Financial Analysis

ContentsCompany Profile 3

Economic Issues 4

Revenue and Expenditure Summary 5

Assets and Liabilities Summary 6

Financial Analysis 7

Appendix 8

References 10

Company Profile

Lululemon was founded by Chip Wilson in 1998. He opened his first store in Vancouver BC called Kitsilano in 2000. It is considered as a yoga-inspired athletic apparel company that designs performance shirts, shorts, and pants. Chip Wilson wanted to use the store more for socializing about healthy living, dieting, and exercising as well as sell his products. The store became so busy that he had to open more than one store when he had wanted to only open one.

The goal of Lululemon is to train and educate people about healthy life choices in the hope that they can spread the positive influence to their families, communities, and everyday people they come in contact with. With over 225 stores in the US and Canada and over 25 stores in Asia and Australia, Lululemon is looking to take the yoga-typed apparel worldwide. Lululemon is ran by 11 board of directors who set high standards for the company’s employees, officers, and directors.

Lululemon offers a variety of athletic apparel but is specifically designed to meet the needs of yoga participants. The stores offer a bunch of different types of clothing made in men and women sizes and is made out of different types of fabrics to meet each individual’s preference. The fabrics are their cherished legacy and something they value highly. They have a saying that says, “If our product doesn’t perform for you, we’ll take it back – anytime.” Lululemon prides itself on providing top notch clothing as well as influencing a positive lifestyle.

Economic Issues

One economic issue facing Lululemon is the fact they have to face off with companies like Under Armour, Nike, and Adidas on a global scale. Lululemon needs to convince investors its market opportunity extends beyond that of a mere yoga apparel company (“The No. 1 Problem Facing Lululemon Right Now). This meaning that investors look at Lululemon with potential but don’t know if they can withstand in the long run or compete global seeing how the company is seen strictly for yoga apparel. The company will have to bounce back and show investors it can make a dent in the athletic apparel industry if the company wants to continue being successful.

Another economic issue facing Lululemon is public perception. This perception is due in part to Chip Wilson and his comments about some women being to large for the pants and the quality-control issues many customers have complained about (“5 Things That Led To The Decline Of Lululemon”). The perception the public has is that Lululemon lies about what kind of product they put out and in return have lost many customers due to the quality of the yoga pants. Chip Wilson’s comments on how the pants tear due to some women being to large to wear them made a lot of Lululemon customers uneasy. This lead to a 17% decline in sales that quarter and Lululemon has still now rebounded from that interview. Chip Wilson did step down after the public outcry, so it is up to the new CEO Laurent Potdevin to change the publics image of the company.

A third economic issue facing Lululemon is their price and where they place their new stores. The keys are population density and income (Kapner, 2014). This meaning that Lululemon is having to open stores in smaller regions and in return, the income of that area is not as high so people are more price sensitive. Lululemon is known for their high priced apparel so the new stores they open worldwide may not have the same potential to make as much revenue as the existing stores. Lululemon will have to come up with some new products and potentially drop some prices in order to compete in the market.

Revenue and Expenditure Summary

In 2015 Lululemon worldwide had a gross income around $915 million with expenses around $538 million. Their net income with everything all said and done was $239.03 million. That was $40 million less than what they had made the previous year. The income tax took out a total total of $144 million. The decrease in revenue is partly to blame the former CEO Chip Wilson for his harsh comments about bigger women.

The U.S market accounted for 95% of the total sales in 2014. This was about $1.5 billion in fiscal (“Analyzing Lululemon’s Revenues By Geographical Segment”). The operating income was the highest expenses at around $376 million. When it came to cash flow activities the sale and purchase of stock helped Lululemon by giving them around $114 million. That number was added to the total revenue in 2015 which came in around 1.8 billion dollars before taxes and expenses were paid.

The following table shows the Income Statement for 2013-2016. 2016 is projected ( “Lulu Company Financials of Nasdaq”).

*Refer to Item A in Appendix

Assets and Liabilities Summary

Lululemon’s total assets were around $917 million as of 2016. Their cash and short term investments have been their biggest asset which provided them with around $501 million dollars in 2016. A slight decline from $664 million the previous year. An asset that has increased significantly over the years is the accounts receivable. From 2012 to 2016 the account has more than doubled and is well over $13 million as of the beginning of 2016. Another big asset Lululemon has is their properties. Their properties are worth an estimated $349 million with an accumulated depreciation in 2016 of $203 million (“LULU Company Financials of Nasdaq”).

In 2016, Lululemon’s total liabilities added up to over $286 million. This was $80 million over the total liabilities in 2015. Accounts payable was the biggest liability totaling over $167 million. That is an increase of over $50 million from the previous year. Everything else stayed fairly the same as deferred liabilities charges and other current liabilities rose slightly by $7 million (“LULU Company Financials of Nasdaq”).

This graph shows the assets to liabilities for 2015 to 2016.

Financial Analysis

Lululemon has became a force to reckon with when it comes to athletic and clothing apparel the last few years. It’s high end apparel and soft fibers has made the company able to compete with the likes of Athleta, Lucy, Nike, Under Armour and Adidas. With over $1.6 billon in sales last year it would seem that Lululemon is on the rise. But due to recent management problems and poor financial management it seems that Lululemon is having more problems as the years go by. Over the last four years Lululemon has managed their working capital very poorly and it has showed in their net trade cycle. They have also lowered their gross profit margins which didn’t help stimulate sales at all. Over the last two years a cumulative decrease of %11 has occurred. This is in part of the 2013 crisis in which %17 of its women’s pants were recalled because they were too sheer ( Shaw, 2014). Another issue Lululemon is having is the simply fact that the competition is getting better. Bigger companies like Nike and Under Armour have way more marketing resources and money in which to invest. “In the past Lululemon was the Rolls Royce of product and nobody could compete. Now everyone is selling athletic clothes ( Kapner, 2014).” In the U.S active wear is a $31 billon market and continues to rise. Lululemon over the past few years has failed to regain their share like they had in 2013 due to management issues and to much inventory because of it. Blow out sales had to be done in order to sell the stuff. Along with competition comes the fact that yoga apparel is nearing saturation and the maturation of yoga apparel could really hurt Lululemon (“What’s In Store For Lululemon This Year”). They are primarily focused on yoga apparel so the slow decline of people interested in $98 pants could be a problem. I think that with the recent problems that Lululemon has had with management and overall sales I don’t think they will ever get back to making the kind of money they had in the past. With all the controversy about the pants and high end prices they have, I don’t see many people buying their products on a regular basis. With that being said, the new CEO may try to make the company do a lot more men’s and even children’s apparel if he expects to compete with the big and established companies.

Appendix: Item A

Appendix: Item B

References

"Analyzing Lululemon Revenues By Geographical Segement." Yahoo Finance. Ed. Phalguni Soni. N.p., 17 Dec. 2014. Web. 14 Apr. 2016. <http://finance.yahoo.com/news/ analyzing-lululemon-revenues-geographical-segment-133714476.html>.

"5 Things That Led To The Decline Of Lululemon." Business Insider. Ed. Ashley Lutz. N.p., 13 Jan. 2014. Web. 14 Apr. 2016. <http://www.businessinsider.com/ factors-that-led-to-lululemon-decline-2014-1>.

"Lululemon Athletica shares tumble after retailer issues profit warning." Financial Post. Ed. Hollie Shaw. N.p., 13 Jan. 2014. Web. 14 Apr. 2016. <http://www.wsj.com/articles/ lululemon-lowers-outlook-sets-stock-buyback-1402569746>.

"Lululemon Athletica shares tumble after retailer issues profit warning." Financial Post. Ed. Hollie Shaw. N.p., 13 Jan. 2014. Web. 14 Apr. 2016. <http://www.wsj.com/articles/ lululemon-lowers-outlook-sets-stock-buyback-1402569746>.

"Lululemon Steps Out of Balance." Wall Street Journal. Ed. Suzanne Kapner. N.p., 12 June 2014. Web. 14 Apr. 2016. <http://www.wsj.com/articles/ lululemon-lowers-outlook-sets-stock-buyback-1402569746>.

"The No.1 Problem Facing Lululemon Right Now." The Motley Fool. Ed. Steve Symington. N.p., 16 Jan. 2014. Web. 14 Apr. 2016. <http://www.fool.com/ investing/general/2014/01/16/ the-no-1-problem-facing-lululemon-right-now.aspx>.

"What's In Store For Lululemon This Year." Forbes. N.p., 8 Jan. 2016. Web. 14 Apr. 2016. <http://www.forbes.com/sites/greatspeculations/2016/01/08/ whats-in-store-for-lululemon-this-year/#300f4d79361d>.