lulu final final-1
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Company ValuationAndrew Slade, Kate Baxter, Rachel Snyder, Tucker Byrne, Max Beatty, Tianyu Yang
2
Lululemon is a designer and retailer of technical athletic apparelMission statement: “Creating components for people to live longer, healthier, fun lives”
Net revenue F2014
Q1 2014 Q1 2015 Stores worldwide
$1,797 (million)
$385 (million) $423 (million) 302
3
Entered Hong Kong
Lululemon’s historical milestones highlight sustained success
2007 2008 2009 2010 2011 2012 2013 20140
200400600800
100012001400160018002000
Net Revenue
Reve
nue
(milli
ons)
Lululemon IPO
Launched Ivivva brand
Yoga Pant Recall
Laurent Potdevin named CEO
Deal made to enter Middle
East
4
Lululemon Athletica is currently valued at $64.50 by the market, we value it at $68.80 per share
• Brand recognized for high quality products and unique customer experiences
Leader in Premium Athleisure Clothing
• Online retail sales will contribute to revenue growth
• Continued growth potential in new store locations
• Successful entry into international markets
Development of Distribution Channels
• Promising future in men’s apparel • Teen brand ‘Ivivva’ promotes long-term growth
Expansion into New Markets
• Lululemon is undervalued• Growth opportunities crucial to long term
successValuation
Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation
5
Lululemon Athletica is currently valued at $64.50 by the market, we value it at $68.80 per share
• Brand recognized for high quality products and unique customer experiences
Leader in Premium Athleisure Clothing
• Online retail sales will contribute to revenue growth
• Continued growth potential in new store locations
• Successful entry into international markets
Development of Distribution Channels
• Promising future in men’s apparel • Teen brand ‘Ivivva’ promotes long-term growth
Expansion into New Markets
• Lululemon is undervalued• Growth opportunities crucial to long term
successValuation
Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation
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Healthy Lifestyle
FashionPerformance
Lululemon is positioned to benefit from a multitude of consumer preferences
Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation
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High Price
Low Price
High QualityLow Quality
Lululemon’s high quality and innovative products allow them to command a premium price
Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation
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Unique brand culture complements high quality products to cultivate loyal customer base
Lifestyle & Community
Store Experience
Ambassadors
Exclusive Products
Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation
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Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation
Minimal discounts and premium prices create a high profit margin while out-pacing competitors
Ratios Lululemon Nike
Industry
Average
Net Profit Margin(5 yr Average)
16.95% 10.10% 8.30%
Inventory Turnover 4.41 3.99 3.30
Revenue 5 Yr Growth 31.74% 9.98% 10.05%
Lululemon ‘Wunder Under’
$92
Nike‘Dri-FIT
Legging’$36
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Lululemon Athletica is currently valued at $64.50 by the market, we value it at $68.80 per share
• Brand recognized for high quality products and unique customer experiences
Leader in Premium Athleisure Clothing
• Online retail sales will contribute to revenue growth
• Continued growth potential in new store locations
• Successful entry into international markets
Development of Distribution Channels
• Promising future in men’s apparel • Teen brand ‘Ivivva’ promotes long-term growth
Expansion into New Markets
• Lululemon is undervalued• Growth opportunities crucial to long term
successValuation
Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation
11
Global increase in e-commerce shopping presents opportunity for sales growth
2014 2015 2016 2017 2018 2019$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
$4.0
0%10%20%30%40%50%60%70%80%90%100%
$1.3$1.7
$2.1$2.5
$3.0
$3.6
26.30% 24.50% 22.30% 21.50% 20.50% 18.60%
Retail E-Commerce Sales Worldwide
In tr
illio
n ($
)
Grow
th R
ate
(%)
Source: eMarketer, July 2015: Retail Ecommerce Sales Worldwide, 2014-2019
Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation
EEEEE
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Expansion of Lulu’s website will create increased sales-revenue in the short-term
Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation
2010 2011 2012 2013 2014 2015 2016 2017 2018 20190.0
500.0
1000.0
1500.0
2000.0
2500.0
3000.0
3500.0
Lululemon Revenue Projection
OtherE-commerceCorporate-Owned Stores
Year
In m
illio
n $
18.8% e-commerce CAGR
EE EEE
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E-Commerce sales growth leads all segments with 42% profit margin
2010 2011 2012 2013 2014 2015 2016 2017 2018 20190
100
200
300
400
500
600
700
800
0%5%10%15%20%25%30%35%40%45%50%
Revenue and Profit Margin From E-Commerce Sale
Revenue From E-Commerce
Year
Rev
enue
(m
illio
ns)
Profi
t M
argi
n (%
)
EEEEE
Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation
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Increasing number of new stores will drive revenue growth worldwide
2010 2011 2012 2013 2014 2015 2016 2017 2018 20190
100
200
300
400
500
600
700
-5%
0%
5%
10%
15%
20%
25%
Projection of Retail Stores and Same Store Sale Growth Rate
Total StoresSame Store Sale Growth Rate
