lululemon athletica Inc. Equity Research

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8 June 2016Americas/United States

Equity ResearchApparel

lululemon athletica Inc. (LULU)

FORECAST REDUCTION Rating OUTPERFORMPrice (07-Jun-16,US$) 68.14Target price (US$) 76.0052-week price range 68.80 - 44.09Market cap (US$ m) 11,684.41Enterprise value (US$ m) 11,221.74*Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector.¹Target price is for 12 months.

Research AnalystsChristian Buss

212 325 [email protected]

Sara Shuler212 325 7643

[email protected]

Pallavi Bakshi212 538 8434

[email protected]

Executing On Topline Growth And Margin Turnaroundlululemon maintained solid demand momentum this quarter as topline growth was strong, with the 8% total comp in constant currency above consensus estimates for 6.7% and guidance for up mid-single digits. Additionally, gross margin in the quarter exceeded our expectations, suggesting the magnitude of the structural benefits from supply chain initiatives may be greater and earlier than expected. We remain bullish on the stock even given the lack of visibility into how upcoming product catalysts may drive traffic as we see the potential for supply chain improvements and margin expansion through FY17 to support double-digit earnings power. We reiterate our Outperform rating, adjust estimates, and maintain our Target Price of $76.

■ Demand Strength Continues Across Categories. lululemon executed on topline with revenues of $496M in-line with our estimate for $497M and well above guidance for $483-488M. The 8% total comp (constant currency including DTC) suggests that the company has been able to maintain consumer demand momentum, likely due to new product introductions recapturing lapsed consumers. Both the Women's and Men's categories were strong, with women's pants up double-digits Y/Y and Men's up 21% Y/Y. We note that the company saw outsized growth in their Other channel, with a 52% Y/Y increase due to greater sell-through in outlets and warehouse sales as part of inventory clearance initiatives.

■ Potential For Women's Tops To Drive Traffic Still Unclear. New women's tops are expected to be introduced in the summer, which we believe will be important as the company seeks to recapture lapsed consumers. With the bar set high after the success of the pants refresh, we still lack visibility into

Share price performance

LULU.O Q S& P 5 0 0 IN D EX

Ju l - 1 5 O ct - 1 5 Jan - 1 6 A p r - 1 64 0

5 0

6 0

7 0

On 07-Jun-2016 the S&P 500 INDEX closed at 2112.13Daily Jun09, 2015 - Jun07, 2016, 06/09/15 = US$68.27

Quarterly EPS Q1 Q2 Q3 Q42015A 0.34 0.34 0.35 0.852016E 0.33 0.37 0.43 1.042017E 0.37 0.45 0.53 1.26

Financial and valuation metricsYear 1/15A 1/16E 1/17E 1/18EEPS (CS adj.) (US$) 1.86 2.15 2.59 3.07Prev. EPS (US$) - 2.21 2.66 3.17P/E (x) 36.6 31.7 26.3 22.2P/E rel. (%) 207.9 181.7 171.1 162.0Revenue (US$ m) 2,060.5 2,340.7 2,610.7 2,921.3EBITDA (US$ m) 442.5 489.2 563.1 641.7OCFPS (US$) 4.75 5.61 6.83 8.06P/OCF (x) 14.0 12.1 10.0 8.5EV/EBITDA (current) 25.2 22.8 19.8 17.4Net debt (US$ m) -501 -463 -414 -394ROIC (%) 49.40 48.31 48.69 48.48

Number of shares (m) 171.48 IC (current, US$ m) 526.00Net debt (Next Qtr., US$ m) -504.6 EV/IC (x) 17.7Net debt/tot eq (Next Qtr.,%) -44.5 Dividend (current, US$) -Source: Company data, Thomson Reuters, Credit Suisse estimates

8 June 2016

lululemon athletica Inc. (LULU) 2

how this new product could drive store traffic and support LULU's growth story into 2H16. Management noted that store assortment has started to shift, with new sports bras the first piece of the overall tops refresh.

■ Gross Margin Turnaround Accelerating With 2Q Positive Inflection. Gross margin exceeded expectations, down 35bp Y/Y to 48.3%, better than our model for down 190bp Y/Y to 46.7% (consensus of 47.1%). Gross margin benefited from 40bp of product margin improvement, lower FOB costs, reductions in raw material costing, and lower air freight, and was offset by F/X and occupancy cost headwinds. We are encouraged to see the magnitude of gross margin benefits be greater and earlier than expected as supply chain improvements take hold, and are modelling for gross margin to potentially be up 100bp Y/Y in FY16 to 49.4%, marking the first year of gross margin expansion since FY11.

■ SG&A Deleverage Weighs On Operating Margin. SG&A spend was up 410bp Y/Y to 36.6%, above our in-line model for a 225bp Y/Y increase to 34.8% as the company was burdened by heavy F/X revaluation losses ($13.5M versus $4.4M last year) from the appreciation of the Canadian dollar. Additionally, consulting costs related to the supply chain initiatives and increased marketing costs kept spending elevated. The company expects consulting costs to wind down by the end of Q2, but is now guiding to deleverage for the full year.

■ Making Good Progress On Reducing Inventory Levels. Inventories were up 21% Y/Y on expected 2Q revenue growth up mid-teens. This was better than our expectation for inventories to be up 23.3% Y/Y, and is a sequential improvement in-line with the company's plan (inventories were up 37% Y/Y in 4Q15, up 56% Y/Y in 3Q15, and up 59% Y/Y in 2Q15). Our proprietary inventory tracker suggests this inventory reduction is being carried out while maintaining pricing discipline, as our estimated markdown intensity for the quarter was lower Y/Y at a rate of 1.6% in 1Q16 from 1.9% in 1Q15. Management noted they now expect inventories to be below forward sales growth starting in 2Q, as well as for the remainder of the year, nicely ahead of the initial 2H16 completion goal.

■ Laying Groundwork For Increased eCommerce Focus. Investments behind building an integrated eCommerce experience for consumers are coming into focus, with the roll-out of a newly designed website and mobile site this quarter. lululemon has laid out a goal to increase digital penetration to over 20% of revenue (19.5% as of FY15) and we believe investments to grow this channel are appropriate as the digital channel grows in importance. The roll-out of RFID technology and CRM capabilities look to be the next step for the company in tracking inventories and targeting marketing strategies directly for consumers which we believe will support their digital growth potential.

■ Raising FY16 Outlook, Cautious On Significant 2H Acceleration. lululemon raised their full-year revenue ($2.305-2.345B from $2.285-2.335B) and EPS outlook ($2.08-2.18 including the 1Q tax benefit of $0.03 from $2.05-2.15). We remain cautious on this guide as the company is embedding a significant back-half acceleration in earnings, even as visibility into the sustainability of topline momentum in 2H16 remains unclear.

