Lululemon: Premium Brand, Premium Priced

seekingalpha2022-05-30

SummaryLululemon Athletica is a leading experiential sports brand and retailer from Canada. With regards to apparel, Lululemon ranks as the world's fourth most valuable brand.2021 was a record year ...

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Jchiangz
2022-05-30
Jchiangz
Ok
BullishKing
2022-05-30
BullishKing
All in....
whywhywhywhy
2022-05-30
whywhywhywhy
[shy]

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With regards to apparel, Lululemon ranks as the world's fourth most valuable brand.2021 was a record year ...</p>\n\n<a href=\"https://seekingalpha.com/article/4515193-lululemon-premium-brand-premium-priced\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LULU","symbol_name":"lululemon athletica","start_time":0,"source_url":"https://seekingalpha.com/article/4515193-lululemon-premium-brand-premium-priced","article_id":"2239947905","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2239947905","pubTimestamp":1653888874,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"SummaryLululemon Athletica is a leading experiential sports brand and retailer from Canada. With reg","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"LULU":"lululemon athletica"},"translate_title":"Lululemon：高端品牌，高端定价","themeId":"","isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"LULU":1},"content_text":"SummaryLululemon Athletica is a leading experiential sports brand and retailer from Canada. With regards to apparel, Lululemon ranks as the world's fourth most valuable brand.2021 was a record year for Lululemon as the company increased total revenues by 42% year over year to $6.26 billion.Lululemon outlined its Power of Three x2 growth strategy, which aims at doubling the company’s revenues until 2026, reaching $12.5 billion of sales.Lululemon stock has delivered >250% return to shareholders in less than 5 years. That said, the stock has sold off 22% YTD as the market turned bearish towards growth assets.In this article, I apply a residual earnings framework based on analyst consensus EPS estimates and value LULU at $238.31/share.FinkAvenue/iStock Editorial via Getty ImagesThesisExperiential lifestyle brands such as Tesla (TSLA), Starbucks (SBUX), Apple (AAPL) have delivered above market returns, no matter the industry. For consumer discretionary products, brand equity is the key to gain multiple benefits such as pricing power, worth-of-mouth marketing and sales volume. One of my personal favourite lifestyle brands, a company that is still in super-charged growth mode, is Lululemon (NASDAQ:LULU). Lululemon stock has delivered >250% return to shareholders in less than 5 years. That said, the stock has sold off 22% YTD as the market turned bearish towards growth assets. Is now the time to buy?In this article, I apply a residual earnings framework based on analyst consensus EPS estimates to value Lululemon. My calculation finds that LULU is relatively fairly valued/slightly overvalued based on a $238.31/share target price.About LululemonLululemon Athletica is a leading experiential sports brand and retailer from Canada. The company designs and markets apparel and accessories for healthy lifestyle activities such as yoga, running and general fitness activities. Founded in 1998, Lululemon quickly grew to become one of the most valuable brands worldwide. Most notably, Lululemon’s brand value of $17.9 billion in 2021 fell just $1 billion USD short of what was required to rank in list of Top 100 Brands. Specifically for apparel, Lululemon ranks 4th, behind Zara, adidas (OTCQX:ADDYY) and NIKE (NKE). Lululemon operates and serves customers globally –with a focus on North America, Europe, and the APAC region. As of early 2022, Lululemon operates more than  600 stores around the world, of which approximately 320 are located in the United States. In 2021, Lululemon generated approximately 85% of total sales in North America, but the company’s international market is growing rapidly, increasing more than 50% year over year.Ambitious growth targets2021 was a record year for Lululemon as the company increased total revenues by 42% year over year to $6.26 billion. The strong growth was, amongst others, driven by digital direct-to-consumer-sales, which represented more than 50% of revenues and a strong performance in Lululemon’s men’s business, which increased >100% year over year.Moreover, in 2021 Lululemon outlined its Power of Three x2 growth strategy, which aims at doubling the company’s revenues until 2026, reaching $12.5 billion of sales. The strategy is supported by a focus on the company’s men’s business (1), international expansion (2), and digital sales (3). In addition, the strategy is aided by a healthy tailwind in the global activewear market, which is expected to grow at a 5-year CAGR of 7% (Source Bloomberg). The tailwind is even stronger in China, where the activewear market is expected to grow >12% CAGR (Source Bloomberg). For reference, between 2018 and 2021 Lululemon has grown sales at a 24% CAGR.Moreover, Lululemon management expects profit margins to expand as EBIT margin is predicted to increase from 22.0% in 2021 to 25.8% by 2026. That said, EPS should grow at a CAGR of >15%. Most notably, analyst consensus doesn’t doubt management’s ability to achieve the company’s ambitious growth target. In fact, consensus EPS in 2022, 2023, 2024 and 2025 are modelled at $9.33, $9.86, $12.86 and $14.86.ValuationIf management predictions and analyst consensus is correct, what should be a reasonable price target for Lululemon? To answer that question, I propose to value LULU stock based on a residual earnings framework and anchor on the following assumptions:Base my EPS estimates on the analyst consensus until 2025.I apply a 9% cost of capital, which is consistent with the WACC model and reflects Lululemon's relatively low risk growth.With regards to the terminal growth rate, I use a 1 percentage point premium to estimated nominal long-term GDP growth of 3.5%, calculating 4.5%.Given my assumptions and calculation, Lululemon appears slightly overvalued. My calculation returns a fair base-case target price of $238.31. However, I appreciate that investors might want to apply different valuation assumptions to LULU's WACC and terminal value growth. That said, I have also enclosed a sensitivity table. Feel free to select the scenario that best reflects your assumptions.Analyst Consensus EPS; Author's CalculationsAnalyst Consensus EPS; Author's CalculationsRisksInvestors are advised to note the following downside risks that could cause LULU stock to substantially differ from my target price as calculated in the valuation section:First, a slowing macro-environment caused amongst others by inflation, rising interest rates and supply-chain challenges could negatively the buying power of Lululemon's customer base. If challenges turn out to be more severe and/or last longer than expected, the company's financial outlook should be adjusted accordingly. The economic slowdown in China will likely negatively impact the company’s operation. This is especially true for Lululemon's exposure and growth aspirations with regards China, a country that is currently seeing strong economic headwinds.Second, Lululemon's success and growth strategy is deeply intertwined with the company’s strong brand equity. Arguably much of Lululemon's success is attributable to a very specific focus in the company's beginnings on 'women + yoga'. However, as the company has gradually expanded into more diverse segments, including tennis, men's business etc., there is a risk that new business ventures add to brand dilution and thus lower brand equity.Third, in an environment of falling asset prices and cautious sentiment towards risk assets, much of Lululemon's share price volatility is currently not driven by business fundamentals, but by investor sentiment. Thus, investors should expect price volatility even though Lululemon's business outlook remains unchanged. Furthermore, inflation and rising-real yields could add significant headwinds to Lululemon's stock price from a technical/mathematical perspective, as the higher discount rates affect the net-present value of long-dated cash-flows.ConclusionAlthough I like Lululemon as a company and although I think consumer brands with lots of brand equity are poised to outperform long-term, I am not fully convinced that LULU is a buy at current levels of >$290/share. The reason is simple: Even accounting for the realization of the company's ambitious growth targets until 2026, the fundamentals don't point to a bargain. That said, I feel the current market environment provides better opportunities. I conclude my article with a HOLD recommendation and a base case target price of $238.31/share.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":9024558718,"gmtCreate":1653890737934,"gmtModify":1676535358732,"author":{"id":"3582668631546681","authorId":"3582668631546681","name":"Jchiangz","avatar":"https://community-static.tradeup.com/news/041c55b4899ec376bd490b3a2e111b44","vip":1,"crmLevel":7,"crmLevelSwitch":0},"htmlText":"Ok","listText":"Ok","text":"Ok","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9024558718","repostId":2239947905,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9024558230,"gmtCreate":1653890671620,"gmtModify":1676535358732,"author":{"id":"3580988274582448","authorId":"3580988274582448","name":"BullishKing","avatar":"https://community-static.tradeup.com/news/8e57a03283c997f83948f8c331be008d","vip":1,"crmLevel":2,"crmLevelSwitch":1},"htmlText":"All in....","listText":"All in....","text":"All in....","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9024558230","repostId":2239947905,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9024525512,"gmtCreate":1653889642636,"gmtModify":1676535358576,"author":{"id":"3580704334567935","authorId":"3580704334567935","name":"whywhywhywhy","avatar":"https://static.tigerbbs.com/28195847b88a5c5115f0ab53d2eb35e7","vip":1,"crmLevel":8,"crmLevelSwitch":0},"htmlText":"[shy]&nbsp;","listText":"[shy]&nbsp;","text":"[shy]","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9024525512","repostId":2239947905,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":30,"commentSize":3,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.24.2","shortVersion":"4.24.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2239947905"}