Christian's avatar
$17.6m follower assets
Might be time to go Long $WOMEN
This isn’t a real ticker lol but I’ve been doing a lot of thinking and women control a lot of the spending in households. I think it’s time to own more women oriented stocks. I already got Starbucks might be time to own $ULTA and $LULU and go for the 3 peat lol. More of a comically post but all 3 are run exceptionally well especially during Covid and all 3 have a plan for the future and how they plan to continue this growth. I know there’s a lot of people who love Starbucks on here like me but if anyone wants to comment on the other two I’m all ears
Capisce Capital's avatar
$94.4m follower assets
1 of 3
Sept Comp Idea! Lululemon: Turning Leggings into Lemonade
Lululemon ($LULU) is a high-end athleisurewear manufacturer that is being mispriced by the market despite:

  • A cult-like customer base
  • Management execution in various economic environments
  • A long growth runway with men’s apparel and internationally

Founded in 1998, Lululemon IPO’d in July 2007 with annual revenue of $270 million reported in their first public 10-K. They finished FY 2021 with $6.3 billion in revenue, an impressive 23% CAGR over their public life.

In 2019, the company announced a five-year growth plan called the “Power of Three”, which aimed to double company revenue by focusing on:
  • Doubling men’s revenue
  • Doubling digital sales
  • Quadruple international sales

Perhaps aided by COVID-19 and rising remote work, Lululemon completed all these goals in three years, prompting them to release the new “Power of Three x2” plan earlier this year, aiming to once again double total company revenue in five years by focusing on the same benchmarks.

Despite recent growth acceleration, the overall macro picture cannot be entirely ignored: who wants to buy $120 leggings with 8% inflation? The answer: Lululemon customers, as the company has raised guidance on both revenue (6%) and earnings per share (8%) with each quarterly earnings report this fiscal year, as shown in the table below:

Lululemon was public during the Global Financial Crisis; so how did economic pressures affect them as a high-end retailer? They increased store count 69%, increased average revenue per store by 45%, and nearly doubled EPS from 2008-2010 – all impressive statistics when you consider their age and size of the company at the time.

Lululemon’s revenue per store has consistently been between $4-5 million every year since 2010 (excluding FY 2020, where most stores were closed due to COVID). This consistency jumps out because they have increased store count 559% since their first year as a public company. Clearly management excels at researching locations and setting themselves up for success.

Lululemon has continued innovating: building out their men’s products, expanding their accessories, and most recently, expanding to women’s shoes (Author’s note: while my experience is anecdotal, I was blown away when the day after the shoe release, I tried to buy some for my wife and found that a lot of color and size combinations had already been sold out). Management seems to have excellent foresight for what their customers want, investing in R&D to develop and strengthen that relationship.

Despite all this progress in the business, the stock price is down 21% YTD and 29% over the last 12 months. Some of that can be attributed to the overall market crash, some of that can be attributed to a re-rating of sales and income multiples, and despite their P/E ratio demanding a premium at 35, it is one of the lowest ratios the stock has seen since the end of FY 2017 when their revenue was $2.6 billion, and their EPS was $1.90. If you had purchased the stock at the close of the last trading day of that fiscal year, you would have almost quadrupled your money in four years. Sometimes quality businesses demand premium prices, and Lululemon fits that bill.

Thus far, we have covered positive reasons for investing in Lululemon; however, management made a potential $500 million error in their capital allocation of digital fitness manufacturer MIRROR, as sales estimates were reduced by 50% from initial projections and management seems to be struggling to scale that business. Randall Konik, the most bearish analyst on Lululemon, has been calling the top on Lululemon since 2016, saying athleisurewear, their digital growth, and international opportunities have peaked. Last month, he defended his downgrade with the following:

After years of low (and incorrect) price targets, his most recent thesis can be reduced to: “Eventually, they will stop executing this well,” despite their history as a public company under multiple CEOs proving otherwise. Of course, their growth cannot continue forever, but it is hard to bet against a management team that beats their five-year plan in three and sets new ambitious targets for the next five years. Management has shown the ability to scale responsibly and consistently grow revenue, earnings per share, and free cash flow year over year. Lululemon is armed with experience and ambitious growth plans, they are constantly innovating and expanding into new product lines, and the market should greatly appreciate their consistency in 2023.
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September Idea Competition - Aritzia Inc. ($ATZAF)
Wait, Who?
Aritzia is a vertically integrated fashion retailer offering what they call Everyday Luxury primarily catering to the female demographic. They maintain the bespoke-ness of your local luxury fashion shop while operating over 100 stores across Canada and the US. Each boutique, as they call their locations, is independently designed factoring in the local culture. No cookie-cutter locations. Also, their curated playlists are pretty good and available on $SPOT. I’m listening to their Cozy Sundays playlist as I write this.

Cool. Do They Move Product?

Since FY2018, Aritzia has seen their revenues grow at a CAGR of 19% while gross profit has grown at a CAGR of 22%. FY22 was a record year for margins with gross at 43.8%, operating at 15.8%, and net at 10.5%, improvements over FY20 (pre-COVID due to their FY ending in February's) of 270 bps, 30bps, and 130bps, respectively. Beyond margins, Aritzia reported C$2.36 in FCF/share, up 50% over two years earlier.

They’re pretty good at managing inventory as well. Aritzia has consistently maintained a TTM inventory turnover ratio between 4.0 and 5.0, figures other luxury retailers envy.

Talk Growthy To Me

Management identifies four growth drivers. Everybody wants to expand their eCommerce presence. That’s integral but boring to talk about. The keys to me are expansion.

  • Product Expansion

Aritzia made its first significant foray into the men’s demographic last year with the $63MM acquisition of Reigning Champs. This is a massive untapped market for them and the excitement from then-CEO Brian Hill showed in their press release. “...this acquisition meaningfully accelerates our product expansion into men's while bringing incremental growth to our already surging women's eCommerce and U.S. businesses. Capitalizing on our world-class operational expertise and infrastructure, men's, merchandised independently, will become a meaningful part of Aritzia's platform through our Reigning Champ acquisition.”

While management has been mum on the progress, there’s little reason to doubt their ability to successfully build out their men’s offerings although I expect them to take a slow, methodical approach.

  • Geographical Expansion

They currently have 109 boutiques, 61% being located in Canada and 39% in the US. Management recognizes the US opportunity as 19 of the 23 boutiques opened since 2018 have been south of their border.

Amounts in C$

Even though ~1/3 of their revenue comes from eCommerce, I believe revenue per boutique is a key metric to watch. As management noted below, geographical expansion is key in further driving eCommerce sales. Accordingly, management is guiding for 8-10 new boutiques in FY23 with all but 1 being in the US.

Don't think the boutiques aren't pulling their weight though. Aritzia generated over $1,230 in boutique sales per SqFt in FY22, on par with lululemon, who we'll discuss shortly.

Management and Insider Ownership

Aritzia has grown from one boutique opened by Brian Hill in 1984 to a rapidly growing up-and-coming behemoth currently run by Jennifer Wong, a veteran of the industry and a key figure in Aritzia’s eCommerce launch in 2012. Wong has been with Aritzia for 35 years, beginning with the company as a part-time sales associate in 1987, one year after their first boutique opened.

In May 2022, Aritzia announced that Wong would become CEO while Hill would transition to Executive Chair. In the press release, Aritzia was keen to note that Hill would remain part of the business and he had “no immediate plans to make changes in share ownership position", important as he currently owns nearly 20% of outstanding common shares.

