Weekly Roundup 2022-06-03

Author: Danyaal Munshi

Weekly Roundup 2022-06-03

Lunar Capital Weekly Roundup

Index / Fund / Rate Start of Year Last week This Week % change YTD
JSE ALSI 73 723 70 485 70 920 -3.80%
NASDAQ Composite 15 833 12 131 12 013 -24.13%
S&P 500 4 797 4 158 4 109 -14.33%
Prime Lending Rate 7.25% 8.25% 8.25% 13.79%
Lunar BCI WW Flexible Fund 165.68 139.50 142.61 -13.92%
USD/ZAR 15.96 15.60 15.54 -2.63%
EUR/ZAR 17.95 16.75 16.68 -7.08%

Source: iress

Company and Market News

Lululemon Focus

Lululemon, a premium athleisure brand, released their Q1 2022 results on Thursday, last week. It has a market capitalisation of $38.5 bl. The current high inflation in the US has not had as much strain on Lululemon’s consumers’ wallets in comparison to products that are targeted to people at a lower income level. Lululemon’s net revenue for the quarter increased by 32% compared to the same period last year. For 2022, Lululemon expects net revenue to range between $7.61 bl and $7.71 bl. This will represent a growth rate for the year of around 22%.

Lululemon started out as a high-end yoga clothing company in Vancouver, Canada. Over the years they have expanded their range of offerings, with the most recent product being an athletics shoe specifically designed for women. Lululemon primarily sells through their online website and through their company-operated stores. For FY 2021, 70% of sales were made in the US, 15% were made in Canada, and 15% were made outside of North America.

According to Business wire, the overall athleisure market is expected to grow from $411 bl in 2021 to $793 bl in 2028. Despite having a strong brand, Lululemon operates in a very competitive environment. There is still a risk that if inflation were to remain high and the US were to go into a recession, the overall sales of Lululemon could still be affected negatively. Consumers would likely cut spending and/or go to their competitors who sell athleisure at lower prices.

Below is a table comparing certain financial metrics of Lululemon to Nike, and Under Armour:

Company PE at end of Friday ROCE Gross Margin Net Margin
Lululemon 38.22 27.6% 57.7% 15.1%
Nike 31.91 20.6% 46.2% 13.1%
Under Armour 21.45 7.1% 49.6% 3.9%

Disclosure: Lululemon is held in the Lunar BCI Worldwide Flexible Fund

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