■ Adjusting Estimates And Maintaining Target Price Of $76. Our FY16 comp, revenue and EPS estimates go to 6.8%, $2,341M, and $2.15 from 7.8%, $2,353M, and $2.21. Our FY17 comp, revenue and EPS estimates go to 6.2%, $2,611M, and $2.59 and from 7.0%, $2,662M, and $2.66. We maintain our Target Price of $76 based on an equal weighted average of 1) peer comparable growth retailer multiples ($78), 2) a DCF price ($74), and 3) a long term growth model ($75).

8 June 2016


1Q16 ResultsFigure 1: Resultslululemon athleticaEstimate vs. Actual, Y/Y Comparisons($ in millions except per share data)

Actual CS Estimates Prior Year1Q16 1Q16 Variance % Variance 1Q15 Variance Y/Y growth

Net sales $495.5 $497.3 ($1.8) -0.4% $423.5 $72.0 17.0%

Cost of Goods Sold 256.4 265.0 (8.64) -3.3% 217.7 38.72 17.8%

Gross profit 239.1 232.3 6.83 2.9% 205.9 33.25 16.2%

SG&A Expenses 181.5 173.0 8.50 4.9% 137.8 43.70 31.7%Operating income 57.6 59.3 (1.67) -2.8% 68.0 (10.45) -15.4%

D&A 19.2 21.4 (2.20) -10.3% 16.1 3.09 19.2%EBITDA 76.8 80.6 (3.87) -4.8% 84.1 (7.36) -8.7%

Interest Income (Expense) (0.5) 1.0 (1.53) -146.4% 0.5 (1.02) -191.9%Other Income (Expense) - - - NM - - NM

Pre-tax income 57.1 60.3 (3.20) -5.3% 68.6 (11.46) -16.7%Provision for income taxes 11.8 18.2 (6.44) -35.4% 20.8 (8.99) -43.3%Tax Rate 20.6% 30.2% (0.10) 0bps 30.3% (0.10) 0bpsNet Income 45.3 42.1 3.24 7.7% 47.8 (2.47) -5.2%

Diluted EPS $0.33 $0.31 $0.02 8.1% $0.34 ($0.01) -1.8%

Basic Shares Outstanding 137.3 137.8 (0.55) -0.4% 142.0 (4.7) -3.3%Diluted Shares Outstanding 137.5 138.0 (0.48) -0.3% 142.3 -4.8 -3.4%

Source: Company data, Credit Suisse estimates

8 June 2016


Store PerformanceFigure 2: Store Performancelululemon athleticaEstimate vs. Actual, Y/Y Comparisons($ in millions except per share data)

Actual CS Estimates Prior Year1Q16 1Q16 Variance % Variance 1Q15 Variance Y/Y growth

Store Performance

Comp. store sales 8.0% 9.0% -1.0% -11.2% 6.0% 200bps Two-year trend 14.0% 15.0% -1.0% -6.7% 7.0% 700bpsNew Store Productivity 63.6% 70.0% -6.4% -9.1% 64.1% -55bps% Revenue from New Stores 7.1% 8.1% -1.0% -12.0% 9.5% -244bps

Total Store Count 373 372 1 0.3% 316 57 18.0%Average Store Count 368 368 1 0.1% 309 59 19.1%

Total Sq. Footage (k) 1095.0 1100.8 -5.8 -0.5% 931.0 164.0 17.6%Avg. Sq. Footage (k) 1083.0 1085.9 -2.9 -0.3% 912.5 170.5 18.7%Avg. Sq. Footage per store 3.0 3.0 0.0 0.0% 2.9 0.0 0.4%

Sales per average store 1.0 1.0 0.0 0.1% 1.0 0.0 -4.1%Sales per average sq. ft 331.2 329.6 1.6 0.5% 344.2 -13.0 -3.8%

SG&A per average store 0.5 0.5 0.0 4.8% 0.4 0.0 10.6%

Inventory per avg. store 0.8 0.8 0.0 -2.0% 0.8 0.0 1.6%Inventory per average sq. ft. (k) 264.3 268.6 -4.3 -1.6% 259.2 5.1 2.0%

GMROI 83.5% 79.6% 0.04 4.9% 87% -351bps


8 June 2016


MarginsFigure 3: Marginslululemon athleticaEstimate vs. Actual, Y/Y Comparisons($ in millions except per share data)

Actual CS Estimates Prior Year1Q16 1Q16 Variance % Variance 1Q15 Y/Y change

MARGINSGross Margin 48.3% 46.7% 155bps 3.3% 48.6% -35bps

SG&A as a % of Revenue 36.6% 34.8% 184bps 5.3% 32.5% 409bps

Operating Margin 11.6% 11.9% -29bps -2.5% 16.1% -444bps

Pretax Income 11.5% 12.1% -60bps -5.0% 16.2% -466bpsEffective Tax Rate 20.6% 30.2% -959bps -31.8% 30.3% -966bpsNet Margin 9.1% 8.5% 69bps 8.1% 11.3% -214bps


Balance SheetFigure 4: Balance Sheet lululemon athleticaEstimate vs. Actual, Y/Y Comparisons($ in millions except per share data)

Actual CS Estimates Prior Year

1Q16 1Q16 Variance % Variance 1Q15 Y/Y changeBalance SheetInventories $286.2 $291.7 -$5.4 -1.9% $236.5 21.0%Days Inventory 96 95 0.7 0.8% 88 8Inventory/Store $0.8 $0.8 $0.0 -2.0% $0.8 1.6%Inventory/Square Foot (k) $264.3 $268.6 -$4.3 -1.6% $259.2 2.0%

Payables $6.4 $9.4 -$3.0 -31.6% $5.3 21.2%DPOs 2 3 -0.9 -29.3% 2 2.9%

Net Cash $550.0 $543.9 $6.2 1.1% $655.9 -16.1%Net Cash/Share $4.00 $3.94 $0.1 1.5% $4.61 -13.2%


8 June 2016


Guidance2Q16■ Revenue: $505-515M

o SSS up mid-single digits constant currency (combined store and DTC)■ Gross margin: Up 120bp Y/Y ■ SG&A: Significant deleverage (1/3 of the impact attributable to F/X)■ EPS: $0.36-0.38■ Tax rate: 30.2%■ Share count: 137.5M ■ Stores: 8 net new stores

FY16■ Revenue: $2.305-2.345B (prior $2.285-2.335B)

o SSS up mid-single digits constant currency (combined store and DTC)■ EPS: $2.08-2.18 including $0.03 1Q tax benefit (prior $2.05-2.15)

o Earnings up double digits in 2H16■ Gross margin: Positive inflection from 2Q16 onwards and up for the year■ SG&A: Deleverage, with the greatest impact in 1H and modest deleverage now

expected in 3Q and 4Q■ Operating margin: Overall leverage, flow-through of improvements in 2H16■ Capex: $160-165M (prior $150-155M)■ Tax rate: 28.9% (prior 30.2%)■ Share count: 137.5M (prior 138M)■ Stores: 40 net new stores (prior 44 net new stores)

