Team 3 – Student Research:

2016 Security Analysis Competition

Mikhil Jhaveri, Randall Martin, Saad Junaid, Tatiana Chau, Adil Naqi
The University of Texas at Dallas
 Security Analysis Competition November 9, 2016

Sports Apparel Industry

Date: November 9, 2016 Ticker: LULU (NasdaqGS) Recommendation: Hold

Price: $57.79 Price Target: $51.28
Market Profile
Investment Summary
Closing Price: $57.79
We intiate our coverage of Lululemon as a hold recommendation. While our current
52-Week High/Low: 81.81/43.14
model suggests increases in revenue and improvements in gross margin for FY17, we do
Shares Out. (mm): 137
believe the industry is becoming increasingly more competitive, which will make it
Market Cap (mm): 7,652.70
difficult for Lululemon to be successful. While shares look attractive at current prices
Float % : 72.60%
due to the cyclical nature of the industry, heightened competition, a transition from
EPS 2015: $1.95
corporate stores to e-commerce, and an expansion into men’s clothing will make it
LTM Dividend Yield: N/A
difficult for the firm to succeed. We look for investments that are long term in nature and
Bottom-up Beta: 1.33
do not speculate on short term bets. Their product quality dramatically decreased due to
TEV/EBITDA: 20.0x
Institutional Holdings: 84% switching suppliers in order to reduce cost of goods sold. Their dependence on many
Insider Holdings: 53.40% suppliers and lack of production facilities will put the company at a disadvantage as the
industry continues to evolve. Our investment thesis is centered on the following
points:
• Historically, LULU has catered to a high end niche market, but may not be
sustainable. New players are increasingly entering the athletic leisure-space who
may undercut and replicate LULUs business model. Clothing cannot be patented,
Sum of Parts Valuation Weight Price therefore LULU faces risk of low cost imitation, which will erode Lulu’s market-
DCF Multiple Method 0.33 $57.90 share.
DCF Perpetuity Growth Method 0.33 $43.49
• In the past, LULU has focused solely in women's apparel. With the trend in
NTM P/E Multiple Method 0.33 $54.01
decreasing EBITDA margins and Inventory Turnover rate, the company has turned
Implied Share Price from DCF: $51.28 to men's apparel as a long-term growth driver. This stems away from their original
Premium / (Discount) to Current: -7.93% business model, which will result in an increase of cost of production. Male
consumer sentiment is geared towards egotistic brands such as, Nike, Adidas, and
Under Armour. We believed that since they focused solely on women, male
perception of LULU is a women's brand will not change quickly due to the lack of
marketing and branding of LULUs product support.
• LULU Sued for see-through yoga pants scandal. LULU’s brand and reputation has
been tarnished due to the yoga pants scandal in 2013. This further reiterates our
belief that the company only markets to the affluent consumers. As the middle
class continues to shrink, and upper class continues to expand, we believe that
LULUs target market is declining.
“Frankly, some women’s bodies just
Wilson has said he chose the name “Lululemon” because L is not in the
don’t actually work [for the yoga
pants]” Japanese vocabulary. “It’s funny to watch them try to say it,” he said in a
-Founder of Lululemon: 2004 profile in the National Post Business magazine.
Chip Wilson
• According to Bloomberg Intelligence, e-commerce is predicted to reach $632
billion by 2020 representing a compounded annualized growth rate (CAGR)
of roughly 13%.

STUDENT RESEARCH 1
 Security Analysis Competition November 5, 2016

Business Description
Lululemon Athletica Inc. (lululemon athletica) was founded in 1998 by Chip
Wilson and is currently headquartered in Vancouver, British Columbia, Canada.
Lululemon Athletica is a designer and retailer of the highest quality athletic apparel.
Lululemon Athletica Inc. own both Ivivva as well as Lululemon Athletica. They cater to
a healthy lifestyle making pants, shorts, tops and jackets for men, women and female
youth. The brand pursues yoga, running and general fitness as their marketing image. The
brand is broadening its product range to cater to more than just yoga. Lululemon Athletica
Inc. has a design team that continuously develops technically advanced fabrics and
innovative functional features that differentiates them from their competition and advances
their product line. As of January 31, 2016, its retail footprint included 363 company-
operated stores. The company completed its IPO in July 2007. The company has a
classified board of directors currently consisting of 11 directors, including four Class I
directors, four Class II directors and four Class III directors, comprising four Class I
directors, four Class II directors and three Class III directors. The company also has three
reportable segments, namely, company-operated stores (74% of revenues and 67% of total
CEO: Potdevin / CFO: Haselden segment EBIT in FY 16 [Jan.]); direct-to-consumer (19% and 32%) and other (7% and
1%).
Executives: Title Tenure The Chief Executive Officer, Laurent Potdevin has been part of Lululmon Athletica
Laurent Potdevin CEO 2.9 Inc. since January 1, 2014. He is a 20-year industry veteran and has served as the Chief
Stuart Haselden CFO 1.8
Executive Officer of TOMS Shoes.
Board Members
Chief Financial Officer, Stuart C. Haselden has been part of Lululemon Athletica
Michael Casey - 2.9
Inc. since February 2, 2015 and served as its Executive vice President of Operations since
David M Mussafer - 2.2
October 2015. From May 15, 2012 to January 16, 2015, Haselden served as the Chief
Financial Officer and Senior Vice President of J. Crew Group, Inc., as well as serving as
their Principal Accounting Officer. Before joining J. Crew, he served as the Vice President
of Strategic Planning for Saks Incorporated where he held a variety of positions from 1999-
2005.

Primary and Secondary Markets/Products

Lululemon Athletica primarily target sophisticated and educated women who
understand the importance of an active and healthy lifestyle. Their secondary target is men
and female youth. They conduct business through two channels: corporate owned stores
and selling direct to customers. Historically, LULU has operated traditional brick and
mortar locations, but due to technological advancements, continual investments into e-
commerce will prove detrimental. LULU operates in the USA, Canada, Australia, New
Zealand, UK, Singapore, Hong Kong, Germany, and Puerto Rico. The company has
incorporated a vertical strategy which allows them to interact more directly and gain more
feedback from customers who they refer to as guests.
Lululemon Athletica primarily target sophisticated and educated women who
understand the importance of an active and healthy lifestyle. Their secondary target is men

2
Security Analysis Competition November 5, 2016

and female youth. They conduct business through two channels: corporate owned stores
and selling direct to customers. Historically, LULU has operated traditional brick and
mortar locations, but due to technological advancements, continual investments into e-
commerce will prove detrimental. LULU operates in the USA, Canada, Australia, New
Zealand, UK, Singapore, Hong Kong, Germany, and Puerto Rico. The company has
incorporated a vertical strategy which allows them to interact more directly and gain more
feedback from customers who they refer to as guests. Southeast Asia, 28% in South Asia,
20% in China, 2% in North America, and the remainder in other regions.
Competition in the athletic apparel industry is principally on the basis of brand image
and recognition as well as product quality, innovation, style, distribution and price .
Lululemon Athletica compete with retailers specifically focused on women’s athletic
apparel including Columbia, Michael Kors, Gildan, and Under Armor.

Business Risk
Lululemon Athletica Inc. is a large company that primarily caters to a specific market
that follows an active lifestyle. At all times, they must have the ability to maintain and
increase the value and reputation of their brand. They must make sure their products are
the highest of quality and meet the standards of their consumers in their niche market .
Failing to do so will affect their bottom line.
Lululemon Athletica Inc. does not produce its own finished goods or materials;
therefore, they are very reliant on their suppliers. There can be a disruption in the supply
chain at any given point if there is any sort of miscommunication or misunderstanding.
Product quality and manufacturing issues have previously been an issue in the past, and
they could recur in the future. In fiscal 2015, approximately 65% of products were
produced by the top five manufacturing suppliers, and almost all of the Luon fabric (30%
of fabric used) is obtained from four suppliers. With raw material costs fluctuating the
costs of goods sold, purchasing prices could increase which once again would affect the
results in operations and financial conditions. As most of Lululemon’s merchandise is
produced in foreign countries, merchandise probability could be affected if new trade
restrictions are ever imposed or if existing ones are made more burdensome.
Since a significant portion of Lululemon Athletica Inc.’s net revenue and expenses
are generated in foreign countries outside of the United States, slight fluctuation in
foreign currency exchange rates could affect the company’s final results of operations, or
may affect them in the future. Other than changes currency exchange rates, changes in
tax laws, capital or financing needs in the United States, or in the intention to reinvest
foreign earnings could adversely affect Lululemon’s income tax rate and profitability
The company’s business is affected by seasonality. Lululemon must keep up with
consumer trends in order to provide new products based on customer needs if they want
to competitively compete with their competition. They are subject to significant pressure
on cost and pricing caused by intense competition, pressure from customers to reduce
prices, changes in customer demand, and constrained sourcing capacity. This is a huge
risk the company must monitor as sales and probability may decline as a result of
increasing product cost and decreasing selling prices.

