as provided by the Agreement.

Pre-Tax Operating Income Target:	$

Performance Period:	Company fiscal years , and (beginning and ending ).

Performance Share Vesting Date:	, except as provided by the Agreement.

Vested Performance Shares:	Provided that the Participant’s Service has not terminated prior to the Performance Share Vesting Date, except as provided by the Agreement, on the Performance Share Vesting Date the number of Vested Performance Shares (not to exceed the Maximum Number of Performance Shares) shall be determined by multiplying the Target Number of Performance Shares by the Pre-Tax Operating Income Multiplier (as defined by the Agreement).

Settlement Date:	Except as otherwise provided in the Agreement, as soon as practicable on or after the Performance Share Vesting Date (or such other date on which the Award vests pursuant to Sections 5.4 or 8 of the Agreement), but in any event no later than seventy four (74) days following such date.

By their signatures below, the Company and the Participant agree that the Award is governed by this Notice and by the provisions of the Plan and the Agreement, both of which are made a part of this document. The Participant acknowledges receipt of a copy of the Plan, the Agreement and the prospectus for the Plan, represents that the Participant has read and is familiar with the provisions of the Plan and the Agreement, and hereby accepts the Award subject to all of their terms and conditions.


LULULEMON ATHLETICA INC.		PARTICIPANT

By:
			Signature

Its:

Address:	1818 Cornwall Avenue Vancouver, British Columbia		Date
	Canada, V6J 1C7		Address



ATTACHMENTS: Performance Share Agreement

LULULEMON ATHLETICA INC.

PERFORMANCE SHARE AGREEMENT

lululemon athletica inc. has granted to the Participant named in the Notice of Grant of Performance Shares (the “ Grant Notice ” ) to which this Performance Share Agreement (the “ Agreement ” ) is attached an Award consisting of Performance Shares subject to the terms and conditions set forth in the Grant Notice and this Agreement. The Award has been granted pursuant to the lululemon athletica inc. 2007 Equity Incentive Plan (the “ Plan ” ), as amended to the Grant Date, the provisions of which are incorporated herein by reference. By signing the Grant Notice, the Participant: (a) acknowledges receipt of and represents that the Participant has read and is familiar with the Grant Notice, this Agreement, the Plan and a prospectus for the Plan (the “ Plan Prospectus ” ) in the form most recently prepared in connection with the registration with the Securities and Exchange Commission of shares issuable pursuant to the Plan, (b) accepts the Award subject to all of the terms and conditions of the Grant Notice, this Agreement and the Plan and (c) agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Grant Notice, this Agreement or the Plan.

The Participant also acknowledges and agrees that the purpose of this grant of Performance Shares is to compensate the Participant in exchange for contributions made while actively at work. Accordingly, vesting will be deferred for periods of leave in accordance with Section 5.2 below.

1. D EFINITIONS AND C ONSTRUCTION .

1.1 Definitions . Unless otherwise defined herein, capitalized terms shall have the meanings assigned to such terms in the Grant Notice or the Plan.

(a) “ Pre-Tax Operating Income ” means the earnings before other income and taxes as reported in the Consolidated Statements of Operations of the Company for the fiscal year of the Company coinciding with the Performance Period.

(b) “ Pre-Tax Operating Income Multiplier ” means a number determined as follows:


Percentage of Pre-Tax Operating Income Target Achieved	Pre-Tax Operating Income Multiplier
Less than 85%		0.00	%
85%		50.00	%
90%		75.00	%
95%		90.00	%
100%		100.00	%
105%		112.50	%
110%		125.00	%
115%		137.50	%
Equal to or greater than 120%		150.00	%

The Pre-Tax Operating Income Multiplier for percentages of Pre-Tax Operating Income Target achieved falling between the percentages set forth in the table above shall be determined by linear interpolation.

(d) “ Insider Trading Policy ” means the written policy of the Company pertaining to the sale, transfer or other disposition of the Company’s equity securities by members of the Board, Officers or other employees who may possess material, non-public information regarding the Company, as in effect at the time of a disposition of any Common Shares.

(e) “ Performance Share ” means a right to receive on the Settlement Date one (1) Common Share, subject to further restrictions as provided by this Agreement.

(f) “ Retirement ” means a Participant’s termination of service with the Company or any Affiliate (other than a termination for Cause) after the earlier of (i) the Participant’s completion of twenty five (25) years of such service or (ii) the date on which the Participant reaches at least the age 55 and has completed at least ten (10) years of such service.

