Lululemon NASDAQ: LULU Jason A. Moser презентация

heavy discounting.
The move to ecommerce continues to quickly shape the changing retail space.
Lululemon isn’t immune, however new leadership, expanded product lines and direct-to-consumer offer a powerful brand on sale today.

The idea

primarily for its women’s yoga gear, Lululemon is also expanding its product line:“We also continue to broaden our product range to increasingly appeal to male athletes and athletic female youth.”

and New Zealand
Wholesale via studios, health centers, etc.
Direct-to-consumer = e-commerce sales

years focused on new US stores;
Europe and Asia both show evidence of demand which will boost the overall opportunity;
Store count and breakdown today:

apparel for female youth. Also referred to as a “tween brand”; this concept will grow.

What’s ivivva?

grown from 4% to now 17% of net sales.

industry,
fashion, sports or otherwise.

tenure at Gap

Delaney Schweitzer
EVP Retail Ops NA 3/2010
With Lululemon since 2002

multiples has Lululemon garnered throughout the years?

free cash flow for fiscal 2013.
The company holds $700 million in cash and equivalents on the balance sheet coupled with zero debt.
Sales for fiscal 2014 are projected to be in the range of $1.77 - $1.82 billion, gross margin, low 50% range, EPS $1.80 - $1.90.
This puts the stock today at 27.5 times full year estimates yet sales are expected to grow only 13% for fiscal 2014.
It’s not a screaming bargain by any means, but it’s starting to look much more attractive now than a year ago.

Understanding future worth

in the retail industry with only Tiffany and top-dog Apple ahead of it.

25%
Net margin – 20%
Sales growth of 30%+ is done. Next five years will be 15%.
Sales for fiscal 2018 of $3.2 billion, net income $640 million.
Multiple scenarios:
20 - $12.8 billion market cap;
25 - $16 billion market cap;
30 - $19.2 billion market cap
Today’s market cap = $7.5 billion

Understanding future worth

the brand and leadership here.
New CEO Potdevin is an unknown, though I’m optimistic.
Sourcing for Luon (30% of total fabric from one supplier);
Founder Chip Wilson holds a bit more than 29% of the company’s outstanding shares.
While growth in direct-to-consumer is a net positive, it does present additional tech and distribution challenges.
ivivva is an additional lever for growth; failure on this front would hurt.

Risks

good old Chip decided to step down from the board.

Risks

“Frankly some women’s bodies just actually don’t work for [wearing Lululemon pants]… it’s really about the rubbing through the thighs, how much pressure is there over a period of time, how much they use it,” – Wilson’s response, when asked by a Bloomberg TV reporter about consumer complaints related to “pilling” fabric in the yoga pants

“Mediocrity is doing an ‘okay job,’ having a relationship that ‘works,’ being just ‘a little’ overweight, or having a job that ‘pays the bills.’ … Most people live in a state of mediocrity. Mediocrity is as close to the bottom as it is the top.” – Wilson writes in a blog post on Lululemon’s site

“The reason the Japanese liked [my former skateboard brand, ‘Homeless’] was because it had an L in it and a Japanese marketing firm wouldn’t come up with a brand name with an L in it. L is not in their vocabulary. It’s a tough pronunciation for them. So I thought, next time I have a company, I’ll make a name with three Ls and see if I can get three times the money. It’s kind of exotic for them. I was playing with Ls and I came up with Lululemon. It’s funny to watch them try to say it.” – Wilson in a 2004 interview with National Post Business Magazine

company revenue (10%), gross margin (30%) and inventory turns (10%). I like this.
Are the multiple scenarios in “Understanding future worth” reasonable? If the growth is still in fact there then yes. Under Armour ($12.2 billion market cap) still trades for 75 times earnings and Nike ($65 billion market cap) is 25 times earnings. Both have admittedly larger market opportunities.
Very encouraged by the website, focus on free-shipping homes in on exactly what consumers want. More than 13% of all clothing sales now occur online.
Are margin targets reasonable? Yes, particularly if Europe and Asia succeed.

Questions/ideas to ponder

of years have shown chinks in the armor.
Leadership changes are not always bad and can sometimes be very good. I am optimistic in this case given the low bar Wilson set and Potdevin’s experience.
Lululemon shares are down over 17% year to date bringing the stock to a more reasonable valuation considering what I see as an overall positive picture over the coming five years.
I’m calling a buy-around of $50 for Lululemon shares today to outperform the S&P 500 over the next 3-5 years.

Bottom line takeaway for investors