8 June 2016


Figure 5: Income Statementlululemon athletica inc.Income Statement($ in millions except per share, store, and sq. foot data)

1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17Apr16A Jul16E Oct16E Jan17E 2016E Apr17E Jul17E Oct17E Jan18E 2017E 2014A 2015A 2016E 2017E 2018E 2019E 2020E

Channel 495.5 516.1 541.2 787.9 2,340.7 549.7 571.0 605.8 884.2 2,610.7 1,797.2 2,060.5 2,340.7 2,610.7 2,921.3 3,254.4 3,614.1Corporate-owned stores 358.7 375.6 393.4 570.3 1,698.0 398.3 414.0 433.2 627.2 1,872.6 1,348.2 1,516.3 1,698.0 1,872.6 2,064.4 2,257.1 2,450.9Direct to consumer 97.6 98.7 108.9 178.5 483.7 118.0 119.4 131.8 216.0 585.2 321.2 401.5 483.7 585.2 696.4 828.8 986.2Other 39.2 41.8 38.8 39.1 159.0 33.4 37.7 40.8 41.1 152.8 127.8 142.7 159.0 152.8 160.5 168.5 176.9Net sales 495.5 516.1 541.2 787.9 2,340.7 549.7 571.0 605.8 884.2 2,610.7 1,797.2 2,060.5 2,340.7 2,610.7 2,921.3 3,254.4 3,614.1

Cost of merchandise sales 160.2 170.7 170.0 263.3 764.2 172.3 184.5 187.9 292.8 837.5 572.2 691.9 764.2 837.5 932.8 1,034.2 1,143.1Other Occupancy and Design Expense 57.1 57.8 66.4 62.0 243.3 63.0 63.7 74.0 69.2 269.9 181.6 215.8 243.3 269.9 300.5 333.2 368.1D&A 19.2 19.0 21.7 22.2 82.1 20.6 20.3 23.5 23.8 88.2 58.4 73.4 82.1 88.2 95.1 101.8 108.6Rent Expense 19.9 20.7 21.7 31.7 94.0 22.4 23.2 24.7 36.0 106.2 70.9 82.3 94.0 106.2 118.5 130.6 142.7Cost of Goods Sold - Total 256.4 268.2 279.8 379.1 1,183.6 278.3 291.8 310.1 421.7 1,301.9 883.0 1,063.4 1,183.6 1,301.9 1,446.8 1,599.9 1,764.9

Total Gross Profit 239.1 247.9 261.3 408.8 1,157.1 271.4 279.2 295.7 462.5 1,308.8 914.2 997.2 1,157.1 1,308.8 1,474.5 1,654.6 1,849.2

SG&A Expenses 181.5 177.3 179.4 211.7 750.0 203.3 197.0 198.7 234.9 834.0 538.1 628.1 750.0 834.0 931.0 1,034.7 1,146.2

Income from corporate-owned stores 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Income from Direct to consumer 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Income from Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0General corporate expense 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Operating income 57.6 70.6 81.9 197.1 407.1 68.1 82.2 97.0 227.5 474.8 376.0 369.1 407.1 474.8 543.5 619.9 703.0

Depreciation 19.2 19.0 21.7 22.2 82.1 20.6 20.3 23.5 23.8 88.2 58.4 73.4 82.1 88.2 98.2 102.9 107.2EBITDA 76.8 89.6 103.6 219.3 489.2 88.7 102.5 120.5 251.3 563.1 434.4 442.5 489.2 563.1 641.7 722.8 810.2

Interest Income (Expense) - Model Driver 1.3 0.9 1.2 3.3 1.2 1.1 0.7 1.0 4.0 0.0 0.0 3.3 4.0 3.6 3.5 3.6Interest Income (Expense) (0.5) 1.1 1.0 1.5 3.1 1.0 1.1 1.0 1.5 4.6 7.1 3.0 3.1 4.6 4.6 4.6 4.6Other Income (Expense) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Pre-tax income 57.1 71.7 82.9 198.6 410.2 69.2 83.3 98.0 229.0 479.5 383.1 372.1 410.2 479.5 548.1 624.5 707.6Provision for income taxes 11.8 21.6 25.1 60.2 118.7 20.0 24.1 28.3 66.2 138.6 113.2 110.1 118.7 138.6 157.0 177.2 198.9Tax Rate 20.6% 30.2% 30.3% 30.3% 28.9% 28.9% 28.9% 28.9% 28.9% 28.9% 29.5% 29.6% 28.9% 28.9% 28.6% 28.4% 28.1%After-tax income 45.3 50.0 57.8 138.4 291.5 49.2 59.2 69.7 162.8 340.9 270.0 261.9 291.5 340.9 391.1 447.3 508.7

Net Income atrritbutable to non-controlling interest 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Net Income 45.3 50.0 57.8 138.4 291.5 49.2 59.2 69.7 162.8 340.9 270.0 261.9 291.5 340.9 391.1 447.3 508.7

Basic EPS $0.33 $0.37 $0.43 $1.04 $2.15 $0.37 $0.45 $0.53 $1.26 $2.60 $1.88 $1.87 $2.15 $2.60 $3.07 $3.62 $4.26Diluted EPS $0.33 $0.37 $0.43 $1.04 $2.15 $0.37 $0.45 $0.53 $1.26 $2.59 $1.87 $1.86 $2.15 $2.59 $3.07 $3.62 $4.25

Pro-Forma Net Income 45.3 50.0 57.8 138.4 291.5 49.2 59.2 69.7 162.8 340.9 270.0 261.9 291.5 340.9 391.1 447.3 508.7One-time charges (benefits after-tax) 0.0 0.0 (30.9) 4.1 0.0 0.0 0.0 0.0 0.0GAAP Net Income 45.3 50.0 57.8 138.4 291.5 49.2 59.2 69.7 162.8 340.9 239.0 266.0 291.5 340.9 391.1 447.3 508.7

GAAP Basic EPS $0.33 $0.37 $0.43 $1.04 $2.15 $0.37 $0.45 $0.53 $1.26 $2.60 $1.66 $1.89 $2.15 $2.60 $3.07 $3.62 $4.26GAAP Diluted EPS $0.33 $0.37 $0.43 $1.04 $2.15 $0.37 $0.45 $0.53 $1.26 $2.59 $1.66 $1.89 $2.15 $2.59 $3.07 $3.62 $4.25