STUDENT RESEARCH 3
Security Analysis Competition November 5, 2016

Fabrics and manufacturing technology are not generally patented, therefore, final
VS products and product quality can be imitated by Lululemon’s competitors. If Lululemon
continue to be unable to protect their intellectual property rights they could potentially
diminish their brand value and weaken their competitive position.
The company is also subject to risks associated with leasing retail and distribution
space (long term and non-cancelable leases), which is a long term risk factor, as they
are responsible for most acquired spaces for long periods of times. The company is also
subject to periodic claims and litigation, which could result in either unexpected
expenses if resolved against them. Margins are also at risk, as twenty percent of
products are produced in China and increases in the cost of labor may not be able to be
offset through pricing. The competitive nature of the athletic apparel market could also
affect margins as a result of increasing product costs and decreasing selling prices.

Corporate Governance
2016 Annual meeting of Stockholders:
Lululemon’s primary purposes of hosting the 2016 Annual Meeting of
Stockholders was for the following:
• Proposal No. 1: to elect three Class III directors to hold office for a three-year team
and until their respective successors are elected and qualified
• Proposal No.2: to ratify the selection of PricewaterhouseCoopers LLP as their
independent registered public accounting firm for the fiscal year ending January 29,
2017
Process of Voting
Only holders of record of Lululemon’s common stock and holders of record of their
special voting stock , at the close of business on April 13,2016, will be entitled to notice
of , and vote at, the annual meeting. On the record date, 127,520,121 shares of common
stock and 9,803,819 shares of special voting stock were issued outstanding. Each share
of common stock is entitled to one vote at the annual meeting and each share of special
voting stock is entitled to one vote at the annual meeting. The holders of common
stock and special voting stock will vote together as a single class on all matters that
come before the annual meeting.
Stockholders may not take action at the annual meeting unless there is a quorum
present. stockholders participating in the virtual meeting are considered to be attending
the meeting “in person”. shares that are properly voted for which proxy cards are
properly executed and returned will be voted at the annual meeting in accordance with
the directions given or, in the absence of directions, will be voted for Proposals No. 1
and 2.
Nominee’s: Current Class III director
▪ Robert Bensoussan has been a member of lululemon’s board of directors since
January 2013. Since 2008, Bensoussan has been a Director and the majority owner
of Sirius Equity LLP (UK company.) From 2008-2012, he served as Executive
Chairman of feelunique.com since December 2012. From 2001-2007, he was the
CEO of Jimmy Choo Ltd, and was also a member of the Board of Jimmy Choo Ltd

STUDENT RESEARCH 4
Security Analysis Competition November 5, 2016

from 2001-2011. Bensoussan serves on the boards of directors of Inter Parfums Inc.,
Celio International (Belgium), Zen Cars (Belgium), and Aurenis (France).
▪ Kathryn Henry has been a member of lululemon’s board of directors since January
2016. Since 2015, she served as a strategic consultant for retail and technology
companies, in addition to venture capital, investment and consulting firms seeking
executive level guidance. She previously served as a Chief Information Officer,
Logistics & Distribution at lululemon from 2010-2014. Prior to joining lululemon,
she worked at Gap Inc., where she served as Vice President and Chief Information
Officer of International IT and Gap North America and was responsible for the
systems support of key international growth initiatives.
▪ Jon McNeill has been a member of the board of directors since April 2016. He served
as President, Global Sales, Delivery and Service of Tesla Motors, Inc ., since
September 2015. Prior to joining Tesla Motors, Inc., he was CEO of Enservio, Inc.,
from 2006-2015, and was the founder of multiple technology and retail companies
including TruMotion, Sterling, First Notice Systems, and Trek Bicycle Stores, Inc .

Industry Overview and Competitive Positioning

Lululemon Athletica Inc. operates within the Sports Apparel Industry,
differentiating itself by offering premium, high quality products to fit a
sophisticated and affluent market. The industry has witnessed a slow growth of
1.2% in 2016, being constricted primarily by an intense price-driven competition
from the rise of global manufacturers. A growth in the popularity of health
consciousness and fit lifestyles helps to somewhat buffer this, yet sporting goods
manufacturers are still responding with consolidation strategies to lower
operational costs and boost revenue. The competitiveness of the industry is putting
a price pressure on Lululemon’s high margin product line and reducing the
effectiveness of its premium level product differentiation.
Product Differentiation
Differentiation is high in this industry, as competitors aim to maintain and
establish a brand identity in a market saturated with similar products. Lululemon
distinguishes itself as a premium provider of athletic apparel to a health conscience
consumer. A focus on women positions Lululemon Athletica to fill a void in the
growing market for women’s athletic apparel, and the use of high quality threads
adds to a luxury preference for its products.
Threat of New Entrants - Medium
The Sporting Apparel industry holds a significant capital cost requirement in
the establishment of a new company due to a need for warehousing and
manufacturing facilities, preventing many industry entrants. Brand affinity and
reputation also serve as a challenge for new entrants to develop, as they are costly
and demanding in marketing efforts. On the other hand, Lululemon’s high price
point and lack of patents on any signature products makes way for price-pressuring
threats from existing competitor product extensions into their niche market.

STUDENT RESEARCH 5
 Security Analysis Competition
The SWOT Analysis was
created to establish a better
understanding of Lululemon’s
relative market position. It is
built around a series of
categories within in each
section, which are ranked
according to their likelihood,
threat level, or strength, etc.
STRENGTHS
• Premium Brand Recognition
• Athleisure Popularity Trend
• Healthy Balance Sheet
OPPORTUNITIES
• International Expansion
• Product Line Expansion
STUDENT RESEARCH
November 5, 2016
Bargaining Power of Buyers - Medium
Lululemon has maintained their image as a luxury brand, catering to a market
that is not price conscious. Although, existing athletic apparel retailers have begun
to seep into Lululemon’s market share and provide higher-fashion, more
technologically advanced apparel for women, including Nike, Adidas AG, Under
Armour, and Victoria’s Secret can potentially saturate the market. This plethora of
competition will result in pricing pressure, as consumers now have more
alternatives in athletic apparel products and virtually no switching costs.
Bargaining Power of Suppliers - Low
Recent annual reports show that Lululemon relies on 65 suppliers for the
fabrics used in the production of their apparel product line without any long-term
supplier contracts, thus it is able to leverage well. The textile supplier market is
developed and competitive, thus Lululemon may switch suppliers as it pleases
given that quality standard is met.
Threat of Substitutes - High
Lululemon’s basic core Luon yoga pant currently retails for $98, with prices
for luxtreme models increasing to $298. A similar pant at Gap’s Athleta retails for
$79, and for $89 at Lucy. Nike offers a variety of prices for women’s tight pants,
beginning at $45 and reaching as high as $225. With so many options out there,
Lululemon will be forced to keep its prices in a competitive range or work to justify
higher prices with a technically differentiated product. Although such
differentiation has worked in the past, it may be less of an asset in the future.
Rivalry among Existing Competitors - High
Many of the new competitors have healthy cash balances and a well-developed
supply chain. They are more than capable of funding R&D, producing similar
technological advances and quickly getting them to market.
WEAKNESS
• High Prices
• Limited Brand Perception
• Narrow Product line
• Diminishing Brand Image
THREATS
• Price-driven Competition
• Global Manufacturers with established presence and
larger operating budgets
6
 Security Analysis Competition November 5, 2016

Financial Analysis
The financial analysis table highlights the on-going struggle Lululemon is
6 encountering as they expand into the men’s athletic apparel industry. The most troubling
Inventory Turnover
statistic with Lululemon is their declining inventory turnover. As Lululemon has
5
expanded they have been losing their ability to turn inventory as quickly compared to
4 when their sole focus was on women’s athletic apparel. This is a troubling sign for the
future as Lululemon is looking for growth in the highly competitive men’s athletic leisure
3
market. The space is very crowded with large and mature players such as Under Armour
2 and Nike. Lululemon has not focused nearly enough on marketing and branding their
1 apparel for their men’s segment. For example male consumer sentiment is greater
towards brands that have a logo on their athletic-wear. Male’s like to have their brand
0
logo visible, whereas women would rather not show where they shop for their clothes.
FY10A

