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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 …show more content…

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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