I wont mince words... Q2 was rough, but this is exactly where having a long term thesis matters.
After revisiting my model and adjusting for lower growth and lower OCF margins, I still arrive at the same conclusion that I came to back in June. The long term thesis remains intact (as long as new management is able to execute).
Aritzia went through a very similar product freshness problem back in 2023. Once they identified the core issue and executed a product refresh, the brand was able to reaccelerate.
I believe Lululemon is in the same position. However, their turnaround won’t begin until Heidi O’Neill is officially at the helm. From that point forward, I’ll be evaluating whether the thesis is playing out as expected.
You can read my full write up with my assumptions/revisions on my blog (link below):
[Lululemon Revisited - Was I Wrong? — EquityForge](https://equityforge.ca/post_view.php?id=10)
I will also add the key assumptions below. Let me know what you think and whether you agree or disagree!
|Line Item|FY2027|FY2028|FY2029|FY2030|FY2031|FY2032|FY2033|
|:-|:-|:-|:-|:-|:-|:-|:-|
|Revenue|$10,270|$10,681|$11,215|$11,888|$12,660|$13,483|$14,292|
|Revenue Growth %|\-7.50%|4%|5%|6%|6.50%|6.50%|6%|
|Diluted Shares (M)|113.1|108.6|106.4|106.4|106.4|106.4|106.4|
|Operating Cash Flow|$1,232|$1,389|$1,682|$1,902|$2,152|$2,360|$2,501|
|OCF Margin %|12%|13%|15%|16%|17%|17.50%|17.50%|
|CapEx|$616|$625|$639|$628|$646|$684|$700|
|Free Cash Flow|$616|$764|$1,043|$1,274|$1,506|$1,676|$1,801|
|Enterprise Value (NPV)|$20,208|$21,464|$22,568|$23,551|$24,400|$25,164|$25,879|
|Equity Value|$21,953|$23,348|$24,536|$25,481|$26,438|$27,320|$28,160|
|Intrinsic Value / Share (USD)|$194|$215|$231|$239|$248|$257|$265|