(g) “ Section 409A ” means Section 409A of the Code and any applicable regulations or administrative guidelines promulgated thereunder.

(h) “ Section 409A Deferred Compensation ” means compensation payable pursuant to the Award granted to a Participant subject to United States income taxation that constitutes nonqualified deferred compensation for purposes of Section 409A.

1.2 Construction . Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of this Agreement. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term “or” is not intended to be exclusive, unless the context clearly requires otherwise.

2. A DMINISTRATION .

All questions of interpretation concerning the Grant Notice, this Agreement and the Plan shall be determined by the Board. All determinations by the Board shall be final and binding upon all persons having an interest in the Award. Any executive officer of the Company shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, or election which is the responsibility of or which is allocated to the Company herein, provided such executive officer has apparent authority with respect to such matter, right, obligation, or election. The Company intends that the Award comply with Section 409A (including any amendments or replacements of such section), and the provisions of this Agreement shall be construed and administered in a manner consistent with this intent.

3. T HE A WARD .

3.1 Grant of Performance Shares. On the Grant Date, the Participant shall acquire, subject to the provisions of this Agreement, a right to receive a number of Performance Shares which shall not exceed the Maximum Number of Performance Shares set forth in the Grant Notice, subject to adjustment as provided in Section 9. The number of Performance Shares, if any, ultimately earned by the Participant, shall be that number of Performance Shares which become Vested Performance Shares.

3.2 No Monetary Payment Required. The Participant is not required to make any monetary payment (other than applicable tax withholding, if any) as a condition to receiving the Performance Shares or the Common Shares issued upon settlement of the Performance Shares, the consideration for which shall be past services actually rendered and/or future services to be rendered to the Company (or any Affiliate) or for its benefit. Notwithstanding the foregoing, if required by applicable state corporate law, the Participant shall furnish consideration in the form of cash or past services rendered to the Company (or any Affiliate) or for its benefit having a value not less than the par value of the Common Shares issued upon settlement of the Performance Shares.

4. C ERTIFICATION OF THE B OARD .

4.1 Level of Pre-Tax Operating Income Attained. As soon as practicable following completion of the Performance Period, and in any event prior to the Performance Share Vesting Date, the Board shall certify in writing the level of attainment of Pre-Tax Operating Income during the Performance Period and the resulting number of Performance Shares which shall become Vested Performance Shares on the Performance Share Vesting Date, subject to the Participant’s continued Service until the Performance Share Vesting Date, except as otherwise provided by Section 5. The Company shall promptly notify the Participant of the determination by the Board.

4.2 Adjustment to Pre-Tax Operating Income for Extraordinary Items. The Board shall adjust Pre-Tax Operating Income, as it deems appropriate, to exclude the effect (whether positive or negative) of any of the following occurring after the grant of the Award: (a) a change in accounting standards required by generally accepted accounting principles or (b) any extraordinary, unusual or nonrecurring item. Each such adjustment, if any, shall be made solely for the purpose of providing a consistent basis from period to period for the calculation of Pre-Tax Operating Income in order to prevent the dilution or enlargement of the Participant’s rights with respect to the Award.

5. V ESTING OF P ERFORMANCE S HARES .

5.1 In General. Except as provided by this Section 5 and Section 8, the Performance Shares shall vest and become Vested Performance Shares as provided in the Grant Notice and certified by the Board.

5.2 Effect of Leave of Absence. Unless otherwise required by law, in the event that the Participant has taken in excess of thirty (30) days in a leave or leaves of absence during the period beginning on the Grant Date and ending on the Performance Share Vesting Date, the Performance Share Vesting Date will be deferred for a period of time equal to the duration of such leave or leaves of absence.

5.3 Termination for Cause or Voluntary Termination. In the event of the termination of the Participant’s service with the Company or any Affiliate for Cause or for any other reason other than death, Disability, Retirement or termination by the Company without Cause prior to the Performance Share Vesting Date, the Participant shall forfeit and the Company shall automatically reacquire all of the Performance Shares subject to the Award. The Participant shall not be entitled to any payment for such forfeited Performance Shares.

5.4 Termination by Reason of Death. In the event of the death prior to the Performance Share Vesting Date, then on the date of such death a number of Performance Shares shall become Vested Performance Shares equal to 100% of the Target Number of Performance Shares.

