LULULEMON

Financial Analysis
 INDUSTRY & COMPANY
Lululemon Industry Background & Products Lululemon Company
Industry: Background: Brick & Mortars by Region: 351
• Global apparel, athletic apparel • Founded in 1998 in Vancouver, Canada Others
New Zealand
UK 
• Yoga-inspired, technical athletic 3.99% Australia
2.56%
Target Consumers: apparel 7.69%
Canada
• Men, Women, & Children 14.53%
69.80%
Products: North America
Projected Industry Value 2024: • Wide variety of clothing for yoga,
• $231.7 billion (Global Industry running, training, and swim Total Employees: 12,500
Analysts, Inc.) 7,500

3,500
Key Drivers of Consumer Demand: 1,500
• Increasing disposable income
• USA Increased from $37.8K United Canada Outside
States NA
in 2011 to $41.1K in 2014
supporting growth of 2017 Revenue: $2,649M
athletic apparel Outside NA
• More health conscious 9.27%
consumers, Fitness is fashionable Canada
18.56%

72.16%
Key Competitors:
North America
• Nike, Under Armour, Adidas

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 RATIO
ANALYSIS
P r o fi t a b i l i t y , R i s k , &
Long-term Solvency

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 PROFITABILITY
Profitability Ratios
Description 2014 2015 2016 2017
Profit Margin (PM)
2017: Under pressure 13.30% 12.91% 12.94% 9.76%

Gross Profit Margin 50.87% 48.39% 51.17% 52.80%

Profitability at the surface looks to be declining
Return on Assets (ROA) 18.78% 20.38% 20.42% 14.15%
PM, ROA, & ROE all show declines in CAGR of over
Return on Equity (ROE) 21.87% 25.13% 25.41% 17.50%
7% from 2014 to 2017
Net Operating Profit Margin (NOPM) 13.04% 12.93% 12.90% 9.67%
Further analysis was done into the 2017 declines
and we found it is not accurate Net Operating Asset Turnover (NOAT) 1.64 1.95 1.96 1.79

• One time spin off and restructuring charge of a Return on Net Operating Assets (RNOA) 21.51% 25.93% 22.23% 16.03%
subsidiary company Ivivva for $39M negatively
affecting
• One time provisional tax expense was taken in
2017 for $59.3M causing a negative effect on
LULU’s income statement -9.80% -9.00% -7.16%
13.30% 12.91% 12.94% 20.38% 20.42% 25.13% 25.41%
If you add these one-time charges back into the 18.78% 21.87%
profitability ratios.. 9.76% 14.15% 17.50%

PM ROA ROE

2014 2015 2016 2017 2014 2015 2016 2017 2014 2015 2016 2017

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 PROFITABILITY – EXTENDED ANALYSIS
Profitability Extended 1 Profitability adjustment without one-time costs
One time charges: 13.46% 19.51% 24.11%
• Spin-off & restructuring of Ivivva - ($39M)
• US Tax Cuts & Jobs Act - ($59.3M) 9.76% 14.15% 17.50%
3.70% 5.36% 6.61%
2017 Profitability Adjustments without one-time
costs PM ROA ROE
• Profit margin would increase by 3.70%
• Return on assets would increase by 5.36%
• Return on equity would increase by 6.61% 2017 OT Adj. 2017 2017 OT Adj. 2017 2017 OT Adj. 2017

Revised CAGR changes to profitability ratios 2 Revised Profit Ratio CAGR

• Profit Margin
• Changes from -9.80% to +0.40% +1.28% +3.30%
+0.40%
• Return on Assets
13.30% 12.91% 12.94% 13.46% 20.38% 20.42% 19.51% 25.13% 25.41% 24.11%
• Changes from -9.00% to +1.28% 18.78% 21.87%
• Return on Equity
• Changes from -7.16% to +3.30%
PM ROA ROE
Conclusion: Remains healthy
We believe profitability is trending in the right
direction. One time costs will not have a long term 2014 2015 2016 2017 2014 2015 2016 2017 2014 2015 2016 2017
impact. Change showing a positive CAGR

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 RISK & LONG-TERM SOLVENCY
Risk & Solvency Ratios
Description 2014 2015 2016 2017
Total Liabilities to Equity 18.97% 27.89% 21.88% 25.14%

2017: Lululemon carries no debt Times Interest Earned (TIE) N/A 636.24 N/A N/A

• Typical risk and solvency ratios are not Cash Flow from Operations to Debt N/A N/A N/A N/A
applicable to Lululemon due to the fact
Total Debt to Equity N/A N/A N/A N/A
that the company carries no debt
Current Ratio 5.95 4.07 4.80 4.91
• Current & Quick ratios indicate the
company has strong short term and long Quick Ratio 4.24 2.28 3.07 3.45
term liquidity
EBITA Coverage Ratio N/A 761.55 N/A N/A

• Z-score calculation consistently ranging Altman Z-Score 25.39 19.11 21.16 18.73
well above 3 indicates there is no risk for
bankruptcy

+9.84%
-6.20% -6.64%
27.89% 5.95 4.24
25.14%
21.88% 4.80 4.91 3.45
18.97% 4.07 3.07
2.28
CR QR
TLE

2014 2015 2016 2017 2014 2015 2016 2017 2014 2015 2016 2017

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 C/S INCOME STATEMENT LULU VS. UAA
Lululemon – C/S Income Statement (2016, 2017) + 1 YR Forecast
Income Statement FY 1 2017 2016
Net revenue 100% 100% 100%
Cost of goods sold 48.8% 47.2% 48.8%
Key Highlights: +LULU Net Income Gross profit 51.2% 52.8% 51.2%
Selling, general and administrative expenses 31.2% 34.1% 33.2%
• Common Size: Used to evaluate a company Asset impairment and restructuring costs 0.0% 1.5% 0.0%
relative to competitors Income from operations 20.0% 17.2% 18.0%
Other income (expense), net - Do Not Forecast 0.0% 0.2% 0.1%
• Comparison Income before provision for income taxes 20.0% 17.4% 18.0%
• UAA has more sales than LULU, yet their CS Gross Provision for income taxes 4.2% 7.6% 5.1%
Margin is lower, due to their significant COGS
Net income 15.8% 9.8% 12.9%
• LULU investing in quality material at lower costs,
while increasing sales and lowering expenses at the
same time
• LULU constantly showing higher and positive OI,
outperforming UAA in terms of income statement Under Armour – Income Statement (2016, 2017) + 1 YR Forecast
Income Statement FY 1 2017 2016
Net revenue 100.0% 100.0% 100.0%
Cost of goods sold 52.5% 55.0% 53.6%
Gross profit 47.5% 45.0% 46.4%
Selling, general and administrative expenses 38.5% 41.9% 37.8%
Asset impairment and restructuring costs 2.2% 2.5% 0.0%
Income from operations 6.8% 0.6% 8.7%
Other income (expense), net - Do Not Forecast -0.6% -0.7% -0.5%
Income before provision for income taxes 0.0% -0.1% -0.1%
Provision for income taxes 6.2% -0.2% 8.0%
Net income 1.3% 0.8% 2.7%

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 FORECAST &
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 FORECASTING ASSUMPTIONS
Average Ratios 2017 2016 2015 2014 2013
Change In Sales 14.10% 13.00% 13.78% 14.65% 12.95% 16.11%
COGS Proportion of Sales 48.79% 47.20% 48.83% 51.61% 49.13% 47.20%
SG&A 31.19% 34.13% 33.21% 30.48% 29.94% 28.20% Average change in sales
Turnover Ratios Average Ratios 2017 2016 2015 2014 2013
• 14.10% reflects strong top line growth over the previous
Accounts Receivable 172.97 186.74 210.18 153.46 140.14 174.34
5 years and we expect to continue into the future
Cash*** 3.10 3.07 3.79 3.53 2.64 2.47
Inventory 4.22 3.98 3.93 4.32 4.48 4.40 SG&A
Accounts Payable 82.68 50.53 64.99 107.85 80.33 109.72 • Consistent growth of overhead expenses in line with
PPE Forecast Average Ratios 2017 2016 2015 2014 2013 revenue growth
Capital Expenditures to Sales 6.53% 5.96% 6.38% 6.96% 6.66% 6.69%
• Growth in SG&A is to be expected with consistent
Depreciation Ratio 24.23% 25.56% 25.08% 24.79% 22.83% 22.86% expansion, but something to keep an eye on to ensure
Other BS Line Item Forecast Average Ratios 2017 2016 2015 2014 2013 management is keeping overhead in check
Prepaid expenses and other current
assets 2.48% 2.41% 2.36% 2.05% 1.86% 3.70% Accounts Payable
Prepaid and receivable income taxes 3.49% 2.45% 4.90% 6.96% 3.13% 0.00% • Turnover ratio is decreasing over time, meaning they are
Goodwill and intangible assets, net 1.78% 1.23% 1.48% 1.89% 2.02% 2.26% taking longer to pay off suppliers
Deferred income tax asset 1.36% 1.63% 1.58% 0.90% 1.24% 1.46% • May indicate company cash restrictions and reliability on
Other non-current assets 0.91% 1.57% 1.24% 0.83% 0.54% 0.38% cash flow from operations
Accrued liabilities 2.91% 0.65% 0.52% 5.79% 4.19% 3.39%
Accrued compensation and related
expenses 2.80% 3.51% 3.33% 3.31% 2.31% 1.56%
Income taxes payable 1.42% 0.79% 1.83% 2.87% 1.55% 0.06%
Unredeemed gift card liability 3.88% 4.14% 4.25% 4.39% 3.57% 3.07%
Lease termination liabilities 0.06% 0.32% 0.00% 0.00% 0.00% 0.00%
Other current liabilities 3.59% 4.00% 3.17% 0.00% 0.00% 0.00%
Deferred Income Tax Liability 0.32% 0.07% 0.44% 0.82% 0.28% 0.00%
Non-current income taxes payable 0.48% 2.42% 0.00% 0.00% 0.00% 0.00%
Non-current liabilities 3.24% 2.97% 2.91% 3.83% 3.33% 3.16%

