Lululemon Athletica Inc. (LULU) | Investment Case

1. Company Snapshot

1.a. Company Description

lululemon athletica inc., together with its subsidiaries, designs, distributes, and retails athletic apparel and accessories for women and men.It operates in two segments, Company-Operated Stores and Direct to Consumer.The company offers pants, shorts, tops, and jackets for healthy lifestyle and athletic activities, such as yoga, running, and training, as well as other sweaty pursuits.

It also provides fitness-related accessories and footwear.The company sells its products through a chain of company-operated stores; outlets and warehouse sales; interactive workout platform; a network of wholesale accounts, such as yoga studios, health clubs, and fitness centers; temporary locations; and license and supply arrangements, as well as directly to consumer through mobile apps and lululemon.com e-commerce website.As of January 30, 2022, it operated 574 company-operated stores under the lululemon brand in the United States, Canada, the People's Republic of China, Australia, the United Kingdom, Japan, New Zealand, Germany, South Korea, Singapore, France, Malaysia, Sweden, Ireland, the Netherlands, Norway, and Switzerland.

lululemon athletica inc.was founded in 1998 and is based in Vancouver, Canada.

Show Full description

1.b. Last Insights on LULU

Lululemon Athletica Inc.'s recent performance was negatively impacted by a combination of factors, including weak US sales, tariff pressures, and a cautious fiscal 2025 outlook. The company's Q2 earnings beat estimates, but its guidance cut and slow growth prospects led to a sharp decline in investor sentiment. Elevated inventories, negative US comps, and reliance on China's growth create concentration risk. Additionally, product fatigue and execution missteps in key categories contributed to underperformance. Management's strategy to combat these challenges and revitalize US sales will be crucial in the near term.

1.c. Company Highlights

Last Price	190.01
Change Percentage	3.49%
Open	184.62
Previous Close	183.6
Market Cap ( Millions)	21560
Volume	4578341
Year High	423.32
Year Low	159.25
M A 50	172.87
M A 200	236.37

FCF Yield	5.42%
Dividend Yield	0.00%
ROE	42.05%
Debt / Equity	40.18%
Net Debt / EBIDTA	20.32%
Price To Book	5.18
Price Earnings Ratio	12.73
Price To FCF	18.46
Price To sales	1.98
EV / EBITDA	7.42

2. Lululemon's Q2 Earnings: A Mixed Bag

Lululemon reported Q2 revenue of $2.59 billion, a 5% increase year-over-year, with EPS of $3.10, exceeding expectations. Gross margin was 58.5%, down 110 basis points due to higher markdowns, tariffs, and fixed cost deleverage. The company's guidance for full-year revenue growth has been revised to 2-4%, with EPS guidance at $12.77-$12.97. According to Calvin McDonald, "We're focused on driving growth through new styles, with a goal of increasing new styles from 23% to 35% of our assortment."

Publication Date: Sep -07

                                    📋 Highlights
                                    Revenue shortfall:
                                                Q2 revenue declined 1%–2% in U.S. due to lounge/social category underperformance and macroeconomic pressures, despite 24% China growth (constant currency).
EPS beat:
                                                Earnings per share exceeded guidance, driven by strong performance apparel sales and brand loyalty (30 million members), offsetting U.S. challenges.
Product reinvention:
                                                Strategy shift to increase new styles from 23% to 35% of assortments to address stale product cycles and boost innovation, targeting 2026 growth.
Tariff impact:
                                                Full-year guidance reduced by 400 bps due to tariffs and de minimis removal; $500M+ supply chain cost initiatives aim to mitigate effects by 2026.

                                

Financial Performance

The company's financial performance was marked by a 5% revenue growth, with digital revenue increasing 9% to $1 billion. Men's revenue grew 6%, women's revenue grew 5%, and accessories revenue grew 15%. Gross profit was $1.48 billion, down 110 basis points due to higher markdowns, tariffs, and fixed cost deleverage.

Valuation Metrics

Using the provided valuation metrics, we can see that the company's P/E Ratio is 11.24, P/B Ratio is 4.57, and ROE is 42.05%. These metrics indicate that the company is trading at a reasonable multiple, considering its strong profitability. The EV/EBITDA ratio of 6.65 suggests that the company's enterprise value is reasonable compared to its earnings before interest, taxes, depreciation, and amortization.

Regional Performance

Regionally, the company's U.S. business faced challenges, with revenue growth decelerating in Q2. China, on the other hand, outperformed due to e-commerce growth. The company's international business continues to grow, with a focus on new styles and store optimizations.

Outlook

Lululemon's guidance for Q3 revenue growth is 3-4%, with EPS guidance at $2.18-$2.23. The company expects to drive growth through new styles, with a focus on increasing new styles from 23% to 35% of its assortment. The company's supply chain agility and innovation remain central to addressing competitive pressures and sustaining momentum.

3. NewsRoom

Stock Market Today: Dow Jones, Nasdaq Futures Advance Amid Cooling Labor Market—UiPath, Snowflake, Lululemon In Focus

Dec -04

Source: feeds.benzinga.com

LULU Q3 EPS Preview: Are Shares Stretched to the Downside Enough?

Dec -03

Source: zacks.com

Can Footwear & Menswear Businesses Reinvent lululemon's Growth Story?

Dec -02

Source: zacks.com

lululemon athletica: Dead Money Ahead Of Q3 Earnings (Downgrade)

Dec -02

Source: seekingalpha.com

American Century Ultra Fund Q3 2025 Contributors/Detractors And Notable Trades

Nov -30

Source: seekingalpha.com

Is Lululemon's Brand Losing Its Heat?

