May 2, 2014
Consumer Goods
Lululemon Athletica Inc.
Ticker: LULU
Recommendation: Buy
Current Price: $45.93
Price Target: $57.13
Investment Thesis
Key Statistics
52 Week Price Range
50-Day M oving Average
50.30
1.37
Dividend Yield
N/A
3-Year Revenue CAGR
Lululemon’s new CEO and management team will provide
unprecedented expertise and fundamental understanding of the
brand’s mission and image

The expansion of the Lululemon Athletcia product line, opening of
Men’s only stores and the Ivivva brand will increase the
diversification of products, resulting in an enlarged target market

Lululemon has extensive plans to tap into global markets,
including Asia and Western Europe, to expand their movement
beyond the United States, Canada, Australia and New Zealand

Lululemon has created a unique following of loyal customers who
will continue to promote the Lululemon products and lifestyle due
to the mixture of emotional and physical reward
$44.32-$82.50
Estimated Beta
M arket Capitalization

6.61B
30.80%
Trading Statistics
Diluted Shares Outstanding
115.10
Average Volume (3-M onth)
3.38M
$90.00
105.80%
$80.00
14.17%
$70.00
12.04
$60.00
Institutional Ownership
Insider Ownership
One-Year Stock Chart
35000000
30000000
25000000
EV/EBITDA (LTM )
Margins and Ratios
Gross M argin (LTM )
56.00%
EBITDA M argin (LTM )
27.50%
$50.00
20000000
$40.00
15000000
$30.00
10000000
$20.00
Net M argin (LTM )
17.10%
5000000
$10.00
Debt to Enterprise Value
0.00
0
$0.00
Apr-13
Jun-13
Covering Analyst: Nicole Wilson
Aug-13
Volume
1
Oct-13
Adj Close
Dec-13
50-Day Avg
Feb-14
200-Day Avg
University of Oregon Investment
Group
Apr-14
University of Oregon Investment Group
May 2, 2014
Business Overview
Figure 1: Lululemon Yoga Exhibition
Source: Google Images
Lululemon Athletica Inc. (LULU) is both a designer and retailer of athletic
apparel operating primarily in North America and Australia. Lululemon was
founded in 1998 by Dennis Wilson in Vancouver, British Columbia to open a
door in the women’s athletic apparel market. The first store was built to act as a
community hub where people could interact and share physical and mental
aspects of living a healthy lifestyle. This idea resonated with the public and as of
February 2, 2014, Lululemon had 254 stores located in Canada, the United
States, Australia and New Zealand. Female athletic wear has been the primary
focus; however, the company has expanded its product offerings into everyday
causal wear, male athletic wear and products for athletic female youth.
Lululemon’s ability to promote their core values including developing high
quality products, leading a healthy lifestyle and training their employees in self
responsibility and goal setting has created a successful business feat. Currently
there are 7,622 employees.
The objectives of fit, function and performance are at the core of Lululemon’s
business. They have managed to generate some of the highest sale productivity
in the industry, and will continue to do so with the new management team
focused on brand loyalty. The company primarily uses their trademarked fabric,
Luon, and have a number of design patents as well.
LULU generates its revenue through three different channels: in-store, direct to
consumer and a wholesale segment. In-store sales represent the most significant
portion of sales. For example, in fiscal 2013, direct to consumer or e-commerce,
represented 16.5% of sales and the wholesale channel was approximately 1.4%
of net revenue.
Strategic Positioning
Figure 2: Lululemon Bag
Source: Google Images
Grassroots Marketing
Lululemon captures their consumers by creating an innovative and interactive
environment. They believe this grassroots approach successfully increases brand
awareness and broadens their appeal simultaneously. LULU’s primary target
customers are females who understand the importance of an active, healthy
lifestyle. Their marketing is not targeted at elite, intense athletes, but rather
focuses on females with a balanced life. Lululemon also embeds the importance
of comfort and functionality into the consumer’s minds. Their marketing
strategy is based on a community approach by building brand awareness.
Specifically, LULU hosts community events and creating in-store community
boards such as free yoga classes. An example of a community event is the
SeaWheeze half-marathon, which sold over 10,000 spots in 66 minutes.
SeaWheeze takes place in Vancouver, Canada and it is important to recognize
that 45% of the guests registering were from outside of Canada.
Building Ambassaor and Employee Relations
The company is also centered on training and personal growth of the employees.
With interactive stores like Lululemon, it is important to encourage the
employees to grow professionally and personally. Rather than generic sales
associates, in-store employees are known as “educators”. These educators are
trained to recognize each individual’s needs and provide them with the proper fit
and function accordingly.
UOIG 2
University of Oregon Investment Group
Figure 3: Lululemon Store
May 2, 2014
Asides from educators, Lululemon has adopted an ambassador program. LULU
employs extensive research in each of their communities and reaches out to
influential individuals. Typically these individuals are yoga instructors or fitness
personnel with a high demand and they model Lululemons activewear during
their sessions. Additionally, the ambassadors serve as product testers for the
company.
Vertical Retail
Lululemon is exclusively sold through the company’s own stores, high-end
lifestyle centers and yoga studios. Unlike other larger athletic wear companies
such as Under Armour who sell their products in large department stores,
Lululemon has stayed true to its boutique approach. The boutique approach not
only controls the brand image, but also allows the company to achieve higher
profit margins. The vertical retail strategy allows for direct interaction, direct
feedback from the customers.
Business Growth Strategies
Source: Google Images
Lululemon has a variety of growth strategies including growing North American
store base, expanding beyond North America, further developing the ecommerce sales channel and broadening the product lines.
Grow North American Store Base
According to management, Canada is already built out for female’s stores.
However, they will continue to open up more ivivva branded stores. In the US,
management believes that as of 2014, female stores are two-thirds of the way
built out, but they will continue to open more male stores and ivivva stores. The
combination of female, male and young girls’ stores makes Lululemon an
attractive brand across a variety of demographics.
Figure 4: Store Openings
Source: UOIG Spreads
Expand Beyond North America
As of February 2014, Lululemon operated 29 stores outside of North America,
in Australia and New Zealand. The company just hired a general manager in
Asia, Ken Lee, who is responsible for finding ideal locations for the company to
open stores in Asia. In other regions such as the Middle East, where the market
is complex, they are looking to hire partners who are experts in such areas.
Potdevin is pushing the strategy of building deep, local knowledge in these
markets before opening stores. This is certainly beneficial for LULU in the long
run, but leaves investors today with intensified speculation of the company’s
future success. A perfect example of launching a store outside of the North
America, is LULU’s opening of their first store in Europe during Q1 of this
year. Prior to the opening, Lululemon had representatives celebrating with the
community for several weeks, including hosting yoga at the Royal Opera house.
9,700 people starting lining up for the event before it started and the guests who
didn’t get spots were directed towards complementary yoga classes throughout
the City of London. The example of consumers’ enthusiasm towards the
company displays inevitable demand for more stores in the future.
Develop the E-Commerce Sales Channel
Lululemon is also going to extend their e-commerce offerings. The e-commerce
website was launched in 2009 and management believes there remains lots of
room for improvement, both on the retail side of the business and in regards to
differentiating the consumer online experience.
UOIG 3
University of Oregon Investment Group
Figure 5: Store Diversification
May 2, 2014
Broaden the Product Lines
Historically, Lululemon has been focused on designing and providing female
active wear. As previously mentioned, they have most recently tapped into other
target markets. Rather than being complacent with their female attire,
management is focused on expanding into product categories such as swim,
tennis and golf. The company also wants to extend the usage of their products
beyond yoga, running and general fitness. The company is channeling energy
towards growing the men’s business. Currently, men’s products are offered in
most stores, but in 2014 they are opening three locations that are fully dedicated
to men’s clothing in Vancouver, Miami and Santa Monica. Management is
optimistic that these stores will thrive and provide reasoning to expand locations
in the future. Ivivva, or the female youth line, is also a bright spot for the
business. In 2014, the company ended with 12 stores and are intending to add up
to 10 more by the end of the year. This line of business will continue to expand
for many years.
Industry
Source: LULU 10-K
Figure 6: Revenue Projections
Women’s Retail
Industry competition is expected to rise in women’s retail due to the increase in
internet retailers. According to Ibisworld, revenue growth is expected to be
strong in 2014 and 2015 as women continue to stock their wardrobes with items
did not purchase during the recession. The demand for high-end retail is on a
continuous upward trend, which is very helpful for Lululemon.
Gym, Health and Fitness
The benefits of a healthy lifestyle have been heavily publicized over the past
few years. During the five years to 2019, the industry will benefit from an
increase in per capita disposable income. The increase in spending coupled with
continued consumer awareness regarding the health benefits of exercise, will
drive revenue growth. Revenue is anticipated to grow at an annualized rate of
about 2.8%.
Time Spent on Leisure and Sports
The time spent on leisure and sports influence the industry demand. The more
time available for leisure, the more likely people will allocate time for exercise.
The link between leisure time and demand relates to health and fitness
awareness. Exercise clubs are typically used by individuals within the age range
of 20-64. The number of adults who will fall into this age category is expected
to increase slowly during 2014, which will help the industry.
Macro factors
Source: UOIG Spreads
Per Capita Disposable Income
Retail stores rely heavily on the income of their consumer. As per capita income
increases in the next upcoming years, there will be higher revenues in the
industry.
Consumer Spending
Consumer spending has a direct relation to revenue for the industry. An increase
in spending widens the customer base for the companies within the industry.
Generally, spending is normally tied with overall economic health and our
economy is gaining strength.
UOIG 4
University of Oregon Investment Group
May 2, 2014
Consumer Confidence Index
As the economy continues to recover, consumers will feel safer spending money
and start to save less. Consumer sentiment is expected to increase in 2014,
lower again in 2015, and have a steady rise into the forseeable future.
Figure 7: Consumer Confidence Index
Competition
22
12
2
06
07
08
09
10
11
12
13
14
15
16
-8
17
18
19
This company operates in a highly competitive environment. Aspects that
apparel companies compete on are price, preference, product life expectancy,
style and fit. It is very easy to manufacture yoga pants; however, it is extremely
difficult to create a brand that resonates with the public.
Capitalizing on a brand identity prevents other forces from entering into the
competitive market space. Branding is a complex process, as it is a combination
of attributes that create value for the customers. The tangible and intangible
aspects of a brand name can take years to build as well as extreme effort and
financing to maintain. For example, it took Nike about 15 years to successfully
build its brand name.
-18
-28
-38
-48
Source: IBISworld
Direct competitors include Lucy Activewear, Lorna Jane and Title Nine, all of
which are not publically traded companies. Under Armour, Nike and Gap also
offer similar products.
Although there are a variety of similar product offerings, Lululemon has
differentiated itself by offering a unique customer experience and creating an
innovative, community-based approach. For example, as part of the fitting
process, Lululemon provides hemming and altering as a complimentary service.
Nike, Under Armour and Gap all run their sizes as XS, S, M, L whereas LULU
sells sizes similar to pants sizing like 0,2,4,6,8 etc. The altering services coupled
with the different sizing techniques provide a very special, interactive
experience.
Figure 8: Store Projections
Management and Employee Relations
Lululemon has added two significant, expert members to their management
team this year. Working together, these individuals will lead the company to
expand their business and continue to maintain an esteemed brand image. Given
LULU’s performance in 2013, it is exciting to see the turnaround the
management team has in mind for the upcoming years.
Source: UOIG Spreads
Laurent Potdevin- Chief Executive Officer
Potdevin was elected CEO of Lululemon in November of 2013 due to his
expertise in the retail industry. Prior to Lululemon, he served as President of
TOMS Shoes and he helped build a strong management team, led global
expansion and broadened their brand identity. Before TOMS Potdevin was CEO
of Burton Snowboards, another brand focused on customer service and
experience. Potdevin’s expertise coupled with his passion for athletics makes
him a promising fit and upside catalyst looking into the future.
John Currie- Executive Vice President and Chief Financial Officer
In January of 2007, John Currie joined the Lululemon team as both Executive
Vice President and Chief Financial Officer. In addition to working for LULU,
Currie served as the CFO for Intrawest Corporation and financial positions
within the BCE group. It is important to recognize that like Potdevin, Currie
provides legitimate experience with expanding global business.
UOIG 5
University of Oregon Investment Group
May 2, 2014
Tara Poseley- Chief Product Officer
Joining the management team in October of 2013, Poseley also adds a new
energy to Lululemon. After 25 years of experience in the retail industry, she
offers expertise in strategic product development and merchandising and brand
management. Prior to Lululemon, she was CEO of Kmart Apparel and Interim
President at Bebe Stores, President of Disney Stores North America and CEO of
Design Within Reach. Additionally, Poseley spent about 15 years working for
Gap, Inc. which is a direct competitor for Lululemon. Only to enhance her fit
with the company, it’s important to note that she is an avid yoga practice and
telemark skier.