Basic Shares Outstanding (M) 137.3 136.3 134.9 133.2 135.4 133.0 132.1 130.8 129.2 131.3 143.9 140.4 135.4 131.3 127.3 123.4 119.6Diluted Shares Outstanding (M) 137.5 136.5 135.1 133.5 135.6 133.3 132.3 131.0 129.4 131.5 144.3 140.7 135.6 131.5 127.5 123.7 119.8

MARGINSRevenue $495.5 $516.1 $541.2 $787.9 $2,340.7 $549.7 $571.0 $605.8 $884.2 $2,610.7 $1,797.2 $2,060.5 $2,340.7 $2,610.7 $2,921.3 $3,254.4 $3,614.1Comps (Including DTC) 8.0% 6.9% 6.3% 6.2% 6.8% 6.1% 6.0% 6.1% 6.5% 6.2% 3.0% 9.1% 6.8% 6.2% 6.8% 7.0% 7.3%EPS $0.33 $0.37 $0.43 $1.04 $2.15 $0.37 $0.45 $0.53 $1.26 $2.59 $1.87 $1.86 $2.15 $2.59 $3.07 $3.62 $4.25

Margins

Merchandise Margin 67.7% 66.9% 68.6% 66.6% 67.4% 68.7% 67.7% 69.0% 66.9% 67.9% 68.2% 66.4% 67.4% 67.9% 68.1% 68.2% 68.4%Y/Y ∆ -15bp 115bp 120bp 125bp 93bp 100bp 75bp 40bp 30bp 57bp -82bp -174bp 93bp 57bp 15bp 15bp 15bp2 yr ∆ -173bp -155bp -109bp 47bp -81bp 85bp 190bp 160bp 155bp 150bp -351bp -256bp -81bp 150bp 72bp 30bp 30bp

Non-occupancy COGS (% total revenue) 11.5% 11.2% 12.3% 7.9% 10.4% 11.5% 11.2% 12.2% 7.8% 10.3% 10.1% 10.5% 10.4% 10.3% 10.3% 10.2% 10.2%Y/Y ∆ 10bp -10bp -15bp -18bp -8bp -5bp -5bp -5bp -5bp -6bp 63bp 37bp -8bp -6bp -5bp -5bp -5bp2 yr ∆ 20bp 65bp 60bp -8bp 29bp 5bp -15bp -20bp -23bp -14bp 59bp 100bp 29bp -14bp -11bp -10bp -10bp

D&A (% total revenue) 3.9% 3.7% 4.0% 2.8% 3.5% 3.7% 3.6% 3.9% 2.7% 3.4% 3.2% 3.6% 3.5% 3.4% 3.3% 3.1% 3.0%Y/Y ∆ 7bp 0bp -10bp -15bp -5bp -13bp -13bp -13bp -13bp -13bp 16bp 31bp -5bp -13bp -13bp -13bp -13bp2 yr ∆ 63bp 20bp 29bp 5bp 26bp -5bp -13bp -23bp -28bp -18bp 11bp 48bp 26bp -18bp -25bp -25bp -25bp

Net rental expense (% total revenue) 4.0% 4.0% 4.0% 4.0% 4.0% 4.1% 4.1% 4.1% 4.1% 4.1% 3.9% 4.0% 4.0% 4.1% 4.1% 4.0% 3.9%Y/Y ∆ 2bp 2bp 2bp 2bp 2bp 5bp 5bp 5bp 5bp 5bp 32bp 5bp 2bp 5bp -1bp -4bp -7bp2 yr ∆ 7bp 7bp 7bp 7bp 7bp 8bp 8bp 8bp 8bp 8bp 59bp 37bp 7bp 8bp 4bp -6bp -11bp

Per store-rent expense (000) 53.4 54.4 55.0 78.5 233.3 54.3 55.5 56.9 81.8 241.5 234.8 226.7 233.3 241.5 249.9 258.7 267.7Total non-merchandise COGS (% total revenue) 19.4% 18.9% 20.3% 14.7% 17.9% 19.3% 18.8% 20.2% 14.6% 17.8% 17.3% 18.0% 17.9% 17.8% 17.6% 17.4% 17.1%

Y/Y ∆ 20bp -8bp -23bp -30bp -11bp -12bp -12bp -12bp -12bp -13bp 111bp 73bp -11bp -13bp -19bp -22bp -24bp2 yr ∆ 90bp 92bp 96bp 5bp 62bp 7bp -20bp -35bp -42bp -24bp 129bp 184bp 62bp -24bp -32bp -41bp -46bp

Total non-merchandise COGS ($) 96.2 97.6 109.8 115.9 419.4 106.0 107.2 122.2 129.0 464.4 310.9 371.5 419.4 464.4 514.1 565.6 619.4Gross Margin 48.3% 48.0% 48.3% 51.9% 49.4% 49.4% 48.9% 48.8% 52.3% 50.1% 50.9% 48.4% 49.4% 50.1% 50.5% 50.8% 51.2%

Y/Y ∆ -35bp 123bp 142bp 155bp 104bp 112bp 87bp 52bp 42bp 70bp -193bp -247bp 104bp 70bp 34bp 37bp 33bp2 yr ∆ -263bp -247bp -204bp 42bp -143bp 77bp 210bp 195bp 197bp 174bp -480bp -440bp -143bp 174bp 104bp 71bp 69bp

COGS 51.7% 52.0% 51.7% 48.1% 50.6% 50.6% 51.1% 51.2% 47.7% 49.9% 49.1% 51.6% 50.6% 49.9% 49.5% 49.2% 48.8%

SG&A 36.6% 34.4% 33.1% 26.9% 32.0% 37.0% 34.5% 32.8% 26.6% 31.9% 29.9% 30.5% 32.0% 31.9% 31.9% 31.8% 31.7%Y/Y ∆ 409bp 225bp 50bp 15bp 156bp 35bp 15bp -35bp -30bp -10bp 174bp 54bp 156bp -10bp -8bp -8bp -8bp2 yr ∆ 389bp 123bp 217bp 150bp 210bp 444bp 240bp 15bp -15bp 146bp 175bp 228bp 210bp 146bp -17bp -15bp -16bpAbsolute SG&A 181.5 177.3 179.4 211.7 750.0 203.3 197.0 198.7 234.9 834.0 538.1 628.1 750.0 834.0 931.0 1034.7 1146.2

43.70 31.87 22.77 23.53EBITDA Margin 15.5% 17.4% 19.1% 27.8% 20.9% 16.1% 18.0% 19.9% 28.4% 21.6% 24.2% 21.5% 20.9% 21.6% 22.0% 22.2% 22.4%Operating Margin 11.6% 13.7% 15.1% 25.0% 17.4% 12.4% 14.4% 16.0% 25.7% 18.2% 20.9% 17.9% 17.4% 18.2% 18.6% 19.0% 19.5%

Y/Y ∆ -444bp -102bp 92bp 140bp -52bp 77bp 72bp 87bp 72bp 79bp -367bp -301bp -52bp 79bp 42bp 44bp 40bp

