1. Seema Samawi, Stephanie Wang, Toshe
Ayo-Ariyo, Christine Yee, Kelsey Phinney
Smith Tuck Business Bridge 2015

2. Lululemon is fairly valued; we value it at $66
per share, the current market price is $66
Strong Brand
2
Strong
Brand Image
Potential for
Expansion
Key Risks
Valuation
• High-status reputation drives consumer demand
• Unique and community-based promotions create
company leverage
• Geographic growth through domestic and global
locations and sales
• Market growth through menswear, ivivva, and e-
commerce
• Competitors infringing on business strategies and target
market
• Instability of executive management
• Assumptions and discounted cash flow analysis
• Sensitivity and risk analysis rely on loss of brand image

3. Lululemon pioneers the female athletic wear
market
Strong Brand
3
Key Risks
Valuation
Strong
Brand Image
Potential for
Expansion
Strong Brand Image – Potential for Expansion – Key Risks – Valuation
• High-status reputation drives consumer demand
• Unique and community-based promotions create
company leverage
• Geographic growth through domestic and global
locations and sales
• Market growth through menswear, ivivva, and e-
commerce
• Competitors infringing on business strategies and target
market
• Instability of executive management
• Assumptions and discounted cash flow analysis
• Sensitivity and risk analysis rely on loss of brand image

4. Lululemon sells yoga-inspired apparel and
accessories for women, men, and girls
4Strong Brand Image – Potential for Expansion – Key Risks – Valuation

5. Lululemon doesn’t just sell products – they
sell a lifestyle
Brand ambassadors
5
Grassroots initiatives
Social Media
Strong Brand Image – Potential for Expansion – Key Risks – Valuation

6. Grassroots initiatives such as complimentary
yoga classes
6Strong Brand Image – Potential for Expansion – Key Risks – Valuation

7. Facebook adds potential of $191.4 billion to
revenue alone
• Facebook, Twitter and Instagram
7
•1.1 million Facebook likes
•Average value of a like is $174
•1.1 mil. * $174 = $191.4 billion
Strong Brand Image – Potential for Expansion – Key Risks – Valuation

8. Lululemon has leveraged their reputation to
widen their customer base
8
Potential for
Expansion
Key Risks
Valuation
Strong
Brand Image
Strong Brand Image – Potential for Expansion – Key Risks – Valuation
• High-status reputation drives consumer demand
• Unique and community-based promotions create
company leverage
• Geographic growth through domestic and global
locations and sales
• Market growth through menswear, ivivva, and e-
commerce
• Competitors infringing on business strategies and target
market
• Instability of executive management
• Assumptions and discounted cash flow analysis
• Sensitivity and risk analysis rely on loss of brand image

9. Lululemon opened 153 new stores in the past
5 years in North America
9
Fiscal Year
NumberofStores
Strong Brand Image – Potential for Expansion – Key Risks – Valuation

10. Expanded in fiscal 2014 in North America
and International
Lululemon Athletica February 2, 2014 June 10, 2015
United States 171 275
Canada 46 54
Australia 25 29
New Zealand 4 6
United Kingdom - 7
Germany - 5
Hong Kong - 4
Singapore - 2
China - 2
Sweden - 1
Korea - 1
Netherlands - 1
Total 246 387
10
Strong Brand Image – Potential for Expansion – Key Risks – Valuation

11. Lululemon is expanding its to the Middle
East
11
Global Expansion Strategy
• First Middle East store to be in Dubai Fall 2015
• Targeting wealthy, fitness lifestyle customers
Strong Brand Image – Potential for Expansion – Key Risks – Valuation

12. 12
Since expansion, Men’s and Ivivva have
contributed to overall growth of 16%
Lululemon Menswearivivva
Retail
Presence
1 stand-alone store in
Soho, NY
57 stores in North America
280 stores
worldwide
Growth
19% sale increase in past
quarter
51% sale increase in past
quarter
16% sales
increase
Strong Brand Image – Potential for Expansion – Key Risks – Valuation

13. The ABC pant has increased same store
sales by 16% alone!
13Strong Brand Image – Potential for Expansion – Key Risks – Valuation

14. Online sales will continue to grow with
launch of mobile shopping app
14
Fiscal Year
Revenue($inmillions)
Strong Brand Image – Potential for Expansion – Key Risks – Valuation

15. Despite innovation and growth, Lululemon
faces external and internal threats
15
Potential for
Expansion
Key Risks
Valuation
Strong
Brand Image
Strong Brand Image – Potential for Expansion – Key Risks – Valuation
• High-status reputation drives consumer demand
• Unique and community-based promotions create
company leverage
• Geographic growth through domestic and global
locations and sales
• Market growth through menswear, ivivva, and e-
commerce
• Competitors infringing on business strategies and target
market
• Instability of executive management
• Assumptions and discounted cash flow analysis
• Sensitivity and risk analysis rely on loss of brand image

