Intrinsic value of lululemon athletica inc. - LULU

Previous Close

$176.71

  Intrinsic Value

$78.96

stock screener

  Rating & Target

str. sell

-55%

Previous close

$176.71

 
Intrinsic value

$78.96

 
Up/down potential

-55%

 
Rating

str. sell

We calculate the intrinsic value of LULU stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 23.4

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  20.80
  19.22
  17.80
  16.52
  15.37
  14.33
  13.40
  12.56
  11.80
  11.12
  10.51
  9.96
  9.46
  9.02
  8.61
  8.25
  7.93
  7.63
  7.37
  7.13
  6.92
  6.73
  6.56
  6.40
  6.26
  6.13
  6.02
  5.92
  5.83
  5.74
Revenue, $m
  3,200
  3,815
  4,494
  5,236
  6,041
  6,907
  7,832
  8,815
  9,856
  10,952
  12,103
  13,308
  14,567
  15,881
  17,249
  18,672
  20,152
  21,691
  23,290
  24,952
  26,679
  28,474
  30,340
  32,282
  34,303
  36,408
  38,600
  40,884
  43,267
  45,752
Variable operating expenses, $m
  2,623
  3,127
  3,683
  4,291
  4,950
  5,659
  6,417
  7,223
  8,075
  8,973
  9,913
  10,900
  11,931
  13,007
  14,128
  15,294
  16,506
  17,766
  19,076
  20,437
  21,851
  23,322
  24,851
  26,441
  28,096
  29,820
  31,615
  33,487
  35,438
  37,473
Fixed operating expenses, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  2,623
  3,127
  3,683
  4,291
  4,950
  5,659
  6,417
  7,223
  8,075
  8,973
  9,913
  10,900
  11,931
  13,007
  14,128
  15,294
  16,506
  17,766
  19,076
  20,437
  21,851
  23,322
  24,851
  26,441
  28,096
  29,820
  31,615
  33,487
  35,438
  37,473
Operating income, $m
  577
  688
  811
  945
  1,091
  1,247
  1,415
  1,593
  1,781
  1,979
  2,190
  2,408
  2,636
  2,873
  3,121
  3,379
  3,646
  3,925
  4,214
  4,515
  4,827
  5,152
  5,490
  5,841
  6,207
  6,588
  6,984
  7,398
  7,829
  8,279
EBITDA, $m
  690
  823
  970
  1,130
  1,303
  1,490
  1,690
  1,902
  2,126
  2,363
  2,611
  2,871
  3,143
  3,426
  3,721
  4,028
  4,348
  4,680
  5,025
  5,383
  5,756
  6,143
  6,546
  6,965
  7,401
  7,855
  8,328
  8,821
  9,334
  9,871
Interest expense (income), $m
  5
  0
  5
  10
  15
  21
  28
  35
  42
  51
  59
  68
  77
  87
  98
  108
  120
  131
  143
  156
  169
  183
  197
  212
  227
  243
  259
  277
  295
  313
  333
Earnings before tax, $m
  577
  683
  801
  930
  1,069
  1,219
  1,380
  1,550
  1,730
  1,920
  2,122
  2,331
  2,549
  2,776
  3,013
  3,259
  3,515
  3,781
  4,058
  4,346
  4,645
  4,955
  5,278
  5,614
  5,964
  6,328
  6,708
  7,103
  7,516
  7,946
Tax expense, $m
  156
  184
  216
  251
  289
  329
  373
  419
  467
  518
  573
  629
  688
  749
  813
  880
  949
  1,021
  1,096
  1,173
  1,254
  1,338
  1,425
  1,516
  1,610
  1,709
  1,811
  1,918
  2,029
  2,145
Net income, $m
  421
  499
  585
  679
  781
  890
  1,007
  1,132
  1,263
  1,402
  1,549
  1,701
  1,860
  2,026
  2,199
  2,379
  2,566
  2,760
  2,962
  3,172
  3,391
  3,617
  3,853
  4,099
  4,354
  4,620
  4,897
  5,185
  5,486
  5,800

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  1,571
  1,873
  2,206
  2,571
  2,966
  3,391
  3,845
  4,328
  4,838
  5,376
  5,941
  6,533
  7,151
  7,796
  8,468
  9,167
  9,893
  10,649
  11,434
  12,249
  13,097
  13,978
  14,895
  15,848
  16,840
  17,873
  18,949
  20,071
  21,240
  22,460
Adjusted assets (=assets-cash), $m
  1,571
  1,873
  2,206
  2,571
  2,966
  3,391
  3,845
  4,328
  4,838
  5,376
  5,941
  6,533
  7,151
  7,796
  8,468
  9,167
  9,893
  10,649
  11,434
  12,249
  13,097
  13,978
  14,895
  15,848
  16,840
  17,873
  18,949
  20,071
  21,240
  22,460
Revenue / Adjusted assets
  2.037
  2.037
  2.037
  2.037
  2.037
  2.037
  2.037
  2.037
  2.037
  2.037
  2.037
  2.037
  2.037
  2.037
  2.037
  2.037
  2.037
  2.037
  2.037
  2.037
  2.037
  2.037
  2.037
  2.037
  2.037
  2.037
  2.037
  2.037
  2.037
  2.037
Average production assets, $m
  557
  664
  782
  911
  1,051
  1,202
  1,363
  1,534
  1,715
  1,906
  2,106
  2,316
  2,535
  2,763
  3,001
  3,249
  3,507
  3,774
  4,052
  4,342
  4,642
  4,954
  5,279
  5,617
  5,969
  6,335
  6,716
  7,114
  7,528
  7,961
Working capital, $m
  186
  221
  261
  304
  350
  401
  454
  511
  572
  635
  702
  772
  845
  921
  1,000
  1,083
  1,169
  1,258
  1,351
  1,447
  1,547
  1,651
  1,760
  1,872
  1,990
  2,112
  2,239
  2,371
  2,509
  2,654
Total debt, $m
  84
  177
  280
  393
  515
  646
  787
  936
  1,094
  1,260
  1,434
  1,617
  1,808
  2,007
  2,215
  2,431
  2,655
  2,889
  3,131
  3,383
  3,645
  3,918
  4,201
  4,496
  4,802
  5,121
  5,454
  5,800
  6,162
  6,539
Total liabilities, $m
  485
  579
  682
  794
  916
  1,048
  1,188
  1,337
  1,495
  1,661
  1,836
  2,019
  2,210
  2,409
  2,617
  2,832
  3,057
  3,290
  3,533
  3,785
  4,047
  4,319
  4,602
  4,897
  5,204
  5,523
  5,855
  6,202
  6,563
  6,940
Total equity, $m
  1,086
  1,294
  1,524
  1,776
  2,049
  2,343
  2,657
  2,990
  3,343
  3,715
  4,106
  4,514
  4,942
  5,387
  5,851
  6,334
  6,836
  7,358
  7,901
  8,464
  9,050
  9,659
  10,292
  10,951
  11,637
  12,350
  13,094
  13,869
  14,677
  15,520
Total liabilities and equity, $m
  1,571
  1,873
  2,206
  2,570
  2,965
  3,391
  3,845
  4,327
  4,838
  5,376
  5,942
  6,533
  7,152
  7,796
  8,468
  9,166
  9,893
  10,648
  11,434
  12,249
  13,097
  13,978
  14,894
  15,848
  16,841
  17,873
  18,949
  20,071
  21,240
  22,460
Debt-to-equity ratio
  0.080
  0.140
  0.180
  0.220
  0.250
  0.280
  0.300
  0.310
  0.330
  0.340
  0.350
  0.360
  0.370
  0.370
  0.380
  0.380
  0.390
  0.390
  0.400
  0.400
  0.400
  0.410
  0.410
  0.410
  0.410
  0.410
  0.420
  0.420
  0.420
  0.420
Adjusted equity ratio
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  421
  499
  585
  679
  781
  890
  1,007
  1,132
  1,263
  1,402
  1,549
  1,701
  1,860
  2,026
  2,199
  2,379
  2,566
  2,760
  2,962
  3,172
  3,391
  3,617
  3,853
  4,099
  4,354
  4,620
  4,897
  5,185
  5,486
  5,800
Depreciation, amort., depletion, $m
  114
  135
  159
  185
  213
  243
  275
  309
  345
  384
  421
  463
  507
  553
  600
  650
  701
  755
  810
  868
  928
  991
  1,056
  1,123
  1,194
  1,267
  1,343
  1,423
  1,506
  1,592
Funds from operations, $m
