Lululemon Financial Analysis Essay

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There are a number of prominent financial themes that emerge from any detailed analysis of Lululemon. Some of these key themes are as follows: (a) Lululemon Athletica’s growth rate (as measured by revenue) is declining progressively, providing some evidence that the company is running up against market capacity in its current niche; (b) Lulu remains an efficient and profitable company, supporting the inference that the company’s slowing growth isn’t function of operational or financial weaknesses, but rather of a softening in demand associated with market saturation; and (c) Lululemon a retains the ability to spend and/or borrow its way to different growth strategies. An analysis of the previous 10 years of revenue growth data from Lululemon Athletica indicates a steady pattern of decline (Morningstar).

There are two patterns visible in the revenue growth data for Lululemon. First revenue growth declined extremely quickly, and for two years, as a result of the economic crisis. After the crisis, there was a modest recovery followed by a return to decline. An ordinary least squares (OLS) regression analysis of the data indicated that Lululemon’s growth has been declining by nearly 9% a year over the measured period. If the OLS regression equation is accurate, then Lululemon will be in negative revenue growth territory by 2017. Interestingly, while
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Lululemon Athletica performs very well in terms of growing return on its assets and equity, which is partly a reflection of how well the company’s stores are able to sell its high-priced apparel. The company’s high level of free cash flow ($195 million in 2014), as well as free cash flow growth rates (8.5% year-over-year growth in 2014 as compared to 2013), suggests efficient means of revenue collection, asset turnover, and payables delay. Fig 2 below supports that Lululemon Athletica is a company with strong cash
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