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 3 YEAR FORECAST – INCOME STATEMENT
Income Statement (2016, 2017) + 3 YR Forecast
Income Statement FY 3 FY 2 FY 1 Jan. 28, Jan. 29,
2018 2017
Net revenue $ 3,935,029 $ 3,448,809 $ 3,022,668 $ 2,649,181 $ 2,344,392

Key Highlights: Consistent Growth Cost of goods sold 1,920,087 1,682,837 1,474,902 1,250,391 1,144,775
Gross profit 2,014,943 1,765,972 1,547,765 1,398,790 1,199,617
Selling, general and administrative expenses 1,227,452 1,075,786 942,860 904,264 778,465
Net Revenue & COGS
Asset impairment and restructuring costs 0 0 0 38,525 0
• Consistent growth in revenue and sales Income from operations 787,490 690,187 604,906 456,001 421,152
aligns with 2020 vision of $4 billion in total Other income (expense), net - Do Not Forecast 0 0 0 3,997 1,577
revenue Income before provision for income taxes 787,490 690,187 604,906 459,998 422,729
Provision for income taxes 165,373 144,939 127,030 201,336 119,348
Net income Net income 622,117 545,247 477,876 258,662 303,381
Net income attributable to non-controlling interest 0 0 0 0 0
• Aligning with revenue and COGS, net Net income attributable to lululemon athletica inc. 622,117 545,247 477,876 258,662 303,381
income is forecasted to increase in parallel Other comprehensive (loss) income: FY 3 FY 2 FY 1 Jan. 28, Jan. 29,
2018 2017
Foreign currency translation adjustment N/A N/A N/A 58,577 36,703
Comprehensive income $ 622,117 $ 545,247 $ 477,876 $ 317,239 $ 340,084
Basic earnings per share (in dollars per share) $ 4.57 $ 4.01 $ 3.51 $ 1.90 $ 2.21
Diluted earnings per share (in dollars per share) $ 4.57 $ 4.00 $ 3.51 $ 1.90 $ 2.21
Basic weighted-average number of shares outstanding 135,988 135,988 135,988 135,988 137,086
Diluted weighted-average number of shares outstanding 136,198 136,198 136,198 136,198 137,302
FY 3 FY 2 FY 1 Jan. 28, Jan. 29,
  2018 2017
Net Operating Profit Before Tax (NOPBT) 787,490 690,187 604,906 456,001 421,152
Tax Expense 165,373 144,939 127,030 201,336 119,348
Pre-Tax Operating Expense 0 0 0 3,997 1,577
Tax Rate 21.00% 21.00% 21.00% 35.00% 35.00%
Tax Shield - - - 1,399 552
Tax on Operating Profit 165,373 144,939 127,030 199,937 118,796
Net Operating Profit After Tax (NOPAT) 622,117 545,247 477,876 256,064 302,356
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 3 YEAR FORECAST – BALANCE SHEET
Balance Sheet (2016, 2017) + 3 YR Forecast
Jan. 29,
Current assets FY 3 FY 2 FY 1 Jan. 28, 2018
2017
Cash and cash equivalents
Accounts receivable
$ 1,269,040
21,399
$ 1,112,235
24,100
$ 974,805
15,777
$ 990,501
19,173
$ 734,846
9,200 Key Highlight: Consistent Growth
Inventories 481,269 428,035 368,914 329,562 298,432
Prepaid expenses and other current assets 69,273 60,813 52,691 48,098 39,069
Prepaid and receivable income taxes 97,597 85,677 74,234 48,948 81,190 Cash & PP&E
Total current assets 1,938,578 1,710,859 1,486,420 1,436,282 1,162,737
Property and equipment, net
Goodwill and intangible assets, net
747,002
49,691
646,720
43,622
556,277
37,796
473,642
24,679
423,499
24,557
• Continuous growth in cash will provide for
Deferred income tax asset 38,110 33,455 28,987 32,491 26,256 long term liquidity, which is what we have
Other non-current assets
Total assets
25,490
2,798,871
22,377
2,457,033
19,388
2,128,868
31,389
1,998,483
20,492
1,657,541
seen in historical data
Jan. 29,
Current liabilities FY 3 FY 2 FY 1 Jan. 28, 2018
2017 • Growth in PP&E is a healthy signal for
Accounts payable 16,769 29,676 11,030 24,646 24,846
Accrued liabilities (incl. "Other Accrued Liabilities" line in 81,377 71,438 61,897 13,027 8,601 continuous investment in capital
2015 and 2016 to this line)
Accrued compensation and related expenses
Income taxes payable
78,478
39,715
68,893
34,864
59,692
30,208
70,141
15,700
55,238
30,290
Unredeemed gift card liability
Unredeemed gift card liability 108,692 95,417 82,673 82,668 70,454
Lease termination liabilities 1,800 1,580 1,369 6,427 0 • Company/industry specific balance sheet line
Other current liabilities 100,389 88,128 76,357 79,989 52,561
Total current liabilities 427,220 389,997 323,226 292,598 241,990 item
Deferred Income Tax Liability 8,979 7,882 6,829 1,336 7,262
Non-current income taxes payable 13,520 11,869 10,283 48,268 0
Non-current liabilities 90,689 79,613 68,980 59,321 48,316
Total liabilities 540,408 489,361 409,319 401,523 297,568
Jan. 29,
Stockholders' equity FY 3 FY 2 FY 1 Jan. 28, 2018
2017
Undesignated preferred stock, $0.01 par value, 5,000 shares 0 0 0 0 0
authorized, none issued and outstanding
Exchangeable stock, no par value, 60,000 shares authorized, 0 0 0 0 0
issued and outstanding 29,955 and 32,065
Special voting stock, $0.000005 par value, 60,000 shares 0 0 0 0 0
authorized, issued and outstanding 29,955 and 32,065
Common stock, $0.005 par value, 400,000 shares authorized, 628 628 628 628 637
issued and outstanding 115,342 and 112,371
Additional paid-in capital 284,253 284,253 284,253 284,253 266,622
Retained earnings 2,116,505 1,825,714 1,577,591 1,455,002 1,294,214
Accumulated other comprehensive (loss) income (142,923) (142,923) (142,923) (142,923) (201,500)
Total stockholders' equity 2,258,463 1,967,672 1,719,549 1,596,960 1,359,973
Total liabilities and stockholders' equity $ 2,798,871 $ 2,457,033 $ 2,128,868 $ 1,998,483 $ 1,657,541