  535
  634
  744
  864
  993
  1,133
  1,282
  1,441
  1,609
  1,785
  1,970
  2,164
  2,367
  2,579
  2,799
  3,029
  3,267
  3,515
  3,773
  4,041
  4,319
  4,608
  4,909
  5,222
  5,548
  5,887
  6,240
  6,608
  6,992
  7,393
Change in working capital, $m
  32
  36
  39
  43
  47
  50
  54
  57
  60
  64
  67
  70
  73
  76
  79
  83
  86
  89
  93
  96
  100
  104
  108
  113
  117
  122
  127
  133
  138
  144
Cash from operations, $m
  503
  598
  704
  820
  947
  1,083
  1,229
  1,384
  1,548
  1,722
  1,903
  2,095
  2,294
  2,503
  2,720
  2,946
  3,182
  3,426
  3,680
  3,944
  4,219
  4,504
  4,801
  5,109
  5,430
  5,765
  6,113
  6,476
  6,854
  7,248
Maintenance CAPEX, $m
  -92
  -111
  -133
  -156
  -182
  -210
  -240
  -273
  -307
  -343
  -381
  -421
  -463
  -507
  -553
  -600
  -650
  -701
  -755
  -810
  -868
  -928
  -991
  -1,056
  -1,123
  -1,194
  -1,267
  -1,343
  -1,423
  -1,506
New CAPEX, $m
  -96
  -107
  -118
  -129
  -140
  -151
  -161
  -171
  -181
  -191
  -200
  -210
  -219
  -229
  -238
  -248
  -258
  -268
  -278
  -289
  -300
  -312
  -325
  -338
  -352
  -366
  -381
  -398
  -415
  -432
Cash from investing activities, $m
  -188
  -218
  -251
  -285
  -322
  -361
  -401
  -444
  -488
  -534
  -581
  -631
  -682
  -736
  -791
  -848
  -908
  -969
  -1,033
  -1,099
  -1,168
  -1,240
  -1,316
  -1,394
  -1,475
  -1,560
  -1,648
  -1,741
  -1,838
  -1,938
Free cash flow, $m
  315
  380
  453
  535
  624
  722
  827
  940
  1,060
  1,188
  1,322
  1,464
  1,612
  1,767
  1,929
  2,098
  2,274
  2,457
  2,647
  2,845
  3,050
  3,263
  3,485
  3,716
  3,955
  4,205
  4,464
  4,735
  5,017
  5,310
Issuance/(repayment) of debt, $m
  84
  93
  103
  113
  122
  131
  140
  149
  158
  166
  175
  183
  191
  199
  208
  216
  225
  233
  243
  252
  262
  272
  283
  295
  307
  319
  333
  347
  361
  377
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  84
  93
  103
  113
  122
  131
  140
  149
  158
  166
  175
  183
  191
  199
  208
  216
  225
  233
  243
  252
  262
  272
  283
  295
  307
  319
  333
  347
  361
  377
Total cash flow (excl. dividends), $m
  398
  473
  556
  648
  747
  853
  968
  1,089
  1,218
  1,354
  1,497
  1,646
  1,803
  1,967
  2,137
  2,314
  2,499
  2,690
  2,890
  3,097
  3,312
  3,536
  3,768
  4,010
  4,262
  4,524
  4,797
  5,081
  5,378
  5,687
Retained Cash Flow (-), $m
  -186
  -209
  -230
  -252
  -273
  -294
  -314
  -334
  -353
  -372
  -390
  -409
  -427
  -446
  -464
  -483
  -502
  -522
  -542
  -564
  -586
  -609
  -633
  -659
  -686
  -714
  -744
  -775
  -808
  -843
Prev. year cash balance distribution, $m
  698
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  910
  265
  326
  396
  474
  560
  654
  756
  865
  982
  1,106
  1,238
  1,376
  1,521
  1,673
  1,831
  1,997
  2,169
  2,347
  2,533
  2,726
  2,927
  3,135
  3,351
  3,576
  3,810
  4,053
  4,306
  4,570
  4,844
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  872
  242
  284
  326
  367
  406
  442
  472
  497
  515
  525
  528
  523
  511
  491
  465
  434
  399
  361
  322
  282
  243
  205
  171
  139
  111
  87
  67
  50
  36
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

lululemon athletica inc. is a designer, distributor and retailer of athletic apparel. The Company operates through two segments: Company-operated stores and Direct to consumer. It is also engaged in the sale from outlets, showrooms, sales from temporary locations, sales to wholesale accounts, warehouse sales, and license and supply arrangements. Its direct to consumer segment generates revenue from its lululemon and ivivva e-commerce Websites, www.lululemon.com and www.ivivva.com, and other country and region specific Websites. It offers a range of apparel and accessories for women, men and female youth. The Company's apparel assortment includes items, such as pants, shorts, tops, and jackets designed for healthy lifestyle and athletic activities, such as yoga, running, training, most other sweaty pursuits, and athletic wear for female youth. The Company also offers fitness-related accessories, including an array of items, such as bags, socks, underwear, yoga mats and water bottles.

FINANCIAL RATIOS  of  lululemon athletica inc. (LULU)

Valuation Ratios
P/E Ratio 85.7
Price to Sales 11.1
Price to Book 19.1
Price to Tangible Book
Price to Cash Flow 67.4
Price to Free Cash Flow 110.4
Growth Rates
Sales Growth Rate 13.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 4.9%
Cap. Spend. - 3 Yr. Gr. Rate 7.2%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 86
Management Effectiveness
Return On Assets 20.6%
Ret/ On Assets - 3 Yr. Avg. 19.9%
Return On Total Capital 25.4%
Ret/ On T. Cap. - 3 Yr. Avg. 24.1%
Return On Equity 25.4%
Return On Equity - 3 Yr. Avg. 24.1%
Asset Turnover 1.6
Profitability Ratios
Gross Margin 51.2%
Gross Margin - 3 Yr. Avg. 50.1%
EBITDA Margin 22%
EBITDA Margin - 3 Yr. Avg. 22.7%
Operating Margin 18%
Oper. Margin - 3 Yr. Avg. 18.9%
Pre-Tax Margin 18%
Pre-Tax Margin - 3 Yr. Avg. 19.1%
Net Profit Margin 12.9%
Net Profit Margin - 3 Yr. Avg. 13%
Effective Tax Rate 28.4%
Eff/ Tax Rate - 3 Yr. Avg. 31.3%
Payout Ratio 0%

LULU stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LULU stock intrinsic value calculation we used $2649 million for the last fiscal year's total revenue generated by lululemon athletica inc.. The default revenue input number comes from 0001 income statement of lululemon athletica inc.. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our LULU stock valuation model: a) initial revenue growth rate of 20.8% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for LULU is calculated based on our internal credit rating of lululemon athletica inc., is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of lululemon athletica inc..
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of LULU stock the variable cost ratio is equal to 82%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for LULU stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for lululemon athletica inc..

Corporate tax rate of 27% is the nominal tax rate for lululemon athletica inc.. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the LULU stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for LULU are equal to 17.4%.

Life of production assets of 4.4 years is the average useful life of capital assets used in lululemon athletica inc. operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for LULU is equal to 5.8%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $1596.96 million for lululemon athletica inc. - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 132.379 million for lululemon athletica inc. is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of lululemon athletica inc. at the current share price and the inputted number of shares is $23.4 billion.

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