COMPANY PROFILE

With 523 Lulu stores globally, it’s safe to say LULU has become THE leading yoga & healthy lifestyle apparel brand in America. Lulu stores are fresh and warm, their innovation is continuous and their laser focus on delivering exceptional quality to customers is truly impressive. LULU is a wonderful growth company in a difficult apparel category. After a few glitches with see-through yoga pants, LULU has some serious momentum currently. The growth opportunity around the world is truly staggering and they have just scratched the surface of what’s possible. LULU is not just another apparel company, they are a lifestyle brand. Through marketing, local, in-store events, and in local communities globally, they are building ties with their customers at a very emotional level. That’s an intangible that will pay off in spades over time. Also, the owner of the Mirror home fitness tech.

Style Factor Details

From a factor scoring perspective versus the other 199 brands in the brands index, here’s where LULU scores well as of 9/17/19:

• 79% for 3 year sales growth

• 78% better margins than industry peers

• 84% low debt to EV

• 81% low default potential

• 90% high operating ROIC

• 80% strong % change in EPS estimates

• 90% better change in ROE

12/31/21 Update

LULU management recently pre-announced the quarter would be at the lower end of the range they gave at last quarters report. They cited worker sick-outs and some supply issues in popular items due to inventory issues and shipping delays. The stock has been lagging lately, the valuation is still relatively high so high valuations that meet short-term earnings problems aren’t usually rewarded with higher stock prices. I’ll give this stock some room to settle into a lower range and when it stabilizes, it will be an add on the dip, I still believe they have big growth opportunities in front of them so a cheaper price would be a great buying opportunity. This business should offer the stability that investors want and need in times of turmoil. My wife certainly isn’t stopping her visits to LULU just because the Fed is hiking rates!

I’m not sure I can think of a more dominant brand serving a more popular consumption category than Lululemon. Every company loses their way for a short period of time but the great brands pivot quickly and get back to high relevance ratings. LULU is resonating with men and women, old and young, domestic and international consumers. The addressable market for athleisure is enormous and it’s not a fad, it’s a lifestyle. Someday this will change but I see no evidence of it currently. LULU is not a cheap stock but when you’re executing flawlessly and addressing an enormous theme, the market is usually willing to give the valuation some room to stretch. The real story is Asia in my opinion, we may have reached a saturation point in the U.S. but the demand for the brand in China and Asia is enormous. E-Commerce continues to grow well and will remain a significant extra revenue driver. The in-store experience is solid and LULU remains one of a handful of retail brands that’s been able to keep up the cool-factor in stores. They may have FOMO’d with the Mirror purchase in the heat of the pandemic and Im not sure they really know what the real opportunity is here. To me, its a new potential connection point and social network opportunity with camera’s in the Mirror plus they could charge a subscription fee to personal trainers all over the globe to get their clients connected with the Mirror. For now, they aren’t really innovating and driving the sales in Mirror hard and its not a big generator of overall revenue. Currently, the company, like most apparel brands is struggling with inventory and supply chain issues but demand remains strong, our local stores at Xmas were a mob house. They had a very good holiday season I will bet.