TIVP033: LULULEMON (LULU): STILL THE KING OF ATHLEISURE?

SHAWN O’MALLEY & DANIEL MAHNCKE

TIVP033: LULULEMON (LULU): STILL THE KING OF ATHLEISURE? W/ SHAWN O’MALLEY & DANIEL MAHNCKE

17 August 2025

Shawn O’Malley and Daniel Mahnke break down Lululemon (ticker: LULU), an iconic brand famous for pioneering the now ubiquitous athleisure industry. Lululemon has a fiercely loyal customer base, with industry-leading rates of repeat customers, sales per square foot of retail space, and very little need for discounting, if any.

In this episode, you’ll learn about why the market has soured on this powerful brand, despite incredible success growing internationally, leaving its P/E ratio at a relatively low 15-16x. You’ll also learn about how Lululemon controls all of its touchpoints with customers, selling primarily DTC, as opposed to wholesale like Nike and Adidas do, as well as whether LULU is attractively valued today, plus so much more!

Prefer to watch? Click ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠here⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ to watch this episode on YouTube.

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IN THIS EPISODE, YOU’LL LEARN:

  • Why Lululemon has such a cult-like following.
  • What makes Lululemon products so special.
  • How new competitors are challenging Lululemon on the margins.
  • How the future of Lululemon may be defined by China and menswear.
  • Why the setup for LULU stock may be even more attractive than Nike.
  • What to know about possible yellow flags with the business, like its declining inventory turnover ratio and expanding cash conversion cycle.
  • Why the company’s acquisition of the sports-tech hardware company, Mirror, failed so miserably.
  • How to think about modeling LULU’s intrinsic value.
  • Whether Shawn and Daniel add LULU to their Intrinsic Value Portfolio.
  • And much, much more!

 

 

TRANSCRIPT

Disclaimer: The transcript that follows has been generated using artificial intelligence. We strive to be as accurate as possible, but minor errors and slightly off timestamps may be present due to platform differences.

[00:00:00] Shawn O’Malley: If I told you that a company had grown sales by almost 20% a year over the last three years at one of the most powerful brands in North American retail, invented a new category of clothing that has swept across the world while boasting 59% gross margins, industry leading operating margins, and a five year average return on invested capital of 35%.

[00:00:22] Shawn O’Malley: I suspect you’d be pretty shocked to hear the stock is trading at just 15 times earnings.

[00:00:27] Daniel Mahncke: Retail has always been brutal though, but yeah, I hear you. A correction in Lulu stock was warranted as growth has started to slow and tells complicated things, but Mr. Market seems to have really excessively soured on a great company after what really has been the first signs of trouble.

[00:00:45] Shawn O’Malley: With almost all of its sales coming from DTC rather than wholesale.

[00:00:50] Shawn O’Malley: Lulu controls its brand and destiny in a way that few other brands can, to say nothing about the success they’ve already had expanding in China. This may soon be much more than just a North American brand.

[00:01:06] Intro: You are listening to The Intrinsic Value Podcast by The Investor’s Podcast Network since 2014 with over 180 million downloads, we’ve learned directly from the world to best investors. Now we are applying those lessons to analyze businesses and investment opportunities every week, helping you uncover intrinsic value. And now here are your hosts, Shawn O’Malley and Daniel Mahncke.

[00:01:38] Daniel Mahncke: Today’s pick is a company that most in North America will know it’s Lululemon. In the last year or two, despite this being a company that has compound revenues at north of 20% a year for the last five years with the industry leading margins and returns on capital, the stock has fallen from a PE of almost 70 to just 15.

[00:01:59] Daniel Mahncke: That’s the kind of contraction you would expect from a company where something is seriously wrong. And while Lululemon as a premium active sportswear brand is facing some headwinds, it’s not like the business has imploded by all measures. It’s still growing with very promising prospects internationally and in e-commerce, even of sales in its North American market are finally showing evidence of stagnating on top of margin pressures from tariffs in the US.

[00:02:25] Daniel Mahncke: That is at least how you, Shawn, have described the pitch to me, a company with that kind of brand power, recent growth, profitability, and expectations for continued profitable growth for years to come, probably should not be trading at just 15 times expected earnings over the next year. That’s kind of crazy and places its valuation at a discount for brands like sketches, which have had about half as much growth in the last few years, six percentage points, lower gross margins, less than half of Lulu’s operating margins.

[00:02:57] Daniel Mahncke: So again, at a high level, the drop on Lulu stock has been fairly shocking. But I’m just relaying on the details that you’ve outlined to me, Shawn. So how about you give us a deeper dive?

[00:03:09] Shawn O’Malley: Well, you did a pretty good job. I’ve been keeping an eye on Lulu at a distance for over a year now, since our colleagues, Clay and Kyle first pitched it on We Study Billionaires and the stock has just fallen so much.

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