Why Not Buy Lululemon? (The Valuation Section)
You could, sure, but you’d be paying premiums across the board for a company that’s growing sales just a few percentage points quicker and is at a more mature stage in its growth cycle. Evidence of that latter point is while both management teams are guiding for 26% revenue growth in their current FYs, lululemon recently released their five-year growth plan to double revenue to $12.5B by 2026. Sounds great except that would be a CAGR of <15% over the next 5 years, a significant slowdown.

Competitors such as $GOOS, $SHOO, $COLM, and $URBN are smaller in EV and may seem cheaper in some metrics, but that comes with 3Y revenue CAGRs <10%. With $ATZAF, you're paying a small premium over them, and a big discount to $LULU, for accelerating sales, gross profit, and net profit growth.

Disclosure Stuff
I own Aritzia and lululemon. There's room for both in a market-beating portfolio.
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Unfortunately I've been buying $ATZAF in a brokerage that is linked to Commonstock but isn't mapping my trades over so I've had to manually post when I did a trade. I actually just bought again on 9/2 but forgot to post that one. Here's my post from July 8 for a purchase I made on July 6 https://commonstock.com/post/9b2d9024-cadb-43e1-8cc5-8429d416bf18

On Septeber 2, I added another 7.5% more shares at a P/S of 2.9, forward P/S of 2.2, P/FCF of 22, and P/GP of 7.

All my other buys were between July 2021 and April 2022, before I joined Commonstock.
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Conor's avatar
$20.9m follower assets
Winter is Coming $GOOS
With all the talk of winter coming, there is one company whom could stand to benefit. I think it's a good time to look at Canada Goose which is currently trading down 50% YTD.

It's no secret that retail companies would prefer a higher margin DTC business than building stores and trying to staff them, especially in today's labor market. Similar to $LULU, Canada Goose has been increasing DTC mix each year. This does wonder on their operating margin which will continue to expand as DTC mix grows.

You should always look at the underlying business of a company before you look at the stock price. Canada Goose has a thriving business built around a very strong brand.

What if I started the article with their revenue and gross profit numbers before I showed you their stock was down 50% YTD?

I know this is only the top line, but I wouldn't think Canada Goose as a business is not performing. Quite the contrary.

As you can tell from the name Goose is located in Canada, but you won't find many companies with as much diversity in their revenue as Canada Goose. They are totally global with 30% coming from APAC.

The growth rates in EMEA, USA, and APAC are extremely solid all over 20%.

Valuation
My name wouldn't be Conor Value without talking about Value. Right now, Canada Goose is trading at a VERY juicy valuation.

Their Price-to-Earnings/Growth (PEG) ratio is 0.38! Anything under 1 is solid, but a 0.38 is insane.

P/E, EV/EBITDA, Price/Sales, and Price/ Cash Flow are all way below their 5-year average.

Conclusion

Goose was founded by, Sam Tick, an immigrant to Canada with a strong entrepreneurial spirit. The company is still run by the same family with Sam Tick's grandson, Dani Reiss, at the helm.

This company checks a lot of boxes for me with strong growth, family operations, large insider ownership (over 20%), and a great present value.

Disclaimer: As of this morning, I'm a shareholder of $GOOS. Due your own due diligence before making any investment.
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Great overview— especially appreciate the valuation section. May pick up some shares! In 2018 they were always surprising with their ER’s.
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Nick Garcia's avatar
$16.2m follower assets
YEEZY
What if Kanye West's clothing brand went public? Though it seems unlikely, he has recently talked about breaking off from Adidas ( $ADDYY ) and Gap ( $GPS ). Adidas being the partner for shoes, such as the popular 350, or the yeezy slides, and Gap being the clothing partner.


This article says the adidas contract ends in 23' , while gaps ends in 2030.

If Yeezy were to be publicly traded I believe it would be a very similar stock to Lululemon ( $LULU ) , I hear about Lulu all the time but i've never been into their clothing.

West has been showing his concern recently on social media, accusing Adidas of "Blatant Copying" when they released slides very similar to the Yeezy design.

