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BUSINESS
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.
INVESTMENT RATING
Reflecting future returns on capital that are forecasted to be above the cost of capital, LULU is expected to continue to be a major Value Builder.
Lululemon Athletica has a current Value Trend Rating of B (Positive).
With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing very contradictory signals. Lululemon Athletica has a slightly negative Appreciation Score of 39 but a very high Power Rating of 87, producing the Positive Value Trend Rating.
Lululemon Athletica’s stock is selling below targeted value. The current stock price of $374.01 compares to targeted value 12 months forward of $457.
This moderately low appreciation potential results in an appreciation score of 39 (61% of the universe has greater appreciation potential.)
Lululemon Athletica has a Power Rating of 87. (This very high Power Rating indicates that LULU has a better chance of achieving attractive investment performance over the near to intermediate term than all but 13% of companies in the universe.)
Factors contributing to this very high Power Rating include: recent price action has been extremely favorable; the recent trend in LULU’s earnings estimates has been favorable; and the Apparel & Other Finished Products comparison group is currently in a modestly favorable position.
INVESTMENT PROFILE
LULU’s financial strength is exceptional. Financial strength rating is 95.
Relative to the S&P 500 Composite, Lululemon Athletica Inc has significant Growth characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that LULU is extremely low risk. All factors are relative strengths. LULU’s valuation is high: low dividend yield, high P/E ratio, and high price/book ratio. LULU has normal market capitalization.
CURRENT SIGNALS
Lululemon Athletica’s current operations are eroding. Return on equity is falling, reflecting: declining pretax margin; falling tax keep rate; and falling leverage.
Lululemon Athletica’s current technical position is mixed. The stock price is in a 3.0 month down move. The stock has declined 19.1% from its prior high. The 200 day moving average is in an uptrend. The stock price is below its 200 day moving average.
ALERTS
Lululemon Athletica Inc (NASDAQ: LULU) has recently experienced significant negative changes in investment behavior: negative upside/downside volume developed.
The stock is currently rated B.
On 4/3/24, Lululemon Athletica Inc (NASDAQ: LULU) stock declined modestly by -1.1%, closing at $374.01. This decline was accompanied by normal trading volume. Relative to the market the stock has been exceptionally strong over the last nine months but has declined -3.8% during the last week.
CASH FLOW
In 2023, Lululemon Athletica experienced a slight decrease in cash of -$105 million (-8%). Sources of cash were slightly lower than uses. Cash generated from 2023 EBITDA totaled +$2,081 million. Non-operating uses consumed -$456 million (-22% of EBITDA). Cash taxes consumed -$476 million (-23% of EBITDA). Re-investment in the business amounted to -$997 million (-48% of EBITDA). On a net basis, debt investors supplied +$189 million (+9% of EBITDA) while equity investors pulled out -$446 million (-21% of EBITDA).
Lululemon Athletica’s Non-operating Income, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by stability for the Lululemon Athletica Peer Group. (Since 2019 Non-operating Income, %EBITDA has acccelerated.) In most years, Lululemon Athletica was in the second quartile and top quartile. Currently, Lululemon Athletica is lower quartile at -22% of EBITDA (-$456 million).
Lululemon Athletica’s Cash Taxes, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Lululemon Athletica Peer Group. In most years, Lululemon Athletica was in the top quartile and lower quartile. Currently, Lululemon Athletica is at the lower quartile at -23% of EBITDA (-$476 million).
Lululemon Athletica’s Business Re-investment, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Lululemon Athletica Peer Group. In most years, Lululemon Athletica was in the third quartile and top quartile. Currently, Lululemon Athletica is below median at -48% of EBITDA (-$997 million).
Lululemon Athletica’s Debt Investors, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by stability for the Lululemon Athletica Peer Group. In most years, Lululemon Athletica was in the second quartile and top quartile. Currently, Lululemon Athletica is at the upper quartile at +9% of EBITDA (+$189 million).
Lululemon Athletica’s Equity Investors, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by stability for the Lululemon Athletica Peer Group. In most years, Lululemon Athletica was in the second quartile and lower quartile. Currently, Lululemon Athletica is above median at -21% of EBITDA (-$446 million).