# o
f St
ores
Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation
EEEEE
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Global sports apparel industry set to grow at 4.3%, allowing Lulu to grow sales overseas
2012 2013 2014 2015 2016 2017 2018 2019$130
$140
$150
$160
$170
$180
$190Global Sports Apparel Market
Billi
ons
($)
4.3% CAGR
Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation
Euromonitor International, May 2015: Apparel and Footwear in 2015-Trends, Developments, and Prospects
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Short-term capital expenditures abroad will yield long-term growth
Major cities in China, Australia, New Zealand & Europe Capital expenditures grew 51% over past 5 years Introduces stores to first-time customers and improves brand awareness
Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation
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Lululemon Athletica is currently valued at $64.50 by the market, we value it at $68.80 per share
• Brand recognized for high quality products and unique customer experiences
Leader in Premium Athleisure Clothing
• Online retail sales will contribute to revenue growth
• Continued growth potential in new store locations
• Successful entry into international markets
Development of Distribution Channels
• Promising future in men’s apparel • Teen brand ‘Ivivva’ promotes long-term growth
Expansion into New Markets
• Lululemon is undervalued• Growth opportunities crucial to long term
successValuation
Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation
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Lululemon men’s line offers stylish, performance clothing to keep up with global cultural trends
Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation
Metal Vent Tech Henley ABC PantBonded Voyage Button
Down
Sundown Hoodie Pace Breaker Short Sundown Tank
$88.00
$58.00
$118.00
$98.00 $48.00
$128.00
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Industry growth in revenues from men’s apparel gives Lululemon an incentive to capture the male market
2014 Men’s Apparel 2014 Women’s Apparel
Market Size: $662.1 Billion Market Size: $439.9 BillionEuromonitor International, May, 2015: Apparel and Footwear in 2015 -Trends, Developments, & Prospects
Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation
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Industry growth in revenues from men’s apparel gives Lululemon an incentive to capture the male market
2014 Men’s Apparel 2014 Women’s Apparel
Market Size: $662.1 Billion Market Size: $439.9 Billion
3.7%industry growth
Euromonitor International, May, 2015: Apparel and Footwear in 2015 -Trends, Developments, & Prospects
4.5%industry growth
Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation
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Lululemon’s ‘ABC’ pants serve as a staple garment in the men’s line of clothing Go-to product for men Women can solve an unpleasant problem Revenue up 19% in first quarter
Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation
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Promising venture into female teen market will bring brand loyalty and long-term profit
29 Ivviva Athletica stores (9.2% of total locations)
Children’s wear market valued at $160 billion
Brand exposure at young age creates long term relationships
Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation
Euromonitor International, July, 2015: Apparel and Footwear – Microfashion – Trends in Children’s wear
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Lululemon Athletica is currently valued at $64.50 by the market, we value it at $68.80 per share
• Brand recognized for high quality products and unique customer experiences
Leader in Premium Athleisure Clothing
• Online retail sales will contribute to revenue growth
• Continued growth potential in new store locations
• Successful entry into international markets
Development of Distribution Channels
• Promising future in men’s apparel • Teen brand ‘Ivivva’ promotes long-term growth
Expansion into New Markets
• Lululemon is undervalued• Growth opportunities crucial to long term
successValuation
Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation
24
Lululemon looks to maintain 11.4% CAGR of revenue through 2019
2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E0
500
1000
1500
2000
2500
3000
Lululemon Athletica Fiscal Year Revenues
Fisca
l Rev
enue
s (m
illion
s $)
Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation
Projected Revenue CAGR of 11.4%
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We believe that Lululemon is currently undervalued by the marketYear 201
2201
3201
42015
E2016
E2017E 2018E 2019E
Total Revenues 1370 1591 1797 2030 2274 2525 2803 3083Operating Costs ($) 994 1200 1421 1527 1649 1775 1909 2045
Operating Costs(%) 72.5% 75.4% 79.1% 75.2% 72.5% 70.3% 68.1% 66.3%
EBIT ($) 376 391 376 503 625 749 893 1037EBIT Margin (%) 27.5% 24.6% 20.9% 24.8% 27.5% 29.7% 31.9% 33.7%
(+) Dep.& Amort. 3.1% 3.1% 3.2% 3.2% 3.2% 3.2% 3.2% 3.2%
CAPX 6.8% 6.7% 6.7% 6.5% 6.5% 6.5% 6.5% 6.5%(-) Change in NWC 2.4% 3.1% -0.5% 1.2% 1.2% 1.2% 1.2% 1.2%
Free Cash Flow ($) 162 147 191 235 306 375 457 535
Enterprise Value: 8389Cash and Cash Equivalent: 664.5Equity Value: 9053Number of Shares: 131.6 millionCost of Equity: 8%WACC: 7.95%
Current Share Price: 64.50Estimated Share Value: 68.80
Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation
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Stock Price Range
