Lululemon 2013 Annual Report Download - page 25

Table of Contents
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion summarizes our consolidated operating results, financial condition and liquidity during the three-year period ending
February 2, 2014 . Our fiscal year ends on the Sunday closest to January 31 of the following year, typically resulting in a 52 week year, but
occasionally giving rise to an additional week, resulting in a 53 week year. Fiscal 2013 is a 52 week year whereas fiscal 2012 was a 53 week
year. Net sales numbers for fiscal 2012 include results from the 53rd week; however, comparable stores sales calculations exclude the 53rd
week. Fiscal 2013 , 2012 and 2011 ended on February 2, 2014 , February 3, 2013 and January 29, 2012 , respectively. The following discussion
and analysis should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this Annual
Report on Form 10-K.
This discussion and analysis contains forward-looking statements based on current expectations that involve risks, uncertainties and
assumptions, such as our plans, objectives, expectations and intentions set forth in the "Special Note Regarding Forward-Looking Statements."
Our actual results and the timing of events may differ materially from those anticipated in these forward looking statements as a result of various
factors, including those set forth in the "Item 1A—Risk Factors" section and elsewhere in this Annual Report on Form 10-K.
Overview
Fiscal 2013 was a year of challenges for lululemon. While we were able to grow year over year revenue across all of our selling channels,
we also faced challenges with product quality and brand perception. We remain committed to our brand and core values, and have continued to
invest in our product engine and supply chain throughout fiscal 2013. In addition, we recently hired a new Chief Executive Officer and a new
Chief Product Officer, who we believe will lead our continued profitable growth.
In mid-
March 2013, we determined that certain shipments of women's black Luon bottoms received from our factories and available in our
stores from March 1, 2013, did not meet our specifications. As we became aware of this issue, we pulled what we believe to be all of the affected
items from our stores, showrooms and e-commerce sites and began working with our supplier to replace the fabric and with our other
manufacturers to replace these items as quickly as possible. As we previously disclosed, the lost revenue, as well as additional costs incurred and
the write down of affected product on hand from this issue, negatively impacted our results from operations in fiscal 2013. However, we are
proud of our organization’s ability to get Luon delivered back into our stores within 90 days of having pulled it from our line.
We believe our brand is recognized as premium in our offerings of women and men's run and yoga assortment, as well as a leader in
technical fabrics and functionality. Delivering quality to our customers is a critical factor in our market place differentiation. We believe
removing items that do not meet our standards is key to maintaining our brand reputation and that the pull-back of black Luon pants reiterates
our commitment to quality. We have continued to invest in new and legacy information technology systems to develop new capabilities to
support our vertical retail strategy. In addition, we have continued to strengthen our senior management team in the areas of sourcing, quality
and commercialization with key hires during the year.
Throughout fiscal 2013 , we were able to grow our e-commerce business which we believe has further increased our brand awareness and
has made our product available in new markets, including those outside of North America. While the pull-back of black Luon pants from our e-
commerce sites negatively affected sales, net revenue from our direct to consumer channel increased 33% and represented 16.5% of total
revenue in fiscal 2013 compared to 14.4% of total revenue in fiscal 2012 and 10.6% of total revenue in fiscal 2011 . Continuing increases in
traffic 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 a significant portion of our resources to further developing this channel.
We increased our store base through execution of our real estate strategy, when and where we saw opportunities for success. For example,
we opened 43 net new corporate-owned stores in North America and Australia during fiscal 2013 . Where we find opportunities for growth
through opening showrooms, or other community presence efforts, we expect to expand our store base and therefore our business. Our growth
strategy relies on expansion in North America, particularly in the United States. We also believe that international growth is an opportunity and
are expanding our foothold in markets by establishing local community connections, distributing to strategic sales partners and opening
showrooms where we believe our guests are shopping.
Fiscal 2014 will be an investment year, as we refocus on building a solid foundation to drive growth and expand our business. In addition
to our plans for domestic and international expansion, we are also focused on initiatives related to rebuilding our brand experience, connecting
with our guests and communities, and creating innovative, technical and beautiful product. We continue to invest in our product quality and
supply chain, as we believe this is the foundation of our guest loyalty.
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