Lululemon Acquisition Offers Seat at Home Fitness Table


Lululemon Athletica shares rose the most in more than two months on Tuesday after the yoga-wear maker agreed to buy Mirror, a producer of in-home fitness equipment, for $500 million. This is Lulu’s first acquisition.

The Mirror platform has a “massive TAM [total addressable market], significant revenue synergies and lower customer acquisition costs” that should produce high growth and returns, according to Cowen. The addition of Mirror offers Lulu a “place in the home with its hardware + content,” as well as “daily mindshare and a platform for its 2000+ ambassadors and events,” Cowen added.

Shares gained as much as 8%, the biggest intraday advance since April 17. The stock has outperformed in 2020, having risen 36% year to date, thanks to the popularity of athleticwear while people work at home during the Covid-19 pandemic. The S&P 500 Index has dropped 5.3% thus far this year.

Here’s what analysts are saying about the acquisition:

Cowen, John Kernan

“We see a large base of consumers willing to pay for premium fitness/lifestyle content and a financial model that likely has meaningful opportunity to leverage fixed costs as it scales.”

Mirror has a “lean” financial model and a “multi-faceted” value proposition compared to others in the At-Home Fitness market.

With about 50% of overlap between Mirror and Lulu customer bases, Kernan sees “significant opportunity to expand awareness of Mirror and build membership and product conversion/commerce for Lulu.”

Rates outperform, price target to $335 from $311.

Susquehanna, Sam Poser

The Mirror acquisitions adds “yet another way that Lululemon will personally engage with customers and provides opportunities for personal interactive commerce for consumers as well.”

Poser sees “strong synergies” becoming “evident over the next one to two years.”

Rates positive, price target $360.

RBC Capital Markets, Kate Fitzsimons

Investors have been looking for further expansion beyond Lulu’s current addressable market, and with Mirror it now has an avenue to bring new users into the “experiential sweatlife, to increase consideration and conversion among existing guests (and their families/roommates), and to further enhance the company’s experiential membership program still in very early days.”

“The widening TAM with the Mirror acquisition appears very compelling in [the] context of global health, end-to-end connected omnichannel ecosystems, and augmented reality deployment.”

Rates outperform, price target $348.

Stifel, Jim Duffy

Duffy is hopeful that Mirror will “further improve” Lulu’s digital competencies, and he appreciates its efforts to reach “new and existing customers on a new platform that has seen solid traction particularly throughout the pandemic,” with total downloads up 62% since March 1.

Lulu’s “best-in-class” liquidity positioning will be sufficient to fund the transaction and still leave “ample room” to support business operations.

Rates buy, price target $365.

What Bloomberg Intelligence Says:

“The Mirror purchase may expand Lululemon’s digital business and extend its reach with stay-at-home consumers, whose numbers have grown since Covid-19.”

“Mirror’s subscription workouts provide recurring revenue and complement Lululemon’s loyalty program.”

--Analyst Poonam Goyal

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BMO, Simeon Siegel

“Recognizing the Work Out From Home surge, the idea behind the acquisition makes perfect sense,” however, it “remains to be seen” what each company ultimately does for each other.

Peloton and Lulu customers likely share a “meaningful overlap,” which to Siegel suggests that Lulu’s ability to “reach and grab the incremental At-Home fitness customer away from PTON could be meaningful.”

“We love the brand, but are wary that sales and margins are approaching a crossroads.”

Rates market perform, price target $192.

©2020 Bloomberg L.P.

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