Lululemon Athletica inc. (NASDAQ:LULU) recently reported its preliminary financial results based on which CapitalCube provides a unique peer-based analysis of the company. Our analysis is based on the company’s performance over the last twelve months (unless stated otherwise). For a more detailed analysis of this company (and over 40,000 other global equities) please visit www.capitalcube.com.
Lululemon Athletica inc.’s analysis versus peers uses the following peer-set: Nike Inc (NYSE:NKE), adidas AG (PINK:ADDYY), Yue Yuen Industrial (Holdings) Ltd. (551-HK), PUMA SE (ETR:PUM), Anta Sports Products Ltd. (2020-HK), Amer Sports Corp (PINK:AGPDY), Billabong International Ltd. (ASX:BBG) and Li Ning Co. Ltd.(2331-HK). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.
| Quarterly (USD million) | 2012-07-31 | 2012-04-30 | 2012-01-31 | 2011-10-31 | 2011-07-31 |
|---|---|---|---|---|---|
| Revenues | 282.6 | 285.7 | 371.5 | 230.2 | 212.3 |
| Revenue Growth % | (1.1) | (23.1) | 61.4 | 8.4 | 13.7 |
| Net Income | 57.7 | 46.6 | 73.5 | 38.8 | 38.4 |
| Net Income Growth % | 23.7 | (36.6) | 89.5 | 1.1 | 15.0 |
| Net Margin % | 20.4 | 16.3 | 19.8 | 16.9 | 18.1 |
| ROE % (Annualized) | 33.1 | 29.4 | 52.2 | 30.4 | 32.4 |
| ROA % (Annualized) | 28.9 | 24.8 | 42.9 | 25.8 | 28.0 |
Valuation Drivers
lululemon athletica inc. currently trades at a higher Price/Book ratio (15.2) than its peer median (8.3). Lululemon Athletica inc. (NASDAQ:LULU) achieved a better operating performance than the median of its chosen peers (ROE of 35.5% compared to the peer median ROE of 15.3%) and the market still expects faster growth from it than from those peers (PE of 51.5 compared to peer median of 16.4).
The company has a successful operating strategy with above median net profit margins of 18.5% (vs. peer median of 6.9%) and relatively high asset turns of 1.7x (vs. peer median of 1.2x). This suggests that the company has a dominant operating model relative to its peers. Lululemon Athletica inc. (NASDAQ:LULU)’s net margin is its highest relative to the last five years and compares to a low of 11.2% in 2008.
Economic Moat
The company enjoys both better than peer median annual revenue growth of 40.6% and better than peer median earnings growth performance 51.1%. LULU currently converts every 1% of change in annual revenue into 1.3% of change in annual reported earnings. We view this company as a leader among its peers.
Lululemon Athletica inc. (NASDAQ:LULU)’s return on assets is above its peer median both in the current period (31.0% vs. peer median 8.7%) and also over the past five years (27.2% vs. peer median 10.5%). This performance suggests that the company’s relatively high operating returns are sustainable.
The company’s comparatively healthy gross margin of 57.9% versus peer median of 46.5% suggests that it has a differentiated strategy with pricing advantages. Further, LULU’s bottom-line operating performance is better than peer median (pre-tax margins of 27.5% compared to peer median 7.5%) suggesting relatively tight control on operating costs.
Growth & Investment Strategy
Lululemon Athletica inc. (NASDAQ:LULU) has grown its revenues faster than its peers (41.5% vs. 8.1% respectively for the past three years). The market also sees relatively higher long-term growth prospects for the company, giving it a better than peer median PE ratio of 51.5. Overall, we classify the company’s growth prospects as superior relative to its peers.
LULU’s annualized rate of change in capital of 57.2% over the past three years is higher than its peer median of 7.0%. This investment has generated an above peer median return on capital of 35.4% averaged over the same three years. Evidently, the relatively high capital investment was successful given the the relatively strong growth in its returns.
Earnings Quality
Lululemon Athletica inc. (NASDAQ:LULU) has reported relatively strong net income margin for the last twelve months (18.5% vs. peer median of 6.9%). This margin performance combined with relatively high accruals (2.6% vs. peer median of 0.6%) suggests possible conservative accounting and an understatement of its reported net income.
LULU’s accruals over the last twelve months are positive suggesting a buildup of reserves. In addition, the level of accrual is greater than the peer median — which suggests a relatively strong buildup in reserves compared to its peers.
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