Professor Dr.

Stephen Ball
FIN340
17 December 2015
Gabrielle Corbin
Lululemon Athletica Financial Analysis
One of the largest and most popular brands in the athletic clothing
industry today is Lululemon Athletica. The brand focuses on promoting a
healthy and happy lifestyle as well as being ecofriendly. This is apparent by
the dozens of different quotes plastered on their reusable shopping bags. A
few of the sayings state: What you do to the Earth, you do to yourself and
Breathe deeply and appreciate the moment. Consumers, mostly young
girls and women, are willing to pay hefty prices for the companys different
active wear products, its most popular being its legging designs. After facing
a tough couple of years filled with scandals and multiple recalls, the
company still remains one of the top competitors in its industry. By analyzing
the companys financial statements and assessing some of the recent issues
the firm has faced, a conclusion can be made about the current financial
state of the company.
First, a basis of Lululemon Athleticas financial status can be evaluated by using and
analyzing the financial statements for the year ending February 1, 2015. By calculating several
different ratios and analyzing their meanings, a general conclusion can be made. The firms gross
profit margin is 50.87%. This means that the cost of the products sold were about half of the
sales, which left the other half of revenue to be used for other purposes. This is a mediocre value

for this ratio. The firm shouldnt worry much about it, however should be aware if this costs
continue to grow to a larger percent of sales. The firm should begin thinking about looking into
cost cutting measures in order to reduce this value. The companys net profit margin for this
period was 13.3%. This indicates that the firm has just over 13% of each sales dollar remaining
after all expenses were paid. This seems fairly low and could be an indicator that the companys
expenses are too high for the amount of income they are generating. The firms return on assets
was .1844, meaning that each dollar of the company's assets produced, on average, income of
about $0.18. Lululemons return on equity ratio for the period was 21.94%. This indicates that
the firm returned, on average, about 22% for every dollar that common stockholders invested in
the firm. The companys return on equity ratio is higher than its return on asset ratio, meaning the
firms equity is producing more income than its assets. The firms current ratio of 5.95 illustrates
that the firm has $5.95 of current assets for every dollar of current liabilities. Also, this means
that the firm could pay all of its short-term debts by liquidating about 1/5 of its current assets.
The debt to total assets ratio of 15.95% indicates that about 16% of the firms assets were
financed with debt, whereas the other 84% of financing came from equity. The firm should looks
to finance with more debt and less equity, in order to make this a more even disbursement of
debt. Lululemons inventory turnover ratio of 8.7 indicates that the company was able to turn
their inventory into sales 8.7 times during the year. The retail apparel industry average inventory
turnover ration is about 8.1. Therefore Lululemon is performing slightly better than the industry
in this category. Overall, the analysis from the financial statements indicates that the firm isnt
performing exceptionally, however also isnt on the verge of failure. The company should
continue to monitor their financial ratios and be aware of any sudden regression.

In March of 2013 the company faced a very large and devastating setback. Certain
designs of the companys legging products were recalled due to the fabric used to make them.
The fabric became see-through when the material was stretched, making them unsuitable to wear
during physical activity, such as yoga. Also, the companys previous founder made body shaming
comments on television following the recall causing many consumers to be upset with the
company. This caused major losses in finances and customer loyalty. This recall is explained in
more detail in the following sections of this paper.
After facing some tough changes due to internal issues caused by the legging recall,
Lululemon Athletica also faced many setbacks in their finances during the year 2015. Near the
end of June, the company faced a large recall on the elastic drawstrings that were used in their
womens products. Around 300,000 womens tops were affected by the recall due to the elastic
drawstrings in the product that could snap back and cause face and eye injuries (Tabuchi, 2015,
p. 1). The drawstrings were used in 23 of the companys products. The tops themselves were not
recalled; instead the company provided new drawstrings for the products as well as instructions
on how to insert them. Although Lululemon did not face large losses due to the recall, the
company did begin to lose some of its credibility as a top athletic clothing brand. This being the
second recall in the past few years, competitors with similar products and cheaper prices started
becoming more and more popular.
Additionally, in early September the firms shares plunged by 16%. Executives explained
that this drop was related to the companys international expansion and shouldnt hurt future
revenues (Reuters, 2015, p. 1). The international expansion was part of the plans set in motion in
order to combat the losses faced by the recall of the companys legging products in 2013.

As previously mentioned, in 2013 Lululemon Athletica faced a large setback when a

certain type of material used in the brands yoga pants was recalled. The material of these pants
was found to be see-through when stretched. Not long after, Chip Wilsonthe companys
founder and former chairmanspoke out about the incident on television. Wilson stated, Quite
frankly, some womens bodies just actually dont work for itIts about the rubbing through the
thighs, how much pressure is there over a period of time (Wallace, 2015, p. 1). These bodyshaming comments toward women sparked a large debate between the company and their female
shoppers. With women being the companys largest consumers, they faced large damages in
revenue following these negative comments. The estimated losses in sales due to the described
events were around $60 million (Clifford, 2013, p. 1). The companys stock price also dropped
by nearly a third in two months (Wallace, 2015, p. 1). However, a loss in sales and stock price
werent the only obstacles the company faced following the scandal. As stated in earlier sections
of the paper, competitors in the athletic clothing industry were given the opportunity to emerge in
the market. Some of these competitors included Gaps Athleta, Nike, and Torey Burch (Rosman,
2015, p 1).
In response to the events, Wilson resigned in 2014, not long after he spoke out about the
recall on television. Laurent Potdevin was named the new chief executive of the company.
Potdevin stated, What Chip [Wilson] did, it was wrong, it was a mistake. It was his mistake. It
wasnt the brands mistake (Rosman, 2015, p. 1). In the future, Potdevin plans to grow the
mens business and to expand globally. Hes set up the company to reach these goals by hiring on
some new staff and by putting less pressure on current employees (Rosman, 2015, p. 1). A
private online social network was also created by the company called Common. This is a place
where [Lululemon ambassadors] can connect and share their experiences (Rosman, 2015, p.1).

In the future, Potdevin hopes to take some form of this social media application to the general
public. Even though these events battered the companys image as well as its revenues and stock
prices, the employees and management remained positive and confident that the company would
get back on track. Duke Stump, the recently hired executive vice president for the brand
explained how positive management was when he was recently hired nearly a year ago by
stating: I thought for sure I was going to walk in and it was going to be a morgueBut
everyone here seemed so vibrant and happy and positive (Rosman, 2015, p.1).
In the wake of body shaming comments and multiple recalls, Lululemon continues to be
one of the top athletic clothing companies in the nation. Consumers are still willing to pay the
hefty prices for their products, which illustrates the loyalty that they have towards the company.
Having a strong customer base will allow the company to move past the scandal involving
Wilson as well as the other recalls the firm has faced. Every company has setbacks but
Lululemon has worked to make up for it and improve their customer care. With new upper
management and a detailed plan for the future, the company intends to expand globally and work
to create a product line for men. These tasks are already underway, and if they are deemed
successful, one should see immense growth and prosperity from this company. Lululemon
Athletica has been placed in great hands with Laurent Potdevin in charge, leading the firm into
new endeavors. When asked about the aspirations of the corporation, Potdevin simply stated:
Our mission at Lululemon is to elevate the world to greatness (Rosman, 2015, p. 1).