For those of you reading this post who practises Yoga, you should be familiar with its namesake-brand of Yoga-related products. The following is a screenshot of the company’s Singapore online store:

At the end of financial year 2018/19 (the company has a year-end on the Sunday closest to 31 January), Lululemon Athletica Inc. has a total of 491 stores in 17 countries worldwide (top 5 countries by store count: United States – 305, Canada – 63, Australia – 31, China – 29, and United Kingdom – 14.)

In my writeup about the athletic apparel retailer today, I will be sharing with you the company’s historical financial performance and debt profile over a 6-year period (between FY2015 and FY2020), its current year performance compared to the previous year so far (i.e. 1H FY2020/21 vs. 1H FY2019/20), as well as whether or not at its current share price, is Lululemon Athletica’s share price considered cheap or expensive (based on a comparison of its current vs. its historical valuations):

Historical Financial Performance of Lululemon Athletica between FY2014/15 and FY2019/20

In this section, let us take a look at the historical financial performance of Lululemon Athletica over a 6-year period between FY2014/15 and FY2019/20;

Total Revenue vs. Net Profit (USD’mil):

	FY 2014/15	FY 2015/16	FY 2016/17	FY 2017/18	FY 2018/19	FY 2019/20
Total Revenue (USD’mil)	$1,797m	$2,061m	$2,344m	$2,649m	$3,288m	$3,979m
Net Profit (USD’mil)	$239m	$266m	$303m	$259m	$484m	$646m

In my personal opinion, the company’s growth in its top- and bottom-line over the past six financial years was a resilient one – its top-line recorded improvements every single year, and a compound annual growth rate (CAGR) of 14.2%, while its bottom-line saw gains in 5 out of the 6 financial years I have looked at (the only exception was in FY2018, where its net profit saw a 14.5% year-on-year (y-o-y) dip to US$259m)m and a CAGR of 18.0%.

Gross and Net Profit Margin (%):

The following table is Lululemon’s gross and net profit margin which I’ve computed:

	FY 2014/15	FY 2015/16	FY 2016/17	FY 2017/18	FY 2018/19	FY 2019/20
Gross Profit Margin (%)	50.9%	48.4%	51.2%	52.8%	55.2%	55.9%
Net Profit Margin (%)	13.3%	12.9%	12.9%	9.8%	14.7%	16.2%

I like the company for how its gross profit margin have been steadily rising since FY2015/16, from 48.4% to 55.9% in FY2019/20; its net profit margin have also been on an upward moving trend since falling to a low of 9.8% in FY2017/18, to a high of 16.2% in FY2019/20.

Return on Equity (%):

For the benefit of those who are new to Return on Equity (or RoE), it is a measure of profitability (in percentage terms) the company is able to generate for every dollar of shareholders’ money it uses in its businesses – if the company has a RoE of 15.0%, it means the company is able to generate a $15 profit for every $100 of shareholders’ money it uses.

With that, let us take a look at Lululemon’s RoE I’ve calculated over the past 6 financial years:

	FY 2014/15	FY 2015/16	FY 2016/17	FY 2017/18	FY 2018/19	FY 2019/20
Return on Equity (%)	21.9%	25.9%	22.3%	16.2%	33.5%	33.1%

Over the past 6 years, Lululemon’s RoE have been largely inconsistent.

Dividend Payout:

Throughout the 6 financial years I have looked at, Lululemon did not declare any dividend payout for its shareholders.

Debt Profile of Lululemon over the Last Six Financial Years

Over the last 6 financial years, the company does not have any borrowings, and as such, it is in a net cash position – it is something I like about the company as well (in case you are wondering, my preference is towards companies with very little or no debt.)

Lululemon Athletica’s Financial Performances for 1H FY2020/21 (vs. 1H FY2019/20)

Just last week (08 September 2020), Lululemon Athletica announced its financial performance for the first half of the financial year 2020/21 (the period under review was between 02 February 2020 and 04 August 2020.) Let us compare its latest results against the same time period last year (i.e. 1H FY2019/20 for the period between 04 February 2019 and 04 August 2019):

	1H FY 2019/20	1H FY 2020/21	% Variance
Total Revenue (USD’mil)	$1,665m	$1,555m	-6.6%
Net Profit (USD’mil)	$222m	$116m	-47.7%
Gross Profit Margin (%)	54.4%	53.0%	–
Net Profit Margin (%)	13.3%	7.5%	–
Cash & Cash Equivalents at the End of Period (USD’mil)	$624m	$523m	-16.2%

The company’s growth hit a speed bump as a result of the ongoing Covid-19 pandemic, as all of the company’s stores in North America, Europe, and in certain cities in Asia Pacific had to temporarily close in the first quarter of FY2020/21 (due to lockdowns implemented.)

This explains the athletic apparel retailer’s weaker set of results compared to last year. The company also did not provide any financial guidance for the remaining quarters of FY2020/21 ahead, citing the impact of the ongoing Covid-19 pandemic across the globe, and the rapid and continuous developments as far as the spread of the pandemic is concerned.

However, my personal take is that the company’s full year financial results will be a weaker one compared to the last.

Is Lululemon Athletica’s Current Traded Price Considered Cheap or Expensive?

If you have been following my posts, you will know that I tend to compare the company’s current valuations (based on its current share price) against its average to find out whether or not a company’s current share price is considered to be cheap or expensive.

Now, let us take a look at Lululemon Athletica’s P/E and P/B ratios which I’ve computed over the past 6 financial years:

Financial Year	FY 2014/15	FY 2015/16	FY 2016/17	FY 2017/18
P/E Ratio	39.9	32.8	30.2	41.6
P/B Ratio	8.6	8.3	6.7	6.7
Financial Year	FY 2018/19	FY 2019/20	Average
P/E Ratio	40.5	48.6	38.9
P/B Ratio	13.2	16.0	9.9

As at the US market close on 15 September 2020, Lululemon’s shares are trading at US$315.49, and as such, its current valuations are as follows:

P/E ratio: 76.2
P/B ratio: 20.5

Looking at its current vs. its historical valuations, both its current P/E and P/B ratios are way higher than its average, suggesting that the company’s current share price is considered to be ‘very expensive.’

In Conclusion

To sum up, the company’s continued growth over the years was stopped in its tracks by the ongoing Covid-19 pandemic which resulted in temporary closures of their physical shops around the world (due to lockdowns to contain the further spread.)

As a result, I personally feel that the company’s current year results will be a weaker one compared to the previous year; coupled with the fact that based on its current vs. its historical valuations, the company’s current share price is considered to be trading at a very high premium, the company remains in my watchlist for now.

However, despite having said that, the views (which you’ve just read throughout this post) is solely mine, which I’m sharing for educational purposes only. They are by no means any recommendation to buy or sell shares of Lululemon. As always, please do your own due diligence before you make any investment decisions.

Disclaimer: At the time of writing, I am not a shareholder of Lululemon Athletica Inc.

Launch Event for My First Book: building your REIT-irement portfolio

After months of hard work, my first book, 'Building Your REIT-irement portfolio' is finally ready! In this easy-to-follow 178-page guide, you'll learn everything you need to know about building a REIT portfolio that can provide for you in your retirement years. You can check out a preview of the book here.

I'm extremely thankful to the team at InvestingNote and ShareInvestor for their help to organise a book launch event for me on Tuesday, 26th September 2023, from 6:00pm to 8:00pm at their office in New Tech Park.

For more details and to RSVP (seats are extremely limited), click on the link below:

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