If Yeezy was a public company i'd be invested.
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LULU: Revisiting Lululemon
The last time I penned my thoughts about Lululemon $LULU was December 2021 during a period when the core business shined and Lulu’s Mirror acquisition began to show the early signs of wilting in the face of declining demand. I was grateful that management’s commentary implied they would avoid throwing everything at an attempt to make Mirror, a business which comprised <3% of Lulu’s revenue at the time, work. They have since repurposed the business into a two-tiered subscription offering, branded under the parent’s more reputable name. The free tier (essential) is largely a loyalty program and the paid tier (Lululemon Studio) will replace the old Mirror membership, with the only remnants of Mirror being the hardware. A sensible decision to control a relatively contained ‘flop’ of an acquisition.

Elsewhere, the inflationary environment has continued to bleed into the financials via added expenditure across the supply chain and suppressed margins. Lulu’s average gross margin in the first half of this year is 55.2%, compared to 57.6% in 2021, and is expected to decline 100-130bps YoY by year’s end. However, the turnover of the business has borne witness to an unrelenting consumer. In the 9 months since I last wrote about Lululemon, YoY revenue has grown by 23%, 32%, and 29% across Q4 21’ through Q2 22’, for a trailing 12-month sum of $7.06B. One would assume that a premium apparel business would lose wallet share during the worst bout of inflation in decades, but Lulu’s core business of storefront and digital apparel distribution has continued to defy the odds. Whatsmore, executives feel so confident, that they strengthened full-year guidance for 2022; increasing mid-range revenue guidance by ~3.2% for the year (to $7.91B), suggested that an additional 5 storefronts will be opened (70→75), and improved their worst-case gross margin decline guidance by 20bps. A fair deal of time has passed since I last wrote about Lululemon, including three-quarters of results and one important Investor Day. I try not to get too bogged down with the minutiae, so will mostly be sticking to the stuff that matters. At present, Lululemon represents ~3.5% of my invested capital.

Catching Up - Verticals and the Power of Three 2.0

As far as context from the last 9 months goes, there are two developments (aside from the repurposing of Mirror) worth mentioning.

Verticals and Marketing

Firstly, the increasing breadth/depth of Lululemon’s SKUs. Some quarters ago, we learned that Lulu would be launching a shoe range, as well as a “play” range of clothing that fashions apparel for specific activities such as hiking, golf and tennis. There has yet to be any quantifiable data on either. It’s early days. The shoe range, thus far comprised of one unisex slider and four female sports sneaker designs, is a lower-margin product, but one that has created a new vertical, helping to upscale the wallet spend of existing customers and potentially aid customer acquisition. The “play” range, in my opinion, is an intelligent way of creating an illusion of product breadth. Today, the core line of Lulu apparel represents ~45% of their inventory. These are the staples, the legging pants, the ABC pants, et al. The items that bring consumers into the brand’s network. For years, customers have utilised these staples to engage in sports like golf, tennis, and hiking. There has never been a need to label a Lululemon product as “golf cargo short” or a “hike windbreaker jacket”. But doing so is smart, and here is why I think that to be the case.

Firstly, it creates a sense of specification whereby a keen golfer may purchase golf apparel simply because they feel it’s tailored for that sport. Regardless of whether or not that consumer is existing or newly activated, it alters the perception of Lululemon from “this is where I get my sportswear” to “this is where I get my golf wear”. The early evidence, according to McDonald, is that the Play range is more popular with existing consumers. It will be interesting to see if these ranges replace purchases of core items for existing customers or are supplementary to their spending patterns, thus increasing the average spend per user. I also feel that specialised ranges for individual sports may be a tailwind to new user acquisition. A way to introduce someone to the brand. I won’t go so far as to say this is a “TAM go Brrrrr” moment, but I can see how this may entice more male consumers to Lululemon, with golf, in particular, being a male-dominated sport. Outside of sports, the company’s line of accessories has proven to be a strong customer acquisition tool.

