Lululemon 2013 Annual Report Download - page 18

Table of Contents
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. In the last
several years, several members of our senior management team have left us and we have focused time and resources on recruiting the new
members of our current management team, including our new Chief Executive Officer. The continued turnover of senior management and the
loss of key members of our executive team could have a negative impact on our ability to manage and grow our business effectively.
We do not maintain a key person life insurance policy on 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 33% , 36% and 37% of our full year gross profit during the fourth quarters of fiscal 2013 ,
fiscal 2012 and fiscal 2011 , 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 fiscal 2013 , 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 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 $0.8 million in fiscal 2013 and approximately $5.5 million in fiscal 2012 . 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 $0.3 million in fiscal 2013
and approximately $0.9 million in fiscal 2012
. We have not historically engaged in hedging transactions but in the future may at times enter into
derivative financial instruments 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 of North America. During fiscal 2013 , approximately 67% of our products were produced
in South and South East Asia, approximately 23% in China, approximately 3% in North America and the remainder in other countries. As a
result of our international suppliers, we are subject to risks associated with doing business abroad, including:
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• 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.