The Reality of Lululemon

By Admin•

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Short Thesis

Lululemon is a high-quality, capital-efficient brand navigating cyclical pressures, offering long-term investors a rare opportunity to own a premium consumer business at a fair price.

Snapshot

  • Founded: 1998

  • CEO: Calvin McDonald

  • Market Cap: $28B

  • Current Price: $237

  • Ticker: $LULU

  • Sector: Consumer Discretionary – Apparel

Financial Highlights

  • Revenue Growth:

    • 20% CAGR since 2016

    • 10% YoY growth in FY2024

  • EPS Growth:

    • 26% EPS CAGR since 2016

    • 20% YoY growth to $14.60

  • Free Cash Flow:

    • $1.6B cumulative over past 2 years

    • Seasonal dip to -$0.3B in Q1 2025 (normal historical pattern)

Revenue Breakdown:

  • By Channel:

    • 50/50 split between Stores & DTC

    • DTC growing faster (+30% YoY vs. ~13% in-store)

  • By Geography:

    • 75% from Americas (growing slowly: +4% YoY)

    • China: +41% YoY, Rest of World: +27% YoY

  • By Gender:

    • Women: 63%, Men: 25% (room to grow male segment)

Opportunity

  • Broad Sector Slowdown, Not LULU-Specific:

    • Nike: -12% revenue YoY

    • Under Armour: -11%, Athleta: -6%

    • Lululemon still grew +7–8% and gained U.S. market share

  • Tariff Pressure May Ease:

    • Vietnam deal capped tariffs at 20% (vs. 46% proposed)

    • Ongoing negotiations suggest manageable impact

  • Margin Protection in Motion:

    • Vendor negotiations, targeted price increases, efficiency gains

    • Past execution during COVID was strong

  • Massive TAM with Rising Global Demand:

    • Global athleisure market: $625B by 2029, 9% CAGR

    • Room for multiple winners

  • Best-in-Class Financials:

    • $1.3B in cash, zero debt

    • ROIC: 35% | ROA: 22% | ROE: 38% (5Y averages)

  • International Growth Story:

    • China: +21% YoY (targeting 25–30% FY25)

    • Rest of World: +16% YoY

    • Only 25% of current revenue; goal is 50/50 U.S./International

  • Large Store Base = Competitive Edge:

    • 770 global stores (vs. Vuori ~85, Alo ~126)

    • Global presence fuels both revenue and product insight

  • Potential Rate Cuts Ahead:

    • Fed signaling 1–2 cuts in 2025

    • Could revive consumer spending and discretionary demand