Pretax Income 11.5% 13.9% 15.3% 25.2% 17.5% 12.6% 14.6% 16.2% 25.9% 18.4% 21.3% 18.1% 17.5% 18.4% 18.8% 19.2% 19.6%Effective Tax Rate 20.6% 30.2% 30.3% 30.3% 28.9% 28.9% 28.9% 28.9% 28.9% 28.9% 29.5% 29.6% 28.9% 28.9% 28.6% 28.4% 28.1%Net Margin 9.1% 9.7% 10.7% 17.6% 12.5% 8.9% 10.4% 11.5% 18.4% 13.1% 15.0% 12.7% 12.5% 13.1% 13.4% 13.7% 14.1%

Y/Y GROWTHCorporate-Owned Stores 14.2% 10.5% 11.3% 12.0% 12.0% 11.0% 10.2% 10.1% 10.0% 10.3% 9.7% 12.5% 12.0% 10.3% 10.2% 9.3% 8.6%Direct to consumer 16.6% 20.0% 22.0% 22.0% 20.5% 21.0% 21.0% 21.0% 21.0% 21.0% 22.1% 25.0% 20.5% 21.0% 19.0% 19.0% 19.0%Other 52.0% 35.0% 5.0% -20.0% 11.5% -15.0% -10.0% 5.0% 5.0% -3.9% 29.0% 11.6% 11.5% -3.9% 5.0% 5.0% 5.0%Total Revenue 17.0% 13.9% 12.8% 11.9% 13.6% 10.9% 10.6% 11.9% 12.2% 11.5% 12.9% 14.7% 13.6% 11.5% 11.9% 11.4% 11.1%

Direct as a% of Total Sales 19.7% 19.1% 20.1% 22.7% 20.7% 21.5% 20.9% 21.8% 24.4% 22.4% 17.9% 19.5% 20.7% 22.4% 23.8% 25.5% 27.3%

COGS 17.8% 11.3% 9.8% 8.4% 11.3% 8.5% 8.8% 10.8% 11.2% 10.0% 17.6% 20.4% 11.3% 10.0% 11.1% 10.6% 10.3%SG&A 31.7% 21.9% 14.5% 12.5% 19.4% 12.0% 11.1% 10.8% 11.0% 11.2% 19.9% 16.7% 19.4% 11.2% 11.6% 11.1% 10.8%

Net Income -5.2% 4.9% 17.8% 17.9% 11.3% 8.5% 18.4% 20.6% 17.7% 16.9% -3.4% -3.0% 11.3% 16.9% 14.7% 14.4% 13.7%EPS -1.8% 8.9% 22.4% 22.1% 15.4% 11.9% 22.1% 24.3% 21.3% 20.6% -2.3% -0.5% 15.4% 20.6% 18.3% 17.9% 17.4%EBITDA -8.7% 7.6% 17.9% 17.1% 10.6% 15.6% 14.4% 16.3% 14.6% 15.1% -1.4% 1.9% 10.6% 15.1% 14.0% 12.6% 12.1%

20172016


8 June 2016


Figure 6: Store Modellululemon athletica inc.Store Model($ in millions)


Corporate StoresCanada Corporate Stores (BOP) 60 61 62 63 60 63 64 65 66 63 54 57 60 63 66 69 72New stores 1 1 1 0 3 1 1 1 0 3 3 3 3 3 3 3 3Closed stores 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0Canada Corporate Stores (EOP) 61 62 63 63 63 64 65 66 66 66 57 60 63 66 69 72 75

United States Corporate Stores (BOP) 260 267 273 281 260 288 294 299 306 288 171 211 260 288 312 332 348New stores 7 6 8 7 28 6 5 7 6 24 40 49 28 24 20 16 12Closed stores 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0United States Corporate Stores (EOP) 267 273 281 288 288 294 299 306 312 312 211 260 288 312 332 348 360

North American Corporate Stores (BOP) 320 328 335 344 320 351 358 364 372 351 225 268 320 351 378 401 420New stores 8 7 9 7 31 7 6 8 6 27 43 52 31 27 23 19 15Closed stores 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0North American Corporate Stores (EOP) 328 335 344 351 351 358 364 372 378 378 268 320 351 378 401 420 435

International Corporate Stores (BOP) 43 45 46 51 43 52 54 55 61 52 29 34 43 52 62 73 85New stores 2 1 5 1 9 2 1 6 1 10 6 9 9 10 11 12 13Closed stores 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0International Corporate Stores (EOP) 45 46 51 52 52 54 55 61 62 62 34 43 52 62 73 85 98

Total Corporate Stores (BOP) 363 373 381 395 363 403 412 419 433 403 254 302 363 403 440 474 505New stores 10 8 14 8 40 9 7 14 7 37 49 61 40 37 34 31 28Closed stores 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0Adjusted net new stores 10 8 14 8 40 9 7 14 7 37 48 61 40 37 34 31 28Total Corporate Stores (EOP) 373 381 395 403 403 412 419 433 440 440 302 363 403 440 474 505 533

Total Corporate Square Footage (000s) (EOP) 1095 1131 1176 1203 1203 1236 1264 1312 1340 1340 894 1071 1203 1340 1473 1601 1724New Store Square Footage (Y/Y) 164 146 140 132 146 141 133 136 137 137 139 183 146 137 134 129 124

Franchise StoresNorth American Franchise Stores (EOP) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0International Franchise Stores (EOP) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0Total Franchise Stores (EOP) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Total Corporate Stores (EOP) 373 381 395 403 403 412 419 433 440 440 302 363 403 440 474 505 533

Total Stores (EOP) 373 381 395 403 403 412 419 433 440 440 302 363 403 440 474 505 533Y/Y Change 57 45 41 40 40 39 38 38 37 37 48 61 40 37 34 31 28

CAD/USD Exchange Rate 0.754 0.754 0.754 0.754 0.754 0.754 0.754 0.754 0.754 0.754 0.900 0.773 0.754 0.754 0.754 0.754 0.754

Comparable-store sales Including DTC constant dollars 8.0% 6.9% 6.3% 6.2% 6.8% 6.1% 6.0% 6.1% 6.5% 6.2% 3.0% 9.1% 6.8% 6.2% 6.8% 7.0% 7.3%Increase (decrease) due to foreign exchange rates -2.0% -2.8% -0.4% 1.4% -0.7% 0.0% 0.0% 0.0% 0.0% 0.0% -2.0% -4.7% -0.7% 0.0% 0.0% 0.0% 0.0%Comps Including Direct-To-Consumer (GAAP) 6.0% 4.0% 5.9% 7.5% 6.0% 6.1% 6.0% 6.1% 6.5% 6.2% 1.0% 4.4% 6.0% 6.2% 6.8% 7.0% 7.3%