16. Competitors are making a strong push into
women’s market
• Partnerships with celebrities
• $600 M was generated from women’s
lines alone
• Women’s only store
• Expected growth to take Nike from $5
billion (current) to $7 billion net
revenue by 2017
16
Nike Under Armour
Source: Bloomberg
Strong Brand Image – Potential for Expansion – Key Risks – Valuation

17. Lululemon fighting back with Athleisure
wear apparel items
17Strong Brand Image – Potential for Expansion – Key Risks – Valuation

18. Maintaining brand image and reputation is
critical to future growth
18Strong Brand Image – Potential for Expansion – Key Risks – Valuation

19. Management instability and controversies
cause sharp drops in share prices
December
2013
Chip Wilson
steps down as
chairman
↓
May 2013
CEO Christine
Day resigns in
wake of yoga
pants
controversy
↓
August 2014
Dispute
between
Wilson and
board
↓
February
2015
Wilson
resigns
↓
19Strong Brand Image – Potential for Expansion – Key Risks – Valuation

20. Lululemon is fairly valued; we value it at $66
per share, the current market price is $66
20
Potential for
Expansion
Key Risks
Valuation
Strong
Brand Image
Strong Brand Image – Potential for Expansion – Key Risks – Valuation
• High-status reputation drives consumer demand
• Unique and community-based promotions create
company leverage
• Geographic growth through domestic and global
locations and sales
• Market growth through menswear, ivivva, and e-
commerce
• Competitors infringing on business strategies and target
market
• Instability of executive management
• Assumptions and discounted cash flow analysis
• Sensitivity and risk analysis rely on loss of brand image

21. We believe that Lululemon is fairly valued by
the market at $66
Parameters Fiscal Year
2015 2016 2017 2018 2019 2020 2021
Revenue Growth Rate 13% 10% 9% 8% 8% 8% 8%
COGS/Revenue 49% 49% 48% 48% 48% 48% 48%
Tax Rate 38% 34% 34% 34% 34% 34% 34%
SG&A/Revenue 30% 29% 29% 29% 29% 29% 29%
Depreciation 3% 3% 3% 3% 3% 3% 3%
21Strong Brand Image – Potential for Expansion – Key Risks – Valuation

22. We believe that Lululemon is fairly valued by
the market at $66
Parameters Fiscal Year ($ millions)
2014 2015 2016 2017 2018 2019 2020
Total Revenue $1,797 $1,977 $2,155 $2,327 $2,513 $2,714 $2,932
Operating Costs $1,421 $1,542 $1,659 $1,792 $1,935 $2,090 $2,257
EBIT $376 $435 $496 $535 $578 $624 $674
After-Tax
Income $232 $289 $329 $356 $384 $415 $448
(+)Depreciation $58 $64 $70 $76 $82 $88 $95
(-)CAPX $120 $119 $129 $140 $151 $163 $176
(-)Change in
NWC $15 $20 $20 $21 $23 $24 $26
Free Cash Flow $155 $215 $250 $271 $292 $316 $341
WACC: 6.92%
Terminal Growth Rate: 3%
Current Share Price: $66.71
Estimated Share Value: $65.70
22
Strong Brand Image – Potential for Expansion – Key Risks – Valuation

23. Sensitivity analysis shows share value can
realistically fluctuate between $41 and $141
23
Terminal Growth Rate
Wei
ghte
d
Ave
rage
Cos
t of
Cap
ital
(WA
CC)
1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5%
4.92% $82 $95 $113 $141 $189 $288 $623
5.42% $71 $80 $93 $111 $138 $184 $281
5.92% $62 $69 $78 $90 $108 $135 $180
6.42% $55 $60 $67 $76 $88 $105 $131
6.92% $49 $54 $59 $66 $74 $86 $103
7.42% $44 $48 $52 $58 $64 $73 $84
7.92% $40 $43 $47 $51 $56 $63 $71
8.42% $37 $40 $42 $46 $50 $55 $61
8.92% $34 $36 $39 $41 $45 $49 $54
Strong Brand Image – Potential for Expansion – Key Risks – Valuation

24. Lululemon is fairly valued; we value it at $66
per share, the current market price is $66
24
Potential for
Expansion
Key Risks
Valuation
Strong
Brand Image
• High-status reputation drives consumer demand
• Unique and community-based promotions create
company leverage
• Geographic growth through domestic and global
locations and sales
• Market growth through menswear, ivivva, and e-
commerce
• Competitors infringing on business strategies and target
market
• Instability of executive management
• Assumptions and discounted cash flow analysis
• Sensitivity and risk analysis rely on loss of brand image
Strong Brand Image – Potential for Expansion – Key Risks – Valuation

25. Appendix
25

26. Lululemon Competitors
• Athleta
• Zella (Nordstrom)
• Calvin Klein
• Zobha
• Under Armour
• Lily Lotus
• Soybu
• The Gap Inc.
• Bebe stores Inc.
• Target Corporation
• Prana
• Victorias’ Secret
• Mika Yoga Wear
• Nike
• Gaiam
• Footlocker
• Addidas AG
• Reebok
• Lucy Activewear
• Wal-Mart Stores Inc.
• Lole Inc.
*Source: Business Insider and
Marketline26

27. Perceptual map of competitors and branding
27

28. Marketing Strategy – the 3 C’s
28
Customer
• 30 year old
professionals with
substantial income
of high socio-
economic
background
• Loyal and addicted
• Fashionista
• Fandom Blogs
• Cult Following
Company
• Vision started for
Women first
• Creates personas for
each new clothing
line
• “apparel chain with a
tech start-up
valuation”
• Integrated in
community
Competition
• Athleta
• Lucy
• Soybu
• Nike
• Under Armour
• Adidas

29. 29
Marketing Strategy – the 4 P’s
Product
• Various
sportswear
lines
• Various
accessories
• Special fabrics
eg. “luon”
Price
• 95% sold at
full price
• Premium
pricing $50 -
$170
• Generally
higher end on
price market
• Profit-oriented
business
Place
• Retail
storefronts
• Showrooms
• Online
website
• Mobile
application
• Various
channel
partners
Promotion
• 15% discount
for Yoga
Teachers
• Customer
loyalty
• Word of
mouth
• E-commerce
• Sales
promotion

30. Marketing Strategy – STP
30
Segmentation
• Yoga, cycling, zen
and athleisure
• Health conscious
individuals
Targeting
• Wealthy upper
middle class
Positioning
• Eco-friendly
• Fashionable and
feminine
• High-tech
• Exclusive quality
• Item scarcity

31. SWOT Analysis
Strengths
• Innovative products and materials
• Strong community integration
• Holistic health and fitness image
• Strong customer loyalty
• Local community engagement
• Good employee benefits and treatment
• Multiple green initiatives
31
Weaknesses
• Expensive products
• Still viewed as a “yoga” brand
• Short term contracts with manufacturers
• Only one manufacturer supplying innovative
materials (results in product recall)
• Scarcity can turn away potential customer
• Lack of sizing variety driving away larger
customers
Opportunities
• Increasing marketing efforts
• Start a lululemon gym to expand past yoga
• Partnership with a larger retail store such as
Target
• More international expansion
• Add more product lines e.g. ski and casual
wear outside the athleisure frontier
Threats
• Growing competitors from earthy brands
(Prana, Athletica, Soybu)
• Growing industry giant competitors (Nike,
Under Armour)
• Bad economy
• Controversial sexist founder

32. Lululemon's achieves strong consumer base
through strategic locations
Target Market:
• Women ages 25-34
• Career/ Family
• Healthy lifestyle
• High income
→ East Coast, urban,
malls
32

33. CAGR – apparel net value and sales change
33

34. Lululemon has the highest profit margin
among top 10 apparel retailers worldwide
34

35. Asia Pacific revenue increasing grows net
revenue
35

36. Unique functional
features
Innovative, performance-enhancing
materials differentiate Lululemon’s products
Technically
advanced fabrics
36

37. Lululemon’s feminine, flattering cuts appeal
to fashion-inclined women
Mass Market Competitors Lululemon
Simple cut
Emphasis on function
Tough, muscular design
Intricate straps
Emphasis on style
Form-fitting design
37

38. Fourth and largest distribution center will
improve efficiency and cut order transit time
5.8 → 2
days in transit on
the East Coast
38

39. Lululemon’s partnership in the Middle East will
contribute to Lululemon’s long term growth
• Fall 2015 Dubai
•UAE, Kuwait, Qatar, Oman, and Bahrain
•Opportunity: Dubai, UAE international shopping festival
-2009, 3.35 million visitors
and AED 9.8 billion
spending.
39

40. Lululemon's unique brand promotion
techniques increase revenue
Easily distinguishable
logo
Reusable Bags
Creates Partnerships
Creates a community
40

41. North America Stores as of June 2015
41

42. Bibliography
• http://www.businessinsider.com/hot-brands-vying-to-be-the-next-lululemon-
2013-3?op=1
• http://www.businessinsider.com/men-love-lululemon-abc-pants-2015-3
• http://www.gurufocus.com/financials/LULU
• http://www.taylordigital.com/real-value-facebook-like/
• http://valueofalike.com/
• https://simplywall.st/NasdaqGS:LULU/lululemon-athletica
• http://www.businessinsider.com/how-lululemon-gets-customers-2015-5
• http://www.businessinsider.com/lululemon-sale-2013-1
• http://www.wsj.
com/articles/SB10001424052702303812904577295882632723066
• http://quotes.wsj.com/LULU
• http://www.businessinsider.com/lululemon-idea-customers-ocean-and-duke-
2015-2
• http://www.businessinsider.com/men-love-lululemon-abc-pants-2015-3 42