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 STOCK VALUATION
Valuation Sensitivity Analysis
Stock Valuation Forecast: $144.31 $394.35
$400
• The growth rate of earnings plays a $351.64
major role in the projected valuation $300
$236.46
of the stock.
$200 $178.86 Stock Price
• Using Lululemon’s average growth $121.27
$144.31
$92.47 $104.82
rate of 14.11% it would indicate a $100
valuation of $395.
$0
• While we believe that earnings will 11.00% 11.50% 12.00% 12.50% 13.00% 13.50% 14.00% 14.11%
continue to grow at a double digit
rate, we believe greater than 14% is Lululemon EPS Stock Valuation Forecast
unreasonable.
• We chose 12.5% as the growth rate Lululemon Analysis FY 1 FY 2 FY 3 Average
Earnings Per Share 3.51 4.01 4.57 4.03
based on strong fundamentals & Growth Rate   14.25% 13.97% 14.11%
growth history, but potential market
headwinds that could slow growth. Risk Free Rate Proxy 5.00%
Market Risk Premium Proxy 10.00%
• Unable to use the stated beta due to Beta does not accurately reflect market risk. We are using
Beta 0.42
its inaccurate ability to reflect real Discount Rate 15.00%
market beta of 1 to better forecast a discount rate. Beta
calculation has not accurately caught up with market
market risk. Discount rate of 15% (risk Earnings Growth Rate 12.50% risk.
free rate + market risk premium).
• Current Stock price: $122.77   EPS Forecast Discount Factor Discounted EPS
EPS FY1 3.51 0.8695652 3.0521739
(11/27/18). EPS FY2 4.01 0.7561437 3.0321361
EPS FY3 4.57 0.6575162 3.0048492
Perpetual Growth 205.65 0.6575162 135.2182132
  Forecasted Stock Value 144.31
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 RECOMMENDATION
Recommendation: Buy Lululemon Chart Performance Trailing 1 Year: 85.65%
• Positive industry outlook powered by
consumer confidence, increased
discretionary income spending, low
unemployment levels.
• Lululemon continues to expand their
brand awareness along with their
customer base.
• Lululemon yields strong fundamentals
highlighted by projected growth on
both the top and bottom lines.
• The company has room to expand
into markets outside of North
America (currently only 9% of revenue
generated outside of North America).
• No current or long-term debt opens
up opportunity to borrow funds at a
lower rate that can be used for
expansion. Source: Yahoo! Finance

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