Figure 9: COGS Projections
Management Guidance
Laurent Potsdevin joined Lululemon as CEO in January of 2014. Rather than
providing investors with numerical guidance, he takes the stance of reassuring
and embedding Lululemon’s mission of fit, function and performance to the
public. Perhaps he uses this strategy because in the past, the stock has reacted
very sensitively to lowered guidance. He has only been CEO for three months
and will eventually have to provide investors with more concrete guidance.
Source: UOIG Spreads
In regards to the 2014 year, they expect revenue to fall within 1.77-1.82 billion
dollars. The gross margin will remain in the low 50’s due to the rebalancing of
product assortment to meet guest demands, a product development engine for
global business and a foreign exchange impact from a weaker Canadian dollar.
Management also expects the capital expenditures to fall between 110 and 115
million.
Recent News
“Lululemon Sees Holiday Quarter Profit Improve”
March 27, 2014
Ben Rubin, from the Wallstreet Journal, wrote about Luluemon’s improved
profits over the holiday season. The article discusses the negative PR and quality
control issues have caused a series of problems in the last year. Despite the
issues, the company has managed to improve their profit margins.
Figure 10: DCF Considerations
Considerations
Avg. Industry Debt / Equity
Implied Price
5.07%
Avg. Industry Tax Rate
32.19%
Current Reinvestment Rate
45.47%
Reinvestment Rate in Year 2020E
15.01%
Implied Return on Capital in Perpetuity
19.99%
Terminal Value as a % of Total
40.7%
Implied 2015E EBITDA Multiple
11.5x
Implied Multiple in Year 2024E
1.9x
Free Cash Flow Growth Rate in Year 2024E
8%
Source: UOIG Spreads
“Lululemon Shareholder Suit
See- Through Pants
TerminalOver
Growth Rate
Tossed”
April 18, 2014
Bob Van Voris from Bloomberg writes about the dismissal of claims that
shareholders lost $2 billion because the athletic-wear company misled them
about quality problems with its products. The claims have been dropped because
investors failed to show that statements about product quality were false and
misleading.
Catalysts
Upside

The Ivivva and men’s only stores will further develop brand recognition
and loyalty amongst a larger target market

Unique grassroots marketing strategies will continue to differentiate this
company from its competitors
UOIG 6
University of Oregon Investment Group
Figure 11: Comparable Weightings
Multiple
EV/Revenue
EV/Gross Profit
EV/EBIT
EV/EBITDA
EV/(EBITDA-Capex)
Market Cap/Net Income = P/E
Price Target
Current Price
Undervalued
Implied Price
Weight
42.12
0.00%
48.34
0.00%
82.93
0.00%
76.04
70.00%
85.95
20.00%
87.95
10.00%
$79.21
45.93
72.47%
May 2, 2014

Other companies, such as Nike, are increasing the prices of their yoga
pants diminishing price as a competitive advantage

Potdevin, Currie and Poseley will leverage their prior experience in
managing a global brand for the best interest of Lululemon’s image
Downside

More issues around PR will negatively affect the stock prices

If Lululemon’s customers do not like their new products, the harm would
be very detrimental to the business

The highly competitive market and the size and resources of some
competitors may allow them to compete more effectively

The company’s inability to successful open new stores in ideal locations
will hinder the ability to capitalize on the grassroots marketing efforts
Source: UOIG Spreads
Comparable Analysis
The valuation methods for the consumer goods sector are generally
EV/EBITDA and the PE ratio. The EV/EBIDTA was weighed 70% because it
ignores the different taxations of the comparable companies. EV/(EBITDACapex) was also used because this industry spends a substantial amount on
capital expenditures to extend their business. Lastly, P/E was weighted at 10%.
This sector is also very cyclical, so the earnings are volatile. Despite being a
common metric for the industry, it implies an extreme undervaluation so it was
weighed minimally.
Figure 12: Under Amour Logo
It is difficult to find comparables for a company like Lululemon, which operates
in a specific niche. With their plans to expand overseas, it made it slightly easier
to find comparable companies. The comparables were chosen based on product
offering, geographic locations and growth rates.
Under Armour, Inc. (UA)- 40%
Source: Google Images
Under Armour Inc. (UA) distributes performance apparel, footwear and
accessories for men, women and youth and is headquartered in Baltimore,
Maryland. The company provides its apparel in compression, fitted and loose
types for both hot and cold weather and for the following activities: football,
baseball, lacrosse, softball and soccer cleats, slides, running, and hunting boots.
Their revenue is generated primarily from the wholesale of products and through
a direct consumer sales channel, which includes brand store and websites. A
large majority of their sales are within North America, but the company is
continuing to expand into other markets.
UA is a good comparable to Lululemon because the majority of their revenue,
94.1%, is derived from North America. They sell their products through
independent distributors in Australia and New Zealand as well. In 2011, they
opened their first store in China and Lululemon also intends to tap into Asian
markets. Under Armour has a large product mix, and their female line is targeted
specifically at intense athletes.
UOIG 7
University of Oregon Investment Group
May 2, 2014
The Gap, Inc. (GPS)-20%
Figure 13: Gap Logo
The Gap (GPS) operates as an apparel retail company worldwide founded in
1969 in San Francisco. It provides apparel, accessories and personal care
products for men, women and children under the Gap Inc., Banana Republic,
Old Navy, Piperlime, Athleta and Intermix brands. Amongst its variety of
product offerings are active apparel for women, accessories for sports and
fitness activities and crossover apparel for casualwear. GPS has franchise stores
in Asia, Australia, Eastern Europe, Latin America, the Middle East and Africa.
As of March 2014, Gap has 3,100 company-operated stores in 350 franchise
stores throughout 90 countries. They have about 137,000 employees.
Lululemon competes more directly with the Athleta brand that was acquired by
Gap in 2008 and there are currently 65 Athleta stores. Athleta offers functional
apparel, footwear and accessories across a wide variety of sports and fitness
activities. Additionally, in 1998 GapBody was launched in Gap stores and
includes active wear for women. All of these products are available globally.
Source: Google Images
Figure 14: Nike Logo
Gap was founded about 45 years ago, but is still an important comparable for
Lululemon because their Athleta brand is growing quickly. In 2013, they opened
30 stores.
Nike Inc. (NKE)-20%
Headquarted in our beloved Beaverton, Nike Inc.is involved in the development,
marketing and sale of athletic apparel, equipment and accessories for men,
women and kids worldwide. Nike operates in seven categories, including
running, basketball, football, mens training, womens training, NIKE sportswear
and action sports. The products are designed for athletic use, although many
users wear Nike for recreational reasons. Nike also owns Converse and Hurley
brands. They have about 645 Direct to Consumer stores and widely distribute
their products by internet websites and other retail stores.
Nike’s business model is far more complex and versatile than Lululemons. They
have successfully branded the iconic ‘sport’ image throughout the world. That
being said, they do offer products that directly align similarly with Lululemon,
both in style and in price. No one is in the position to hinder Nike’s growing
legacy, but Lululemon is penetrating one of Nike’s niche markets.
Source: Google Images
Figure 15: Abercrombie Logo
Abercrombie and Fitch (ANF)-20%
Abercrombie and Fitch was incorporated in Delaware in 1996. This retailer sells
a wide variety of products including casual sportswear, personal care products,
and accessories for men, women and kids under the Abercrombie & Fitch,
abercrombie kids, and Hollister brands. ANF has 843 stores in the United States
and 163 stores outside of the United States.
ANF was chosen as a comparable due do its market capitalization, business
model and somewhat similar growth rates. Abercrombie and Fitch held their
initial public offering in 1996 and investors have endured a wild ride.
Discounted Cash Flow Analysis
Revenue Model
Revenue is projected on a per store basis. Historically, stores have been growing
more than 20% a year and the growth is trended down substantially in the
revenue model. The revenue model is broken up into three geographic segments:
Source: Google Images
UOIG 8
University of Oregon Investment Group
May 2, 2014
United States, Canada and Outside of North America. Lululemon has focused
primarily on North America, but has consistently opened stores in New Zealand
and Australia.
Figure 16: Beta Calculations
Beta
SE
Weighting
Three Year Daily
1.37
0.00
100.00%
Three Year Weekly
1.38
0.05
0.00%
5 Year Monthly
1.53
0.12
0.00%
1 Year Daily
1.48
0.22
0.00%
Lululemon Athletica Inc. Beta
The Stores Breakdown illustrates the reasoning behind the projections. There are
three categories of stores including Lululemon Athletica, ivivva, and a Men’s
line. Lululemon is primarily focusing on Western Europe and Asia for store
openings in the next few years. After that, further expansion into South America
and Eastern Europe is possible. Looking forward, the stores were projected
based on a mixture of management guidance and trends.
Revenue was projected using the same-store sales method. Seasonal and
geographic variations are removed from the measurement because this valuation
collects and average. Lululemon has not operated any outlet stores, so the ability
to project same-store sales is simple.
1.37
Source: UOIG Spreads
Beta
The beta is weighed 100% with 3 year daily regressions off the S&P 500. There
is no margin of error. I believe a beta of 1.37 accurately represents the risk
associated with this company.
Figure 17: Sensitivity Analysis
Undervalued/(Overvalued)
Adjusted Beta
Terminal Growth Rate
0
2.0%
2.5%
3.0%
3.5%
4.0%
1.17
20.22%
23.82%
27.93%
32.65%
38.14%
1.27
10.39%
13.30%
16.59%
20.33%
24.62%
1.37
1.86%
4.23%
6.89%
9.89%
13.30%
1.47
(5.61%)
(3.66%)
(1.48%)
0.95%
3.69%
1.57
(12.19%)
(10.57%)
(8.78%)
(6.79%)
(4.57%)
Source: UOIG Spreads
Implied Price
WACC
Selling, Administrative and Other Expenses
Their SG&A consist of marketing costs, accounting costs, information
technology costs, human resource costs, professional fees, corporate facility
costs etc. SG&A is projected to increase due to the anticipated growth of the
corporate staff and store-level associates.
Depreciation & Amortization
Depreciation and Amortization relates to leasehold improvements, furniture and
fixtures, computer hardware and software and equipment in the stores. It was
projected as a percentage of revenue because it has historically remained steady.
There was no direct correlation between D&A costs and Cap-Ex in a year, so the
percentage of revenue method is appropriate.
Figure 18: Sensitivity Analysis
50
2.0%
Terminal Growth Rate
2.5%
3.5%
3.00%
4.0%
10.34%
49.48
50.86
52.43
54.23
56.31
10.84%
48.34
49.58
50.96
52.54
54.35
11.34%
11.84%
47.33
48.44
49.67
51.07
52.65
46.43
47.42
48.53
49.77
51.17
12.34%
45.60
46.51
47.51
48.62
49.87
Source: UOIG Spreads
Cost of Goods Sold
COGS includes the purchased merchandise, delivery, costs of the distribution
centers, costs of occupancy related to store operations and the cost of
production, merchandize and design. As Lululemon enters the Asian
marketplace, it is likely that their COGS will decrease as a percentage of
revenue due to a decrease in inventory delivery and wage labor. Furthermore,
the ivivva line requires less material because the sizes are substantially smaller.
Capital Expenditures
These costs are related to opening stores and ongoing store refurbishment.
Management providedUndervalued/(Overvalued)
specific guidance for capital expenditures in the
Terminal
Growth Rate
upcoming fiscal year. Beyond that,
capital
expenditures are projected out to
increase, but decrease as a percentage of revenue into the future. Unfortunately,
there was no correlation between the amount of capital expenditures and store
opening historically.
Tax Rate
The company’s tax rate has been fluctuating significantly in the previous years.
Due the expectation of selling products abroad, the tax rate slightly decreases
over time.
UOIG 9
University of Oregon Investment Group
May 2, 2014
Terminal Growth Rate
The free cash flow was growing at about 8% in the terminal so I used a 3% an
intermediate growth rate in compliance with group standards.
Recommendation
Figure 19: Implied Price
Lululemon has captured a large pool of loyal customers and is in the midst of an
Final Implied Price
DCF
Price Target Weight
enormous expansion. 2013 was a treacherous year for this company due to a
47.88
60.00%
17% product recall, an inappropriate PR comment and the addition of a new
Forward Comparables Analysis
79.21
40.00% management team. Let the other investors dwell in the past. This is an
Price Target
60.41
exceptional brand with incredibly strong brand loyalty. Let’s support the growth
and international expansion. Both the Discounted Cash Flow Analysis and
Comparable Analysis show an undervaluation. Given a price target of $60.91
and an undervaluation of 31.53%, LULU is given a rating of outperform for the
Svigals and Tall-Firs portfolios.
Current Price
Undervalued
45.93
31.53%
Source: UOIG Spreads
UOIG 10
University of Oregon Investment Group
May 2, 2014
Appendix 1 – Comparable Analysis
Comparables Analysis
LULU
Lululemon
Athletica Inc.
($ in millions)
Stock Characteristics
Current Price
Beta
Max
$72.52
1.85
Min
$36.96
0.67
Size
Short-Term Debt
Long-Term Debt
Cash and Cash Equivalent
Non-Controlling Interest
Preferred Stock
Diluted Basic Shares
Market Capitalization
Enterprise Value
178.00
1,369.00
3,337.00
0.00
0.00
878.10
64,894.00
61,192.00
0.00
0.00
347.50
0.00
0.00
73.40
2,722.00
2,317.00
25.00
180.73
698.65
0.00
0.00
173.60
11,322.00
11,128.00
Growth Expectations
% Revenue Growth 2014E
% Revenue Growth 2015E
% EBITDA Growth 2014E
% EBITDA Growth 2015E
% EPS Growth 2014E
% EPS Growth 2015E
23.63%
22.34%
27.10%
24.10%
23.50%
25.40%
-3.50%
1.30%
4.70%
7.90%
8.00%
12.50%
Profitability Margins
Gross Margin
EBIT Margin
EBITDA Margin
Net Margin
62.30%
24.40%
27.50%
17.08%
Credit Metrics
Interest Expense
Debt/EV
Leverage Ratio
Operating Results
Revenue
Gross Profit
EBIT
EBITDA
Net Income
Capital Expenditures
Multiples
EV/Revenue
EV/Gross Profit
EV/EBIT
EV/EBITDA
EV/(EBITDA-Capex)
Market Cap/Net Income = P/E
Median
Weight Avg.
$45.93
$48.71
1.37
1.15
UA
Under Armour
Inc
GPS
NKE
The Gap, Inc.
Nike, Inc.
ANF
Abercrombie &
Fitch Co.
$45.93
1.37
40.00%
$47.21
0.88
20.00%
$39.63
1.48
20.00%
$72.52
0.67
20.00%
$36.96
1.85
85.59
571.13
1,124.62
0.00
0.00
349.14
21,488.00
20,554.20
0.00
0.00
698.65
0.00
0.00
115.41
5,300.78
4,602.13
104.97
47.95
347.50
0.00
0.00
173.60
11,322.00
11,128.00
25.00
1,369.00
991.00
0.00
0.00
447.00
17,180.00
17,006.00
178.00
1,210.00
3,337.00
0.00
0.00
878.10
64,894.00
61,192.00
15.00
180.73
600.12
0.00
0.00
73.40
2,722.00
2,317.00
8.70%
9.40%
10.00%
12.60%
14.20%
15.80%
11.25%
12.08%
15.38%
15.94%
18.32%
19.52%
15.04%
14.45%
14.30%
14.04%
14.20%
14.33%
23.63%
22.34%
27.10%
24.10%
23.50%
25.40%
3.80%
5.00%
4.70%
7.90%
8.00%
12.50%
8.70%
9.40%
10.00%
12.60%
13.60%
15.80%
-3.50%
1.30%
8.00%
11.00%
23.00%
18.50%
39.05%
6.82%
12.44%
4.48%
49.01%
12.81%
15.23%
7.88%
48.81%
11.15%
14.35%
7.26%
0.56
0.24
0.28
0.17
0.49
0.11
0.14
0.07
0.39
0.13
0.16
0.08
0.45
0.13
0.15
0.10
0.62
0.07
0.12
0.04
$61.00
0.08
0.51
$0.00
0.00
0.00
$11.15
0.02
0.38
$24.69
0.04
0.40
$0.00
0.00
0.00
$3.14
0.01
0.38
$61.00
0.08
0.51
$45.00
0.02
0.30
$11.15
0.08
0.40
$30,103.00
$13,443.00
$3,959.00
$4,586.00
$2,995.00
$856.00
$1,830.57
$1,021.46
$271.00
$398.00
$178.00
$112.00
$1,830.57
$1,021.46
$446.66
$503.41
$312.66
$112.00
$2,883.00
$1,413.00
$331.00
$398.00
$202.00
$136.00
$16,454.00
$6,425.00
$2,108.00
$2,711.00
$1,296.00
$711.00
$30,103.00
$13,443.00
$3,959.00
$4,586.00
$2,995.00
$856.00
$3,971.00
$2,474.00
$271.00
$494.00
$178.00
$202.00
3.86x
7.88x
33.62x
27.96x
42.47x
56.05x
0.58x
0.94x
8.07x
4.69x
7.93x
13.26x
1.03x
2.65x
8.07x
6.27x
8.50x
13.26x
2.03x
4.55x
15.46x
13.34x
16.41x
21.67x
0.58x
0.94x
8.55x
4.69x
7.93x
15.29x
$3,971.00
$11,258.80
$2,474.00
$5,033.60
$446.66
$1,400.00
$503.41
$1,717.40
$312.66
$974.60
$202.00
$408.20
#NUM!
0
2.03x
2.27x
4.51x
4.78x
10.30x
19.86x
9.14x
16.05x
11.76x
23.56x
16.95x
32.46x
Multiple
EV/Revenue
EV/Gross Profit
EV/EBIT
EV/EBITDA
EV/(EBITDA-Capex)
Market Cap/Net Income = P/E
Price Target
Current Price
Undervalued
2.51x
3.86x
4.51x
7.88x
10.30x
33.62x
9.14x
27.96x
11.76x
42.47x
16.95x
56.05x
Implied Price
Weight
42.12
0.00%
48.34
0.00%
82.93
0.00%
76.04
70.00%
85.95
20.00%
87.95
10.00%
$79.21
45.93
72.47%
UOIG 11
University of Oregon Investment Group
May 2, 2014
Appendix 2 – Discounted Cash Flows Valuation
Discounted Cash Flow Analysis
($ in millions)
Total Revenue
2010A
452.9
2011A
2012A
2013A
2014A
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
711.7
1001.8
1370.4
1591.2
1830.6
2095.1
2340.3
2590.8
2862.3
3257.4
3626.4
3814.6
3959.1
57.1%
40.8%
36.8%
16.1%
15.0%
14.5%
11.7%
10.7%
10.5%
13.8%
11.3%
5.2%
3.8%
4.4%
209.0
205.2
401.2
564.5
702.0
809.1
923.9
1030.9
1140.0
1258.0
1430.0
1590.2
1670.8
1732.1
1806.2
% Revenue
46.1%
28.8%
40.0%
41.2%
44.1%
44.2%
44.1%
44.1%
44.0%
44.0%
43.9%
43.9%
43.8%
43.8%
43.7%
Gross Profit
$243.9
$506.5
$600.6
$805.8
$889.1
$1,021.5
$1,171.2
$1,309.4
$1,450.9
$1,604.3
$1,827.4
$2,036.2
$2,143.8
$2,227.0
$2,327.0
Gross Margin
53.9%
71.2%
60.0%
58.8%
55.9%
55.8%
55.9%
56.0%
56.0%
56.1%
56.1%
56.2%
56.2%
56.3%
56.3%
136.2
212.8
282.3
386.4
448.7
518.1
597.1
664.1
728.7
797.9
899.9
992.7
1034.7
1064.0
1100.5
30.1%
29.9%
28.2%
28.2%
28.2%
28.3%
28.5%
28.4%
28.1%
27.9%
27.6%
27.4%
27.1%
26.9%
26.6%
20.8
24.6
30.3
43.0
49.1
56.7
65.2
73.4
81.9
91.2
104.6
117.4
124.5
130.2
136.9
4.6%
3.5%
3.0%
3.1%
3.1%
3.1%
3.1%
3.1%
3.2%
3.2%
3.2%
3.2%
3.3%
3.3%
3.3%
$1,089.6
% YoY Growth
Cost of Goods Sold
Selling General and Administrative Expense
% Revenue
Depreciation and Amortization
% Revenue
Earnings Before Interest & Taxes
4133.2
$86.9
$269.1
$288.1
$376.4
$391.4
$446.7
$508.8
$571.9
$640.3
$715.2
$822.9
$926.1
$984.6
$1,032.8
19.2%
37.8%
28.8%
27.5%
24.6%
24.4%
24.3%
24.4%
24.7%
25.0%
25.3%
25.5%
25.8%
26.1%
26.4%
86.9
269.1
288.1
376.4
391.4
446.7
508.8
571.9
640.3
715.2
822.9
926.1
984.6
1,032.8
1,089.6
19.2%
37.8%
28.8%
27.5%
24.6%
24.4%
24.3%
24.4%
24.7%
25.0%
25.3%
25.5%
25.8%
26.1%
26.4%
28.5
61.1
104.5
110.0
117.6
134.0
151.4
168.7
187.3
207.4
236.6
263.9
278.2
289.2
302.4
32.8%
22.7%
36.3%
29.2%
30.0%
30.0%
29.8%
29.5%
29.3%
29.0%
28.8%
28.5%
28.3%
28.0%
27.8%
Net Income
$58.5
$208.0
$183.6
$266.5
$273.8
$312.7
$357.5
$403.2
$453.0
$507.8
$586.3
$662.2
$706.5
$743.6
$787.2
Net Margin
12.9%
29.2%
18.3%
19.4%
17.2%
17.1%
17.1%
17.2%
17.5%
17.7%
18.0%
18.3%
18.5%
18.8%
19.0%
20.8
24.6
30.3
43.0
49.1
56.7
65.2
73.4
81.9
91.2
104.6
117.4
124.5
130.2
136.9
$79.3
$232.6
$213.8
$309.5
$322.8
$369.4
$422.7
$476.6
$534.9
$599.0
$691.0
$779.6
$830.9
$873.8
$924.2
17.5%
32.7%
21.3%
22.6%
20.3%
20.2%
20.2%
20.4%
20.6%
20.9%
21.2%
21.5%
21.8%
22.1%
22.4%
% Revenue
Earnings Before Taxes
% Revenue
Less Taxes (Benefits)
Tax Rate
Add Back: Depreciation and Amortization
Operating Cash Flow
% Revenue
Current Assets
% Revenue
Current Liabilities
56.8
73.0
117.7
196.9
244.2
275.5
310.1
342.9
375.7
410.7
462.6
509.5
530.2
544.4
562.1
12.5%
10.3%
11.7%
14.4%
15.3%
15.1%
14.8%
14.7%
14.5%
14.4%
14.2%
14.1%
13.9%
13.8%
13.6%
58.7
85.4
103.4
133.4
113.5
151.8
178.1
206.2
236.3
269.9
317.3
363.0
393.7
420.9
452.2
13.0%
12.0%
10.3%
9.7%
7.1%
8.3%
8.5%
8.8%
9.1%
9.4%
9.7%
10.0%
10.3%
10.6%
10.9%
Net Working Capital
($1.8)
($12.4)
$14.2
$63.5
$130.7
$123.7
$132.0
$136.7
$139.4
$140.8
$145.3
$146.5
$136.6
$123.5
$109.9
% Revenue
(.4%)
(1.7%)
1.4%
4.6%
8.2%
6.8%
6.3%
5.8%
5.4%
4.9%
4.5%
4.0%
3.6%
3.1%
2.7%
($10.5)
$26.6
$49.3
$67.2
($6.9)
$8.2
$4.7
$2.7
$1.4
$4.5
$1.2
($9.9)
($13.0)
($13.6)
% Revenue
Change in Working Capital
Capital Expenditures
% Revenue
Acquisitions
% Revenue
Unlevered Free Cash Flow
Discounted Free Cash Flow
15.5
30.4
116.7
93.2
106.4
112.0
136.2
175.5
220.2
234.7
250.8
264.7
270.8
273.2
268.7
3.4%
4.3%
11.6%
6.8%
6.7%
6.1%
6.5%
7.5%
8.5%
8.2%
7.7%
7.3%
7.1%
6.9%
6.5%
0.0
12.5
5.7
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0%
1.8%
0.6%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
63.8
200.3
64.9
166.9
149.3
264.3
278.2
296.4
312.0
362.9
435.7
513.6
570.0
613.7
669.1
239.0
227.4
219.1
208.4
219.2
237.9
253.6
254.5
247.7
244.1
UOIG 12
University of Oregon Investment Group
May 2, 2014
Appendix 3 – Revenue Model
Revenue Model
($ in millions)
United States
2010A
2011A
181.2
% Growth
% of Total Revenue
40.0%
number of stores
70
% Growth
revenue per store
Canada
2012A
2013A
2014A
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
327.4
531.0
835.9
1050.2
1217.7
1376.0
1535.1
1657.5
1768.5
1900.8
1988.4
2090.4
2114.7
80.7%
62.2%
57.4%
25.6%
16.0%
13.0%
11.6%
8.0%
6.7%
7.5%
4.6%
5.1%
1.2%
2164.8
2.4%
46.0%
53.0%
61.0%
66.0%
66.5%
65.7%
65.6%
64.0%
61.8%
58.4%
54.8%
54.8%
53.4%
52.4%
78
108
135
171
198
215
238
255
270
288
299
312
318
328
11.4%
38.5%
25.0%
26.7%
15.8%
8.6%
10.7%
7.1%
5.9%
6.7%
3.8%
4.3%
1.9%
3.1%
2.6
4.2
4.9
6.2
6.1
6.2
6.4
6.5
6.5
6.6
6.6
6.7
6.7
6.7
6.6
271.3
370.1
430.8
465.9
461.4
527.0
578.5
603.0
637.0
662.4
697.5
714.4
716.1
717.6
709.8
% Growth
36.4%
16.4%
8.2%
(1.0%)
14.2%
9.8%
4.2%
5.6%
4.0%
5.3%
2.4%
.2%
.2%
(1.1%)
59.9%
52.0%
43.0%
34.0%
29.0%
28.8%
27.6%
25.8%
24.6%
23.1%
21.4%
19.7%
18.8%
18.1%
17.2%
number of stores
44
45
47
51
54
62
65
67
70
72
75
76
77
78
78
revenue per store
6.2
8.2
9.2
9.1
8.5
8.5
8.9
9.0
9.1
9.2
9.3
9.4
9.3
9.2
9.1
Outside North America
4.5
% of Total Revenue
14.2
40.1
68.5
79.6
85.9
140.6
202.2
296.3
431.4
659.1
923.6
1008.1
1126.8
1258.6
214.3%
181.5%
71.0%
16.1%
7.9%
63.7%
43.8%
46.5%
45.6%
52.8%
40.1%
9.1%
11.8%
11.7%
1.0%
2.0%
4.0%
5.0%
5.0%
4.7%
6.7%
8.6%
11.4%
15.1%
20.2%
25.5%
26.4%
28.5%
30.5%
9
11
19
25
29
31
43
60
83
106
130
172
186
206
228
0.5
1.3
2.1
2.7
2.7
2.8
3.3
3.4
3.6
4.1
5.1
5.4
5.4
5.5
5.5
457.0
711.7
1001.8
1370.4
1591.2
1830.6
2095.1
2340.3
2590.8
2862.3
3257.4
3626.4
3814.6
3959.1
4133.2
55.7%
40.8%
36.8%
16.1%
15.0%
14.5%
11.7%
10.7%
10.5%
13.8%
11.3%
5.2%
3.8%
4.4%
134
174
211
254
291
323
365
408
448
493
547
575
602
634
8.9%
29.9%
21.3%
20.4%
14.6%
11.0%
13.0%
11.8%
9.8%
10.0%
11.0%
5.1%
4.7%
5.3%
% Growth
% of Total Revenue
number of stores
revenue per store
Total Revenue
% Growth
Total Stores
123
% Growth
Store Breakdown
2010A
2011A
2012A
2013A
2014A
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
United States
Lululemon Athletica
70
78
108
132
162
179
186
198
207
218
230
237
246
248
252
Ivivva
0
0
0
3
9
17
25
33
39
41
44
47
50
53
57
Men's
0
0
0
0
0
2
4
7
9
11
14
15
16
17
19
Total
70
78
108
135
171
198
215
238
255
270
288
299
312
318
328
Canada
Lululemon Athletica
45
45
47
48
53
55
56
57
58
59
60
61
61
61
61
Ivivva
0
0
0
3
4
6
7
7
8
8
9
9
10
11
11
Men's
0
0
0
0
0
1
2
3
4
5
6
6
6
6
6
Total
44
45
47
51
54
62
65
67
70
72
75
76
77
78
78
Lululemon Athletica
9
11
19
25
29
31
39
52
67
84
100
136
145
160
178
Ivivva
0
0
0
0
0
0
2
4
10
15
22
27
31
35
38
Men's
0
0
0
0
0
0
2
4
6
7
8
9
10
11
12
Total
9
11
19
25
29
31
43
60
83
106
130
172
186
206
228
Outside of North America
Total Stores
% Growth
123
134
174
211
254
291
323
365
408
448
493
547
575
602
634
8.9%
29.9%
21.3%
20.4%
14.6%
11.0%
13.0%
11.8%
9.8%
10.0%
11.0%
5.1%
4.7%
5.3%
UOIG 13
University of Oregon Investment Group
May 2, 2014
Appendix 4 – Working Capital Model
Working Capital Model
($ in millions)
Total Revenue
Current Assets
Accounts Receivable
Days Sales Outstanding A/R
% of Revenue
Inventory
Days Inventory Outstanding
% of Revenue
Prepaid Expenses and Other Current Assets
Days Prepaid Expense Outstanding
% of Revenue
Total Current Assets
% of Revenue
Long Term Assets
Net PP&E Beginning
Capital Expenditures
Acquisitions
Depreciation and Amortization
Net PP&E Ending
Total Current Assets & Net PP&E
% of Revenue
Current Liabilities
Accounts Payable
Days Payable Outstanding
% of Revenue
Accrued Liabilities
Days Charges Outstanding
% of Revenue
Accrued Compensation and Related Expenses
% of Revenue
Income Taxes Payable
% of Revenue
Unredeemed Gift Card Liability
% of Revenue
Total Current Liabilities
% of Revenue
2010A
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
$452.9
2011A
