LULU FINAL FINAL-1

Company Valuation
Andrew Slade, Kate Baxter, Rachel Snyder, Tucker Byrne, Max Beatty,
Tianyu Yang

Lululemon is a designer and retailer
of technical athletic apparel
Mission statement: “Creating components for
people to live longer, healthier, fun lives”
1
Net revenue
F2014
Q1 2014 Q1 2015 Stores
worldwide

Entered Hong Kong
Lululemon’s historical milestones
highlight sustained success
0
200
400
600
800
1000
1200
1400
1600
1800
2000
2007 2008 2009 2010 2011 2012 2013 2014
Net Revenue
Revenue(millions)
Lululemon IPO
Launched Ivivva brand
Yoga Pant Recall
Laurent Potdevin named CEO
Deal made to
enter Middle East
2

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
3

Leader in Premium
Athleisure Clothing
• Growth opportunities crucial to long term success
4

Healthy Lifestyle
FashionPerformance
Lululemon is positioned to benefit from
a multitude of consumer preferences
5

High Price
Low Price
High QualityLow Quality
Lululemon’s high quality and innovative products
allow them to command a premium price
6

Unique brand culture complements high quality
products to cultivate loyal customer base
Lifestyle &
Community
Store
Experience
Ambassadors Exclusive
ProductsLeader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation
7

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
8

Development of
Distribution
Channels
9

Global increase in e-commerce shopping
presents opportunity for sales growth
$1.3
$1.7
$2.1
$2.5
$3.0
$3.6
26.30% 24.50% 22.30% 21.50% 20.50% 18.60%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
$4.0
2014 2015 2016 2017 2018 2019
GrowthRate(%)
Intrillion($)
Retail E-Commerce Sales Worldwide
Source: eMarketer, July 2015: Retail Ecommerce Sales Worldwide, 2014-2019
10
EEEEE

Expansion of Lulu’s website will create
increased sales-revenue in the short-term
0.0
500.0
1000.0
1500.0
2000.0
2500.0
3000.0
3500.0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Inmillion$
Year
Lululemon Revenue Projection
Other
E-commerce
Corporate-Owned Stores
18.8% e-commerce CAGR
11
EE EEE

E-Commerce sales growth leads all segments
with 42% profit margin
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
0
100
200
300
400
500
600
700
800
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
ProfitMargin(%)
Revenue(millions)
Year
Revenue and Profit Margin From E-Commerce Sale
Revenue From E-
Commerce
12
EEEEE

Increasing number of new stores will
drive revenue growth worldwide
-5%
0%
5%
10%
15%
20%
25%
0
100
200
300
400
500
600
700
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
#ofStores
Projection of Retail Stores and Same Store Sale Growth Rate
Total Stores
Same Store Sale Growth Rate
13
EEEEE

Global sports apparel industry set to grow at
4.3%, allowing Lulu to grow sales overseas
$130
$140
$150
$160
$170
$180
$190
2012 2013 2014 2015 2016 2017 2018 2019
Billions($)
Global Sports Apparel Market
4.3% CAGR
Euromonitor International, May 2015: Apparel and Footwear in 2015-Trends, Developments, and Prospects
14

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
15

Expansion into New
Markets
16

Lululemon men’s line offers stylish, performance
clothing to keep up with global cultural trends
Metal Vent Tech Henley ABC Pant Bonded Voyage Button Down
Sundown Hoodie Pace Breaker Short Sundown Tank
17
$88.00
$58.00
$118.00
$98.00 $48.00
$128.00

Industry growth in revenues from men’s apparel gives
Lululemon an incentive to capture the male market
2014 Men’s Apparel2014 Women’s Apparel
Market Size: $662.1 Billion Market Size: $439.9 Billion
Euromonitor International, May, 2015: Apparel and Footwear in 2015 -Trends, Developments, & Prospects
18

Industry growth in revenues from men’s apparel gives
Lululemon an incentive to capture the male market
2014 Men’s Apparel2014 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
19

Lululemon’s ‘ABC’ pants serve as a staple
garment in the men’s line of clothing
20
 Go-to product for men
 Women can solve an unpleasant problem
 Revenue up 19% in first quarter

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
Euromonitor International, July, 2015: Apparel and Footwear – Microfashion – Trends in Children’s wear
21

22

Lululemon looks to maintain 11.4% CAGR
of revenue through 2019
0
500
1000
1500
2000
2500
3000
2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E
FiscalRevenues(millions$)
Lululemon Athletica Fiscal Year Revenues
Projected Revenue CAGR of 11.4%
23

We believe that Lululemon is currently
undervalued by the market
Year 2012 2013 2014 2015E 2016E 2017E 2018E 2019E
Total Revenues 1370 1591 1797 2030 2274 2525 2803 3083
Operating 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 1037
EBIT 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: 8389
Cash and Cash Equivalent: 664.5
Equity Value: 9053
Number of Shares: 131.6 million
Cost of Equity: 8%
WACC: 7.95%
Current Share Price: 64.50
Estimated Share Value: 68.80
24

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 $75.50
25

Leader in Premium
Athleisure Clothing
Development of
Distribution
Channels
Expansion into New
Markets
26

Lululemon parameters that significantly affect
the valuation and financial model
Topline Revenue 2014
WACC
Cost of Goods Sold 2014
Number of Shares
Total SG&Ain 2019

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 2.75
Revenue 5 Yr
Growth
31.74% 9.98% 29.21% 10.05%
Capital Spending 5
Yr Growth
50.52% 23.51% 47.92% 2.46%
29

Price comparisons of basic clothing
items across Lululemon competitors
30
Sports Bra
Basic Black
Legging
Men’s
(Running)
Shorts
Lululemon $58 $92 $64
Nike $26 $36 $38
Athleta $49 $79 -
Under Armour $25 $35 $45
Lucy $49 $89 -
Old Navy $12 $25 $26

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
1.56
1.57
1.58
1.59
1.6
1.61
1.62
1.63
1.64
Revenue (billions)
Expected
2013
Actual 2013
31

32
Sales per sq. ft. illustrate strong sales efficiency &
growth even with the movement towards online retail
$0
$500
$1,000
$1,500
$2,000
$2,500
2009 2010 2011 2012 2013 2014
Lululemon Sales per Square Foot

Overall growth in athletic apparel sales
WholsalesalesinbillionU.S.dollars
29.64
28.17
29.58
31.38 31.85
32.78
34.1
Athletic apparel wholesale sales in the U.S. from 2008 to 2014 (in billion U.S.
dollars)*
2008 2009 2010 2011 2012 2013 2014
Source::
SFIA
© Statista 2015
0
5
10
15
20
25
30
35
40
Additional Information:
United States; 2008 to 2014
Leader in Premium Athletic Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation
33

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
34

Examples of Lululemon
Products35
Pack-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

Mobile applications strong contributor to
direct-to-customer segment, increases
brand exposure
Mobile Sales App SeaWheeze ½ Marathon
Training App
36

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 & entrepreneur
37

Lululemon’s aspirational lifestyle brand appeals
to the broad interests of its customer base
Men’s MarketWomen’s Market
38

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
39

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
40

LULU FINAL FINAL-1

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Editor's Notes