Lululemon Athletica’s Change in Cash, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by stability for the Lululemon Athletica Peer Group as well. (Since 2020 Change in Cash, %EBITDA has experienced a very sharp decline.) In most years, Lululemon Athletica was in the third quartile and top quartile. Currently, Lululemon Athletica is substantially below median at -5% of EBITDA (-$105 million).
Lululemon Athletica’s Cash, %Revenue has suffered a strong overall downtrend over the period. This downtrend was accompanied by stability for the Lululemon Athletica Peer Group. In most years, Lululemon Athletica was in the top quartile. Currently, Lululemon Athletica is substantially above median at +14%.
PROFITABILITY
Lululemon Athletica’s return on equity has improved significantly since 2014. The current level of 28.4% is 1.11X the low for the period and is -15.2% from the high.
This significant improvement was due to minor negative trend in pretax operating return offset by very strong positive trend in non-operating factors.
The productivity of Lululemon Athletica’s assets remained stable over the full period 2014-2023: asset turnover has exhibited little to no overall change although it experienced very sharp improvement from the 2021 level.
Additionally, pretax margin has experienced a downtrend that acccelerated very sharply from the 2020 level.
Non-operating factors (income taxes and financial leverage) had a very significant positive influence on return on equity.
Lululemon Athletica’s return on equity is at median (28.4%) for the four quarters ended October, 2023.
Operating performance (pretax return on assets) is above median (25.9%) reflecting asset turnover that is above median (1.53X) and above median pretax margin (17.0%).
Tax “keep” rate (income tax management) is lower quartile (64.0%) resulting in after tax return on assets that is at median.
Financial leverage (leverage) is slightly above median (1.71X).
GROWTH RATES
There are no significant differences between Lululemon Athletica’s longer term growth and growth in recent years.
Lululemon Athletica’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has exceeded equity growth.
Annual revenue growth has been 21.3% per year.
Total asset growth has been 21.6% per year.
Annual E.P.S. growth has been 21.5% per year.
Equity growth has been 15.6% per year.
Lululemon Athletica’s consensus growth rate forecast (average of Wall Street analysts) is 15.3% — below the average of the historical growth measures.
Relative to the Lululemon Athletica Peer Group, Lululemon Athletica’s historical growth measures are consistently top quartile. Revenue growth (21.3%) has been upper quartile. Total asset growth (21.6%) has been upper quartile. E.P.S. growth (21.5%) has been upper quartile. Equity growth (15.6%) has been at the upper quartile.
In agreement with this pattern, consensus growth forecast (15.3%) is above median.
PRICE HISTORY
Over the full time period, Lululemon Athletica’s stock price performance has been variable and superior. Between June, 2013 and April, 2024, Lululemon Athletica’s stock price rose +471%; relative to the market, this was a +76% gain. Significant price move during the period: 1) May, 2017 – September, 2018: +237%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of 51.1% is upper quartile relative to the S&P 500 Composite.
In addition to being upper quartile relative to S&P 500 Composite, current annual total return performance through February, 2024 of 51.1% is upper quartile relative to Lululemon Athletica Inc Peer Group.
Current 5-year total return performance of 25.4% is upper quartile relative to the S&P 500 Composite.
Through February, 2024, with upper quartile current 5-year total return of 25.4% relative to S&P 500 Composite, Lululemon Athletica’s total return performance is upper quartile relative to Lululemon Athletica Inc Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, LULU’s overall valuation is quite high. The highest factor, the ratio of enterprise value/assets, is upper quartile. Price/equity ratio is upper quartile. Price/earnings ratio is upper quartile. Ratio of enterprise value/revenue is above median. The lowest factor, the ratio of enterprise value/earnings before interest and taxes, is slightly above median.
Relative to Lululemon Athletica Peer Group, LULU’s overall valuation is high. The highest factor, the ratio of enterprise value/assets, is at the upper quartile. Ratio of enterprise value/revenue is above median. Price/equity ratio is upper quartile. Price/earnings ratio is upper quartile. The lowest factor, the ratio of enterprise value/earnings before interest and taxes, is slightly below median.
Lululemon Athletica has a major value gap compared to the median. For LULU to achieve median valuation, its current ratio of enterprise value/revenue would have to fall from the current level of 5.05X to 3.23X. If LULU’s ratio of enterprise value/revenue were to fall to 3.23X, its stock price would be lower by $-139 to $235.
For LULU to achieve upper quartile valuation relative to the Lululemon Athletica Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 5.05X to 6.02X. If LULU’s ratio of enterprise value/revenue were to rise to 6.02X, its stock price would increase by $74 from the current level of $374.
VALUE TARGETS
Reflecting future returns on capital that are forecasted to be above the cost of capital, LULU is expected to continue to be a major Value Builder.
Lululemon Athletica’s current Price Target of $438 represents a +17% change from the current price of $374.01.
This moderately low appreciation potential results in an appreciation score of 39 (61% of the universe has greater appreciation potential.)
Notwithstanding this moderately low Appreciation Score of 39, the high Power Rating of 87 results in an Value Trend Rating of B.
Lululemon Athletica’s current Price Target is $438 (+103% from the 2023 Target of $215 and +17% from the 04/03/24 price of $374.01). This dramatic rise in the Target is the result of a +33% increase in the equity base and a +53% increase in the price/equity multiple. The forecasted increase in return on equity has a very large positive impact on the price/equity multiple and the forecasted decline in cost of equity has a slight positive impact as well. The forecasted flat growth has no impact.
PTR’s return on equity forecast is 43.0% — substantially above our recent forecasts. Forecasted return on equity enjoyed a dramatic, variable increase between 2015 and 2023. The current forecast is significantly above the 2017 low of 20%.
PTR’s growth forecast is 23.0% — in line with our recent forecasts. Forecasted growth enjoyed a dramatic, erratic increase between 2015 and 2023. The current forecast is significantly above the 2017 low of 11%.
PTR’s cost of equity forecast is 13.9% — in line with recent levels. Forecasted cost of equity suffered a dramatic, erratic increase between 2015 and 2023. The current forecast is above the 2017 low of 10.6%.
At Lululemon Athletica’s current price of $374.01, investors are placing a positive value of $297 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 23.0% per year, and a return on equity of 32.9% versus a cost of equity of 14.3%.
PTR’s 2025 Price Target of $438 is based on these forecasts and reflects an estimated value of existing assets of $118 and a value of future investments of $320.
Reflecting future returns on capital that are forecasted to be above the cost of capital, LULU is expected to continue to be a major Value Builder.
Lululemon Athletica has a current Value Trend Rating of B (Positive).
With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing very contradictory signals. Lululemon Athletica has a slightly negative Appreciation Score of 39 but a very high Power Rating of 87, producing the Positive Value Trend Rating.
Lululemon Athletica’s stock is selling below targeted value. The current stock price of $374.01 compares to targeted value 12 months forward of $457.
This moderately low appreciation potential results in an appreciation score of 39 (61% of the universe has greater appreciation potential.)
Lululemon Athletica has a Power Rating of 87. (This very high Power Rating indicates that LULU has a better chance of achieving attractive investment performance over the near to intermediate term than all but 13% of companies in the universe.)
Factors contributing to this very high Power Rating include: recent price action has been extremely favorable; the recent trend in LULU’s earnings estimates has been favorable; and the Apparel & Other Finished Products comparison group is currently in a modestly favorable position.
Relative to the S&P 500 Composite, Lululemon Athletica Inc has significant Growth characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that LULU is extremely low risk. All factors are relative strengths. LULU’s valuation is high: low dividend yield, high P/E ratio, and high price/book ratio. LULU has normal market capitalization.
Lululemon Athletica’s Non-operating Income, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by stability for the Lululemon Athletica Peer Group. (Since 2019 Non-operating Income, %EBITDA has acccelerated.) In most years, Lululemon Athletica was in the second quartile and top quartile. Currently, Lululemon Athletica is lower quartile at -22% of EBITDA (-$456 million).
Lululemon Athletica’s Cash Taxes, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Lululemon Athletica Peer Group. In most years, Lululemon Athletica was in the top quartile and lower quartile. Currently, Lululemon Athletica is at the lower quartile at -23% of EBITDA (-$476 million).