FY11A

FY12A

FY13A

FY14A

FY15A

FY16A

FY17A

FY18A

FY19A

FY20A

If Lululemon wants to capture market-share from the big players in the industry, they will
need to start branding their men’s apparel with logos. The company is also experiencing
a shrinking of their EBITDA margin over our 6-year historical analysis. This is due to
EBITDA and Net Income an increase of COGS and their decreasing inventory turnover. These decreases have
Margin
translated into a decrease in their net margins.
0.35
0.3 Gross Margins were as high as 58.8% in 2011, but have since decreased to 51.9%.
0.25 We believe their changes to their Luon fabrics, which are found in their signature yoga
0.2
0.15
pants, have helped them decrease their raw material costs and increase their margins .
0.1 Lulu’s product mix with their men’s line has also attributed to their decreasing margins.
0.05
0 Our model predicts Lulu to continue to maintain favorable gross margins . Margins are
FY10A
FY11A
FY12A
FY13A
FY14A
FY15A
FY16A
FY17A
FY18A
FY19A
FY20A

expected to decline in the future due to our assumption that Lulu will continue to expand
EBITDA Margin Net Income Margin
their men’s line. This will cause an increase in their COGS throughout the horizon
period. The company is aggressively trying to enter the men’s athletic leisure space as
it has become a trend throughout the apparel industry. We do see the company improving
on all of these metrics for the first fiscal year of our projection. This is due to management
guidance of new stores being opened along with our revenue driving assumptions in our
DCF model. The industry in very cyclical in nature and there is currently a discount on
the sector. In the first year of projection, we believe that Lululemon will improve on
their inventory turnover metric which will help drive growth for that year and improve
on all profitability ratios (ROA, ROE, ROC). Throughout the projection period Lulu
will have relatively high profit margins while operating with mediocre asset turns.

Ratio Analysis
Earnings
Lulu’s relatively strong net income margin for the last twelve months combined
with relatively high accruals suggest possible conservative accounting and an
understatement of its reported net income.

STUDENT RESEARCH 7
 Security Analysis Competition November 5, 2016
LULU US Equity
90
80
Mens
70 apparel
introduced
60 Resuable bag
recall as they
50 contained high
level of lead
40
CEO fired
Initial
30 due to yoga
public
Goodbye pants recall
offering
20 Japan: scandal
Closing 4
10 stores

0
Jul-07

Jul-08

Jul-09

Jul-10

Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16
Valuation
Sum of Parts Valuation Weight Price
To value Lululemon Athletica, we used three valuation methodologies to arrive
DCF Multiple Method 33.00% $57.90
DCF Perpetuity Growth Method 33.00% $43.49 with a sum of parts valuation. We incorporated a Discounted Cash Flow Multiple
NTM P/E Multiple Method 33.00% $54.01 Method, a Discounted Cash Flow Perpetuity Growth Method, and a Next Twelve
Implied Share Price from DCF: $51.28
Months P/E Multiple to take utilize relative valuation along with an intrinsic
Premium / (Discount) to Current: -7.93% valuation.
DCF Model (33%) - Our valuation model projects the FCFF for the next 5 fiscal
years with the assumption that the terminal growth rate at 2%, to be in line with
NTM P/E Multiple Method historical inflation. We used an effective tax rate of 35% which is the industry
Lululemon Athletica Forward P/E (FY16) average. In order to forecast our financial statements assumptions were made in the
26x
2016 LULU Estimated Earnings Per Share $2.12 following categories: Revenue, Expenses, CAPEX, and Balance Sheet and Cash Flow
Implied Share Price $54.01 statement drivers. WACC for the firm is 8.25%. The capital structure for the firm is
all equity. We used a Bottom-up Beta for the company based upon our selected
Terminal Value - Perpetuity Growth Method comparables, resulting in a beta of 1.33.
Terminal Value: 6,002 Perpetuity Growth Method (33%) – Using the Perpetuity Growth Method we
Terminal FCF Growth Rate: 2.00% calculated the implied terminal EBITDA multiple. We feel our method is reasonable
given the variance of results from the valuation two multiple methods.
PV of Terminal Value: 4,285 NTM P/E Multiple Method (33%) – We also incorporated a NTM P/E from
Present Value of FCFE: 1,224 CapitalIQ analyst estimates. This method was chosen since our perpetuity growth
method gave us an implied price that seemed excessive based upon our assumptions
Implied Equity Value: 5,508

Diluted Shares Outstanding: 139.90

Implied Share Price from DCF: $39.37

Premium / (Discount) to Current: -29.31%

STUDENT RESEARCH 8
Security Analysis Competition November 5, 2016

Conclusion
Our analysis has led us to conclude that Lululemon’s stock is over-valued based
on our target price of $51.28 which shows a potential 7.9% downside,
recommending a HOLD. We believe Lululemon will not be able to sustain long-
term growth because of; increased competition in athletic wear, a lack of e-
commerce positioning, men’s consumer sentiment in athletic wear, and brand
loyalty are factors that will affect their overall performance in the future.
Lululemon continues to represent themselves as a luxury brand, and consumer
preferences may not be deterred from Lulu’s products which could ultimately
prevent them from capturing market-share from Under Armour, Nike, and Adidas.
If Lulu’s men’s apparel line can have some of the same success as their female
segment, they will have the ability to attain greater market-share.
We strongly believe Lululemon Athletica is a hold for a long-term investment
horizon. However, in the short term of a year or less, investors may see share price
appreciation due to cyclicality of the industry and aggressive store openings planned
for fiscal year 2017. Lululemon will see share-price appreciation in a one-year
horizon period. This is due to management guidance of increased stores and our
revenue and expense assumption in our model. This growth will slow down as we
anticipate Lululemon to over-invest in new locations combined with their lack of
branding for the men’s segment. We forecast COGS to increase as the company seeks
growth in the men’s segment. SG&A will also be increasing due to rapid expansion
in both domestic and foreign markets. This will result in increased operating costs
and reduction in their net income margin in the future.

STUDENT RESEARCH 9
 Financial Ratios FY11A FY12A FY13A FY14A FY15A FY16E FY17E FY18E FY19E FY20E
Profitability Ratios
Return on Assets 31.2% 28.2% 23.8% 16.4% 18.3% 21.1% 17.3% 14.5% 13.2% 11.4%

Return on Capital 30.6% 30.5% 25.5% 21.9% 26.0% 22.3% 18.1% 15.1% 13.7% 11.7%
Appendix A:

Return on Equity 30.6% 30.5% 25.5% 21.9% 26.0% 22.3% 18.1% 15.1% 13.7% 11.7%

STUDENT RESEARCH
Efficiency Ratios
Fixed Asset Turnover 6.1x 6.4x 6.2x 6.1x 5.9x 5.2x 4.9x 5.4x 5.9x 6.3x

Accounts Receivable Turnover 139.8x 237.2x 174.3x 140.1x 153.5x 180.8x 171.3x 170.9x 170.5x 169.8x

DSO 2.61 1.54 2.09 2.60 2.38 2.02 2.13 2.14 2.14 2.15
Security Analysis Competition

Inventory Turnover 5.0x 4.4x 4.0x 4.5x 4.0x 4.5x 4.5x 4.5x 4.4x 4.4x

DIO 73.2 83.6 90.9 81.5 90.6 81.5 81.4 81.6 82.6 82.2
Accounts Payable Turnover 27.7 x 541.5 x 54.2 x 94.6 x 95.3 x 60.8 x 45.6 x 36.5 x 30.4 x 26.1 x
CCC 62.7 84.5 86.2 80.2 89.2 77.5 75.6 73.8 72.7 70.3

Margin Analysis
Gross Margin 59.8% 58.7% 56.9% 50.9% 51.9% 49.0% 48.0% 47.0% 47.0% 46.0%
SG&A Margin 28.2% 28.2% 28.2% 30.3% 31.1% 28.0% 28.0% 28.0% 28.0% 28.0%
EBITDA Margin 31.6% 30.5% 28.7% 20.6% 20.9% 21.0% 20.0% 19.0% 19.0% 18.0%

Short Term Liquidity

Current Ratio 5.1 x 5.9 x 8.3 x 5.9 x 4.1 x 5.1 x 6.1 x 6.9 x 7.7 x 8.3 x
Quick Ratio 4.1 x 4.7 x 6.7 x 4.6 x 2.8 x 3.7 x 4.7 x 5.5 x 6.3 x 6.9 x

Long Term Solvency

Total Debt/Capital NM NM NM NM NM NM NM NM NM NM

DuPont Analysis
ROE 30.6% 30.5% 25.5% 21.9% 26.0% 22.3% 18.1% 15.1% 13.7% 11.7%

10
November 5, 2016
Security Analysis Competition November 5, 2016

STUDENT RESEARCH 11
Security Analysis Competition November 5, 2016

Appendix B:

STUDENT RESEARCH 12
 Lululemon Athletica, Inc - Operating Model
($ in Millions Except Per Share and Per Unit Data)

# Assumptions

Company Name: Lululemon Athletica, Inc Effective Tax Rate: 33.0%

Ticker: LULU Days in Year: 365
Appendix C:

Units (for Conversions): 1,000 Minimum Cash Required: -

Last Fiscal Year: 2016-01-31 Circuit Breaker: No

Next Fiscal Year: 2017-01-31

STUDENT RESEARCH
Most Recent Quarter End Date: 2016-07-31
Current Valuation Date 2016-11-05

Share Price: $ 55.70

# Sensitivity Toggles for Key Assumptions

Security Analysis Competition

Terminal EBITDA Multiple: 15.00 x

Average Sales per Corporate Store Sensitivity Toggle: 0.0% Terminal FCF Growth Rate: 2.00%
New Corporate Store Sensitivity Toggle: 0.0%
Direct to Consumer Sensitivity Toggle: 0.0%
Other Revenue Sensitivity Toggle: 0.0%
SG&A Sensitivity Toggle: 0.0%

# Historical Projected
Revenue Assumptions Units FY10A FY11A FY12A FY13A FY14A FY15A FY16E FY17E FY18E FY19E FY20E
Total Revenue $ Millions 711.7 1,000.8 1,370.4 1,591.2 1,797.2 2,060.5 2,619.0 2,827.5 3,037.4 3,245.4 3,440.5
YoY Growth Rate % 57.1% 40.6% 36.9% 16.1% 12.9% 14.6% 27.1% 8.0% 7.4% 6.9% 6.0%

Segment
Corporate Stores $ Millions 591 817 1,090 1,229 1,348 1,516 2,126.1 2,319.6 2,509.6 2,696.0 2,873.9
Direct to Consumer $ Millions 57 106 197 263 321 402 421.6 472.2 509.9 540.5 562.2
Other Revenue $ Millions 63 77 83 99 128 143 71.4 35.7 17.8 8.9 4.5
Net Sales 2,619.0 2,827.5 3,037.4 3,245.4 3,440.5

Corporate Stores $ Millions 137 174 211 254 302 362 406 452 499 547 595
Increase during period $ Millions 13 37 37 43 48 61 44 46.0 47.0 48.0 48.0
Growth YoY % N/A 184.62% 0.00% 16.22% 11.63% 27.08% -8.33% 4.00% 2.00% 2.00% 1.00%
Post-toggle Growth YoY % -8.3% 4.0% 2.0% 2.0% 1.0%
Total Retail Store Growth YoY % 27.0% 21.3% 20.4% 18.9% 19.9% 12.2% 11.3% 10.4% 9.6% 8.8%
Average Sales per Corporate Store $ Millions 5.2 5.8 6.5 6.3 6.0 5.7 5.2 5.1 5.0 4.9 4.8
Growth YoY % N/A 10.7% 12.9% -3.5% -5.0% -4.4% -8.0% -2.0% -2.0% -2.0% -2.0%
Post-toggle Growth YoY % -8.0% -2.0% -2.0% -2.0% -2.0%

Direct to Consumer $ Millions 57.3 106.3 197.3 263.1 321.2 401.5 421.6 472.2 509.9 540.5 562.2
Growth YoY % 85.4% 85.5% 33.4% 22.1% 25.0% 5.0% 12.0% 8.0% 6.0% 4.0%
Post-toggle Growth YoY % 5.0% 12.0% 8.0% 6.0% 4.0%

Other Revenue $ Millions 63 77 83 99 128 143 71.4 35.7 17.8 8.9 4.5
Growth YoY % 22.0% 7.3% 19.5% 29.0% 11.7% -50.0% -50.0% -50.0% -50.0% -50.0%

13
Post-toggle Growth YoY % -50.0% -50.0% -50.0% -50.0% -50.0%
November 5, 2016
 Historical Projected
# Expense Assumptions Units FY10A FY11A FY12A FY13A FY14A FY15A FY16E FY17E FY18E FY19E FY20E

Cost of Sales $ Millions 293.2 402.6 565.9 685.4 883.0 990.8 ###### 1,470.3 1,609.8 1,720.1 1,857.9
Cost of Sales as % Revenue: % 41.2% 40.2% 41.3% 43.1% 49.1% 48.1% 51.0% 52.0% 53.0% 53.0% 54.0% Appendix D:

SG&A: $ Millions 212.6 282.3 386.4 448.7 544.5 640.0 $ 733.3 $ 791.7 $ 850.5 $ 908.7 $ 963.3
SG&A as % of Sales: % 29.9% 28.2% 28.2% 28.2% 30.3% 31.1% 28.0% 28.0% 28.0% 28.0% 28.0%

STUDENT RESEARCH
Post-toggle Growth: % 28.0% 28.0% 28.0% 28.0% 28.0%

D&A: $ Millions 23.5 28.9 41.7 48.2 57.5 72.6 81.0 88.5 96.2 103.5 110.7
D&A as % Revenue: % 3.3% 2.9% 3.0% 3.0% 3.2% 3.5% 3.1% 3.1% 3.2% 3.2% 3.2%
Security Analysis Competition

Historical Projected
# Capital Expenditures Assumptions Units FY10A FY11A FY12A FY13A FY14A FY15A FY16E FY17E FY18E FY19E FY20E

Annual CapEx: $ Millions (30.4) (116.7) (93.2) (106.4) (119.7) (143.5) (170.0) (85.0) (93.5) (102.9) (113.1)
as % of Revenue: % -4.3% -11.7% -6.8% -6.7% -6.7% -7.0% -6.5% -3.0% -3.1% -3.2% -3.3%
YoY Growth: % 283.9% -20.1% 14.2% 12.5% 19.9% 217.2% -50.0% 10.0% 10.0% 10.0%

Historical Projected
# Debt Schedule Units FY10A FY11A FY12A FY13A FY14A FY15A FY16E FY17E FY18E FY19E FY20E
Mandatory Debt Repayment: $ Millions

Beginning Cash: $ Millions 590.2 698.6 664.5 501.5 789.3 1,091.3 1,395.8
Minimum Required: $ Millions - - - - - - -
Net Change in Cash, Before Additional Borrowing: $ Millions (29.52) (153.80) 287.76 301.99 304.59 331.94 322.22
Ending Cash Balance, Before Additional Borrowing: $ Millions 669.1 510.6 789.2 1,091.3 1,395.8 1,727.8 2,050.0

Additional Borrowing Required: $ Millions

Total Borrowings: $ Millions

Average Balance: $ Millions
Interest Expense: $ Millions (3.5)
Effective Interest Rate: % N/A 0.0% 0.0% 0.0% 0.0% 0.0%

Cash & Cash Equivalent: $ Millions 316.3 409.4 590.2 698.6 664.5 501.5 789.3 1,091.3 1,395.8 1,727.8 2,050.0
Average Balance: $ Millions 362.9 499.8 644.4 681.6 651.7 794.0 ###### 1,243.6 1,561.8 1,888.9 2,050.0

14
Interest Income: $ Millions - - - - - - - - - -
Effective Interest Rate: % 0.0% 0.0% 0.0% 0.0% 0.0%
November 5, 2016
 Historical Projected
# Balance Sheet and Cash Flow Statement Drivers Units FY11A FY11A FY12A FY13A FY14A FY15A FY16E FY17E FY18E FY19E FY20E
Accounts Receivable as % Revenue: % N/A 0.7% 0.4% 0.6% 0.7% 0.7% 0.6% 0.6% 0.6% 0.6% 0.6%
Days Sales Outstanding (DSO): Days N/A 2.6 1.5 2.1 2.6 2.4 2.2 2.2 2.2 2.2 2.2
Appendix E:

Inventories as % COGS: % 20.1% 22.9% 24.9% 22.3% 24.8% 23.4% 23.4% 23.4% 23.4% 23.4%
Inventory Conversion Period: Days 73.2 83.6 90.9 81.5 90.6 85.3 85.3 85.3 85.3 85.3

STUDENT RESEARCH
Prepaid Expenses & Other Current Assets % OpEx: % 2.4% 5.1% 8.2% 9.2% 12.8% 5.0% 5.0% 5.0% 5.0% 5.0%

Accounts Payable as % COGS: % 2.6% 1.4% 1.0% 1.2% 1.0% 1.6% 2.2% 2.7% 3.3% 3.8%
Days Payable Outstanding (DPO): Days 9.6 5.0 3.6 4.5 3.6 6.00 8.00 10.00 12.00 14.00
Security Analysis Competition

Accrued Expenses as % OpEx: % 15.8% 13.4% 12.0% 12.1% 14.3% 13.3% 13.3% 13.3% 13.3% 13.3%

Other Non-Current Liabilities as % OpEx: % 7.2% 6.5% 6.6% 6.5% 6.6% 6.7% 6.6% 6.6% 6.6% 6.6%
Other Non-Current Assets: $ Millions - - - - - 0.0% 0.0% 0.0% 0.0% 0.0%

Gain on Sales of Assets: $ Millions - - - - - 0.0% 0.0% 0.0% 0.0% 0.0%

Goodwill Impairment: $ Millions - - - - - 0.0% 0.0% 0.0% 0.0% 0.0%
PP&E Write-off: $ Millions - - - - - 0.0% 0.0% 0.0% 0.0% 0.0%
Stock-Based Compensation Expense as % Revenue: % 1.0% 1.0% 1.1% 0.6% 0.5% 0.5% 1.0% 1.0% 1.0% 1.0% 1.0%

Tax Benefits from Stock Options: $ Millions - - - - - - 0.0% 0.0% 0.0% 0.0% 0.0%
Deferred Taxes % Income Taxes: % - - - 3.4% 2.5% 10.5% 3.0% 3.0% 3.0% 3.0% 3.0%

Proceeds from Short-Term Borrowings, net: $ Millions - - - - - - - - - - -

Repayments of Short-Term Debt: $ Millions - - - - - - - - - - -
Proceeds from Long-Term Borrowings, net of discount: $ Millions - - - - - - - - - - -
Repayments of Long-Term Debt: $ Millions - - - - - - - - - - -

Proceeds from Sales of Common Stock: $ Millions 5.8 9.6 11.0 8.2 2.9 4.7 0.0% 0.0% 0.0% 0.0% 0.0%

Treasury Stock: $ Millions - - - (147.4) (274.2) - - - - - -

Guidance $ Millions 0.5

15
Effect of FX Rate Changes % Revenue: % 0.8% -0.3% -0.1% -4.6% -4.4% -2.2% -0.5% -0.5% -0.5% -0.5% -0.5%
November 5, 2016
 Historical Projected
Capital ExpendituresAssumptions Units FY10A FY11A FY12A FY13A FY14A FY15A FY16E FY17E FY18E FY19E FY20E Appendix F:

Annual CapEx: $Mil ions (30.4) (116.7) (93.2) (106.4) (119.7) (143.5) (170.0) (85.0) (93.5) (102.9) (113.1)
as%ofRevenue: % -4.3% -11.7% -6.8% -6.7% -6.7% -7.0% -6.5% -3.0% -3.1% -3.2% -3.3%

STUDENT RESEARCH
YoYGrowth: % 283.9% -20.1% 14.2% 12.5% 19.9% 217.2% -50.0% 10.0% 10.0% 10.0%

Historical Projected
Security Analysis Competition

DebtSchedule Units FY10A FY11A FY12A FY13A FY14A FY15A FY16E FY17E FY18E FY19E FY20E
MandatoryDebtRepayment: $Mil ions

BeginningCash: $Mil ions 590.2 698.6 664.5 501.5 789.3 1,091.3 1,395.8
MinimumRequired: $Mil ions - - - - - - -
NetChangein Cash,BeforeAdditional Borrowing: $Mil ions (29.52) (153.80) 287.76 301.99 304.59 331.94 322.22
EndingCashBalance, BeforeAdditional Borrowing: $Mil ions 669.1 510.6 789.2 1,091.3 1,395.8 1,727.8 2,050.0

Additional BorrowingRequired: $Mil ions

Total Borrowings: $Mil ions

AverageBalance: $Mil ions
InterestExpense: $Mil ions (3.5)
EffectiveInterestRate: % N/A 0.0% 0.0% 0.0% 0.0% 0.0%

Cash&CashEquivalent: $Mil ions 316.3 409.4 590.2 698.6 664.5 501.5 789.3 1,091.3 1,395.8 1,727.8 2,050.0
AverageBalance: $Mil ions 362.9 499.8 644.4 681.6 651.7 794.0 ###### 1,243.6 1,561.8 1,888.9 2,050.0
InterestIncome: $Mil ions - - - - - - - - - -

16
EffectiveInterestRate: % 0.0% 0.0% 0.0% 0.0% 0.0%
November 5, 2016
 Historical Projected
Balance Sheet and Cash Flow Statement Drivers Units FY11A FY11A FY12A FY13A FY14A FY15A FY16E FY17E FY18E FY19E FY20E
Accounts Receivable as % Revenue: % N/A 0.7% 0.4% 0.6% 0.7% 0.7% 0.6% 0.6% 0.6% 0.6% 0.6%
Days Sales Outstanding (DSO): Days N/A 2.6 1.5 2.1 2.6 2.4 2.2 2.2 2.2 2.2 2.2
Appendix G:

Inventories as % COGS: % 20.1% 22.9% 24.9% 22.3% 24.8% 23.4% 23.4% 23.4% 23.4% 23.4%
Inventory Conversion Period: Days 73.2 83.6 90.9 81.5 90.6 85.3 85.3 85.3 85.3 85.3

STUDENT RESEARCH
Prepaid Expenses & Other Current Assets % OpEx: % 2.4% 5.1% 8.2% 9.2% 12.8% 5.0% 5.0% 5.0% 5.0% 5.0%

Accounts Payable as % COGS: % 2.6% 1.4% 1.0% 1.2% 1.0% 1.6% 2.2% 2.7% 3.3% 3.8%
Days Payable Outstanding (DPO): Days 9.6 5.0 3.6 4.5 3.6 6.00 8.00 10.00 12.00 14.00
Security Analysis Competition

Accrued Expenses as % OpEx: % 15.8% 13.4% 12.0% 12.1% 14.3% 13.3% 13.3% 13.3% 13.3% 13.3%

Other Non-Current Liabilities as % OpEx: % 7.2% 6.5% 6.6% 6.5% 6.6% 6.7% 6.6% 6.6% 6.6% 6.6%
Other Non-Current Assets: $ Millions - - - - - 0.0% 0.0% 0.0% 0.0% 0.0%

Gain on Sales of Assets: $ Millions - - - - - 0.0% 0.0% 0.0% 0.0% 0.0%

Goodwill Impairment: $ Millions - - - - - 0.0% 0.0% 0.0% 0.0% 0.0%
PP&E Write-off: $ Millions - - - - - 0.0% 0.0% 0.0% 0.0% 0.0%
Stock-Based Compensation Expense as % Revenue: % 1.0% 1.0% 1.1% 0.6% 0.5% 0.5% 1.0% 1.0% 1.0% 1.0% 1.0%

Tax Benefits from Stock Options: $ Millions - - - - - - 0.0% 0.0% 0.0% 0.0% 0.0%
Deferred Taxes % Income Taxes: % - - - 3.4% 2.5% 10.5% 3.0% 3.0% 3.0% 3.0% 3.0%

Proceeds from Short-Term Borrowings, net: $ Millions - - - - - - - - - - -

Repayments of Short-Term Debt: $ Millions - - - - - - - - - - -
Proceeds from Long-Term Borrowings, net of discount: $ Millions - - - - - - - - - - -
Repayments of Long-Term Debt: $ Millions - - - - - - - - - - -

Proceeds from Sales of Common Stock: $ Millions 5.8 9.6 11.0 8.2 2.9 4.7 0.0% 0.0% 0.0% 0.0% 0.0%

Treasury Stock: $ Millions - - - (147.4) (274.2) - - - - - -

Guidance $ Millions 0.5

Effect of FX Rate Changes % Revenue: % 0.8% -0.3% -0.1% -4.6% -4.4% -2.2% -0.5% -0.5% -0.5% -0.5% -0.5%

17
November 5, 2016
 Historical Projected
Income Statement Units FY12A FY11A FY12A FY13A FY14A FY15A FY16E FY17E FY18E FY19E FY20E
Net Sales: $ Millions 711.7 1,000.8 1,370.4 1,591.2 1,797.2 2,060.5 ###### 2,827.5 3,037.4 3,245.4 3,440.5
Revenue Growth % 57.1% 40.6% 36.9% 16.1% 12.9% 14.6% 27.1% 8.0% 7.4% 6.9% 6.0%

Cost Of Goods Sold: $ Millions 293.2 402.6 565.9 685.4 883.0 990.8 ###### 1,470.3 1,609.8 1,720.1 1,857.9
Appendix H:

Gross Profit: $ Millions 418.5 598.2 804.5 905.8 914.2 1,069.7 1,283.3 1,357.2 1,427.6 1,525.4 1,582.6
Gross Margin % 58.8% 59.8% 58.7% 56.9% 50.9% 51.9% 49.0% 48.0% 47.0% 47.0% 46.0%

