2. Unique Value
Proposition
• Underlying growth in key drivers (healthy
lifestyle & fashion trends)
• Untapped potential in the Asian-Pacific markets
• Lululemon provides a unique in-store experience
• Strongly positioned with focus on fashion appeal
and high athletic performance quality
• Strong historical financial performance
• Expansion into global market can boost finances
• Revenue segment momentum supports revenue
growth
Financial Growth
Strong Market
Potential
We value Lululemon Athletica inc. at $75 per
share, nearly 4% above market price
2
4. Market Potential Ÿ Unique Value Proposition Ÿ Financial Growth Ÿ Valuation! 4
Lululemon has the least market share in the
athletic apparel industry
55% 34% 7%
4%
Source: Company 10-K Reports
Market
Share
5. Market Potential Ÿ Unique Value Proposition Ÿ Financial Growth Ÿ Valuation!
Healthy living and casualization of apparel are the
drivers of growth in the athleisure market
Healthy living
5
Growth in
Athleisure
Market
Casualiza3on of apparel
6. Market Potential Ÿ Unique Value Proposition Ÿ Financial Growth Ÿ Valuation!
Athletic apparel has become more “casualized”
and worn for uses other than exercising
Use of
Apparel
Casual
38%
Running/Walking
37%
Gym Exercise
25%
6
Source: The Mintel Report
7. Market Potential Ÿ Unique Value Proposition Ÿ Financial Growth Ÿ Valuation!
5
8
9
11
12
15
17
21
24
23
25
26
27
29
30
32
-
5
10
15
20
25
30
35
2014 2015 2016F 2017F 2018F 2019F 2020F 2021F
Population Practicing Yoga in the United States (2012-2021F)
Millions of People
CAGR
(2012-21F)
Male
Female
Frequency
of Yoga
(50+/year)
5.3%
8.9%
18.3%
Population practicing yoga growing at 12%
7
Source: Sport Business Research Network
9. High
Athletic Performance
Market Potential Ÿ Unique Value Proposition Ÿ Financial Growth Ÿ Valuation!
Athletic Apparel Market Mapping (2016)
Athletic Performance and fashion appeal
High
Athletic Performance
High
Fashion
Appeal
Lululemon has set itself apart from competitors by
way of unique fashion appeal
Low
Fashion
Appeal
Low
Athletic Performance
9
10. High
Athletic Performance
Market Potential Ÿ Unique Value Proposition Ÿ Financial Growth Ÿ Valuation!
Athletic Apparel Market Mapping (2016)
Athletic Performance and fashion appeal
High
Athletic Performance
High
Fashion
Appeal
Competitors encroaching Lululemon’s niche
market space
Low
Fashion
Appeal
Low
Athletic Performance
10
12. Market Potential Ÿ Unique Value Proposition Ÿ Financial Growth Ÿ Valuation! 12
Despite its high quality standards, Lululemon
manages to keep costs low
52%
54%
52%
64%
30% 32%
38%
0%
82%
86%
90%
Lululemon Nike Under Armour Gap
COGS % of Sales SG&A % of Sales Total
Source: Morningstar
13. Market Potential Ÿ Unique Value Proposition Ÿ Financial Growth Ÿ Valuation! 13
Lululemon is able to charge higher prices than
competitors
$98 $80 $75
14. Market Potential Ÿ Unique Value Proposition Ÿ Financial Growth Ÿ Valuation!
Help me help myself
Ambassadors Community Manifesto
Lifestyle management is a key aspect that sets
Lululemon apart from competitors
14
16. Market Potential Ÿ Unique Value Proposition Ÿ Financial Growth Ÿ Valuation! 16
Lululemon’s current financial position
Revenue $ 2060.5 M
Gross Margin 48.4 %
Operating Income $ 369.1 M
Operating Margin 17.9 %
Net Income $ 266 M
LULU (as of January 2016)
17. Market Potential Ÿ Unique Value Proposition Ÿ Financial Growth Ÿ Valuation! 17
Lululemon’s operating margin currently
outperforms competitors
17.9
14.0
9.9
8.7
0
5
10
15
20
Lululemon Nike Under Armour GAP
Lululemon’s Operating Margin Compared to Main Competitors (2016)