5.5 Termination by Reason of Disability. In the event of the termination of the Participant’s service with the Company or any Affiliate by reason of Disability prior to the Performance Share Vesting Date, then on the Performance Share Vesting Date a number of Performance Shares shall become Vested Performance Shares equal to that number of Performance Shares that would have become Vested Performance Shares had no such termination of service occurred.

5.6 Termination Without Cause.

(a) In the event of the termination of the Participant’s service with the Company or any Affiliate without Cause more than twelve months before the end of the Performance Period, the Participant shall forfeit and the Company shall automatically reacquire all of the Performance Shares subject to the Award. The Participant shall not be entitled to any payment for such forfeited Performance Shares.

(b) In the event of the termination by the Company of the Participant’s service with the Company or any Affiliate without Cause less than or equal to twelve months before the end of the Performance Period, then on the Performance Share Vesting Date the number of Performance Shares that shall become Vested Performance Shares shall be determined by multiplying (i) that number of Performance Shares that would have become Vested Performance Shares had no such termination occurred by (ii) a percentage equal to the ratio of the number of full months of the Participant’s service with the Company or any Affiliate during the Performance Period to the number of full months contained in the Performance Period.

(c) Termination of the Participant’s service with the Company or any Affiliate without Cause shall be considered to have occurred on the date on which any notice of termination given by the Company or any Affiliate, as the case may be, is stated to be effective (notwithstanding any statutory, contractual or common law period of notice of termination or compensation in lieu of such notice, to which the Participant may be entitled). For greater certainty, the Participant’s service with the Company or any Affiliate shall not include any period following termination of employment during which the Participant is in receipt of, or entitled to receive, statutory, contractual or common law notice of termination or any compensation in lieu of such notice.

5.7 Termination by Reason of Retirement. In the event of the termination of the Participant’s service with the Company or any Affiliate by reason of Retirement prior to the Performance Share Vesting Date, then on the Performance Share Vesting Date the number of Performance Shares that shall become Vested Performance Shares shall be determined by multiplying (a) that number of Performance Shares that would have become Vested Performance Shares had no such termination occurred by (b) a percentage equal to the ratio of the number of full months of the Participant’s service with the Company or any Affiliate during the Performance Period to the number of full months contained in the Performance Period.

5.8 Forfeiture of Unvested Performance Shares. Except as otherwise provided by this Section 5 or Section 8, on the Performance Share Vesting Date, the Participant shall forfeit and the Company shall automatically reacquire all Performance Shares subject to the Award which have not become Vested Performance Shares. The Participant shall not be entitled to any payment for such forfeited Performance Shares.

6. S ETTLEMENT OF THE A WARD .

6.1 Issuance of Common Shares . Subject to the provisions of Section 6.3 below, the Company shall issue to the Participant on the Settlement Date with respect to each Vested Performance Share one (1) Common Share. Common Shares issued in settlement of Performance Shares shall be subject to any restrictions as may be required pursuant to Section 6.3, Section 7 or the Insider Trading Policy.

6.2 Beneficial Ownership of Common Shares; Certificate Registration . The Participant hereby authorizes the Company, in its sole discretion, to deposit for the benefit of the Participant with any broker with which the Participant has an account relationship of which the Company has notice any or all Common Shares acquired by the Participant pursuant to the settlement of the Award. Except as otherwise provided by this Section 6.2, a certificate for the Common Shares as to which the Award is settled shall be registered in the name of the Participant, or, if applicable, in the names of the heirs of the Participant.

6.3 Restrictions on Grant of the Award and Issuance of Common Shares . The grant of the Award and issuance of Common Shares upon settlement of the Award shall be subject to compliance with all applicable requirements of federal, state law or foreign law with respect to such securities. No Common Shares may be issued hereunder if the issuance of such shares would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Stock may then be listed. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance of any Common Shares subject to the Award shall relieve the Company of any liability in respect of the failure to issue such shares as to which such requisite authority shall not have been obtained. As a condition to the settlement of the Award, the Company may require the Participant to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company.

6.4 Fractional Shares . The Company shall not be required to issue fractional Common Shares upon the settlement of the Award. Any fractional share resulting from the determination of the number of Vested Performance Shares shall be rounded up to the nearest whole number.