Lululemon Athletica’s Business Re-investment, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Lululemon Athletica Peer Group. In most years, Lululemon Athletica was in the third quartile and top quartile. Currently, Lululemon Athletica is below median at -48% of EBITDA (-$997 million).
Lululemon Athletica’s Debt Investors, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by stability for the Lululemon Athletica Peer Group. In most years, Lululemon Athletica was in the second quartile and top quartile. Currently, Lululemon Athletica is at the upper quartile at +9% of EBITDA (+$189 million).
Lululemon Athletica’s Equity Investors, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by stability for the Lululemon Athletica Peer Group. In most years, Lululemon Athletica was in the second quartile and lower quartile. Currently, Lululemon Athletica is above median at -21% of EBITDA (-$446 million).
Lululemon Athletica’s Change in Cash, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by stability for the Lululemon Athletica Peer Group as well. (Since 2020 Change in Cash, %EBITDA has experienced a very sharp decline.) In most years, Lululemon Athletica was in the third quartile and top quartile. Currently, Lululemon Athletica is substantially below median at -5% of EBITDA (-$105 million).
Lululemon Athletica’s Cash, %Revenue has suffered a strong overall downtrend over the period. This downtrend was accompanied by stability for the Lululemon Athletica Peer Group. In most years, Lululemon Athletica was in the top quartile. Currently, Lululemon Athletica is substantially above median at +14%.
Lululemon Athletica’s return on equity is at median (28.4%) for the four quarters ended October, 2023.
Operating performance (pretax return on assets) is above median (25.9%) reflecting asset turnover that is above median (1.53X) and above median pretax margin (17.0%).
Tax “keep” rate (income tax management) is lower quartile (64.0%) resulting in after tax return on assets that is at median.
Financial leverage (leverage) is slightly above median (1.71X).
Relative to the Lululemon Athletica Peer Group, Lululemon Athletica’s historical growth measures are consistently top quartile. Revenue growth (21.3%) has been upper quartile. Total asset growth (21.6%) has been upper quartile. E.P.S. growth (21.5%) has been upper quartile. Equity growth (15.6%) has been at the upper quartile.
In agreement with this pattern, consensus growth forecast (15.3%) is above median.
Lululemon Athletica has a major value gap compared to the median. For LULU to achieve median valuation, its current ratio of enterprise value/revenue would have to fall from the current level of 5.05X to 3.23X. If LULU’s ratio of enterprise value/revenue were to fall to 3.23X, its stock price would be lower by $-139 to $235.
For LULU to achieve upper quartile valuation relative to the Lululemon Athletica Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 5.05X to 6.02X. If LULU’s ratio of enterprise value/revenue were to rise to 6.02X, its stock price would increase by $74 from the current level of $374.
Lululemon Athletica’s current Price Target is $438 (+103% from the 2023 Target of $215 and +17% from the 04/03/24 price of $374.01). This dramatic rise in the Target is the result of a +33% increase in the equity base and a +53% increase in the price/equity multiple. The forecasted increase in return on equity has a very large positive impact on the price/equity multiple and the forecasted decline in cost of equity has a slight positive impact as well. The forecasted flat growth has no impact.
PTR’s return on equity forecast is 43.0% — substantially above our recent forecasts. Forecasted return on equity enjoyed a dramatic, variable increase between 2015 and 2023. The current forecast is significantly above the 2017 low of 20%.
PTR’s growth forecast is 23.0% — in line with our recent forecasts. Forecasted growth enjoyed a dramatic, erratic increase between 2015 and 2023. The current forecast is significantly above the 2017 low of 11%.
PTR’s cost of equity forecast is 13.9% — in line with recent levels. Forecasted cost of equity suffered a dramatic, erratic increase between 2015 and 2023. The current forecast is above the 2017 low of 10.6%.
At Lululemon Athletica’s current price of $374.01, investors are placing a positive value of $297 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 23.0% per year, and a return on equity of 32.9% versus a cost of equity of 14.3%.
PTR’s 2025 Price Target of $438 is based on these forecasts and reflects an estimated value of existing assets of $118 and a value of future investments of $320.
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