2 year trend 14.0% 17.9% 15.3% 17.2% 16% 14.1% 12.8% 12.4% 12.7% 13% 12% 12% 16% 13% 13% 14% 14%3 year trend 15.0% 17.9% 18.3% 25.2% 19% 20.1% 23.8% 21.4% 23.7% 22% 38% 21% 19% 22% 20% 20% 21%

Revenue from comp stores 323.5 340.4 360.0 526.3 1550.1 365.9 383.1 401.3 581.7 1732.0 1184.4 1341.3 1550.1 1732.0 1928.8 2126.3 2324.9

Comparable-store sales constant dollars 5.0% 3.0% 2.3% 2.0% 3.0% 2.0% 2.0% 2.0% 2.0% 3.0% -1.0% 4.2% 3.0% 3.0% 3.0% 3.0% 3.0%Increase (decrease) due to foreign exchange rates -2.0% -2.8% -0.4% 1.4% -0.7% 0.0% 0.0% 0.0% 0.0% 0.0% -2.0% -4.7% -0.7% 0.0% 0.0% 0.0% 0.0%Total comparable store sales growth (GAAP) 3.0% 0.2% 1.9% 3.4% 2.2% 2.0% 2.0% 2.0% 2.0% 2.0% -3.0% -0.5% 2.2% 2.0% 3.0% 3.0% 3.0%

2 year trend 4.0% 9.0% 8.3% 7.0% 7% 7.0% 5.0% 4.3% 4.0% 6% 3% 3% 7% 6% 6% 6% 6%3 year trend 0.0% 4.0% 5.3% 12.0% 6% 6.0% 11.0% 10.3% 9.0% 10% 21% 7% 6% 10% 9% 9% 9%

New Store Productivity 63.6% 70.0% 70.0% 70.0% 71.8% 70.0% 70.0% 70.0% 70.0% 72.8% 71.2% 63.6% 71.8% 72.8% 72.5% 72.2% 71.9%

Revenue from new stores 35.2 35.2 33.4 44.0 147.9 32.4 30.9 32.0 45.4 140.7 163.9 175.0 147.9 140.7 135.6 130.8 126.1

Total corporate store revenue 358.7 375.6 393.4 570.3 1698.0 398.3 414.0 433.2 627.2 1872.6 1348.2 1516.3 1698.0 1872.6 2064.4 2257.1 2450.9

Direct-To-Consumer Revenue 97.6 98.7 108.9 178.5 483.7 118.0 119.4 131.8 216.0 585.2 321.2 401.5 483.7 585.2 696.4 828.8 986.2 Y/Y Growth 16.6% 20.0% 22.0% 22.0% 20.5% 21.0% 21.0% 21.0% 21.0% 21.0% 22.1% 25.0% 20.5% 21.0% 19.0% 19.0% 19.0%Direct as a% of Total Sales 19.7% 19.1% 20.1% 22.7% 20.7% 21.5% 20.9% 21.8% 24.4% 22.4% 17.9% 19.5% 20.7% 22.4% 23.8% 25.5% 27.3%

Other 39.2 41.8 38.8 39.1 159.0 33.4 37.7 40.8 41.1 152.8 127.8 142.7 159.0 152.8 160.5 168.5 176.9Other Y/Y growth 52.0% 35.0% 5.0% -20.0% 11.5% -15.0% -10.0% 5.0% 5.0% -3.9% 29.0% 11.6% 11.5% -3.9% 5.0% 5.0% 5.0%Franchises 0.0 0.0 0.0 0.0 0.0 0.0 0.0Franchises Y/Y Growth 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Total Revenue 495.5 516.1 541.2 787.9 2340.7 549.7 571.0 605.8 884.2 2610.7 1797.2 2060.5 2340.7 2610.7 2921.3 3254.4 3614.1Total Y/Y Growth 17.0% 13.9% 12.8% 11.9% 13.6% 10.9% 10.6% 11.9% 12.2% 11.5% 12.9% 14.6% 13.6% 11.5% 11.9% 11.4% 11.1%

Sales per corporate store (EOP) 1.0 1.0 1.0 1.4 4.2 1.0 1.0 1.0 1.4 4.3 4.5 4.2 4.2 4.3 4.4 4.5 4.6Y/Y ∆ -3.2% -2.5% -0.2% 0.9% 0.9% 0.5% 0.2% 0.5% 0.7% 1.0% -7.7% -6.4% 0.9% 1.0% 2.3% 2.6% 2.9%

Sales per square foot (EOP) 327.6 332.1 334.5 473.9 1411.1 322.1 327.6 330.1 467.9 1397.2 1508.1 1415.8 1411.1 1397.2 1401.5 1409.9 1421.9Y/Y ∆ -2.9% -3.7% -1.9% -0.3% -0.3% -1.7% -1.4% -1.3% -1.3% -1.0% -9.2% -6.1% -0.3% -1.0% 0.3% 0.6% 0.8%

New Store Sales per square foot (EOP) 214.6 241.5 238.8 332.7 1015.9 229.3 232.5 234.2 331.8 1027.7 1183.2 958.9 1015.9 1027.7 1012.5 1011.4 1013.8Y/Y ∆ -11.3% 11.7% 3.5% 21.6% 5.9% 6.9% -3.7% -1.9% -0.3% 1.2% 24.8% -19.0% 5.9% 1.2% -1.5% -0.1% 0.2%

20172016


8 June 2016


Figure 7: Balance Sheetlululemon athletica inc.Balance Sheet($ in millions)


Assets

Current Assets:Cash and Cash Equivalents 550.0 504.6 348.5 462.7 462.7 481.7 430.2 274.1 414.1 414.1 664.5 501.5 462.7 414.1 394.0 399.1 437.5Receivables, Net 9.5 13.9 14.1 14.7 14.7 10.5 15.4 15.7 16.5 16.5 13.7 13.1 14.7 16.5 18.4 20.5 22.8Merchandise Inventories 286.2 317.4 396.2 311.3 311.3 308.1 348.3 436.0 343.2 343.2 208.1 284.0 311.3 343.2 376.2 411.1 441.5Prepaid Expenses and Other 125.4 88.4 162.6 124.4 124.4 131.7 92.8 170.7 130.6 130.6 64.7 118.4 124.4 130.6 137.1 144.0 151.2Deferred income taxes 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Total Current Assets 971.2 924.3 921.3 913.0 913.0 932.1 886.7 896.5 904.3 904.3 951.0 917.0 913.0 904.3 925.7 974.8 1,053.0