Lululemon “Everywhere Belt Bag”

The everywhere belt bag, priced at an unusually low £38 frequently brandishes a “sold out” sign and has been an exceptionally “great driver across existing guests as well as guest acquisition” according to McDonald. This, from my understanding, is why Lululemon has held off on pricing the accessory in line with the rest of their premium apparel. The success of this is evidenced by the fact that customer acquisition remains strong, with transacting frequency amongst new customers (+24% YoY) continuing to outpace that of existing customers (+17% YoY) in Q2.

The Power of Three 2.0

The other noteworthy development comes from an April investor day, where management refreshed its Power of Three growth plan by sticking a “2” on the end. Lululemon’s new 5-year plan, the Power of Three 2x, seeks to repeat the same goals they laid out in 2019; double the men’s & digital businesses and quadruple the international business. Whilst the repetition may seem uninspired, it’s worth remembering that these goals, previously set to a goal post of 2023 (with 2018 as the base year), were decimated ahead of schedule.

Lululemon doubled its digital business by 2020, its men’s business by 2022 and is set to quadruple its international business this year. Repeating those same goals, under a significantly larger base, is bold. The new plan guides for Lululemon to double annual turnover ($12.5B) and expand the DTC business to a scale that would be only ~10% smaller than the entirety of Lulu’s operation in 2021. Meaning, that management expects the LT composition of DTC to remain at ~45% of revenues. The strength of digital has been surprisingly resilient. After growing the DTC base by 100% in 2020 as digital supplemented in-store revenues, the division would grow a further 22% the following year. I recall believing that simply matching the prior year’s turnover would have been noteworthy.

All the while, store revenue has recovered in full, leaving me to believe that Lululemon did not only substitute store revenues for digital but, rather, grew their market share during this period. The sticking power of digital implies that the Lulu consumer has altered their purchasing behaviour, all the whilst increasing the number of consumers as a whole. This is important, because DTC possesses greater unit economics, and generates a higher proportion of segmented operating income per unit of revenue.

When entering a new market, Lululemon typically enters light on CapEx, building only a few stores, and pairs that with a full digital release. Just this quarter, they entered Spain for the first time, with a maiden store in Barcelona (2 more expected this year) and digital. Nike, a well-established retail company that turned over $44B in sales last year, scaled their own DTC arm from ~16% of revenues to ~42% over the past decade. Whilst I imagine Lululemon’s DTC composition oscillates between now and 5 years’ time, it doesn’t feel ostentatious to assume a mid-40s level is achievable by 2026.

As far as the men’s & international business goes nothing has changed from my comments in earlier memos. Initiatives for these goals tend to go hand in hand. Launch in new markets, release new verticals that appeal to targetted segment, and repeat. What is clear is that McDonald feels China will be a large part of the international equation; a market that is already the second largest by store count and one which is sought to be the second largest by revenue within 5 years. Mainland China is the first (presumably most important) pillar in the company’s three-pillar international strategy, followed by doubling down on core markets like the UK, Germany, South Korea, and Australia, and the scaling of existing and entrance into new markets.

As a follower of Starbucks $SBUX, whose China division has been decimated this year due to the nation’s strict adherence to zero covid policy, it was surprising to note that Lululemon’s sales were up 30% YoY in the region; showing the power in an omnichannel distribution. Chinese consumers may not be allowed to leave their homes, but they can still order Lululemon online.

Demand has been unfettered

In Q4 2020 direct to consumer accounted for 52% of Lululemon’s sales. Around this time, the economy began to re-open and, over the following 12 months, investors were granted clarity on which companies had simply pulled-forward demand (revenues peaked and began to tumble) and those which had pulled-forward demand but, importantly, retained those new consumers as repeat purchasers. Things are crystal clear through the rearview mirror, I know, but each quarter this business has continued to demonstrate that demand has been strong for their goods, despite the fluctuation in spending patterns from digital to brick & mortar, despite the modest price increases in areas of Lulu’s product range, and despite the worsening macro environment. I believe Lululemon’s trailing TTM revenue base is an amicable illustration of that. Over the duration of the chart below, Lululemons trailing revenue, gross profit, and EBIT have expanded 60%, 62%, and 84%, respectively.

