저자: TheLongInvestor채널진행자 · 외국인
요약 보기
룰루레몬은 3년간 주가 약 80% 하락, 2분기 매출 -4%·comparable sales -10%, 여성의류·레깅스 부진, 신규 매장 증가에도 매출 감소로 실적 악화. 소비 전반보다는 브랜드 문제로 진단하며, 진행자는 현 시점 매수는 보류하고 실적 정상화를 지켜보겠다는 입장. 목표가는 DCF 기준 약 112달러, EV/EBITDA 기준 95달러로 제시. 마이클 버리의 대규모 매수(포트폴리오 약 17%)는 소개만 함.
다듬은 글
We have a very busy schedule today. We'll look at Lululemon. The stock soared to almost $508, and since then , as you can see, it has fallen almost 80.5%. I will now move on to the schedule, look at what has happened over the last 3-4 years. We'll take a look at their latest earnings report, look at some of their key products.
I have a few videos from Josh Brown that I want to watch. He analyzes whether the market as a whole is struggling. Let's see if this is just a Lululemon problem. Then there's a great super investor involved in Lululemon, and we'll see if he's bullish or bearish. And let's get straight to the point. So, as we can see, guys, Lulu is really in decline since January 2024.
This is really hard for a management team to do–to lower the stock price by almost 80% in 3 years. What's wrong with Lululemon, okay? And what happened in the second quarter? Well, as we can see, total revenue decreased by another 4 % to 2.4 billion. Earnings per share fell 6% and overall comparable sales fell nearly 10%, and those numbers may actually be more generous than they suggest.
The devil is in the details, so I'll break it down in a second . You know, women's apparel revenue here is just shocking, down 4%, considering it was historically dominated by women who really loved their product. Menswear revenue was down 1%, and accessories and other revenue was down almost 13%, which again is very hard to do, but, you know, Lulu couldn't seem to do anything right now.
Their store revenue is down almost 6%, so you might think, "Okay, maybe if our store revenue is down, store footfall is down , people might not want to go to the mall, you know, because of higher gas prices, I understand." But you would think that this would catch up with digital revenue, with e-commerce, but no, it's a 6 % drop.
So, this signals to us something more than just attendance. Americas revenue, which was supposed to be a very strong growth area for Lulu, was down almost 8%, and international revenue, I think, is the only bright spot here, up 4%, but again, that's not enough to offset what's going on around the company with the brand itself, their moat, and clearly within the numbers.
I would like to explain why these numbers may look a little worse than they actually show, and that's it here. The new company operated the stores, they opened seven new stores in America, one new store in China, and one in the rest of the world, so nine new stores here. Well, it just shows us that they are increasing the number of stores, but their revenues are still falling.
So it actually looks worse, doesn't it? Because if I had, say, 800 stores and my revenue went down 4% and I didn't open any, well, that's one thing. But if I have 810, 820 stores, my revenue still dropped by 4%. Technically, I'm growing on one side of the business, but this one is actually shrinking even more.
So, again, very, very unpleasant things with Lulu. And then there was another thing, you know, the gross profit figure looked even better than the numbers would suggest, because Lulu actually benefited from a $134.5 million rate refund. So, this made their margin even better, increasing it by almost 560 basis points.
It wouldn't look, you know, even that good on the second quarter earnings report and the balance sheet, which I'll go into detail about, but , uh, Lulu had some tailwinds that should have improved things. Hmm, but then again, it was n't a very strong quarter, and, you know, the devil is in the details, and these numbers look better than they actually are.
And then I just wanted to talk about what's going on with Lulu, you know, what's really causing most of these sales to fail? And it actually has to do with their number one product, which is Lululemon leggings. Like it or not, Lululemon thrived on these leggings. You know, all women love them. These are the most comfortable leggings.
They trained in them, did Pilates, yoga. That was, in fact, their entire brand. And it was just comfortable homewear, and, you know, pants sales were down about 20% in the quarter. That said, shoppers have moved toward looser silhouettes, moving away from the body-hugging silhouettes that Lululemon has been slower to deliver.
And if you listen to the earnings report itself , one of the executives said something very interesting, and perhaps upsetting to a lot of shareholders, which is that Lulu just realized that the consumer in this era of fast fashion and industry doesn't like tight pants. They are switching to looser pants.