$711.7
2012A
$1,001.8
2013A
$1,370.4
2014A
$1,591.2
$1,830.6
$2,095.1
$2,340.3
$2,590.8
$2,862.3
$3,257.4
$3,626.4
$3,814.6
$3,959.1
$4,133.2
8.2
6.6
1.8%
44.1
77.0
9.7%
4.5
12.1
1.0%
56.8
12.5%
9.1
4.7
1.3%
57.5
102.2
8.1%
6.4
11.0
0.9%
73.0
10.3%
5.2
1.9
0.5%
104.1
94.7
10.4%
8.4
10.8
0.8%
117.7
11.7%
6.4
1.7
0.5%
155.2
100.4
11.3%
35.3
33.3
2.6%
196.9
14.4%
11.9
2.7
0.7%
186.1
96.8
11.7%
46.2
37.6
2.9%
244.2
15.3%
13.7
2.7
0.8%
210.5
95.0
11.5%
51.3
36.1
2.8%
275.5
15.1%
16.8
2.9
0.8%
235.7
93.1
11.3%
57.6
35.2
2.8%
310.1
14.8%
19.9
3.1
0.9%
259.8
92.0
11.1%
63.2
34.7
2.7%
342.9
14.7%
23.3
3.3
0.9%
283.7
90.8
11.0%
68.7
34.4
2.7%
375.7
14.5%
27.2
3.5
1.0%
309.1
89.7
10.8%
74.4
34.0
2.6%
410.7
14.4%
32.6
3.7
1.0%
346.9
88.5
10.7%
83.1
33.7
2.6%
462.6
14.2%
38.1
3.8
1.1%
380.8
87.4
10.5%
90.7
33.3
2.5%
509.5
14.1%
42.0
4.0
1.1%
394.8
86.3
10.4%
93.5
33.0
2.5%
530.2
13.9%
45.5
4.2
1.2%
403.8
85.1
10.2%
95.0
32.6
2.4%
544.4
13.8%
49.6
4.4
1.2%
415.4
83.9
10.1%
97.1
32.2
2.4%
562.1
13.6%
61.7
15.5
0.0
20.8
61.6
118.4
26.1%
61.6
30.4
12.5
24.6
71.0
143.9
20.2%
71.0
116.7
5.7
30.3
162.9
280.6
28.0%
162.9
93.2
0.0
43.0
214.6
411.5
30.0%
214.6
106.4
0.0
49.1
255.6
499.8
31.4%
255.6
112.0
0.0
56.7
310.9
586.4
32.0%
310.9
136.2
0.0
65.2
381.8
691.9
33.0%
381.8
175.5
0.0
73.4
483.9
826.8
35.3%
483.9
220.2
0.0
81.9
622.2
997.9
38.5%
622.2
234.7
0.0
91.2
765.7
1176.4
41.1%
765.7
250.8
0.0
104.6
911.9
1374.4
42.2%
911.9
264.7
0.0
117.4
1059.2
1568.7
43.3%
1059.2
270.8
0.0
124.5
1205.6
1735.8
45.5%
1205.6
273.2
0.0
130.2
1348.6
1893.0
47.8%
1348.6
268.7
0.0
136.9
1480.3
2042.4
49.4%
11.0
19.3
2.4%
17.6
14.2
3.9%
10.6
2.3%
7.7
1.7%
11.7
2.6%
58.7
13.0%
6.7
11.8
0.9%
25.3
13.0
3.6%
16.9
2.4%
18.4
2.6%
18.2
2.6%
85.4
12.0%
14.5
13.2
1.5%
34.5
12.6
3.4%
22.9
2.3%
8.7
0.9%
22.8
2.3%
103.4
10.3%
1.0
0.7
0.1%
30.0
8.0
2.2%
27.5
2.0%
39.6
2.9%
35.1
2.6%
133.4
9.7%
12.6
6.6
0.8%
42.3
9.7
2.7%
19.4
1.2%
0.8
0.0%
38.3
2.4%
113.5
7.1%
15.7
7.1
0.9%
49.4
9.9
2.7%
23.8
1.3%
18.3
1.0%
44.5
2.4%
151.8
8.3%
18.9
7.4
0.9%
55.5
9.7
2.7%
29.3
1.4%
23.0
1.1%
51.3
2.5%
178.1
8.5%
22.0
7.8
0.9%
63.2
9.9
2.7%
35.1
1.5%
28.1
1.2%
57.8
2.5%
206.2
8.8%
25.4
8.1
1.0%
71.2
10.0
2.8%
41.5
1.6%
33.7
1.3%
64.5
2.5%
236.3
9.1%
29.2
8.5
1.0%
80.1
10.2
2.8%
48.7
1.7%
40.1
1.4%
71.8
2.5%
269.9
9.4%
34.5
8.8
1.1%
92.8
10.4
2.9%
58.6
1.8%
48.9
1.5%
82.4
2.5%
317.3
9.7%
39.9
9.2
1.1%
105.2
10.6
2.9%
68.9
1.9%
58.0
1.6%
91.0
2.5%
363.0
10.0%
43.5
9.5
1.1%
112.5
10.8
3.0%
76.3
2.0%
64.8
1.7%
96.5
2.5%
393.7
10.3%
46.7
9.8
1.2%
118.8
11.0
3.0%
83.1
2.1%
71.3
1.8%
101.0
2.6%
420.9
10.6%
50.4
10.2
1.2%
126.1
11.1
3.1%
90.9
2.2%
78.5
1.9%
106.2
2.6%
452.2
10.9%
UOIG 14
University of Oregon Investment Group
May 2, 2014
Appendix 5 – Discounted Cash Flows Valuation Assumptions
Discounted Free Cash Flow Assumptions
Tax Rate
Considerations
27.75% Terminal Growth Rate
Risk Free Rate
3.00%
2.73% Terminal Value
Beta
1.37 PV of Terminal Value
Market Risk Premium
2,133
5.75% Sum of PV Free Cash Flows
% Equity
3,425
100.00% Firm Value
5,558
% Debt
0.00% Total Debt
0
Cost of Debt
0.00% Cash & Cash Equivalents
CAPM
10.61% Market Capitalization
WACC
10.61% Fully Diluted Shares
Terminal Risk Free Rate
Considerations
10,681
698.7
5,558
116
Avg. Industry Debt / Equity
5.07%
Avg. Industry Tax Rate
32.19%
Current Reinvestment Rate
45.47%
Reinvestment Rate in Year 2020E
15.01%
Implied Return on Capital in Perpetuity
19.99%
Terminal Value as a % of Total
40.7%
Implied 2015E EBITDA Multiple
11.5x
3.46% Implied Price
47.88
Implied Multiple in Year 2024E
1.9x
Terminal CAPM
11.34% Current Price
45.93
Free Cash Flow Growth Rate in Year 2024E
8%
Terminal WACC
11.34% Undervalued
4.24%
Intermediate Growth Rate:
2025E
2026E
2027E
2028E
2029E
$715.91
$758.87
$796.81
$828.68
$861.83
236.2
226.3
214.9
202.0
190.0
7.0%
6.0%
5.0%
4.0%
4.0%
UOIG 15
University of Oregon Investment Group
May 2, 2014
Appendix 6- Sources
SEC Filings
LuluLemon Athletica Investor Relations
IBIS World
FactSet
Yahoo! Finance
Lululemon Conference Call Transcripts
IBIS World
Josh Mazzerella
UOIG 16