Consumer behaviour doesn’t appear to be relenting either. McDonald would state in the call that they are “not seeing any meaningful variation in cohort behaviour” despite the worsening macro outlook. On top of the healthy transacting volumes of customers cited earlier, traffic across both in-store (+30% YoY) and commerce (+40% YoY) remains strong.

Saving my breath before moving on, I believe the absence of declining demand is quite clear when observing each of Lululemon’s subcategories. All revenue segments have been robust, regardless of how you slice them. In the recent quarter, revenues of $1.89B (+29% YoY) came in above expectations, and comparable sales (+25% YoY) were strong with an 18% increase in stores and a 32% increase in digital. So far this year basic EPS ($3.75) is up 39% YoY. On top of all this, management has meaningfully raised its full-year guidance. These would be great results in any economic climate, but I find it particularly impressive considering the microenvironment we find ourselves in today and the fact that Lululemon is as close to the definition of discretionary retail as it gets.

Some positives with respect to costs
Seemingly absent in Lululemon’s turnover, the worsening macro environment is evident further down the income statement. Contrary to Lulu’s power of three plan, gross margins are expected to decline between 100bps to 130bps in 2022, albeit a slight concession from the 100-150bps range provided last quarter. Much of this is chalked up to declining product margins. While Lulu has marked up ~10% of its inventory to combat inflation, increasing sales volumes and declining margins are not the result of markdowns. McDonald repeated that Lulu “remains predominantly a full-price business, and we have not changed our promotional cadence or markdown strategy and we have no plans to do so”.

It’s mostly a matter of the supply chain seeping through into COGS. More specifically airfreight; a method of transportation not exhaustively used to transport inventory prior to the pandemic. Of the 150bps retraction in gross margin in Q2, 130bps of that was related to airfreight. This has been a recurring theme. I am unsure when these pressures alleviate, but alongside the rest of the goals within the Power of Three plan, McDonald has stated that over the next 5 years he expects gross (& EBIT) margin to improve relative to historic levels.

There does appear to be some near-term restitution coming, however. Commentary from the Q2 call suggests that ocean shipping times are shortening (yet remain elevated vs 2019) as well as declining airfreight rates. Previously guiding for airfreight to be ~30bps above last year, executives now believe it will come in at ~10 under 2021 levels. Improvements in vendor readiness, allowing the company to receive products sooner, and having shorted lead times were also cited. Around the same time last year, Lululemon were under-inventoried. So much so, that they feel they left revenue on the table in the Fall season. Days' inventory outstanding spiked largely as a factor of supply chain inefficiency, as opposed to any weakness in demand. To compensate, the company currently has ~$1.5B of inventory on the books (+85% YoY) and is said to be well positioned for the fall and winter seasons; important as the majority of its sales are weighted towards the back half of the year.

This additional inventory has had an outsized effect on changes to working capital when compared YoY. Despite net income for the year ($479.5M) being up 36%, the level of operating cash flow has fallen from inflows of $500M (2021 H1) to an outflow of $146M (2022 H1). However, Meghan Frank remarked that inventory levels at the close of the next quarter should represent the high-water line. It’s worth noting here that transport & handling costs are baked into the value of inventory, as they are attributable to bringing the inventories to their present location. I suspect that as these rates decline, and lead times normalise, that inventory will fall back to levels more in line with sales trends. In short, excess inventory feels temporal, so long as the demand momentum continues. Fall and Christmas are upon us, so I suspect they will.