If you look at brands like Levi's or some of the other jeans brands or other, uh, brands like that, they've been noticing this for about 18 months to 2 years. You know, I'm not a big fan of fashion, but even I noticed, you know, walking down the street , the style has changed. And for Lulu, a company that was once so innovative and on top of all that , to let this go right under their noses is pretty disappointing.
And as a shareholder, I wouldn't be very happy with the management. It's just something that, again, when you look at these companies, sometimes you can use the old Peter Lynch method of just looking at what's around you, you know, looking at what fashion is doing and seeing, you know, talking to people.
And personally, anecdotally , I've talked to friends, family, sisters, my friends' girlfriends, you know, wives, everyone, and Lulu just doesn't have the same brand appeal that it used to, and it really shows in the numbers, unfortunately. So, with that in mind, we need to figure out if this is a Lululemon problem or if it's a broader economic problem.
Because I would understand. If we were in a recession or depression and people weren't spending their money, especially on a premium brand like Lulu, this would make sense. You know, all we've been hearing about now is the K-shaped economy, right? Artificial intelligence is boosting productivity, tech stocks are rising, but what's really happening to the rest of the economy and how are these other brands doing in other sectors, or in this sector, or in 10 or 11 other sectors in the S&P?
So, Josh Brown does a great analysis of this here. I think it's important for everyone to understand what's happening in the broader market and how it relates to LULU. So let's listen. Everywhere you look, we are outperforming, we are outperforming the lower bound of the forecast, etc. So we're past 80% of the S&P 500 by market cap, guys, that was again 2 weeks ago.
So, that's it for the Nvidia reports. But again, it's great to just get a breakdown of what's going on with the other reports here. So, 80% of them, um, have already reported and surpassed. We have almost everything. I know Nvidia still exists, but if you take the actual data and combine it with our expectations, these are still estimates.
Even if you exclude technology, you get a profit growth of 28.3%. If we add technology again, then we take into account 32%. By the way, this is the history of the entire market over the past 4 years. Artificial intelligence, you know, technology trading, semiconductors, etc. And you still get almost 28% growth from non- tech companies.
What this tells me is that there are a lot of other industries that are doing extremely, extremely well, and the market is still focused solely on technology, so to speak. If that's the case, then LULU should hold on. So let's see what else he has to say. Outrageously. Net profit margin was revised upwards during this season from 15% to 15.6%.
So , profitability is ahead of expectations. Then you look at the sales growth and it's better. Er, 15.2%. That's over 300 basis points. Increased net profit margin, increased sales. Okay, now we're starting to see other numbers really picking up, and sales growth is picking up in other industries, and, you know, other retailers and so on.
This doesn't really give LULU a good picture for its investors. Higher than expected just 2 months ago, 10 out of 11 sectors saw profit growth. So, a lot of the narratives that this is all AI, or this is so narrow, concentrated, throw them in the trash, are narratives of harm. The reality is that corporate America, the current leadership of companies in every sector, look at what they've been thrown at in the last five years.
10 out of 11 sectors are growing, thriving extremely well, and, you know, Josh hit the nail on the head . This is a narrative of loss, entirely driven by artificial intelligence. So, it just tells us, you know, Lulu isn't doing poorly among a lot of other companies that are doing poorly, it's a pretty isolated issue, and I'll give you some other statistics here to really show us how it works.
So, I like to look at the leading monthly data on sales, retail, and food services. Keep in mind that this is July data, it came out here in August. The data for August will be released in September, I think on September 16th. Actually, you know, the numbers don't do anything crazy, you know, you have 0.9% seasonally adjusted growth.
We have to understand this, okay? You know, summer is coming , you know, people are enjoying the sun, especially in North America, and you know, a lot of them are going to the stores more and buying, you know, more goods and services and so on . That's why May is usually an exciting time of year. In June we see a moderate increase and then a slight decrease in July, August, September, October, slightly lower, and then an increase in November, December for the holidays, Christmas, Thanksgiving.
But, again , there was nothing unusual here that would show us that the consumer is extremely exhausted, especially when it comes to essential goods , services, food, etc. So , this is usually a pretty good indicator. And with that in mind, let's see what other retailers are saying. So, here's the Dick's Sporting Goods report.