Property and equipment, Net 377.8 402.5 431.2 450.7 450.7 460.1 488.9 522.1 545.2 545.2 296.0 349.6 450.7 545.2 652.5 780.9 933.9Goodwill & Intangible Assets 25.3 25.3 25.3 25.3 25.3 25.3 25.3 25.3 25.3 25.3 26.2 24.8 25.3 25.3 25.3 25.3 25.3Deferred income taxes 13.0 22.3 15.2 16.5 16.5 18.1 30.9 21.2 23.2 23.2 16.0 11.8 16.5 23.2 32.4 45.1 62.7 Other 14.3 12.1 11.5 12.1 12.1 15.8 13.3 12.9 13.6 13.6 7.0 10.9 12.1 13.6 15.3 17.0 18.9Equity investment in affiliate 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Total Assets 1,401.7 1,386.5 1,404.6 1,417.7 1,417.7 1,451.4 1,445.1 1,478.1 1,511.6 1,511.6 1,296.2 1,314.1 1,417.7 1,511.6 1,651.2 1,843.1 2,093.8

Liabilities and Stockholders' Equity

Current Liabilities:Trade Accounts Payable 6.4 11.3 9.5 15.5 15.5 10.1 15.6 14.0 21.9 21.9 9.3 10.4 15.5 21.9 29.5 38.4 48.8Other Accrued Liabilities 21.9 40.5 45.4 28.5 28.5 24.3 44.8 50.8 32.0 32.0 22.3 25.5 28.5 32.0 35.8 39.9 44.3Accrued compensation and related expense 35.1 37.7 49.7 48.7 48.7 38.9 41.7 55.7 54.6 54.6 29.9 43.5 48.7 54.6 61.2 68.2 75.8Income taxes payable 36.9 1.4 52.8 42.2 42.2 40.9 1.6 59.1 47.4 47.4 20.1 37.7 42.2 47.4 53.0 59.1 65.7Unredeemed gift card liability 50.4 41.2 39.6 64.6 64.6 55.9 45.6 44.4 72.5 72.5 46.3 57.7 64.6 72.5 81.1 90.4 100.5Other current liabilities 51.7 53.9 56.5 82.2 82.2 57.4 59.6 63.2 92.3 92.3 32.0 50.7 82.2 92.3 103.3 115.1 128.0Short-term debt 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Total Current Liabilities 202.4 185.9 253.6 281.7 281.7 227.5 208.7 287.2 320.6 320.6 159.9 225.5 281.7 320.6 363.9 411.2 463.2

Long-term Liabilities:Long-term debt 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Capital Lease obligations 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Deferred income taxes 11.4 11.9 12.4 18.1 18.1 12.6 13.1 13.9 20.3 20.3 3.6 10.8 18.1 20.3 22.7 25.3 28.2Other 51.6 53.7 56.1 56.3 56.3 57.3 59.4 62.8 63.2 63.2 43.1 50.3 56.3 63.2 70.7 78.8 87.7Total Liabilities 265.4 251.4 322.1 356.1 356.1 297.4 281.2 364.0 404.1 404.1 206.6 286.6 356.1 404.1 457.3 515.3 579.0

Total Stockholders' Equity 1,136.2 1,135.0 1,082.4 1,061.6 1,061.6 1,154.0 1,163.9 1,114.1 1,107.4 1,107.4 1,089.6 1,027.5 1,061.6 1,107.4 1,193.9 1,327.7 1,514.8

Total Liabilities and Stockholders' Equity 1,401.7 1,386.5 1,404.6 1,417.7 1,417.7 1,451.4 1,445.1 1,478.1 1,511.6 1,511.6 1,296.2 1,314.1 1,417.7 1,511.6 1,651.2 1,843.1 2,093.8

Balance Check 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Operating RatiosReceivables turnover 208.6 148.4 154.0 214.9 159.6 208.6 148.4 154.0 214.9 158.6 130.7 157.2 159.6 158.6 158.6 158.5 158.3DSOs 1.7 2.4 2.3 1.7 2.3 1.7 2.4 2.3 1.7 2.3 2.8 2.3 2.3 2.3 2.3 2.3 2.3

Inventory 286.2 317.4 396.2 311.3 311.3 308.1 348.3 436.0 343.2 343.2 208.1 284.0 311.3 343.2 376.2 411.1 441.5 Inventory turnover 3.6 3.4 2.8 4.9 3.8 3.6 3.4 2.8 4.9 3.8 4.2 3.7 3.8 3.8 3.8 3.9 4.0Days forward Inventory 96.0 102.1 94.0 100.7 87.3 95.0 101.1 93.0 99.7 86.6 71.4 87.6 87.3 86.6 85.8 85.0 79.4

Payables turnover 159.2 94.8 117.5 98.1 76.5 110.4 75.1 88.6 77.1 59.5 94.6 102.4 76.5 59.5 49.0 41.6 36.2 Days payable outstanding 2.3 3.8 3.1 3.7 4.8 3.3 4.8 4.1 4.7 6.1 3.9 3.6 4.8 6.1 7.4 8.8 10.1

Cash Cycle (in Days) 93.8 98.3 91.0 97.0 82.5 91.8 96.3 89.0 95.0 80.4 67.6 84.0 82.5 80.4 78.4 76.3 69.3

20172016


8 June 2016


Figure 8: Statement Of Cash Flowslululemon athletica inc.Cash Flow Statement($ in millions)


Cash Flows From Operating Activities:Net Income 45.3 50.0 57.8 138.4 291.5 49.2 59.2 69.7 162.8 340.9 239.0 266.0 291.5 340.9 391.1 447.3 508.7Depreciation 19.2 19.0 21.7 22.2 82.1 20.6 20.3 23.5 23.8 88.2 58.4 73.4 82.1 88.2 98.2 102.9 107.2Stock Compensation Expense 3.2 3.2 3.2 3.2 12.7 3.2 3.2 3.2 3.2 12.7 8.3 10.4 12.7 12.7 12.7 12.7 12.7Deferred Tax Expense 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2.1 11.1 0.0 0.0 0.0 0.0 0.0Excess tax benefit from stock options (0.3) (0.3) (0.3) (0.3) (1.2) (0.3) (0.3) (0.3) (0.3) (1.2) (0.4) 1.2 (1.2) (1.2) (1.2) (1.2) (1.2)Non-cash interest expense, Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (16.7) (55.8) 0.0 0.0 0.0 0.0 0.0Equity in income from investee 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Loss (gain) on Disposal of Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Changes in Current Assets and Liabilities:(Increase) Decrease in Prepaid Expenses (0.3) 37.0 (74.2) 38.2 0.7 (7.3) 38.9 (77.9) 40.1 (6.2) (8.8) (3.8) 0.7 (6.2) (6.5) (6.9) (7.2)(Increase) Decrease in Inventory 12.9 (31.2) (78.8) 84.9 (12.2) 3.2 (40.2) (87.7) 92.8 (31.9) (26.8) (83.3) (12.2) (31.9) (33.0) (34.9) (30.4)Increase (Decrease) in Trade Accounts Payable (4.5) 4.9 (1.8) 5.9 4.5 (5.4) 5.5 (1.5) 7.9 6.4 (2.2) 1.2 4.5 6.4 7.6 8.9 10.4Increase (Decrease) in Other Accrued Liabilities (16.6) 18.6 4.9 (16.9) (10.0) (4.2) 20.5 6.0 (18.9) 3.5 11.5 27.2 (10.0) 3.5 3.8 4.1 4.5Increase (Decrease) in Income Taxes payable (5.2) (35.5) 51.4 (10.6) 0.1 (1.3) (39.4) 57.6 (11.8) 5.2 19.8 19.5 0.1 5.2 5.6 6.1 6.6Increase (Decrease) in Other non-cash balances (13.7) 2.0 2.5 0.2 (9.0) 1.0 2.1 3.5 0.4 6.9 30.3 31.5 (9.0) 6.9 7.5 8.1 8.8(Increase) Decrease in Receivables (0.2) (4.4) (0.2) (0.6) (5.4) 4.1 (4.8) (0.3) (0.7) (1.8) 0.0 0.0 (5.4) (1.8) (2.0) (2.1) (2.3)Increase (Decrease) in Accrued occupancy and current deferred rentsIncrease (Decrease) in Deferred Rent

Cash Provided By Operating Activities 39.7 63.4 (13.7) 264.5 353.9 62.8 65.0 (4.4) 299.3 422.7 314.4 298.7 353.9 422.7 484.0 545.0 617.8Cumulative 103.1 89.4 353.9 127.8 123.4 422.7

Cash Flows From Investing Activities:Cash paid for property and equipment (26.6) (43.7) (50.5) (41.6) (162.4) (30.0) (49.1) (56.8) (46.8) (182.7) (119.7) (143.5) (162.4) (182.7) (205.6) (231.3) (260.2)Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Purchase of Marketable Securities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Sales and Maturities of Marketable Securities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Cash (Used In) Provided by Investing Activities (26.6) (43.7) (50.5) (41.6) (162.4) (30.0) (49.1) (56.8) (46.8) (182.7) (119.7) (143.5) (162.4) (182.7) (205.6) (231.3) (260.2)Cumulative (70.3) (120.8) (162.4) (79.1) (135.9) (182.7)

Cash Flows From Financing Activities:Proceeds from issuance of common stock 3.6 1.4 0.3 0.3 5.6 3.8 1.5 0.4 0.3 5.9 2.9 4.7 5.6 5.9 6.1 6.5 6.8Tax benefits related to compensation (1.1) (1.1) (1.1) (1.1) (4.6) (1.1) (1.1) (1.1) (1.1) (4.6) (4.6) (4.1) (4.6) (4.6) (4.6) (4.6) (4.6)Proceeds from short-term debt 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Payments on short-term debt 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Payments of capital lease obligations, purchase of non-controlling interest, other0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Net payments for common stock (15.8) (65.4) (91.1) (107.9) (280.1) (16.3) (67.7) (94.2) (111.6) (289.9) (147.4) (274.2) (280.1) (289.9) (300.0) (310.5) (321.4)Cash paid for treasury stock 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Cash (Used In) Provided by Financing Activities (13.3) (65.2) (91.9) (108.7) (279.1) (13.7) (67.4) (95.0) (112.5) (288.6) (149.1) (273.7) (279.1) (288.6) (298.5) (308.6) (319.2)Cumulative (78.5) (170.3) (279.1) (81.1) (176.1) (288.6)

Effect of exchange rates on Cash and Cash Equivalents 48.8 48.8 0.0 (79.8) (44.6) 48.8 0.0 0.0 0.0 0.0Impact of discountinued operations 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Change in Cash and Cash Equivalents 48.6 (45.5) (156.1) 114.2 (38.8) 19.1 (51.5) (156.2) 140.0 (48.6) (34.2) (163.0) (38.8) (48.6) (20.0) 5.1 38.4Cumulative 3.1 (153.0) (38.8) (32.4) (188.6) (48.6)

Cash at End of Period 550.0 504.6 348.5 462.7 462.7 481.7 430.2 274.1 414.1 414.1 664.5 501.5 462.7 414.1 394.0 399.1 437.5

2016 2017


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Companies Mentioned (Price as of 07-Jun-2016)lululemon athletica Inc. (LULU.OQ, $68.14, OUTPERFORM, TP $76.0)

Disclosure AppendixImportant Global Disclosures I, Christian Buss, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

3-Year Price and Rating History for lululemon athletica Inc. (LULU.OQ)

LULU.OQ Closing Price Target Price Date (US$) (US$) Rating 11-Jun-13 67.85 73.00 N 04-Sep-13 70.10 78.00 13-Sep-13 68.37 78.00 O 13-Dec-13 59.20 59.00 N 16-Jan-14 48.79 53.00 28-Feb-14 50.31 46.00 27-Mar-14 51.20 47.00 12-Jun-14 37.25 38.00 11-Sep-14 43.73 42.00 11-Dec-14 50.96 47.00 12-Jan-15 62.59 61.00 26-Mar-15 63.96 58.00 10-Sep-15 53.54 57.00 16-Oct-15 53.81 64.00 O 09-Dec-15 45.32 59.00 12-Jan-16 56.82 60.00 29-Jan-16 62.07 66.00 30-Mar-16 67.80 76.00 * Asterisk signifies initiation or assumption of coverage.

Target Price Closing Price LULU.OQ

1- Jan- 14 1- Jan- 15 1- Jan- 1630

40

50

60

70

80

N EU T RA LO U T PERFO RM

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activitiesAs of December 10, 2012 Analysts’ stock rating are defined as follows:Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months.Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011.Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

8 June 2016


Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings DistributionRating Versus universe (%) Of which banking clients (%)Outperform/Buy* 56% (39% banking clients)Neutral/Hold* 35% (20% banking clients)Underperform/Sell* 9% (44% banking clients)Restricted 0%*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

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Target Price and RatingValuation Methodology and Risks: (12 months) for lululemon athletica Inc. (LULU.OQ)

Method: Our $76 target price is based on the average of (1) comparable multiples ($78); (2) a DCF, or discounted cash flow analysis ($74); and (3) a long-term growth scenario ($75). We believe the stock will continue to trade above peers, and accordingly, we have an Outperform rating.

Risk: Risks to our $76 price target and rating for LULU include uncertainty associated with store productivity improvements, consumers' disposable income, foreign currency fluctuations, and accounting risk related to capitalization of retail leases.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections. See the Companies Mentioned section for full company names Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (LULU.OQ) within the next 3 months.As of the date of this report, Credit Suisse makes a market in the following subject companies (LULU.OQ).Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events.Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit-suisse.com/sites/disclaimers-ib/en/canada-research-policy.html.As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.Principal is not guaranteed in the case of equities because equity prices are variable.Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.

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