7. T AX M ATTERS .

7.1 In General. At the time the Grant Notice is executed, or at any time thereafter as requested by the Company, the Participant hereby authorizes withholding from payroll and any other amounts payable to the Participant, and otherwise agrees to make adequate provision for, any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company, if any, which arise in connection with the Award or the issuance of Common shares in settlement thereof. The Company shall have no obligation to process the settlement of the Award or to deliver Common Shares until the tax withholding obligations as described in this Section have been satisfied by the Participant.

7.2 Withholding in Common Shares. Subject to applicable law, the Company shall require the Participant to satisfy its tax withholding obligations by deducting from the Common Shares otherwise deliverable to the Participant in settlement of the Award a number of whole Common Shares having a fair market value, as determined by the Company as of the date on which the tax withholding obligations arise, not in excess of the amount of such tax withholding obligations determined by the applicable minimum statutory withholding rates.

8. CHANGE IN CONTROL .

8.1 Acceleration of Vesting Upon a Change in Control . In the event of the consummation of a Change in Control prior to the Performance Share Vesting Date, the surviving, continuing, successor, or purchasing entity or parent thereof, as the case may be (the “ Acquiror ”), may assume or continue the Company’s rights and obligations with respect to outstanding Awards or substitute for outstanding Awards substantially equivalent rights with respect to the Acquiror’s stock. For purposes of this Section 8.1, an Award shall be deemed assumed if, following the Change in Control, the Award confers the right to receive, for each Performance Share subject to the Award immediately prior to the Change in Control, the consideration (whether stock, cash, other securities or property or a combination thereof) to which a holder of a share of stock of the Company on the effective date of the Change in Control was entitled for each Performance Share subject to an Award. In the event that the Acquiror elects not to assume, continue or substitute for the outstanding Awards in connection with a Change in Control, the vesting of 100% of the Target Number of Performance Shares shall be accelerated in full and such Performance Shares shall be deemed Vested Performance Shares effective as of the date of the Change in Control, provided that the Participant’s service with the Company or any Affiliate has not terminated prior to the Change in Control. In settlement of the Award, the Company shall issue to the Participant one (1) Common Share for each Vested Performance Share determined in accordance with this Section 8.1. The vesting of Performance Shares and settlement of the Award that was permissible solely by reason of this Section 8.1

shall be conditioned upon the consummation of the Change in Control. Notwithstanding the foregoing, the Board may, in its discretion, determine that upon a Change in Control, each Award outstanding immediately prior to the Change in Control shall be canceled in exchange for payment with respect to 100% of the Target Number of Performance Shares subject to such Award in (a) cash, (b) stock of the Company or the Acquiror or (c) other property which, in any such case, shall be in an amount having a Fair Market Value equal to the Fair Market Value of the consideration to be paid per share of stock in the Change in Control for each such Performance Share (subject to any required tax withholding). Such payment shall be made as soon as practicable following the Change in Control.

8.2 Termination After Change in Control. Notwithstanding anything in this Agreement to the contrary, if the Participant’s service with the Company ceases as a result of a Termination After Change in Control (as defined below), the Target Number of Performance Shares shall become Vested Performance Shares and the Award shall be settled promptly following such event.

(a) “ Termination After Change in Control ” shall mean either of the following events occurring within two (2) years after a Change in Control:

(i) Termination by the Company (or its successor) of the Participant’s service with the Company or such successor without Cause; or

(ii) The Participant’s resignation for Good Reason (as defined below) within ninety (90) days of the Participant first becoming aware of the event constituting Good Reason provided the Participant has provided the Company (or its successor) notice of such condition and the opportunity to cure the event.

Notwithstanding any provision herein to the contrary, Termination After Change in Control shall not include any termination of the Participant’s service with the Company (or its successor) which (A) is for Cause; (B) is a result of the Participant’s death or disability; (C) is a result of the Participant’s voluntary termination of such relationship other than for Good Reason; or (D) occurs prior to the effectiveness of a Change in Control.