You know, Dick's—it's a big department store for those who don't know. They showed a 4.9% increase in sales. Okay, it's interesting because Dick's is a better, broader view of, you know, not necessarily just recreational sports, but a bunch of different things, in the department store sales, sporting goods, etc.
So, Dick's is doing well. Nike, okay, their annual revenue was 46.4 billion. They have shrunk a little . On a currency basis, they decreased by 2%. Their fourth- quarter revenues were down 1% on a currency basis, or they were down 4% on a currency basis. Their wholesale revenues actually grew by 4% and grew by 1%, so not bad.
Direct revenues decreased by 7% . Okay, that gives us a little better idea. And, you know, a 9 % drop on a currency basis. So Nike, okay, they're in sports and leisure to some extent, but they also have big problems with their brand and their image. And again , if we want to look at the charts, you know, just recently, uh, here they are, Nike and Lulu are really lagging, down about 70%, companies, ON ON Holdings, which like On Cloud shoes and athletic apparel, were up 21% over that period.
And Dick's Sporting Goods, again, grew by 43.9%. This is a big drop here at Dick's and at Cloud, which was just a bad profit. You can see that these charts are very, very volatile. And again, this also likely drove down prices even further for both Lululemon and Nike. So it's important to remember this.
As an investor, you know, the numbers are showing it now. This is clearly Lulu's problem. So why did Lulu lose its premium brand? And if we think back to 2016 and 2017, when Lulu really caught fire, it was all about turning a yoga brand into an athleisure brand and having first-mover advantage, okay?
They had the best leggings. They had really good shorts, good t-shirts for men. You know, they had good running clothes. And not many other stores did things like that, considering how great their material was. Yes, it was more expensive, but people were willing to pay because it was premium quality.
And then they moved on to ABC pants and sweatpants , and they were very popular back then. And again, great quality, super-nice fit, helped people, you know, with athletic builds. Athletes loved them very much , and it was something of a crazy trend. What else happened in 2016 and 2017? Social networks.
You've seen how Instagram has started to grow rapidly. You've seen how Snapchat has started to grow rapidly. You saw how TikTok came onto the scene and began to grow rapidly. And now more and more people were writing about how great Lululemon was doing. Well, it's great for Lululemon's brand awareness, and we've seen, you know, the stock clearly benefit from 2017, when it went from about $51 to $511.
But competition was intensifying because now more people knew what Lululemon was about. More people knew where they could find Lululemon's premium fabrics, and competition emerged. And what happened? Well, we saw Nike collaborate with Kim Kardashian. We saw how Skims was launched . Influencers have gained a large social media presence and following.
Kim Kardashian says she has 100, 200, 300 million followers. She starts promoting her brand. Well, that's exactly what will happen. You will take market share away from competitors like Lululemon. You've seen brands like Vuori emerge. Vuori offers leggings for $138, while Lululemon offers leggings for $118-108.
So it's not even a question of price, because Lulu is cheaper, but the issue of Vuori's brand recognition among the younger generation and influencers is simply stronger. And they lost their image. And I can't emphasize this enough . Nowadays, it is impossible to be just a clothing company. You need to have a brand, you need to have a community, and you need to develop it.
Lululemon could have gone into Pilates studios or other businesses to really build that brand, that community, but they kind of lost their way, and you know, that's what we're seeing here. It was a cultural shift and a structural shift within the company itself. Even though Lululemon has changed structurally, there are still some super investors who believe in the company itself.
So let's look at one guy who was very vocal about this on X, it's none other than Michael Berry. For those who don't know, Michael Berry named the 2008 housing market crisis , and that's kind of his claim to notoriety. And Berry called LULU an investment scam, okay? He told the truth. I have to give him credit.
And he immediately said, "I'll buy more LULU if the price drops below $100 tomorrow morning, because the stock fell 18% after the earnings report." So what might a Lululemon investment look like for Berry? Do you know why he likes it? And there are a few things we can pay attention to. So, first of all, Berry is a value investor, okay?
And LULU, if we can see their stock price here, and since then , as we know, it has decreased. But what else has decreased? Their earnings per share (EPS) fell from $14.60 at its peak of $1,470 all the way down to $12. But that P/E ratio, which at its peak was 79 times earnings when LULU was growing very quickly, has actually shrunk a lot.
