lululemon athletica inc.LULU

lululemon athletica inc. Income Taxes Disclosure

10-KFiled Mar 17, 20265 min read
Income Taxes
The Company's domestic and foreign income before income tax expense and current and deferred income taxes from federal, state, and foreign sources were as follows: 
202520242023
(In thousands)
Income before income tax expense
Domestic$598,174 $479,956 $458,041 
Foreign1,640,793 2,096,121 1,717,694 
$2,238,967 $2,576,077 $2,175,735 
Current income tax expense
Federal$177,390 $86,851 $140,726 
State36,771 31,983 42,476 
Foreign494,677 584,248 469,090 
$708,838 $703,082 $652,292 
Deferred income tax expense (recovery)
Federal$(41,413)$61,386 $(14,741)
State(9,733)14,047 (3,097)
Foreign2,092 (17,054)(8,909)
$(49,054)$58,379 $(26,747)
Income tax expense$659,784 $761,461 $625,545 
The Company's income tax expense for 2023 included a discrete income tax recovery of $26.1 million related to the impairment of assets and restructuring costs. Please refer to Note 10. Impairment of Assets and Restructuring Costs for further information.
As of February 1, 2026, the Company's net investment in its Canadian subsidiaries was $3.3 billion, of which $1.6 billion was determined to be indefinitely reinvested. A deferred income tax liability of $80.7 million has been recognized in relation to the portion of the Company's net investment in its Canadian and Hong Kong SAR subsidiaries that is not indefinitely reinvested, representing the Canadian withholding taxes and U.S. state income taxes which would be due upon repatriation. This deferred tax liability has been recorded on the basis that the Company would choose to make the repatriation transactions in the most tax-efficient manner. Specifically, to the extent that the Canadian subsidiaries have paid-up capital, any such distributions would be structured as a return of capital, and therefore not subject to Canadian withholding tax. The unrecognized deferred income tax liability on the indefinitely reinvested amount is approximately $89.1 million.
As of February 1, 2026, the Company had cash and cash equivalents of $935.1 million outside of the United States.
The reconciliation of the federal statutory income tax rate to the Company's effective tax rate was as follows:
202520242023
AmountPercentAmountPercentAmountPercent
(In thousands, except percentages)
Federal income tax at statutory rate$470,183 21.0 %$540,976 21.0 %$456,904 21.0 %
Domestic
Domestic federal reconciling items:
Tax credits(4,746)(0.2)(5,923)(0.2)(5,289)(0.2)
Nontaxable or nondeductible items2,309 0.1 3,891 0.2 4,207 0.2 
Effect of cross-border tax laws(9,251)(0.4)2,004 0.1 1,970 0.1 
Changes in valuation allowances9,513 0.4 5,769 0.2 — — 
Other(1)
(28,629)(1.3)(6,155)(0.2)(8,913)(0.4)
State and local income tax, net of federal income tax effect
State income taxes(2)
31,269 1.4 27,802 1.1 20,280 0.9 
Other7,420 0.3 8,098 0.3 4,793 0.2 
Foreign tax effects
Canada
Foreign tax rate differential(74,710)(3.3)(117,327)(4.6)(82,994)(3.8)
Provincial local taxes(3)
152,044 6.8 235,159 9.1 167,333 7.7 
Tax on unremitted earnings, net50,881 2.3 58,835 2.3 52,498 2.4 
Other10,987 0.5 5,284 0.2 4,877 0.2 
China Mainland
Nontaxable or nondeductible items25,987 1.2 8,776 0.3 (733)— 
Other10,996 0.5 4,588 0.2 4,332 0.2 
Other foreign jurisdictions5,531 0.2 (10,316)(0.4)6,280 0.3 
Effective tax rate$659,784 29.5 %$761,461 29.6 %$625,545 28.8 %
__________
(1)The other category within domestic federal reconciling items is comprised of individually insignificant items. For 2025, it primarily relates to tax benefits related to foreign exchange losses.
(2)California, New York, Florida, Illinois, New Jersey, Pennsylvania, Massachusetts, and Minnesota made up the majority (greater than 50%) of this category for each of 2025, 2024, and 2023.
(3)British Columbia makes up the majority (greater than 50%) of this category for each of 2025, 2024, and 2023.

Cash paid for income taxes, net of refunds, was as follows:
202520242023
(In thousands)
Domestic
Federal
$183,977 $133,064 $126,980 
State
44,106 46,438 57,073 
228,083 179,502 184,053 
Foreign
Canada
682,486 339,446 578,385 
China Mainland
64,034 34,966 23,092 
Other
40,841 25,264 38,683 
787,361 399,676 640,160 
Cash paid for income taxes, net of refunds
$1,015,444 $579,178 $824,213 
The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and deferred income tax liabilities are presented below: 
February 1, 2026February 2, 2025
(In thousands)
Deferred income tax assets:
Inventories$32,630 $33,801 
Unredeemed gift card liability21,163 18,956 
Non-current lease liabilities356,197 308,796 
Research and experimental expenditures77,869 71,579 
Foreign-derived intangible income ("FDII")43,369 — 
Foreign tax credits15,282 5,769 
Stock-based compensation14,738 20,883 
Net operating loss carryforwards
2,267 2,174 
Other30,684 26,022 
Deferred income tax assets594,199 487,980 
Valuation allowance(17,517)(7,902)
Deferred income tax assets, net of valuation allowance$576,682 $480,078 
Deferred income tax liabilities:
Property and equipment, net$(205,131)$(180,664)
Right-of-use lease assets(314,982)(269,089)
Unremitted foreign earnings(80,651)(106,986)
Other(4,159)(4,442)
Deferred income tax liabilities(604,923)(561,181)
Net deferred income tax liabilities$(28,241)$(81,103)
Balance sheet classification:
Deferred income tax assets$24,037 $17,085 
Deferred income tax liabilities(52,278)(98,188)
Net deferred income tax liabilities$(28,241)$(81,103)
As of February 1, 2026, the Company had net operating loss carryforwards of $35.0 million. The majority of the net operating loss carryforwards expire, if unused, between fiscal 2030 and fiscal 2045.
There was a $9.6 million net increase in the valuation allowance in 2025, compared to a $5.6 million net increase in 2024, and a $1.6 million net increase in 2023.
The Company files income tax returns in the U.S., Canada, China Mainland, and various foreign and state jurisdictions. The 2022 to 2024 tax years remain subject to examination by the U.S. federal and state tax authorities. The 2018 to 2024 tax years remain subject to examination by Canadian tax authorities. The 2016 to 2024 tax years remain subject to examination by the China Mainland tax authorities. The 2018 to 2024 tax years remain subject to examination by tax authorities in certain other foreign jurisdictions. The Company does not have any significant unrecognized tax benefits arising from uncertain tax positions taken, or expected to be taken, in the Company's tax returns.

Historical Timeline

Fiscal YearFiled
2026Mar 17, 2026Showing above
2025Mar 27, 2025
2024Mar 21, 2024
2023Mar 28, 2023
2022Mar 29, 2022
2021Mar 30, 2021
2020Mar 26, 2020
2019Mar 27, 2019
2018Mar 27, 2018
2017Mar 29, 2017
2016Mar 30, 2016

About Income Taxes Disclosures

The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.

Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.

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