Concluding Remarks

I believe the outlook for Lululemon’s year is set up relatively well; coming out of a 6 month period where many expected the inflationary environment to dampen the spirit of the Lululemon consumer having done exceptionally well, and with the busiest period of the year ahead of them still. It is my understanding that much of the “alpha” earned in investing comes from deciphering between what the market expects and whether or not you feel a company is set to either fall short or greatly exceed those expectations. Thus far, they have continued to exceed expectations. Looking ahead, in this case, Lululemon has provided us with the expectations; they want to compound revenue at a 15% CAGR from 2021 through 2026. Presumably, that is priced in unless the market still believes they stumble somewhere in the near term. Over the last decade, the market has, on average, priced Lululemon at ~36x NTM earnings. This is during a period where revenue, gross profit, and EBIT, all grew an average of ~20% (give or take) per year. During this period gross margin has expanded ~920bps from 2015, and EBIT margins have averaged ~21%. Today, Lululemon is priced at ~32x NTM earnings; not remarkably below 10Y averages when you consider the distortion from the last three years when the company traded at closer to 49x NTM earnings. So what are investors getting for that 32x multiple?

If we are to believe management and assume that the company meets, not exceeds as they have traditionally done, guidance, then over the coming 5 years revenue might well compound at ~15% per year, gross margin should modestly expand to the higher 50s and compound at ~15%, and EBIT margins may be closer to 25% than it is today. This is all under the assumption that Lululemon meets its audacious goals and I suspect this is where the expectations are. Thus, the expectation is that Lululemon continues to grow at an attractive clip, whilst expanding margins modestly, but at a slightly slower rate than they have in the last decade. Should Lululemon exceed expectations and grow at a similar clip to that which they have done over the past decade, then I suspect the current valuation is a fair price to pay. However, I don’t have that level of conviction or insight currently. In my case, I use the 2026 guidance as the base case, which I suspect is already baked in, and at 32x earnings, I don’t feel Lululemon screams buy here.

The company traded for between 21x to 25x earnings throughout much of 2017 and early 2018. Following that, the company dipped below 30x earnings only once, in the winter of 2018. So, the company seldom comes “cheap”, and I am not surprised. That said, at ~3.5% of my invested capital, I am not in a rush to buy whilst the market’s expectations are so positive. Despite firing on all cylinders, I feel that the expectations are pretty baked in, without much regard for the potential economic banana peels that may crop up in the near to medium term. As much as I believe they will be stronger in 5 years, I feel there may be more opportune moments to step in and buy, perhaps when sentiment is not as rosy. In the event that I am wrong, I am extremely content to continue holding my existing position for years to come.

Thanks for reading,

Conor
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I thoroughly enjoyed reading your post. You even casually threw in the word "ostentatious". You are such a great writer.

I recently bought commission golf pants and shorts from Lulu's website. I'm not sure how their website looks in the UK but in the US it has a Golf section with golf apparel listed. I'm not really sure if marketing specifically towards golfers or other sports would bring in more customers.

My idea would be to market their current products to golfers or other sports using social media such as YouTubers or TikTokers. I know whenever I personally see someone on a YouTube channel l watch wearing something cool, I get very intrigued.

I think Lulu is doing an outstanding job with the macro backdrop of sky-high inflation and global supply chain disruption. Their gross profit margin is still higher than their 10-year average of 54%. Although this will keep coming down, I am not worried about it as much as other companies. Their operating margin is actually pretty solid for what I would have predicted at 22% for 2022.

What you discussed with their Mirror acquisition was spot on. I don't think they could have done a better job of handling that debacle. It still kind of irks me seeing Mirror in the stores but whatever.

One thing that I believe is driving this stock's multiple is its brand. As we all know strong brands deserve a premium during high inflation, and I believe we are seeing this being played out now. I can't think of brands with as much pricing power as Lululemon.

Your conclusion of $LULU being baked in with a rosy future is totally understandable. I would argue that $LULU is still a strong buy today compared to most companies because during a rough period they did an outstanding job of growing revenue and keeping profits fairly stable. In a better microenvironment, you will see them put out eye-popping numbers with higher OM.