(b) “ Good Reason ” shall mean any one or more of the following:

(i) Without the Participant’s written consent, a material adverse change in the Participant’s duties and responsibilities as compared to the Participant’s duties and responsibilities immediately prior to the Change in Control;

(ii) Without the Participant’s written consent, the relocation of the Participant’s principal place of service to a location that is more than fifty (50) miles from the Participant’s principal place of service immediately prior to the date of the Change in Control, or the imposition of travel requirements substantially more demanding of the Participant than such travel requirements existing immediately prior to the date of the Change in Control; or

(iii) Any failure by the Company (or its successor) to pay, or any material reduction by the Company of, (A) the Participant’s base salary in effect immediately prior to the date of the Change in Control (unless reductions comparable in amount and duration are concurrently made for all other employees of the Company (or its successor) with responsibilities, organizational level and title comparable to the Participant’s), or (B) the Participant’s bonus compensation, if any, in effect immediately prior to the date of the Change in Control (subject to applicable performance requirements with respect to the actual amount of bonus compensation earned by the Participant).

8.3 Federal Excise Tax Under Section 4999 of the Code.

(a) Excess Parachute Payment. In the event that any acceleration of vesting the Performance Shares and any other payment or benefit received or to be received by the Participant would subject the Participant to any excise tax pursuant to Section 4999 of the Code due to the characterization of such acceleration of vesting, payment or benefit as an “excess parachute payment” under Section 280G of the Code, the Participant may elect, in his or her sole discretion, to reduce the amount of any acceleration of vesting called for by this Agreement in order to avoid such characterization.

(b) Determination by Independent Accountants. To aid the Participant in making any election called for under Section 8.2(a), no later than the date of the occurrence of any event that might reasonably be anticipated to result in an “excess parachute payment” to the Participant as described in Section 8.2(a) (an “ Event ” ), the Company shall request a determination in writing by independent public accountants selected by the Company (the “ Accountants ” ). Unless the Company and the Participant otherwise agree in writing, the Accountants shall determine and report to the Company and the Participant within twenty (20) days of the date of the Event the amount of such acceleration of vesting, payments and benefits which would produce the greatest after-tax benefit to the Participant. For the purposes of such determination, the Accountants may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and the Participant shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make their required determination. The Company shall bear all fees and expenses the Accountants may reasonably charge in connection with their services contemplated by this Section 8.2(b).

9. A DJUSTMENTS FOR C HANGES IN C APITAL S TRUCTURE .

Subject to any required action by the stockholders of the Company, in the event of any change in the Shares effected without receipt of consideration by the Company, whether through merger, consolidation, reorganization, reincorporation, recapitalization, reclassification, stock dividend, stock split, reverse stock split, split-up, split-off, spin-off, combination of shares, exchange of shares, or similar change in the capital structure of the Company, or in the event of payment of a dividend or distribution to the stockholders of the Company in a form other than Shares (excepting normal cash dividends) that has a material effect on the Fair Market Value of the Shares, appropriate adjustments shall be made by the Board in the number of Performance Shares and/or the number and kind of shares to be issued in settlement of the Award, in order to prevent dilution or enlargement of the Participant’s rights under the Award. For purposes of the foregoing, conversion of any convertible securities of the Company shall not be treated as “effected without receipt of consideration by the Company.” Any fractional share resulting from an adjustment pursuant to this Section shall be rounded down to the nearest whole number. Such adjustments shall be determined by the Board, and its determination shall be final, binding and conclusive.

10. R IGHTS AS A S TOCKHOLDER OR E MPLOYEE .

The Participant shall have no rights as a stockholder with respect to any Common Shares which may be issued in settlement of this Award until the date of the issuance of a certificate for such shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date such certificate is issued, except as provided in Section 9. If the Participant is an employee of the Company, the Participant understands and acknowledges that, except as otherwise provided in a separate, written employment agreement between the Company or any Affiliate and the Participant, the Participant’s employment is “at will” and is for no specified term. Nothing in this Agreement shall confer upon the Participant any right to continue in service with the Company or any Affiliate or interfere in any way with any right of the Company or any Affiliate to terminate the Participant’s service with the Company or any Affiliate at any time.

11. L EGENDS .

The Company may at any time place legends referencing any applicable federal, state or foreign securities law restrictions on all certificates representing Common Shares issued pursuant to this Agreement. The Participant shall, at the request of the Company, promptly present to the Company any and all certificates representing shares acquired pursuant to this Award in the possession of the Participant in order to carry out the provisions of this Section.