Pessimistic Base Case Optimistic
Same Store Sale Growth Rate (2015-2019)
3.3% 3.5% 3.7%
Number of Stores Growth (2015-2019)
12% 13.97% 15%
Online Commerce Growth Rate(2015-2019)
17.2% 18.8% 20%
Stock Price $60.10 $68.80 $75.50Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation
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Lululemon Athletica is currently valued at $64.50 by the market, we value it at $68.80 per share
• Brand recognized for high quality products and unique customer experiences
Leader in Premium Athleisure Clothing
• Online retail sales will contribute to revenue growth
• Continued growth potential in new store locations
• Successful entry into international markets
Development of Distribution Channels
• Promising future in men’s apparel • Teen brand ‘Ivivva’ promotes long-term growth
Expansion into New Markets
• Lululemon is undervalued• Growth opportunities crucial to long term
successValuation
Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation
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Appendix
Lululemon parameters that significantly affect the valuation and financial model
Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation
Topline Revenue 2014WACC
Cost of Goods Sold 2014Number of Shares
Total SG&A in 2019
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Lululemon’s key ratios underscore efficiency compared to industry competitors
Ratios Lululemon Nike Under Armour
Industry Average
Net Profit Margin (5 Yr average)
16.95% 10.10% 6.79% 8.30%
Return on Investment (5 Yr average)
29.0% 20.41% 15.22% 7.78%
Return on Assets (5 Yr average)
25.29% 15.18% 11.76% 8.46%
Inventory Turnover
4.41 3.99 2.34 3.30
Current Ratio 6.78 2.52 2.63 2.75Revenue 5 Yr Growth
31.74% 9.98% 29.21% 10.05%
Capital Spending 5 Yr Growth
50.52% 23.51% 47.92% 2.46%
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Price comparisons of basic clothing items across Lululemon competitors
Sports Bra
Basic Black Legging
Men’s (Running)
ShortsLululemon $58 $92 $64
Nike $26 $36 $38
Athleta $49 $79 -
Under Armour $25 $35 $45
Lucy $49 $89 -
Old Navy $12 $25 $26
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Recalls decreased revenue by $43.8 million, affecting short-term stock value & discrediting brand
17% of Lulu’s yoga pants recalled due to sheerness
Stock Impact Fell 6% on March 18th, 2013 (day of recall) Rebounded 24% by March 19th
Revenue (billions)1.561.571.581.591.6
1.611.621.631.64
Expected 2013Actual 2013
33
Sales per sq. ft. illustrate strong sales efficiency & growth even with the movement towards online retail
2009 2010 2011 2012 2013 2014$0
$500
$1,000
$1,500
$2,000
$2,500
Lululemon Sales per Square Foot
34
Overall growth in athletic apparel sales
Leader in Premium Athletic Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation
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Lululemon faces few serious threats and weaknesses moving forward
Strengths: • Strong store• Unique brand and loyal
customers• Increasing revenues• High profit margin
Weaknesses:• Legal Issues• Product issues/recalls• High turnover rate of
management
Opportunities:• Increased distribution Network• Male market expansion• Growth in Online Business• Use healthy living trends to
advantage
Threats:• Increasing competition • Decreased consumer spending
Leader in Premium Athletic Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation
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Examples of Lululemon ProductsPack-It Vest $108
City Summer Dress $118
Swiftly Tech ½ Zip $88 Hold Your Om II $52
Scuba Hoodie II $108
Sweaty or Not Bra $58
WunderUnder Luxtreme $102 Split Second Short
$54
37
Mobile applications strong contributor to direct-to-customer segment, increases brand exposure
Mobile Sales App
SeaWheeze ½ Marathon Training App
Leader in Premium Athletic Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation
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Social media highlights influencers to increase loyalty through continued contact with brand culture
“I’ll surf until my body says I can’t. It’s the best lifestyle I know.” – Jamie Sterling, local surf school owner in Hawaii
“Everyone liked “Jules Fuel” at the farmer’s market so I decided to just run with it.” - Julia Murray, Olympic skier & entrepreneurLeader in Premium Athletic Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation
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Lululemon’s aspirational lifestyle brand appeals to the broad interests of its customer base
Men’s MarketWomen’s Market
Leader in Premium Athletic Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation
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Lululemon is… Product: high quality, offers
performance and comfort
Price: premium, limited supply batches,
few items go on sale
Place: majority of sales in stores, online presence and
international market growing
Promotion: brand ambassadors, blogs, word of mouth, community focused,
weekly email lists
Target Market
Leader in Premium Athletic Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation
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Successful e-commerce initiative brings in $321.2m across 83 countries Free shipping and returns Mobile App: 6 Continents, 83 Countries,
$321.2million, 17.9% of total revenue Increase in brand popularity will drive in
store traffic What makes e-commerce so successful
& how does it compare to in store experience
Leader in Premium Athletic Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation