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LULU FINAL FINAL-1
- 1. Company Valuation Andrew Slade,Kate Baxter, Rachel Snyder, Tucker Byrne, Max Beatty, Tianyu Yang
- 2. Lululemon is adesigner 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
- 3. Entered Hong Kong Lululemon’shistorical 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
- 4. Lululemon Athletica iscurrently 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
- 5. Lululemon Athletica iscurrently 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 • Promising future in men’s apparel • Teen brand ‘Ivivva’ promotes long-term growth • Lululemon is undervalued • Growth opportunities crucial to long term success Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation 4
- 6. Healthy Lifestyle FashionPerformance Lululemon ispositioned to benefit from a multitude of consumer preferences Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation 5
- 7. High Price Low Price HighQualityLow 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 6
- 8. Unique brand culturecomplements 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
- 9. Leader in PremiumAthleisure 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 8
- 10. Lululemon Athletica iscurrently 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 • 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 • Lululemon is undervalued • Growth opportunities crucial to long term success Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation 9
- 11. Global increase ine-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 Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation 10 EEEEE
- 12. Expansion of Lulu’swebsite will create increased sales-revenue in the short-term Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation 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
- 13. E-Commerce sales growthleads 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 Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation
- 14. Increasing number ofnew 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 Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation EEEEE
- 15. Global sports apparelindustry 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 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 14
- 16. Short-term capital expendituresabroad 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 15
- 17. Lululemon Athletica iscurrently 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 • Online retail sales will contribute to revenue growth • Continued growth potential in new store locations • Successful entry into international markets • 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 success Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation 16
- 18. Lululemon men’s lineoffers 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 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
- 19. Industry growth inrevenues 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 Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation 18
- 20. Industry growth inrevenues 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 Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation 19
- 21. Lululemon’s ‘ABC’ pantsserve 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 Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation
- 22. Promising venture intofemale 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 21
- 23. Lululemon Athletica iscurrently valued at $64.50 by the market, we value it at $68.80 per share • Brand recognized for high quality products and unique customer experiences • Online retail sales will contribute to revenue growth • Continued growth potential in new store locations • Successful entry into international markets • Promising future in men’s apparel • Teen brand ‘Ivivva’ promotes long-term growth • Lululemon is undervalued • Growth opportunities crucial to long term successValuation Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation 22
- 24. Lululemon looks tomaintain 11.4% CAGR of revenue through 2019 0 500 1000 1500 2000 2500 3000 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E FiscalRevenues(millions$) Lululemon Athletica Fiscal Year Revenues Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation Projected Revenue CAGR of 11.4% 23
- 25. We believe thatLululemon 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 Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation 24
- 26. Stock Price Range PessimisticBase 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 Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation 25
- 27. Lululemon Athletica iscurrently 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 26
- 28.
- 29. Lululemon parameters thatsignificantly affect the valuation and financial model Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation Topline Revenue 2014 WACC Cost of Goods Sold 2014 Number of Shares Total SG&Ain 2019
- 30. Lululemon’s key ratiosunderscore 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
- 31. Price comparisons ofbasic 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
- 32. Recalls decreased revenueby $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
- 33. 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
- 34. Overall growth inathletic 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
- 35. Lululemon faces fewserious 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 34
- 36. Examples of Lululemon Products35 Pack-ItVest $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 strongcontributor 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 36
- 38. Social media highlightsinfluencers 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 Leader in Premium Athletic Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation 37
- 39. Lululemon’s aspirational lifestylebrand 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 38
- 40. Lululemon is… Product: highquality, 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 39
- 41. Successful e-commerce initiative bringsin $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 40
Editor's Notes
- #12 Bar graph = total international e-commerce retail market in trillions of dollars = left y-axis Black line = growth rate of this market = right y-axis
- #13 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
- #15 Additional sales generated by increase in domestic and international stores Number of stores each year (2012: 37, 2013:43, 2014:48, 2015:60 slated) Same-store sales % growth 6% in fy15 1q 4-wall profit
- #16 Lululemon seeks to capitalize on international fitness fashion trends
- #17 Beijing, Shanghai, Hong Kong, Seoul, Singapore London (3), Edinburgh, Glasgow, Amsterdam, Hamburg, Berlin, Frankfurt, Munich, Zurich, Stockholm Perth, Queensland, Bondi, Canberra, Sydney -paying customer acquisition cost by placing stores in prominent locations – decreases profit in short term -increase in brand awareness worldwide produces long term payoff – ability to open stores in less expensive locations -Asia, Aus, NZ grew by 24.4% from fiscal 2013-2014 As of Feb. 1 – 211 in U.S., 57 in Canada, 26 in Australia, 5 in New Zealand, 2 in U.K. Capital spending five year growth 50.5%
- #20 Andrew and Max Build consumer loyalty through single product then sell them expensive t-shirts -increases sales to women of male apparel More dynamic competitor Staple product to define men’s line Growth rates men’s vs. women men’s apparel: $439.9 B
- #21 Andrew and Max Build consumer loyalty through single product then sell them expensive t-shirts -increases sales to women of male apparel More dynamic competitor Staple product to define men’s line Growth rates men’s vs. women men’s apparel: $439.9 B
- #23 -All apparel and footwear grew 2% in past year
- #31 Current ratio= current assets/current liabilities
- #35 Forefront of industry Maintain position, expanding
- #38 Revamped app increases consumer access to products Mobile training app for “SeaWheeze” – places cultural brand into consumers’ pockets, increased brand exposure
- #39 Posts about lifestyles, inspiration, athletic and entrepeneurial accomplishments, how-to’s, and more Blog conveys brand and allows further interaction for customers
- #40 Lifestyle brand – integrates into your life/buy into the brand an aspirational appeal Current culture: community membership offers perks to repeat customers Store Experience = yoga classes, exclusive products, “educator” sales personnel, game plan for better life Transition: Community& lifestyle brand appeals to current demographic - female (20s-40s, upper middle class/income women) Male – community element not as consequential, new marketing strategy w/ beer ploy Appeal for men is ‘healthy lifestyle & high quality premium producrs
- #42 Rachel