Nov -30

Source: fool.com

3 Things Lululemon Must Fix Before the Stock Can Recover

Nov -30

Source: fool.com

How Has LULU Stock Done for Investors?

Nov -29

Source: fool.com

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (6.10%)

6. Segments

Americas

Expected Growth: 6.5%

Slightly higher than global growth due to established brand loyalty and continued expansion through new store openings and online channels, capitalizing on the growing athleisure trend.

China Mainland

Expected Growth: 8.0%

Higher growth is expected due to the expanding customer base, increasing brand awareness, and strategic market expansion plans in mainland China, outpacing the global average growth rate (around 50 words).

Rest of World

Expected Growth: 7.5%

Higher growth anticipated due to expanding customer base, increasing brand awareness, and entry into new markets, potentially outpacing global average growth.

7. Detailed Products

Yoga Pants

Moisture-wicking, four-way stretch pants designed for yoga and running

Running Shorts

Lightweight, breathable shorts designed for running and training

Outerwear

Water-resistant and breathable jackets and hoodies designed for outdoor activities

Tops

Moisture-wicking, breathable tops designed for yoga, running, and training

Accessories

Yoga mats, bags, and accessories designed to complement Lululemon's apparel

Menswear

Technical athletic apparel designed for men, including pants, shorts, and tops

8. Lululemon Athletica Inc.'s Porter Forces

Forces Ranking

Threat Of Substitutes

Lululemon Athletica Inc. has a strong brand image and a loyal customer base, making it difficult for substitutes to gain traction.

Bargaining Power Of Customers

While customers have some bargaining power due to the availability of alternatives, Lululemon's strong brand loyalty and premium pricing strategy mitigate this force.

Bargaining Power Of Suppliers

Lululemon has a diversified supplier base and a strong negotiating position, reducing the bargaining power of its suppliers.

Threat Of New Entrants

While there are barriers to entry in the athletic apparel market, new entrants can still pose a threat to Lululemon's market share, particularly if they offer innovative products or business models.

Intensity Of Rivalry

The athletic apparel market is highly competitive, with established players like Nike and Under Armour, as well as newer entrants, competing for market share.

9. SWOT Analysis

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

	Value
Debt Weight	24.90%
Debt Cost	3.95%
Equity Weight	75.10%
Equity Cost	10.47%
WACC	8.85%
Leverage	33.16%

11. Quality Control: Lululemon Athletica Inc. passed 8 out of 9 key points

Strong Liquidity

Low Debt

Strong Interest Coverage

Healthy Cash Flow

Operating Efficiency

Strong Return On Equity

Consistent Revenue Growth

Consistent Operating Cash Flow Growth

Margin Improvement

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Booking

A-Score: 6.3/10

Value: 3.8

Growth: 8.7

Quality: 8.0

Yield: 1.0

Momentum: 7.5

Volatility: 8.7

1-Year Total Return ->

PulteGroup

A-Score: 5.8/10

Value: 5.9

Growth: 8.8

Quality: 7.6

Yield: 2.0

Momentum: 4.0

Volatility: 6.3

1-Year Total Return ->

TJX

A-Score: 5.7/10

Value: 1.6

Growth: 6.6

Quality: 5.8

Yield: 2.0

Momentum: 8.0

Volatility: 10.0

1-Year Total Return ->

Lennar

A-Score: 5.4/10

Value: 7.5

Growth: 7.2

Quality: 7.1

Yield: 3.0

Momentum: 1.5

Volatility: 6.3

1-Year Total Return ->

Ross Stores

A-Score: 5.3/10

Value: 2.6

Growth: 5.9

Quality: 6.3

Yield: 2.0

Momentum: 6.0

Volatility: 9.0

1-Year Total Return ->

Lululemon

A-Score: 4.5/10

Value: 5.2

Growth: 8.9

Quality: 7.8

Yield: 0.0

Momentum: 1.0

Volatility: 4.0

1-Year Total Return ->

Peers Metrics

12.e Scoring ^Insights

12.f DCF ^BETA

Parameters

Short Term Growth

2.84%

Short term Time

10.0

Long-Term Growth

2.00%

WACC

8.85%

Lululemon Athletica Inc. - US5500211090

1. Company Snapshot

1.a. Company Description

1.b. Last Insights on LULU

1.c. Company Highlights

Better Quality

Expensive

Higher Growth

Earnings Beats

Revenues Miss

Weak Momentum

Revenues Beats

Fairly Valued

Average Yield

Stable Momentum

2. Lululemon's Q2 Earnings: A Mixed Bag

Financial Performance

Valuation Metrics

Regional Performance

Outlook

3. NewsRoom

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (6.10%)

6. Segments

Americas

Expected Growth: 6.5%

China Mainland

Expected Growth: 8.0%

Rest of World

Expected Growth: 7.5%

7. Detailed Products

Yoga Pants

Running Shorts

Outerwear

Tops

Accessories

Menswear

8. Lululemon Athletica Inc.'s Porter Forces

Forces Ranking

Threat Of Substitutes

Bargaining Power Of Customers

Bargaining Power Of Suppliers

Threat Of New Entrants

Intensity Of Rivalry

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

11. Quality Control: Lululemon Athletica Inc. passed 8 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

190.01$

Current Price

190.01$

Potential

-0.00%

Expected Cash-Flows

12.e Scoring ^Insights

12.f DCF ^BETA