12. C OMPLIANCE WITH S ECTION 409A .

It is intended that any election, payment or benefit which is made or provided pursuant to or in connection with this Award that may result in Section 409A Deferred Compensation shall comply in all respects with the applicable requirements of Section 409A (including applicable proposed regulations, transition rules or other administrative guidance thereunder, as determined by the Board in good faith) to avoid the unfavorable tax consequences provided therein for non-compliance. In connection with effecting such compliance with Section 409A, the following shall apply:

12.1 Required Delay in Payment to Specified Employee. If the Participant is a “specified employee” of a publicly traded corporation as defined under Section 409A(a)(2)(B)(i) of the Code, unless subject to an applicable exception under Section 409A, any payment of Section 409A Deferred Compensation in connection with a “separation from service” (as determined for purposes of Section 409A) shall not be made until six (6) months after the Participant’s separation from service (the “ Section 409A Deferral Period ”). In the event such payments are otherwise due to be made in installments or periodically during the Section 409A Deferral Period, to the extent permitted under Section 409A, the payments of Section 409A Deferred Compensation which would otherwise have been made in the Section 409A Deferral Period shall be accumulated and paid in a lump sum as soon as the Section 409A Deferral Period ends, and the balance of the payments shall be made as otherwise scheduled.

12.2 Other Delays in Payment. Neither the Participant nor the Company shall take any action to accelerate or delay the payment of any benefits under this Agreement in any manner which would not be in compliance with Code Section 409A (including any transition or grandfather rules thereunder). Notwithstanding the foregoing:

(a) If any payment is due to the Participant upon a Change in Control but such Change in Control does not constitute a change in ownership or effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company as defined in Section 409A(a)(2)(A)(v), then such payment which constitutes Section 409A Deferred Compensation shall be deferred until another permissible payment event contained in Section 409A occurs (e.g., death, disability, separation from service from the Company and its affiliated companies as defined for purposes of Section 409A).

(b) If any payment is due to the Participant upon the Participant’s termination of service but such termination of service does not constitute a “separation from service” as defined in Section 409A(a)(2)(A)(i), then such payment which constitutes Section 409A Deferred Compensation shall be deferred until another permissible payment event contained in Section 409A occurs.

(c) If any payment is due to the Participant upon the Participant’s becoming disabled but such disability does not meet the requirements of a disability under Section 409A(a)(2)(C), then such payment which constitutes Section 409A Deferred Compensation shall be deferred until another permissible payment event contained in Section 409A occurs.

12.3 Amendments to Comply with Section 409A; Indemnification. Notwithstanding any other provision of this Agreement to the contrary, the Company is authorized to amend this Agreement, to void or amend any election made by the Participant under this Agreement and/or to delay the payment of any monies and/or provision of any benefits in such manner as may be determined by the Company, in its discretion, to be necessary or appropriate to comply with Section 409A (including any transition or grandfather rules thereunder) without prior notice to or consent of the Participant. The Participant hereby releases and holds harmless the Company, its directors, officers and stockholders from any and all claims that may arise from or relate to any tax liability, penalties, interest, costs, fees or other liability incurred by the Participant in connection with the Award, including as a result of the application of Section 409A.

12.4 Advice of Independent Tax Advisor. The Company has not obtained a tax ruling or other confirmation from the Internal Revenue Service with regard to the application of Section 409A to the Award, and the Company does not represent or warrant that this Agreement will avoid adverse tax consequences to the Participant, including as a result of the application of Section 409A to the Award. The Participant hereby acknowledges that he or she has been advised to seek the advice of his or her own independent tax advisor prior to entering into this Agreement and is not relying upon any representations of the Company or any of its agents as to the effect of or the advisability of entering into this Agreement.

13. M ISCELLANEOUS P ROVISIONS .

13.1 Termination or Amendment. The Board may terminate or amend the Plan or this Agreement at any time; provided, however, that except as provided in Section 8 in connection with a Change in Control, no such termination or amendment may adversely affect the Participant’s rights under this Agreement without the consent of the Participant unless such termination or amendment is necessary to comply with applicable law or government regulation, including, but not limited to, Section 409A. No amendment or addition to this Agreement shall be effective unless in writing.

13.2 Nontransferability of the Award. Prior the issuance of Common Shares, neither this Award nor any Performance Shares subject to this Award shall be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participant’s beneficiary, except transfer by will or by the laws of descent and distribution. All rights with respect to the Award shall be exercisable during the Participant’s lifetime only by the Participant or the Participant’s guardian or legal representative.