You can see it clearly at these points where it went from 11 times earnings to 13, then 11 , then 9, and now down to a low of eight times earnings. But the question is, how low can this compression go? And if Lulu can find a way to stabilize its earnings, revenue, EPS, and maybe even get back to a little bit more growth, that multiple will expand, and, you know, the stock price should bottom out and move back up.
But that's not what we do. We won't guess when it will happen. We need to wait and see. You know, will management be able to understand what's going wrong, and will they be able to become the brand they once were ? Berry also claimed that he thought they could. He said they were, um, a premium company, that they would find a way to turn things around, and he justifies his patience here, as we see.
He referenced some historical investments, highlighting Avanti, which he purchased for $12 in 2001. It fell to $2, which is actually 80-90%, and he kept buying it, and then eventually it was acquired for $22 a share. You know, he mentioned Adobe , Molina Healthcare, Vivus Systems as other companies and holdings that have seen significant declines.
So Lulu could also be a name to buy as well , at around $90 a share, market cap of $12 billion. So, say what you will about Michael Berry, but he has a sense of value. And one of the things he referenced about Lululemon is how strong their balance sheet is. But it's important to note that in a company like Avanti, which he owned in 2001, it was acquired, okay?
Activist funds, hedge funds, other brands, when they want to acquire a company, they want a company with a very strong balance sheet. And so, as we see here , Lulu has exactly that, okay? They have 1.39 billion in cash and cash equivalents. They have virtually no outstanding debt. They have a revolving credit line of $593 million, so they have $593 million on it.
They have approximately $1.98 billion in total liquidity. Between cash and available credit, they had almost $3.95 billion in current assets versus $0.8 billion, as we see here, in current liabilities. This current liquidity ratio of approximately 2.2 times means that Lululemon now has more than twice the short-term assets needed to cover its short-term liabilities.
So if they can even get this brand back into circulation, it will be very, very attractive from a balance sheet perspective. Their net working capital is approximately 2.14 billion, and inventories were 1.71 billion, which is obviously 1% less than last year and 7% less per unit of production. But it's important to note this because I think inventory is decreasing faster than sales.
So, this reduces the risk of aggressive discounting and write-offs, which is important for these retail brands. They generated $589 million in operating cash flow during the first half of the year, up from $ 210 million last year. Again , I understand that some of this was due to tariff rollbacks. They spent 277 million on capital expenditure restraint, while the remaining self-funded funds decreased by only 417 million since the end of the year.
But again , this was mainly because the company spent nearly $700 million on share buybacks, and it's not because the company is actually burning money. I think management sees this as a very attractive price to buy back the shares, you know, buy them back, even if it didn't offset their earnings per share.
And to put that in perspective, they bought back almost 4.9 million shares during the first half of the year while the stock was trading around these levels. This is good for a company that sees value in its shares. When you're not growing at all, but actually falling, it seems like you're trying your best to please shareholders.
But really, the biggest thing that will make shareholders happy is getting the ship back on track. So, Berry here, he acquired almost, I think, 11.8 million here, and then another 95 million. I think it's now 17% of his total portfolio, which contains about 450,000 stocks. Obviously, the position is over a hundred million dollars, which , I mean, is just wild.
Let's take a look at his portfolio. It has other names, you know, like Alibaba, ASML, which is a great company, Mercado Libre, another great company, uh, Meta, a great company, Regeneron, uh United Health. Maybe those two companies are crowding out his position in Lululemon a little more, but it says a lot, you know, Lulu has a position of over a hundred million dollars, which is 17% of his portfolio.
This is extremely important. So this should be remembered. Good. So, now that we know that Berry has a sense of value and he sees that it's undervalued, it's important that we pay attention to Lululemon because ultimately we should be the ones holding the stock, and we want to build that confidence.
So, as we see here, in our Patreon group, we have Lulu with a low performance and a target price of $14. Now we are using our classic three methods again. We have the DCF method, the electricity cost to sales ratio, and the electricity cost to EBITDA ratio method so we can look at what's happening with Lulu through three different lenses.
DCF raises this to $112, which is only about 13% upside. The ratio of electricity cost to sales raises this to $105, which is about $101, which is about 6% growth . The electricity cost to EBITDA method gives us a target price of $95, which is about 4-5% lower. Obviously the main drivers of this are that they had a poor earnings report, which I already mentioned.