Outstanding post, my friend!
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How do you deal with market fatigue?
Earlier this year, I switched my strategy to more of a dca to take the stress out of timing the market, and make my investing a bit more automated, as life was getting busier and I had less time to devote to stocks. But recently, I have been depositing my money and not purchasing, partially because I expect more short term pain and I'm tired of lighting money on fire, but also partially market fatigue.

It just feels like we spend too much time debating macro factors, inflation, consumer pressures, supply chain inefficiencies, etc, and it seems like execution of the individual company is irrelevant. For example, I thought $LULU knocked their earnings out of the park, and they were up post earnings, but gave back most of it because the overall market was red. It's discouraging and exhausting to actively invest when it feels like individual performance doesn't matter and I guess I've just been feeling a bit burnt out with my whole process, and I don't know if anyone else is feeling this and how they deal with it.
I’ve found when I get fatigued it helps to put more focus on areas outside of the market. Exercise more, spend more time with family, etc. and the relative importance of the weekly and monthly changes becomes less, provided you are invested in businesses you like for the long haul.
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$LULU Q2 2022 Earnings
Lululemon was our July's "best idea" and reported Q2 earnings yesterday. We introduced our analysis with the following paragrah:

  • Given the current volatile market fueled by inflation, recession fears and geopolitical tensions, we are more than ever interested in companies that set clear long-term goals and have an history of achieving those goals. It seems obvious, but few companies do it, and LULU is one rare example. While many companies are reducing their growth targets in the face of a possible recession, LULU is pursuing its growth strategy with continued focus and defying the macro outlook.

Q2 earnings were no exception! LULU reported earnings that beat Wall Street’s expectations, even as consumers grapple with high inflation.

Same store sales grew 23%, which beat StreetAccount’s estimate of 17.6%. Net sales rose 29% to $1.87bn. The company said that traffic remains strong both in stores (+30%) and online (+40%), even as surging inflation cramps consumers’ spending:

  • “Despite the challenges around us in the macro-environment, guest traffic in our stores and on our e-commerce sites remains robust, which speaks to the strength of our multi-dimensional operating model,” Chief Financial Officer Meghan Frank said in a news release.

LULU continued brick-and-mortar expansion during the quarter, with 21 net new stores for a total of 600 locations.

Inventories were up 85% to $1.5bn compared to the same period last year, but the company said it was “under-inventoried” at the time due to supply chain bottlenecks. LULU said it is confident the inventory level will help it boost sales during the holiday shopping season.

For 2022, LULU expects net revenue to be in the range of $7.865bn to $7.940bn, up from the range of $7.610bn to $7.710bn it stated last quarter, representing a 3Y CAGR of approximately 26%. Adj diluted EPS are expected to be in the range of $9.75 to $9.90, higher vs. last quarter’s guidance of $9.35 to $9.50.

Shares are trading higher (c.+9%) after the news.

New Watchlist Position
After adding $AMD last week with everyone's help, I am returning to figure out which new stock to pick with your guidance.

I love getting feedback and a sense of sentiment towards various companies on here and look forward to continuing these and learning from you all.

Since $LULU was a very close 2nd place last week, I'll bring it back for this week's poll.

The other three companies, however, are some of the most well-known stocks on earth that I never got around to buying: $NFLX, $META, and $TSLA.

It's time to potentially put an end to it my non-ownership with your help.

Thank you for your insights and for helping me expand my investing world. 🙏
Which stock should a buy for a new watchlist position?
45%Lululemon Athletica
9%Netflix
19%Meta Platforms
25%Tesla
31 VotesPoll ended on: 08/17/22
Can you belive that Ron Baron has over 40% of his fund in $TSLA? He also owns SpaceEx in his top 5 holdings as well. I think he might like Elon Musk a bit
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