STUDENT RESEARCH
Operating Expenses: 316.76 431.57 607.53 733.60 940.48 1,063.40 ###### ####### ####### ####### #######
Selling General & Admin Exp. $ Millions 212.6 282.3 386.4 448.7 544.5 640.0 $ 733.3 $ 791.7 $ 850.5 $ 908.7 $ 963.3
Depreciation & Amort. $ Millions 23.5 28.9 41.7 48.2 57.5 72.6 81.0 88.5 96.2 103.5 110.7
Total Operating Expenses $ Millions 236.2 311.3 428.1 496.9 602.0 712.6 $ 814.3 $ 880.2 $ 946.7 ####### #######

Operating Income (EBIT) $ Millions 182.3 287.0 376.4 408.9 312.2 357.1 469.0 477.0 480.9 513.1 508.6
Security Analysis Competition

Operating (EBIT) Margin % 25.6% 28.7% 27.5% 25.7% 17.4% 17.3% 17.9% 16.9% 15.8% 15.8% 14.8%

Other Income & Expense:

Interest Expense $ Millions - - - - - (3.5) - - - - -
Interest and Invest. Income $ Millions - - - - - - - - - - -
Total Other Income & Expense $ Millions - - - - - - - - - -

Currency Exchange Gains (Loss) $ Millions - - - - 6.4 12.0 (13.1) (14.1) (15.2) (16.2) (17.2)
Other Non-Operating Inc. (Exp.) $ Millions 1.1 2.5 5.0 5.8 7.1 2.9 - - - - -
EBT Excl. Unusual Items $ Millions 183.4 289.5 381.4 414.6 325.7 368.5 455.9 462.9 465.7 496.9 491.4

Restructuring Charges $ Millions (1.8) - - - - - - - - - -

Merger & Related Restruct. Charges $ Millions (0.2) - - - - - - - - - -
Impairment of Goodwill $ Millions - - - - - - - - - - -
Gain (Loss) On Sale Of Invest. $ Millions 1.8 - - - - - - - - - -
Asset Writedown $ Millions - - - (17.5) - - - - - - -
Other Unusual Items $ Millions - - - - - - - - - - -
EBT Incl. Unusual Items $ Millions 183.2 289.5 381.4 397.1 383.1 368.5 455.9 462.9 465.7 496.9 491.4

Income Tax Expense $ Thousands 61.1 104.5 110.0 117.6 144.1 102.4 150.4 152.7 153.7 164.0 162.2
Earnings from Cont. Ops. 122.2 185.0 271.4 279.6 239.0 266.1 305.4 310.1 312.0 332.9 329.2

Minority Int. in Earnings $ Millions (0.4) (0.9) (0.9) - - - - -

Net Income $ Millions 121.8 184.1 270.5 279.6 239.0 266.1 305.4 310.1 312.0 332.9 329.2
Effective tax rate % 33.3% 36.1% 28.8% 29.6% 37.6% 27.8% 33.0% 33.0% 33.0% 33.0% 33.0%

Weighted Avg. Basic Shares Out. $ Millions 141.7 143.2 144.0 144.9 143.9 140.4 139.9 139.9 139.9 139.9 139.9
Basic Earnings Per Share: S as Stated $0.86 $1.29 $1.88 $1.93 $1.66 $1.9
Weighted Avg. Diluted Shares Out. $ Millions 143.9 145.3 145.8 146.0 144.3 140.6 144.29 144.29 144.29 144.29 144.29
Diluted Earnings Per Share $ as Stated $1.18 $0.79 $0.54 $0.52 $0.6 $1.89 $2.12 $2.15 $2.16 $2.31 $2.28

EBITDA $ Millions 205.89 315.91 418.11 457.07 369.66 429.70 550.0 565.5 577.1 616.6 619.3

18
EBITDA Margin % 28.9% 31.6% 30.5% 28.7% 20.6% 20.9% 21.0% 20.0% 19.0% 19.0% 18.0%
November 5, 2016
 Historical Projected
Balance Sheet Units FY10A FY11A FY12A FY13A FY14A FY15A FY16E FY17E FY18E FY19E FY20E
ASSETS
Cash And Equivalents $ Millions 316.3 409.4 590.2 698.6 664.5 501.5 789.3 1,091.3 1,395.8 1,727.8 2,050.0
Total Cash & ST Investments $ Millions 316.3 409.4 590.2 698.6 664.5 501.5 789.3 1,091.3 1,395.8 1,727.8 2,050.0
Appendix I:

Accounts Receivable $ Millions 9.1 5.2 6.4 11.9 13.7 13.1 15.87 17.13 18.41 19.67 20.85
Total Receivables $ Millions 9.1 5.2 6.4 11.9 13.7 13.1 15.9 17.1 18.4 19.7 20.8

$ Millions 57.5 104.1 155.2 186.1 208.1 284.0 312.26 343.72 376.34 402.12 434.33

STUDENT RESEARCH
Inventory
Prepaid Exp. $ Millions 6.4 8.4 35.3 46.2 64.7 118.4 $ 40.72 $ 44.01 $ 47.34 $ 50.61 $ 53.70
Other Current Assets $ Millions 0 0 0 - 0 0 0 0 0 0 0
Total Current Assets $ Millions 389.3 527.1 787.1 942.8 951.0 917.0 1158.1 1496.1 1837.9 2200.2 2558.9

Gross Property, Plant & Equipment $ Millions 138.3 254.4 306.4 374.6 453.9 553.4 785.88 952.40 ####### ####### #######
$ Millions (67.4) (91.5) (91.7) (119.0) (157.9) (203.8) (284.8) (373.3) (469.6) (573.1) (683.8)
Security Analysis Competition

Accumulated Depreciation
Net Property, Plant & Equipment $ Millions 70.9 162.9 214.7 255.6 296.0 349.6 501.1 579.1 565.1 554.4 549.0

Goodwill $ Millions 20.3 26.3 26.1 25.3 24.4 23.8 -3.3 -51.5 -4 43.1 89.3
Other Intangibles $ Millions 6.8 5.5 4.1 2.9 1.8 0.9 0 0 0 0 0
Deferred Tax Assets, LT $ Millions 7.9 8.6 15.0 18.3 16.0 11.8 4.51 4.58 4.61 4.92 4.86
Deferred Charges, LT $ Millions 1.3 - - - - 0 0 0 0 0 0
Other Long-Term Assets $ Millions 2.8 4.1 4.2 4.7 7.0 10.9 0 0 0 0 0
Total Assets $ Millions 499.3 734.6 1,051.1 1,249.7 1,296 1,314 1,660 2,028 2,404 2,803 3,202

LIABILITIES
Accounts Payable $ Millions 6.7 14.5 1.0 12.6 9.3 10.4 22.0 32.2 44.1 56.6 71.3
Accrued Exp. $ Millions 40.8 57.4 57.6 61.8 84.2 119.7 108.6 117.4 126.2 135.0 143.2
Curr. Income Taxes Payable $ Millions 18.4 8.7 39.6 0.8 20.1 37.7 37.7 37.7 37.7 37.7 37.7
Unearned Revenue, Current $ Millions 18.2 22.8 35.1 38.3 46.3 57.7 57.7 57.7 57.7 57.7 57.7
Other Current Liabilities $ Millions 1.3 - - - - 0 0 0 0 0 0
Total Current Liabilities $ Millions 85.4 103.4 133.4 113.5 159.9 225.5 225.9 245.0 265.7 286.9 309.9

Def. Tax Liability, Non-Curr. $ Millions 0 0 0 4.0 3.6 10.8 10.8 10.8 10.8 10.8 10.8
Other Non-Current Liabilities $ Millions 19.6 25.0 30.4 35.5 43.1 50.3 54.6 57.9 62.5 66.8 71.1
Total Liabilities $ Millions 105.0 128.5 163.8 153.0 206.6 286.6 291.3 313.7 339.0 364.5 391.8

Common Stock $ Millions 0.5 0.6 0.6 0.6 0.7 0.6 0.5 0 0 0 0
Additional Paid In Capital $ Millions 179.9 205.6 221.4 240.4 241.7 240.5 266.79 295.56 325.94 358.39 392.80
Retained Earnings $ Millions 189.7 373.7 644.3 923.8 1,020.6 1,019.5 1,324.9 1,635.1 1,947.1 2,280.0 2,609.2
Treasury Stock $ Millions - - - - - - 15.0 22.2 29.8 37.9 46.5
Comprehensive Inc. and Other $ Millions 20.3 21.5 21.1 (68.1) (173.4) (238.2) ###### (238.20) (238.20) (238.20) (238.20)
Total Common Equity $ Millions 390.4 601.4 887.3 1,096.7 1,089.6 1,022.4 1,369.0 1,714.6 2,064.6 2,438.1 2,810.3

Minority Interest $ Millions 3.9 4.8 0 - 0 5.0 0 0 0 0 0

Total Equity $ Millions 394.3 606.2 887.3 1,096.7 1,089.6 1,027.4 1,369.0 1,714.6 2,064.6 2,438.1 2,810.3

$ Millions 499.3 734.6 1,051.1 1,249.7 1,296 1,314 1,660 2,028 2,404 2,803 3,202

19
Total Liabilities And Equity
Check: 0.0 0.0 (0.0) 0 0.05 0 (0.0) 0.0 (0.0) (0.0) 0.0
November 5, 2016
 Historical Projected
Cash Flow Statement Units FY10A FY11A FY12A FY13A FY14A FY15A FY16E FY17E FY18E FY19E FY20E
Net Income 121.8 184.1 270.6 279.5 239.0 266.0 305.4 310.1 312.0 332.9 329.2
Depreciation & Amort. 23.5 28.9 41.7 48.2 57.5 72.6 81.0 88.5 96.2 103.5 110.7
Amort. of Goodwill and Intangibles 1.1 1.3 1.3 0.9 0.9 0.8
Depreciation & Amort., Total 24.6 30.3 43.0 49.1 58.4 73.4 81.0 88.5 96.2 103.5 110.7
Appendix J:

Minority Int. in Earnings 0.4 0.9 0.9 - - 5.0 0 0 0 0 0

(Gain) Loss On Sale Of Invest. (1.8) - - - - 0 0 0 0 0 0

STUDENT RESEARCH
Asset Writedown & Restructuring Costs 1.8 - - - - 0 0 0 0 0 0
Stock-Based Compensation 7.3 10.3 15.6 10.1 8.3 10.4 26.2 28.3 30.4 32.5 34.4
Tax Benefit from Stock Options (7.9) (5.8) (9.9) (6.5) (0.4) 1.2
Other Operating Activities 9.8 (2.5) (7.8) 1.4 8.0 7.5
Change in Acc. Receivable (0.6) 3.7 - - - (2.8) (1.3) (1.3) (1.3) (1.2)
(8.0) (46.1) (51.0) (37.4) (26.8) (83.3) (28.3) (31.5) (32.6) (25.8) (32.2)
Security Analysis Competition

Change In Inventories
Change in Acc. Payable (5.2) 7.9 (13.5) 11.6 (2.2) 1.2 11.6 10.3 11.9 12.4 14.7
Change in Unearned Rev. - - 13.7 9.3 11.3 16.6 0 0 0 0 0
Change in Inc. Taxes 14.9 (4.0) 31.0 (32.0) 4.1 19.5 0 0 0 0 0
Change in Prepaid Expenses 77.7 (3.3) (3.3) (3.3) (3.1)
Change in Other Net Operating Assets 22.7 24.7 (12.4) (6.8) 14.8 (13.7) 0 0 0 0 0
Cash from Ops. 179.9 203.5 280.1 278.3 314.5 303.8 470.9 401.1 413.3 451.0 452.6

Capital Expenditure (30.4) (116.7) (93.2) (106.4) (119.7) (143.5) ####### (85.0) (93.5) (102.9) (113.1)
Cash Acquisitions (12.5) (5.7) - - -
Divestitures - - - - -
Invest. in Marketable & Equity Securt. - - - - -
Net (Inc.) Dec. in Loans Originated/Sold - - - - -
Other Investing Activities - - - - -
Cash from Investing (42.9) (122.4) (93.2) (106.4) (119.7) (143.5) ####### (85.0) (93.5) (102.9) (113.1)

Short Term Debt Issued - - - - - - - - - - -

Long-Term Debt Issued - - - - - - - - - - -
Short Term Debt Repaid - - - - - - - - - - -
Long-Term Debt Repaid - - - - - - - - - - -
- - - - - - - -
Issuance of Common Stock 5.8 9.6 11.0 8.2 2.9 4.7
Repurchase of Common Stock - - - - (147.4) $ (274.2)
-
Total Dividends Paid - - - -

Other Financing Activities 7.9 5.8 (16.5) 0.7 (4.6) (4.2)

Cash from Financing 13.7 15.4 (5.5) 8.9 (149.1) (273.7)

Foreign Exchange Rate Adj. 5.9 (3.5) (0.7) (72.4) (79.8) (44.6) (13.1) (14.1) (15.2) (16.2) (17.2)
Change in Cash and Cash Equivalents 156.7 93.2 180.7 108.5 (34.2) (163.0) 287.8 302.0 304.6 331.9 322.2
Beginning Cash 316.3 409.4 590.2 698.6 664.5 501.5 789.3 1,091.3 1,395.8 1,727.8

20
Ending Cash 409.4 590.2 698.6 664.4 501.5 789.3 1,091.3 1,395.8 1,727.8 2,050.0
Check 0 0 0 (0.0) (0.0) 0 0 0 0 0
November 5, 2016
 Security Analysis Competition November 5, 2016

Appendix K:
DCF Calculation:
($ in Millions Except Per Share and Per Unit Data)
Projected Terminal Value - Multiple Method
Annual Unlevered FCF Projection FY16A FY17E FY18E FY19E FY20E FY21E Terminal EBITDA Multiple: 15.00 x
Revenue: $ 2,061 $ 2,619 $ 2,827 $ 3,037 $ 3,245 $ 3,441 Terminal Value: 8,250
EBIT: 357 469 477 481 513 509 Implied Terminal FCF Growth Rate:
EBIT(1-t): 239.26 314.21 319.60 322.17 343.78 340.77
Non-cash Adjustments: 89 107 117 127 136 145 PV of Terminal Value: 6,375
Changes in NOWC: (44) 63 (15) (16) (17) (19) Present Value of FCFF: 1,224
CapEx: (144) (170) (85) (94) (103) (113) Implied Enterprise Value: 7,599
FCFF: 141 315 337 339 360 354
Plus: Cash & Cash-Equivalents: 502
Present Value of FCFF: 138.3 285.1 281.5 261.8 256.9 Less: Total Debt: -
Sum of PV of FCFF: 1,224 Implied Equity Value: 8,100

Normal Discount Period: 0.25 1.25 2.25 3.25 4.25 Diluted Shares Outstanding: 139.90

Annual FCFF Growth: 123.2% 6.9% 0.7% 6.2% -1.7% Implied Share Price from DCF: $57.90
Premium / (Discount) to Current: 3.95%
Present Value of FCFE: 590 1,748 2,163 2,605 3,099 3,370
Sum of PV of FCFE: 13,575 Terminal Value - Perpetuity Growth Method
Terminal Value: 6,002
Terminal FCF Growth Rate: 2.00%

PV of Terminal Value: 4,285

Present Value of FCFE: 1,224
Implied Equity Value: 5,508

Diluted Shares Outstanding: 139.90

Implied Share Price from DCF: $39.37

Premium / (Discount) to Current: -29.31%

Terminal Value - Perpetuity Growth Method Terminal Value - Comp Multiple Method
Implied Terminal EBITDA Multiple: Terminal EBITDA Multiple: 8.48 x
Terminal Value: 4,360 Terminal Value: 4,665
Terminal FCF Growth Rate: 2.00%
Plus: Cash & Cash-Equivalents: 502
PV of Terminal Value: 4,360 Less: Total Debt: -
Present Value of FCFF: 1,224 Implied Equity Value: 5,167
Implied Enterprise Value: 5,583
Diluted Shares Outstanding: 139.90
Plus: Cash & Cash-Equivalents: 502
Less: Total Debt: - Implied Share Price from DCF: $36.93
Implied Equity Value: 6,085 Premium / (Discount) to Current: -33.70%

Diluted Shares Outstanding: 139.90

Implied Share Price from DCF: $43.49

Premium / (Discount) to Current: -21.91%

NTM P/E Multiple Method

Lululemon Athletica Forward P/E (FY16) 26x
2016 LULU Estimated Earnings Per Share $2.12
Implied Share Price $54.01

Sum of Parts Valuation Weight Price

DCF Multiple Method 33.00% $57.90
DCF Perpetuity Growth Method 33.00% $43.49
NTM P/E Multiple Method 33.00% $54.01

Implied Share Price from DCF: $51.28

Premium / (Discount) to Current: -7.93%

STUDENT RESEARCH 21
 Security Analysis Competition November 5, 2016

Appendix L:
Financial Ratios FY10A FY11A FY12E FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E
Profitability Ratios
Return on Assets 34.4% 31.2% 28.2% 23.8% 16.4% 18.3% 21.1% 17.3% 14.5% 13.2% 11.4%

Return on Capital 31.2% 30.6% 30.5% 25.5% 21.9% 26.0% 22.3% 18.1% 15.1% 13.7% 11.7%

Return on Equity 31.2% 30.6% 30.5% 25.5% 21.9% 26.0% 22.3% 18.1% 15.1% 13.7% 11.7%

Efficiency Ratios
Total Asset Turnover 2.0x 1.6x 1.5x 1.4x 1.4x 1.6x 1.8x 1.5x 1.4x 1.2x 1.1x

Fixed Asset Turnover 10.0x 6.1x 6.4x 6.2x 6.1x 5.9x 5.2x 4.9x 5.4x 5.9x 6.3x

Accounts Receivable Turnover 108.5x 139.8x 237.2x 174.3x 140.1x 153.5x 180.8x 171.3x 170.9x 170.5x 169.8x

DSO 3.36 2.61 1.54 2.09 2.60 2.38 2.02 2.13 2.14 2.14 2.15

Inventory Turnover 5.4x 5.0x 4.4x 4.0x 4.5x 4.0x 4.5x 4.5x 4.5x 4.4x 4.4x

DIO 68.2 73.2 83.6 90.9 81.5 90.6 81.5 81.4 81.6 82.6 82.2
Accounts Payable Turnover 49.0 x 27.7 x 541.5 x 54.2 x 94.6 x 95.3 x 60.8 x 45.6 x 36.5 x 30.4 x 26.1 x
DPO 7.4 13.2 0.7 6.7 3.9 3.8 6.0 8.0 10.0 12.0 14.0
CCC 64.1 62.7 84.5 86.2 80.2 89.2 77.5 75.6 73.8 72.7 70.3

Margin Analysis
Gross Margin 58.8% 59.8% 58.7% 56.9% 50.9% 51.9% 49.0% 48.0% 47.0% 47.0% 46.0%
SG&A Margin 29.9% 28.2% 28.2% 28.2% 30.3% 31.1% 28.0% 28.0% 28.0% 28.0% 28.0%
EBITDA Margin 28.9% 31.6% 30.5% 28.7% 20.6% 20.9% 21.0% 20.0% 19.0% 19.0% 18.0%
EBIT Margin 25.6% 28.7% 27.5% 25.7% 17.4% 17.3% 17.9% 16.9% 15.8% 15.8% 14.8%
Net Income Margin 17.1% 18.4% 19.7% 17.6% 13.3% 12.9% 11.7% 11.0% 10.3% 10.3% 9.6%

Short Term Liquidity

Current Ratio 4.6 x 5.1 x 5.9 x 8.3 x 5.9 x 4.1 x 5.1 x 6.1 x 6.9 x 7.7 x 8.3 x
Quick Ratio 3.9 x 4.1 x 4.7 x 6.7 x 4.6 x 2.8 x 3.7 x 4.7 x 5.5 x 6.3 x 6.9 x

Long Term Solvency

Total Debt/Capital NM NM NM NM NM NM NM NM NM NM NM
Total Liabilities/Total Assets 21.0% 17.5% 15.6% 12.2% 15.9% 21.8% 17.5% 15.5% 14.1% 13.0% 12.2%
EBIT/Interest Expense NM NM NM NM NM 102.0 x NM NM NM NM NM
Total Debt/EBITDA NM NM NM NM NM NM NM NM NM NM NM

DuPont Analysis
Net Income Margin 17.1% 18.4% 19.7% 17.6% 13.3% 12.9% 11.7% 11.0% 10.3% 10.3% 9.6%
Total Asset Turnover 2.0 x 1.6 x 1.5 x 1.4 x 1.4 x 1.6 x 1.8 x 1.5 x 1.4 x 1.2 x 1.1 x
Equity Multiplier 0.9 x 1.0 x 1.0 x 1.0 x 1.2 x 1.3 x 1.1 x 1.1 x 1.1 x 1.1 x 1.1 x
ROE 31.2% 30.6% 30.5% 25.5% 21.9% 26.0% 22.3% 18.1% 15.1% 13.7% 11.7%

STUDENT RESEARCH 22
 WACC - Lululemon Athletica, Inc
Cost of Capital
Appendix M:

Risk-free Rate: 1.77%

STUDENT RESEARCH
Market Risk Premium: 4.89%
Beta: 1.33
Cost of Equity: 8.25%
Security Analysis Competition

Industry - Unlevered Beta

Levered Unlevered
Beta % Debt % Equity Tax Rate Beta
Apparel, Accessories and Luxury Goods 1.06 27.9% 72.1% 35.0% 1.33

Lululemon Athletica, Inc - Levered Beta and WACC Calculation

Unlevered Levered
Beta Debt % Debt Equity % Equity Tax Rate Beta
Optimal Capital Structure: 1.33 2,170.97 27.9% 5,621 72.1% 35.0% 1.66
Current Capital Structure: 1.33 - 0.0% 7,792 100.0% 33.0% 1.33

WACC, Optimal Capital Structure: 5.95%

WACC, Current Capital Structure: 8.25%

23
Average WACC: 7.10%
November 5, 2016
Security Analysis Competition November 5, 2016

Appendix N:

STUDENT RESEARCH 24
 ValuationStatistics Capitalization EnterpriseValue/ EnterpriseValue/ P/EMultiple
Market Equity Enterprise Revenue EBITDA
Appendix O:

CompanyName Ticker Capitalization Value Value LTM 2015E 2016E LTM 2015E 2016E LTM 2015E 2016E

STUDENT RESEARCH
G-II Apparel Group, Ltd. GII $ 26.99 1,205.7 888.1 1,160.7 0.5x 0.4x 0.4x 6.3x 5.5x 5.1x 7.8x 9.0x 8.4x
Kate Spade & Company KATE $ 15.70 2,039.8 245.2 2,126.0 1.6x 1.4x 1.4x 10.1x 7.6x 7.3x 14.3x 19.9x 18.4x
Urban Outfit ers ,Inc. URBN $ 32.96 3,821.6 1,137.2 3,569.2 1.0x 1.0x 0.9x 7.0x 6.7x 6.4x 5.1x 4.5x 4.4x
Security Analysis Competition

Columbia Sportswear Company COLM $ 56.88 3,954.1 1,415.8 3,770.1 1.6x 1.5x 1.5x 12.4x 11.3x 10.9x 8.1x 7.1x 6.9x
Gildean Activewear, Inc. GIL $ 25.78 5,875.4 2,188.4 6,471.6 2.5x 2.3x 2.3x 12.6x 10.7x 10.8x 6.3x 5.5x 5.6x
Ralph Lauren Corporation RL $ 98.91 8,211.9 3,744.0 8,131.9 1.1x 1.2x 1.2x 7.7x 8.5x 7.9x 9.5x 10.7x 7.8x
Michael Kors KORS $ 50.32 8,503.9 1,999.5 8,418.5 1.8x 1.8x 1.8x 6.3x 7.0x 7.0x 2.4x 2.6x 2.6x
Coach, Inc. COH $ 36.04 10,166.9 2,682.9 9,225.1 2.1x 2.0x 1.9x 10.6x 8.5x 8.0x 5.8x 4.3x 4.0x
Under Armour, Inc. UA $ 31.42 12,526.4 1,668.2 13,420.3 2.9x 2.3x 2.2x 23.5x 20.4x 18.8x 7.2x 5.9x 5.4x

Maximum $ 98.91 $ 12,526 $ 3,744 13420.3 x 2.9 x 2.3 x 2.3 x 23.5 x 20.4 x 18.8 x 14.3 x 19.9 x 18.4 x
75thPercentile 50.32 8,504 2,188 8418.5 x 2.1 x 2.0 x 1.9 x 12.4 x 10.7 x 10.8 x 8.1 x 9.0 x 7.8 x
Median $ 32.96 $ 5,875 $ 1,668 6471.6 x 1.6 x 1.5 x 1.5 x 10.1 x 8.5 x 7.9 x 7.2 x 5.9 x 5.6 x
25thPercentile 26.99 3,822 1,137 3569.2 x 1.1 x 1.2 x 1.2 x 7.0 x 7.0 x 7.0 x 5.8 x 4.5 x 4.4 x
Minimum 15.70 1,206 245 1160.7 x 0.5 x 0.4 x 0.4 x 6.3 x 5.5 x 5.1 x 2.4 x 2.6 x 2.6 x

25
LululemonAthletica, Inc LULU $ 55.70 $ 7,808 $ 7,792 $ 7,291 3.3 x 2.8 x 2.6 x 16.4 x 13.3 x 12.9 x 29.3 x 25.5 x 25.1 x
November 5, 2016
 Security Analysis Competition November 5, 2016

Sources: Bloomberg, Capital IQ, Factset, IBIS World, Treasury.gov, Damodaran, Investor Relations
Company Filings, 10K, 10Q

STUDENT RESEARCH 26