How have $100 leggings defied time? Lululemon financials rode the casualization wave, turning yoga wear into something "kind of sexy". This clever twist made their clothes perfect for yoga and errands alike. How is this success reflected on its cash flow statement? Let’s find out.
of Net Revenue from the Americas
increase in CapEx in 2021
in FCF in 2023
in Liabilities for every $1 in Equity
In the technical athletic apparel category, few names stand out as prominently as Lululemon. Celebrating its 26th anniversary in 2024, the company has built a robust portfolio of products—including running, training, and leisure wear.
This story is about Lululemon’s rise, about product innovation and market expansion through capital expenditure with a vision.
In this article, we will dive into Lululemon’s cash flow statement—examining key treasury metrics like Free Cash Flow (FCF), capital expenditures (CapEx), and other financial ratios. By analyzing Lululemon annual revenue and studying insights from the Lululemon annual report, we can uncover the financial strategies behind its success.
We will explore how the company’s strategic investments and financial prudence have propelled it from a niche yoga apparel boutique to a global giant. Let’s begin by analyzing Lululemon financials and its revenue streams first.
Lululemon operates in over 25 countries and organizes its operations into four regional markets:
The company reports three segments: Americas, China Mainland, and the Rest of World (APAC and EMEA combined).
In 2023, the Americas accounted for 79% of net revenue, China Mainland 10%, and the Rest of World 11%. This is a shift from previous years where the Americas had a higher percentage of net revenue.
The company operates both physical retail locations and e-commerce services through its region-specific websites, digital marketplaces, and mobile apps. Physical retail locations are considered a key part of Lululemon’s growth strategy, helping build its brand presence while supporting omni-channel capabilities.
Having explored Lululemon’s global operations, let’s now dive into the company’s Free Cash Flow (FCF) metrics.
Lulu’s FCF is growing 44% YoY. Compared to the industry average of 11%, Lulu is growing 4x faster.
An increase in CapEx means more purchases of assets (property, plants, buildings, tech, or equipment).
According to Lulu’s annual report for 2021[1], 2022[2], and 2023[3], the increase in capital expenditures was partly due to larger-scale projects and a continued shift to cloud computing/cloud migration:
In 2022, Lululemon faced a steep 67% drop in Free Cash Flow (FCF) compared to 2021. However, the company’s strategic investments soon bore fruit. By 2023, FCF had rebounded dramatically with a 400% increase, climbing to $1.64 billion from $328 million in the previous year.
Lululemon’s FCF yield averaged an impressive 12% from 2019 to 2023, well above the industry average of 8%. Additionally, cash from operations surged by 138% in 2023.
That’s impressive, but it is also essential to consider how the company leverages this cash flow to manage its debt obligations effectively. Let’s talk about that for a minute.
Lulu’s total debt increased 17% YoY from 2019 to 2023. In the same timeframe, the industry’s total debt was increasing 19% YoY.
Let’s double-click on the data for deeper insights:
Lulu’s total debt increased at a slower rate than the industry’s, while its total assets grew at a higher rate. This means in comparison to its peers in the industry, Lulu is less leveraged which is translated in the terms of Debt Ratio.
Now let’s talk in detail about Lulu’s ability to effectively service and manage the various financial liabilities that it owes.
In 2023, Lulu had a current ratio of 2.49. This means that for every $1 of current liability owed, Lulu has $2.49 in current assets. The industry average for the current ratio is 1.71.
In 2023, Lulu had a debt-to-equity ratio of 0.68. This means Lulu has $0.7 worth of liabilities for every $1 owned in equity by its shareholders. The industry average is 1.24.
Lululemon’s strategic investments have positioned the company as a leader in the technical athletic apparel category. With an increasing free cash flow and robust solvency/liquidity metrics, the company is holding its ground against its peers.
But this remarkable growth, while impressive, comes with operational and technological challenges that can impact Lulu’s financial health—and can feel like an unwelcome burden. How will Lululemon integrate this financial expansion with visionary treasury processes?
This is a question that only their treasury department can answer, as they navigate the complexities of ensuring financial robustness and agility.
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