I’m Finally On-Board With LULU

This name is officially in my zone. Expect to hear much more from me on it going forward.

It’s tough for me to find a brand that is as dominant with its core consumer as Lululemon is with the Yoga community. I’ve always admired the brand, but could never quite get over the hump as it relates to valuation. Well, now we’re sitting here with LULU at an Enterprise Value of $707mm. Do I care that 1 year ago it had an EV topping $4bn? No. This is a different world we live in. But I can promise you that there are several other brands out there lacking a key growth driver that are keenly aware that this is being valued for under $1bn.

Some considerations…
The holy grail for any company in the athletic space has always been Women. NO ONE, and I mean NO ONE, has even come close to success. The traditional athletic brands have failed outright. The upscale fashion brands and their ‘Sport’ sub-brands did not catch on. LULU is perhaps the first that resonates with the most important consumer in the apparel market. Women age 20-50 (wide band, I know, but LULU spans multiple age groups). Do you think Nike would want this (not at $4bn, but sub $1bn is a different story)? VF? Adidas? LVMH? Yes, yes, and yes. The list goes on.

I am not saying that a sale is in the works. In fact, I like this name for the simple 2-3 year market share opportunity… But when everyone is sweating it out about near term comps, the Canadian dollar, and store opening costs, I love the fact that regardless of any hiccups, there is huge intrinsic value, and a call option on a strategic buyer realizing it.

It’s fair to say that one of the key concerns at this point is that this has been a hyper-growth retailer that has been comping 30%+, but that is decelerating due to not only the law of large numbers, but also the turn in the Canadian dollar (which represents 75% of sales). The next 2 quarters will be particularly tough in that regard, leading up to the launch of LULU’s e-commerce strategy. This means that the consumer no longer has to drive an hour to get to the store, but can simply go on line, click a few buttons and buy the merchandise.

To be clear, I could care less where the sales come from. As long as they are profitable, and brand-enhancing. Will the store-level economics look less attractive? Will store comps slow? Yep. Absolutely. Maybe I cared about this when LULU was a $4bn market cap name and had massive expectations to live up to. But this name is being valued at $707mm, or 7.5x EBITDA. It is one of the most powerful brands in athletic apparel, has a pristine balance sheet, and can realistically grow both top line and bottom line at 20%+ for 5-years.

I’ll take that all day. This name is officially in my zone. Expect to hear much more from me on it going forward.

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more

Got Process? Zero Hedge Sells Fear, Not Truth

Fear sells. Always has. Look no further than Zero Hedge.

read more

REPLAY: Review of $EXAS Earnings Call (A Hedgeye Best Idea Long)

Our Healthcare Team made a monster call to be long EXAS - hear their updated thoughts.

read more

Capital Brief: 5 Things to Watch Right Now In Washington

Here's a quick look at some key issues investors should keep an eye on from Hedgeye's JT Taylor and our team of Washington Policy analysts in D.C.

read more

Premium insight

[UNLOCKED] Today's Daily Trading Ranges

“If I could only have one thing of the many things we have it would be my daily ranges." Hedgeye CEO Keith McCullough said recently.

read more

We'll Say It Again: Leave Your Politics Out of Your Portfolio

If your politics dictates your portfolio positioning, the Democrats and #NeverTrump crowd out there have had a hell of a week.

read more

Cartoon of the Day: 'Biggest Tax Cut Ever'

President Donald Trump's economic team unveiled what he called last week, "the biggest tax cut we’ve ever had.” Before you get too excited about that hang on a sec. "Trump Tax Reform ain’t gettin’ done anytime soon," Hedgeye CEO Keith McCullough wrote in today's Early Look.

read more