In terms of their revenue, their EPS, it was very, very bad. So we're just going to deal with DCF calculations. So, their cash flow has improved from last year to this. So if we calculate their current figures for the year and look at what other analysts are saying and what we are seeing, it actually means that their free cash flow after their capital expenditures is approximately $990 million.
And that will allow us to, you know, have a seasonally strong fourth quarter, you know, with Christmas and so on, other holidays. But, you know, looking into the future, analysts only expect further deterioration in free cash flow, right? So it will drop from 990 million to 950 million in fiscal year 2027 before falling to around 700 million in fiscal year 2028.
And so, as we see it, the market will clearly be waiting for evidence that Lululemon can return to stable cash flow, or they can reflect it upwards. They just don't want to see it continue to decline. By year five, if we assume that free cash flow even modestly recovers to 900 million, which, again , doesn't tell us anything that that will happen.
Um, if they can hit 900 million and some bottoming out, maybe reacting a little bit to the 2028 lows, then we can apply a conservative 1% final growth rate, you know, because we still have to understand that there are difficulties with consistently gaining market share or, well, not eroding your margins.
And based on that, we arrived at a target price of $112. So as you can see, there isn't much potential for growth right now. The EV-to- sales ratio, which is usually a slightly more lenient method, doesn't really reflect the situation here. So you can see that the revenue for the second quarter was about $2.42 billion .
Again, you know, it's a disappointing expectation. It decreased by 4% year-on-year. Again, U.S. sales fell, you know, comparable sales were down almost 10%, and management lowered that forecast for the second quarter in a row. As we can see, if we expect approximately 10.4 billion, the forecast for the third quarter suggests another decline of 10-11% year-on-year.
After the sell-off following the earnings report, the EV to sales ratio is about one. The average ratio is around 1.3, and for context, Nike could probably be assigned a slightly higher premium. They are currently trading at about 1.25 times. Lululemon has historically deserved a premium multiple for how quickly it has grown, but as we see here, that is no longer the case.
So if we just assign it a forward multiple of 1.1, we'd still only get about $105 per share. Again, if they fail to meet the forecast again, this ratio will only shrink and you could see Lulu fall to 80, 70, maybe even 60. So you have to be careful here. And finally, the last method is the EV to EBITDA ratio.
History may even make things worse for this method, because margin compression is kind of the whole bearish thesis. So, if you combine this with slowing revenue growth and a lower profit forecast, and now profitability, the situation is even worse. So the consensus forecast for the next 12 months, as we see it, is that EBITDA will be approximately $2.2 billion , which is approximately 11% below current levels.
And with Lulu currently trading at around 5x EV to EBITDA, below their highs of around 8x, and given the broader, weaker earnings outlook and ongoing margin pressure, we believe only a 5x multiple is appropriate . It could go 1-4 or 4, and could also flip to 6-7 if they improve their results a little.
But based on this, we get a target price for the stock of only $95. So LULU has a lot of work to do to earn our trust, and, you know, it's not going to take one day, just being like the name of an AI technologist , you know, a shiny object. The market will really want LULU to prove its effectiveness quarter after quarter.
There is no rush to form a position. We're waiting for the stock to settle down, as if to follow its base, but it's really going to depend on what happens with the broader consumer, what happens with quarterly sales, and essentially the quarterly report getting back to normal and management proving that they're making our money.
Because, ultimately, as investors , we give them our money to help them grow. And so we need to make sure that they can now justify our money's worth of acquisition and that they are worth our investment. So personally, I wouldn't buy Lululemon stock right here. I think management needs to do a lot more to get the ship back on track.
They have to earn our trust, as I just mentioned, and that's what I'll be watching for. I'll add this to my watch list , but until they can really prove that the next one, two, or even three quarters are done and stability is back and, you know , the brand is really trying to innovate and stay ahead of the curve, the Lulu team just hasn't done enough to win my money.
So with all that said , guys, if you learned anything new that you didn't know about Lululemon, feel free to like, subscribe, and please comment below what you'd like me to cover next week. I will be happy to consider all your suggestions, and I am sincerely interested. Do you think Lulu is worth buying?
Do you think it's worth keeping? Do you think it's worth selling? And do you think it can be redeemed at all ? Thanks for watching, guys, and see you next week.
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