Lululemon 2013 Annual Report Download - page 14

Table of Contents
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 effect 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. 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. 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 customers.
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.
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 websites, 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 products to our stores and
customers or lost sales, which could reduce demand for our products 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 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 $1.6 billion in fiscal 2013 . 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.
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