Analyst Note| David Swartz |
As part of an analyst event, narrow-moat Lululemon unveiled a long-range plan, “Power of Three x2,” with the same broad goals as 2019’s (successful) original “Power of Three” plan: doubling e-commerce and men’s sales and quadrupling international sales in five years. Overall, the firm projects 15% compound average annual revenue growth between 2021 and 2026 with some operating margin improvement and annual EPS growth above 15%. While these are laudable goals for any apparel retailer (and Lululemon’s guidance is often conservative), they are not much different than our five-year expectations of 13.4% and 18.9% compound average annual growth in sales and EPS, respectively, and operating margins that expand to 24.1% from 21.3%. Possibly because investors were hoping for more aggressive targets, Lululemon’s shares dropped about 4%. While this downturn could certainly reverse, we still believe its shares, trading at about 40 times projected 2022 EPS of $9.30, are priced too high given the ever-increasing competition in the athleisure space. Our fair value estimate remains $208 per share.