13.3 Unfunded Obligation. The Participant shall have the status of a general unsecured creditor of the Company. Any amounts payable to the Participant pursuant to the Award shall be an unfunded and unsecured obligation for all purposes, including, without limitation, Title I of the Employee Retirement Income Security Act of 1974. The Company shall not be required to segregate any monies from its general funds, or to create any trusts, or establish any special accounts with respect to such obligations. The Company shall retain at all times beneficial ownership of any investments, including trust investments, which the Company may make to fulfill its payment obligations hereunder. Any investments or the creation or maintenance of any trust or any Participant account shall not create or constitute a trust or fiduciary relationship between the Board or the Company and the Participant, or otherwise create any vested or beneficial interest in the Participant or the Participant’s creditors in any assets of the Company. The Participant shall have no claim against the Company for any changes in the value of any assets which may be invested or reinvested by the Company with respect to the Award.

13.4 Further Instruments. The parties hereto agree to execute such further instruments and to take such further action as may reasonably be necessary to carry out the intent of this Agreement.

13.5 Binding Effect. This Agreement shall inure to the benefit of the successors and assigns of the Company and, subject to the restrictions on transfer set forth herein, be binding upon the Participant and the Participant’s heirs, executors, administrators, successors and assigns.

13.6 Delivery of Documents and Notices. Any document relating to participation in the Plan or any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given (except to the extent that this Agreement provides for effectiveness only upon actual receipt of such notice) upon personal delivery, electronic delivery at the e-mail address, if any, provided for the Participant by the Company or any Affiliate, or upon deposit in the U.S. Post Office or foreign postal service, by registered or certified mail, or with a nationally recognized overnight courier service, with postage and fees prepaid, addressed to the other party at the address shown below that party’s signature to the Grant Notice or at such other address as such party may designate in writing from time to time to the other party.

(a) Description of Electronic Delivery . The Plan documents, which may include but do not necessarily include: the Plan, the Grant Notice, this Agreement, the Plan Prospectus, and any reports of the Company provided generally to the Company’s stockholders, may be delivered to the Participant electronically. In addition, the Participant may deliver electronically the Grant Notice to the Company or to such third party involved in administering the Plan as the Company may designate from time to time. Such means of electronic delivery may include but do not necessarily include the delivery of a link to a Company intranet or the internet site of a third party involved in administering the Plan, the delivery of the document via e-mail or such other means of electronic delivery specified by the Company.

(b) Consent to Electronic Delivery. The Participant acknowledges that the Participant has read Section 13.6(a) of this Agreement and consents to the electronic delivery of the Plan documents and Grant Notice, as described in Section 13.6(a). The Participant acknowledges that he or she may receive from the Company a paper copy of any documents delivered electronically at no cost to the Participant by contacting the Company by telephone or in writing. The Participant further acknowledges that the Participant will be provided with a paper copy of any documents if the attempted electronic delivery of such documents fails. Similarly, the Participant understands that the Participant must provide the Company or any designated third party administrator with a paper copy of any documents if the attempted electronic delivery of such documents fails. The Participant may revoke his or her consent to the electronic delivery of documents described in Section 13.6(a) or may change the electronic mail address to which such documents are to be delivered (if Participant has provided an electronic mail address) at any time by notifying the Company of such revoked consent or revised e-mail address by telephone, postal service or electronic mail. Finally, the Participant understands that he or she is not required to consent to electronic delivery of documents described in Section 13.6(a).

13.7 Integrated Agreement. The Grant Notice, this Agreement and the Plan shall constitute the entire understanding and agreement of the Participant and the Company with respect to the subject matter contained herein or therein and supersedes any prior agreements, understandings, restrictions, representations, or warranties between the Participant and the Company with respect to such subject matter other than those as set forth or provided for herein or therein. To the extent contemplated herein or therein, the provisions of the Grant Notice and the Agreement shall survive any settlement of the Award and shall remain in full force and effect.

13.8 Applicable Law. This Agreement shall be governed by the laws of the State of Delaware as such laws are applied to agreements between Delaware residents entered into and to be performed entirely within the State of Delaware.

13.9 Counterparts. The Grant Notice may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

Exhibit 10.5

LULULEMON ATHLETICA INC.

NOTICE OF GRANT OF PERFORMANCE SHARES


Participant:		Employee ID:

Grant Date:		Grant No.:

Target Number of Performance Shares:		[ ], subject to adjustment as provided by the Agreement.

