III.

FINANCIAL ASSESSMENT

1. Profitability ratios

As can seen on Exhibit 1, from FY11 to FY25, although Lululemon’s revenue experienced a
growth in this period, almost profitability ratios dropped each year. Especially, between FY13
and FY14, all the ratios decreased dramatically (net profit decreased by about 4%). It is
understandable because of the defective products the company was forced to recall and
replace at a significant cost.

However, while the gross, operating net profit margin continued going down from in FY14
and FY15, net return on assets and return on SE rose controversially. The main reason was that
company decided to develop a lot of new products and open a new brand name store – ivviva.
In conclusion, my analysis is signifying that the company was not good at control value chain.
In other word, it is ineffective in ability to reduce costs and/or increase product sales pricing
without significantly hurting its ability to sell merchandise

2. Leverage ratios

Before FY 2013, lululemon has been able to decrease the level it has relied upon debt to
finance its operations, but after that, the leverage ratios become higher again. In doing so, the
company has been able to increase its cash and give it greater flexibility to utilize debt if
needed to fund expansion opportunities and realize the board’s vision for the future of the
company. The evident showing that was the increase of capital expenditure from $93.2 in
FY12 to $143.5 in FY15. As such, this would signal that the company has been able to finance
their capital expenditures using cash from operation as opposed to utilizing long-term debt.
Therefore, with the development of company in the next 2 years, it is normal when Lulu’s debt
ratios increased slightly.

3. ACTIVITY RATIOS

From FY11 to FY12, the company experienced an increase in the average number of days that
inventory was held prior to selling. This increase could have been as a result of having a
greater number of stores in operation and attempting to ensure that a properly level of
inventory is available to meet market demand.

From FY12 to FY14, the company did experience a modest decrease in the days that inventory
was held in stock and in the number of times the inventory has been turned over., which may
signify that the company has taken a greater interest in proper inventory management, even
after the defective product issues it faced

From FY14 to FY14, both this ratio has significantly negative change. (days of inventory
increased to 97 days and inventory turnover decreased from 4 to 3.74). In this period, the
company introduced a lot of new products and stores so it is difficult for them to manage the
inventory efficiency

4. Future

The number this analysis was from FY11 to FY15 and we could conclude that this company
was not good at financial performance. Although lululemon experienced several problems
about their products and leadership team which definitely impaired their business, the
company had a reasonable plan for their operation and development in 2016 (price stock and
EPS increased). However, the price stock for their company in 2017 had some signal to
decrease in the future