We’ll be issuing our next Black Book on Lululemon on Tuesday March 24th and will be hosting a call at 11:00 am ET to review our findings.
When we added the name to our Best Ideas list as a Long on June 15 of last year, the decision tree was simple – the Board and ownership structure was near certain to be shaken up, CFO John Currie likely to be pushed out, LULU’s brand perception by consumers (per our survey) had found a bottom, there was a big call option on an LBO, and the Street was capitulating after the stock lost 50% in the preceeding six months.
But today, after a 65% move in nine months (vs 7% for the market and 16% for the XRT) the call needs to be radically different. Simply put, now you’ve really got to believe that this brand has a lot more than staying power. It has to have both the opportunity and the operating plan to back it up. With new CFO Stuart Haselden only being on the job for five weeks, it’s unrealistic to expect him to have made any impact on the operating plan. But the brand opportunity is something we’ve always questioned (at $37, it just didn’t matter).
With that as a backdrop, the crux of this Black Book will be the global opportunity for LULU. In the past we’ve conducted consumer surveys to gauge brand health, but they have beel largely US-centric. This time, our survey looks at competitive positioning in several key markets for LULU, including the US, Canada, the UK, Australia and China. As we’ve learned with other athletic brands, there are dramatic differences in brand perception with even slight changes in geography. That means a different competitive set, and the need for appropriate branding, marketing, and pricing. We aim to address these factors in our report.
Key Topics Will Include…
1) What is LULU’s addressable market? The sportswear market in the US is a $58 billion industry, but just how much of that market does LULU participate in given its restrictive price points and foundations in Yoga wear. The brand has roots in running and created its own niche in the lifestyle/everyday category. We’ll quantify the market potential based on demographic spending patterns in each country not only today, but 5yrs from now.
2) What’s the market opportunity in the US? LULU currently has 201 stores on its way to 300 in the US. To understand the opportunity of future store growth we need to first understand the demand characteristics of a) the specific local markets where the brand already operates and b) potential un-tapped markets. We’ll then be able to estimate the market share in order to keep productivity rates at current levels.
3) Competition. Yoga wear has become ubiquitous in the marketplace. How does that look on a market by market basis?
4) International. We surveyed consumers across 5 different countries (Canada, US, Australia, the UK, and China) to gauge awareness, athletic participation rates, and purchase history. Each region is at a very distinct point in its developmental life-cycle. We’ll look at the differences by region to gauge LULU’s opportunity as it kicks off its International expansion.
5) Infrastructure. Historically this has been LULU’s Achilles heel. We think that’s primarily due to the weak finance culture within the organization overseen by ex-CFO John Currie. That changes now with Advent/ Michael Casey hire, Stuart Haselden, taking the reins. We will dissect the company’s infrastructure needs in both the US and Internationally as the company builds from $2bil in revenue to $4bil. More importantly, we’ll quantify the capital needed and subsequent margin implications in order to support that type of top-line growth.
Toll Free Number:
Conference Password: 13604247
Materials: Link will be provided prior to call