Why I like Lululemon: LULU

[Why I like Lululemon](https://companycharts.substack.com/p/why-i-like-lululemon-lulu?r=6kpr46) This post is about LULU. At a high level, the business still does what you want a great consumer brand to do: it grows up and to the right. The market is no longer giving it a free or infinite growth kind of multiple. On the numbers, LULU trades around 2.2x revenue, 3.75x gross profit, 13.92x net income, 5.5x equity, 13x operating cash flow, and 21.4x free cash flow. Put those multiples next to the company’s historical compounding and you can see why it stays interesting. Over long stretches, growth has lived in the low-20s: revenue \~21%+ on a 10–14 year view (10-Yr \~20.95%, 14-Yr \~21.64%), net income \~20%+ over 14 years (14-Yr \~20.05%, with several mid-to-high 20s periods like the 5–8 year windows), and free cash flow \~20%+ over 14 years (14-Yr \~20.43%) even though FCF is clearly lumpier (most recently -26.7% 1-year and -3.88% 2-year CAGR). If you conservatively haircut the long-run growth rate into the low teens going forward, the setup still works on a simple “price vs. growth” lens (Lynchian). The more important question is the one people actually worry about: how’s the consumer? Overall spending is up about \~4% YoY, and apparel spending is up nearly \~8%, which tells you consumers are still buying clothes. higher-income cohorts have been doing the heavy lifting. Credit card spending growth on clothing has weakened across lower-income groups, while it’s closer to flat (or better) as you move up the income bracket. LULU can hold up even if the headlines are gloomy because the customer base that matters most is holding up better. The “overpriced leggings” concern also feels a bit overplayed. Yes, everything costs more, but the sharpest inflation pressure has been in necessities like housing and food, not apparel. In other words: the consumer may be annoyed, but the specific category LULU lives in hasn’t had to fight the same inflation wall as the stuff people cannot avoid paying for. As other larger purchases get eschewed, a smaller luxury items may receive a boost from people looking to cope. Summary: LULU still screens like a premium operator with premium compounding: long-run growth rates in the low-20s across revenue, earnings, and (over time) free cash flow, against multiples that are now reflecting a far more depressing growth rate than what the company has experienced for a long time. In sum. DCA LULU at or below 200. And for the market is forward looking, I leave a quote from [Accuracy of Analyst Estimates](https://cdn.hl.com/pdf/2024/accuracy-of-analyst-estimates-2024.pdf) "Similarly, as the forecast period of analyst estimates grows from 1 year forward to 5 years, the overall weighted average % error increases for both the Russell 3000 and S&P 500 indices. Therefore, longer forecast periods result in less accurate estimates." If the best forecast is for a year out, I'll take my chances trying this myself. For a much longer time horizon. [Why I like Lululemon](https://companycharts.substack.com/p/why-i-like-lululemon-lulu?r=6kpr46)