Pre-Tax Operating Income Target:		$

Performance Period:		Company fiscal years , and (beginning and ending ).

Performance Share Vesting Date:		, except as provided by the Agreement.

Vested Performance Shares:		Provided that the Participant’s Service has not terminated prior to the Performance Share Vesting Date, except as provided by the Agreement, on the Performance Share Vesting Date the number of Vested Performance Shares (not to exceed the Maximum Number of Performance Shares) shall be determined by multiplying the Target Number of Performance Shares by the Pre-Tax Operating Income Multiplier (as defined by the Agreement).

Settlement Date:		Except as otherwise provided in the Agreement, as soon as practicable on or after the Performance Share Vesting Date (or such other date on which the Award vests pursuant to Sections 5.4 or 8 of the Agreement), but in any event no later than seventy four (74) days following such date.

Recoupment Policy:		The Award is subject to the terms and conditions of the Company’s Policy for Recoupment of Incentive Compensation, as amended from time to time (the “ *Clawback Policy* ”).

By their signatures below, the Company and the Participant agree that the Award is governed by this Notice and by the provisions of the Plan, the Agreement and the Clawback Policy, all of which are made a part of this document. The Participant acknowledges receipt of a copy of the Plan, the Agreement, the prospectus for the Plan and the Clawback Policy, represents that the Participant has read and is familiar with the provisions of these documents, and hereby accepts the Award subject to all of their terms and conditions.


LULULEMON ATHLETICA INC.		PARTICIPANT

By:
		Signature
Its:
		Date
Address: 1818 Cornwall Avenue
	Vancouver, British Columbia
	Canada, V6J 1C7	Address


ATTACHMENTS:		Performance Share Agreement
		Policy for Recoupment of Incentive Compensation

LULULEMON ATHLETICA INC.

PERFORMANCE SHARE AGREEMENT

1. D EFINITIONS AND C ONSTRUCTION .

1.1 Definitions . Unless otherwise defined herein, capitalized terms shall have the meanings assigned to such terms in the Grant Notice or the Plan.

(b) “ Pre-Tax Operating Income Multiplier ” means a number determined as follows:


Percentage of Pre-Tax Operating Income Target Achieved	Pre-Tax Operating Income Multiplier
Less than 85%		0.00	%
85%		50.00	%
90%		75.00	%
95%		90.00	%
100%		100.00	%
105%		112.50	%
110%		125.00	%
115%		137.50	%
Equal to or greater than 120%		150.00	%

(e) “ Performance Share ” means a right to receive on the Settlement Date one (1) Common Share, subject to further restrictions as provided by this Agreement.

(g) “ Section 409A ” means Section 409A of the Code and any applicable regulations or administrative guidelines promulgated thereunder.

2. A DMINISTRATION .

3. T HE A WARD .

4. C ERTIFICATION OF THE B OARD .

5. V ESTING OF P ERFORMANCE S HARES .

5.6 Termination Without Cause.

6. S ETTLEMENT OF THE A WARD .

7. T AX M ATTERS .

8. CHANGE IN CONTROL .

(a) “ Termination After Change in Control ” shall mean either of the following events occurring within two (2) years after a Change in Control:

(i) Termination by the Company (or its successor) of the Participant’s service with the Company or such successor without Cause; or

(b) “ Good Reason ” shall mean any one or more of the following:

8.3 Federal Excise Tax Under Section 4999 of the Code.

9. A DJUSTMENTS FOR C HANGES IN C APITAL S TRUCTURE .

10. R IGHTS AS A S TOCKHOLDER OR E MPLOYEE .

11. L EGENDS .

12. C OMPLIANCE WITH S ECTION 409A.

13. M ISCELLANEOUS P ROVISIONS .

13.4 Further Instruments. The parties hereto agree to execute such further instruments and to take such further action as may reasonably be necessary to carry out the intent of this Agreement.

13.9 Counterparts. The Grant Notice may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

LULULEMON ATHLETICA INC.

POLICY FOR RECOUPMENT OF INCENTIVE COMPENSATION

Adopted September 8, 2010

Board of Directors

lululemon athletica inc.

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: December 5, 2012

Exhibit 31.2

I, John E. Currie, certify that:

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

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:

(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: December 5, 2012

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 third quarter of fiscal 2012, 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: December 5, 2012


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

Date: December 5, 2012

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.