Lululemon recently reported earnings so I decided to do a DCF analysis to figure out its intrinsic value. You can download the excel workbook here.
Business Overview:
Operating Segments:
Company Operated Stores:
- Owned 574 stores at the end of 2021, stores are located in 17 countries
- Plan on opening more stores in Asia and the United States
- Plan on increasing overall square footage of existing stores through expansions & relocations
Direct To Consumer:
- Serve customers through their website, mobile apps, and in store devices. Fulfill orders via company owned distribution centers & retail locations.
Other:
- Includes outlets, warehouse sales, pop up locations, wholesale, license & supply agreements.
- Mirror in home fitness platform that uses a subscription model to generate revenue.
Revenue Segmentation:
Company Operated Stores Revenue per Square foot:
Historical Financials:
Projections / Implied Share Price:
Upside Case Revenue Assumptions:
- Store growth rate increases by 15.5% initially and stabilizes at 3.7% in FY27 (25% increase from base case of 12.2%)
- Revenue / square foot stays constant at $1629 ( Highest $ / Sq-ft reached in FY19)
- Direct to consumer revenue increases by 33.8% decreases to 2.5% in FY31 (33.8% is the average growth rate excluding FY20)
- Other revenue increases by 32.6% decreases to 2.5% in FY31 (32.6% is the average growth rate excluding FY20)
Upside Case Expense Assumptions:
- Assumes COGS stays constant 42.3% of revenue (5% decrease from FY17-21 average of 44.5%)
- Assumes SG&A stays constant at 33% of revenue (5% decrease from FY17-21 average of 34.7%)
Projection:
Implied Share Price $216.47
Base Case Revenue Assumptions:
- Store growth increases by 12.2% initially, stabilizes at 1.6% in FY 27 (LULU plans on adding 70 stores in FY 2022 equates to 12.2% growth)
- Revenue / square foot stays constant at $1509.70 ( $ / Sq-ft reached in FY17)
- Direct to consumer revenue increases by 25.4% decreases to 1.9% in FY31 (25 % decrease from upside case)
- Other revenue increases by 24.5% decreases to 1.8% in FY31 (25% decrease from upside case)
Base Case Expense Assumptions:
- Assumes COGS stays constant 44.5% of revenue (average between FY17-22)
- Assumes SG&A stays constant at 34.7% of revenue (average between FY17-22
Projection:
Implied Share Price $143.56
Downside Case Revenue Assumptions:
- Store growth rate increases by 9.2% initially, stabilizes at 1.2% in FY 29 (Average between FY17-22)
- Revenue / square foot stays constant at $1390.40 (7.9% decrease from base case)
- Direct to consumer revenue increases by 16.9% decreases to 1.3% in FY31 (50 % decrease from upside case)
- Other revenue increases by 16.3% decreases to 1.2% in FY31 (50% decrease from upside case)
Downside Case Expense Assumptions:
- Assumes COGS stays constant 46.7% of revenue (5% increase from FY17-21 average of 44.5%)
- Assumes SG&A stays constant at 36.4% of revenue (5% increase from FY17-21 average of 34.7%)
Projection:
