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Below are key drivers of Lululemon's value that present opportunities for upside or downside to the current Trefis price estimate for Lululemon:
Retail Stores Revenue Per Square Foot: The high retail productivity is an outcome of several successful retailing strategies, including, but not limited to, the maintenance of low inventories, utilization of customer feedback to improve product quality, and the quick renewal of products. However, in recent years, revenue per square foot in the retail space has reduced considerably, with the trend reversing in 2016. From its all-time high at $1,823 in 2012, revenues have dragged down to $1,407 in 2015 and then increased to $1,429 in 2019. However, this figure declined to $755 in 2020, due to store closures during the pandemic. Going forward, we expect the average Retail Store Revenue Per Square Foot to reach approximately $1,150 by the end of our forecast period. If the figure exceeds our forecast and reaches $1,300, it would translate into a 5% upside to the Trefis price estimate. If the figure falls short of our forecast by about $100, there will be a ~5% downside to the Trefis price estimate.
Retail Stores EBITDA Margin: Another factor critical to Lululemon's cash profits is the high margins on the company's products. The demographic targeted by the company is higher-end consumers. As a result, its products were priced at much higher levels historically than similar products manufactured by companies like Nike, Under Armour, and Adidas. But that has changed in the recent past. Furthermore, the company has faced increasing costs. This has dampened the EBITDA margin. The figure had fallen from 32% in 2011 to about 20% in 2015. However, this metric recovered to around 24% in 2019 before falling back to 10% in 2020. By the end of our forecast period, we expect the Retail Store EBITDA margin to be ~29%. If the company becomes more profitable than our expectation and its margin comes in at around 31%, it would mean a ~5% upside to the Trefis price estimate. If the margins reach 25%, it would mean ~10% downside to our price estimate.
For additional details, select a driver above or select a division from the interactive Trefis split for LULU at the top of the page.
Lululemon Athletica Inc. is a manufacturer of yoga-inspired athletic wear. The company's products include performance apparel and accessories for women, men, and young girls. The apparel assortment includes items such as fitness pants, shorts, tops, and jackets, and is designed for healthy lifestyle activities and general fitness.
Lululemon's products are sold through company-owned stores and showrooms, the company website, and a small number of strategic partners. The company also sells products with small visual or design defects through its factory outlets or specially organized warehouse sales. Its products are manufactured in factories in Canada, the United States, Peru, China, Taiwan, South Korea, Israel, India, Bangladesh, Indonesia, Malaysia, Cambodia, Sri Lanka, Vietnam, and Switzerland.
Going forward, the company is ready to increase the number of retail stores across the globe with increased international exposure in Asia, Australia, and Europe. Until the company's Direct to Consumer revenue stream gains more proportion in sales, retail is expected to be Lululemon's main bread earner.
The primary source of value for Lululemon is its Retail Segment. This is primarily because customers need to find the right style and fit for their needs and body type. It is for this reason that sales in the retail segments have more than doubled in the last five years. The company recognizes retail as an important revenue stream and has hence invested heavily in opening new retail stores in the U.S. as well as internationally.
The company is engaged in creating yoga and fitness activity based communities in the U.S. and Canada. The company organizes many fitness camps and has also entered into partnership agreements for the sale of its apparel with many athletic teams, yoga studios, and fitness facilities in the U.S. and Canada. Most of the company's retail sales are a result of the visibility the company gains from these interactive endeavors. Additionally, the company's wholesale program is based around identifying fitness and yoga studios, which it partners with and sells its products to.
The company also offers yoga studios and fitness club essentials like yoga mats, blocks, and straps.
Some of the key factors driving Lululemon's stock value are unique to the company. These include: