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$LULU Business summary
A short summary on $LULU's Business - Based on our Jan 23 write-up:

1/ $LULU has 3 reporting segments: Company-operated stores, Direct to Consumer (e-commerce), and Other. COS generated 46% of sales or $3.4B on a TTM basis, while DTC accounted for 44% of sales or $3.3B.
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2/ The operating margin for Company-operated stores since FY12 until today averages at 27%, while the operating margin for Direct to Consumer averages at 42%. The higher margin of DTC is expected since costs like rent, electricity, and wages are minimized relative to COS.

3/ DTC seems the ideal segment, due to higher margins and lower CAPEX over sales requirements (average -> 2% DTC Vs 6% for COS) but without physical stores brand awareness would have been limited.

Under Power of Three x2 plan, the target is to double DTC sales to over $5.5B by FY26.

4/ $LULU's revenue by category is dominated by Women's products, accounting for 65% of TTM revenue, while Men's products have seen significant growth, increasing from 20% to 25% of TTM revenue since FY17. Other categories, including accessories and footwear, make up the remaining 10.5%.

5/ Men's products have been a major focus for Lululemon, with revenue growing from $691M in FY18 to $1.5B in FY21, exceeding the Power of Three plan earlier than expected. The Company's new target is to exceed $3B (another doubling) by FY26 under the Power of Three x2 plan.

6/ While footwear and Lululemon Studio (connected fitness) are exciting long-term opportunities for $LULU, the Company has taken a conservative approach to their growth.

We consider lululemon studio as an upside with positive externalities rather than a driver of future growth.

7/ Lululemon's revenue growth is impressive, with a CAGR of 20.5% in the US since FY12 and 34% internationally.

US accounts for 69% of Lululemon's sales on a TTM basis, while Canada and international sales account for 15% and 16%, respectively.
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8/ Quadrupling international sales from $360M to $1.4B was achieved 83% on a TTM basis (initial Power of Three - Apr 2019).

Power of Three x2 (Apr 2022) target is the same! Quadruple sales of $957 in FY21 to reach c. $3.8B by FY26 with China expected to be its 2nd key market, while the number of stores in China is to triple.
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Source: Latest 10Q filing, StockOpine analysis

9/ The number of stores drives revenue growth, but stores may not reach full potential initially. For example, Canada has fewer stores but similar revenues to international and revenue per store has declined when entering new regions like UK, China, and South Korea. The plan is to increase number of stores at double-digit rates.

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10/ LULU's brand value improved, but brand awareness is not yet high enough. Management is opening physical stores in Spain and Paris to improve recognition in Europe.

Unaided awareness stands at 25% in US, 15% in UK, and 7% in China, providing a huge opportunity for growth.
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Leo's avatar
Great writeup, thanks!
StockOpine's avatar
@leo_nelissen thank you Leo!
Arnaldo Trezzi's avatar
Interesting how they are able to penetrate this difficult market, great research. Thanks for sharing!
StockOpine's avatar
@arny_trezzi thank you Arny 🙏 looking forward to see them achieving Power of Three x2.
Dave Ahern's avatar
Another great summary guys! 👏👏. Curious, who do think is their main competition??
StockOpine's avatar
@ifb_podcast thank you Dave. The competition is across the board and we don’t want to just point to one competitor. Nike is solid while Athleta brand of Gap & Under Armour are few of the key competitors.
Porchester 🔺's avatar
What's your view when it comes to their margins going forward?
StockOpine's avatar
@porchester long term wise we project a slight decline in margins (check the valuation section in the full write-up) given the increasing competition & new marketing approaches.

On the other hand, as scale increases the expectation is for margins to improve (economies of scale). Overall, we think that margins will contract but if we are wrong, that’s even better for us.
Conor Mac's avatar
Earnings soon!
StockOpine's avatar
@investmenttalk can’t wait!



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