Operating Margin, %
Source: Morningstar
18. Market Potential Ÿ Unique Value Proposition Ÿ Financial Growth Ÿ Valuation!
Established profitability provides a strong
foundation for growth
18
Product
Innovation
Full North
American
Potential
Digital Culture
Global Footprint
• Look to ambassadors as a source of inspiration
• Men: pioneered with ABC pants and Sweat category
• Women: Swift technology gaining momentum, more color
options for tops
• Optimizing existing store square footage
• Expanding brand presence through different formats
• New website: more interactive customer experience
• Mobile App
• Promote brand awareness in Asian countries
• Focused on winning in London
• Opening new stores in Europe, Middle East and Asia
19. Market Potential Ÿ Unique Value Proposition Ÿ Financial Growth Ÿ Valuation! 19
4.3% growth in sales of sportswear in China
presents an untapped opportunity
Sale of Sportswear in China
Billions of U.S. Dollars
Source: Euromonitor International
139.2 134.7
148.3
165.0
172.2
179.6
187.4
195.6
204.1
212.9
222.1
0
50
100
150
200
250
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
20. Market Potential Ÿ Unique Value Proposition Ÿ Financial Growth Ÿ Valuation!
Expansion into the Asian market is not risk-free
20
Fluctuating foreign
exchange rate
Intellectual
property
Cost of raw
materials
Maintaining value
and reputation
Supply chain
problems
Barriers in the
global market
21. Market Potential Ÿ Unique Value Proposition Ÿ Financial Growth Ÿ Valuation! 21
Lululemon’s investment in e-commerce segment
leads to forecasted growth
74%
59%
19%
32%
7% 9%
2015 2016F 2017F 2018F 2019F 2020F 2021F 2022F
Percent Revenue by Segment (2015-2022F)
Other
Direct to
Consumers
Company-
operated
Stores
22. Market Potential Ÿ Unique Value Proposition Ÿ Financial Growth Ÿ Valuation!
Lululemon Financial Performance (2015 – 2022F)
Millions of U.S. Dollars
22
Despite decrease in revenue growth over time, still
expected CAGR of ~10%
-
0.05
0.10
0.15
-
1,000
2,000
3,000
4,000
2015 2016F 2017F 2018F 2019F 2020F 2021F 2022F
Growth Rate Revenue
Growth Rate
25. Market Growth Ÿ Unique Value Proposition Ÿ Financial Growth Ÿ Valuation!
Lululemon’s equity value is $9.54B, suggesting an
appropriate price per share of ~$75
• Risk free rate: 2.75%
• Beta: 0.67
• WACC: 6.10%
• Terminal growth rate: 3%
• Terminal forecast year: 2022
• Tax rate: 30%
$4.0B
2022 revenue
Financial Assumptions Key Results
$0.79B
2022 EBIT
$9.54B
Equity Value
$75
Price per share
25
26. Unique Value
Proposition
• Underlying growth in key drivers (healthy
lifestyle & fashion trends)
• Untapped potential in the Asian-Pacific markets
• Lululemon provides a unique in-store experience
• Strongly positioned with focus on fashion appeal
and high athletic performance quality
• Strong historical financial performance
• Expansion into global market can boost finances
• Revenue segment momentum supports revenue
growth
Financial Growth
Strong Market
Potential
We value Lululemon Athletica inc. at $75 per
share, nearly 4% above market price
26
27. Appendix! 27
Appendix: Index
(28) SWOT Analysis – Strength and Weakness
(29) SWOT Analysis – Opportunities and Threats
(30) Marketing Strategy
(31) Marketing Strategy
(32) Marketing Strategy
(33) WACC Comparables
(34) Discounted Cash Flow Analysis
(35) Historical Stock Prices
(36) Growth in Asian markets
(37) Store Locations (worldwide)
28. Appendix! 28
SWOT ANALYSIS
Strengths and Weaknesses
• Unique brand positioning and fashionable
product offering
• Multi-channel approach
• Strong revenue growth
• Dependence on third-party suppliers and
manufacturers
• High price
• Unable to properly predict demand for products
29. Appendix! 29
SWOT ANALYSIS
Opportunities and Threats
• Compelling long term growth opportunity
• Men’s sales growth, ivivva store roll-outs, and
larger store formats
• Rising popularity of e-commerce
• Increasing competition in athletic apparel sector
• FX volatility impacting sales and margins
31. Appendix!
Marketing Strategy: 4 P’s
Product Price
Place Promotion
• Athletic apparel
• Fashion for a healthy lifestyle
• Online and in store
• Originally in Canada
• Looking to expand to Pacific
markets
• Fairly expensive compared to
comparable brands
• Ambassadors
• Social Media
• Soul Cycle Partnership
31
32. Appendix!
Company
Competition
Customer
• Lululemon
• Uniquely fashionable athletic apparel
• Unique technology (luon and ABC type fabrics)
• Aspire to healthy living
• Manifesto
• Educated and sophisticated women
• Growing male and female youth market
• Generally upper class
• Those who understand the importance of an
active and healthy lifestyle
• Adidas
• Nike
• Athleta
• Lucy
• Under Armour
Marketing Strategy: 3 C’s
32
33. Appendix! 33
WACC comparables
Lululemon Nike
Under
Armour
Gap
Cost of
Equity Ke
6.10% 6.33% 8.33% 6.48%
Cost of
Debt Kd
0 3.40% 4.25% 5.95%
Debt/Total
Value
0 23M 38M 182M
Marginal
tax rate
30% 30% 30% 30%
WACC 6.10% 6.24% 8.13% 6.06%
34. Appendix! 34
Discounted Cash Flow Analysis (in thousands)
Sum of FCF 1,922,127
Sum of DCF 1,495,097
Terminal Value 11,417,959
PV (TV) 7,543,637
Enterprise Value 9,038,734
Cash & Marketable
Securities
501,482
Debt 0
Equity Value 9,540,216
Shares Outstanding 127,520
Price per Share 74.81
35. Appendix! 35
Historical Stock Prices
Sheer
Legging
Scandal
3rd Quarter
earnings did not
meet analyst
expectations
67% increase in
inventory value Downsized profit
and sales forecast
Forecasted a fall
in sales in the 4th
quarter
36. Market Potential Ÿ Unique Value Proposition Ÿ Financial Growth Ÿ Valuation!
Asia could be the biggest contributor to growth
of athletic-wear sales
14
16 16 16
17
-
5
10
15
20
2015 2016 2017 2018 2019
Forecasted Athletic-Wear Sales in Asia
Billions of Dollars
Source: Morgan Stanley Research Estimates
36
