Lululemon Athletica Inc.LULUNASDAQ

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $384.82 per share(market-calibrated)

+122.2%

Upside to Fair Value

Current

$173.21

Pure Model

$399.05

Fair Value

$384.82

Bull Case

$483.90

Bear Case

$322.22

Market Reality Check

Model Terminal Growth

3.00%

Market-Implied Growth

0.50%

Calibrated Growth

2.13%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $399.05.

What's Driving This Ratingfor LULU

↓

CapEx normalizing toward maintenance

Historical CapEx is 4.92% of revenue (heavy investment phase). Model fades this to 4.00% by Year 10, freeing up ~$141M in annual FCF. This is the biggest driver of long-term cash flow improvement.

✓

Premium margins already priced in

EBIT margin of 28.24% is already well above sector average. The model holds this level — there's limited room for margin expansion to drive upside. Valuation depends primarily on revenue growth.

→

Moderate revenue growth

Analyst consensus projects 4.29% revenue growth, fading to 3.00% by Year 10. Revenue reaches $15.4B (vs $10.6B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $324.51/share (18.9x terminal FCF) while exit multiple gives $473.59/share (33.4x terminal FCF). The 20x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 3.00% growth is more conservative. The base case averages both methods.

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 250bps below the model's 3.00%. This suggests the market sees headwinds or risks not in the model.

→

Moderate cash flow conversion

Year 10 FCF/EBITDA conversion is 59.91% — acceptable but leaves room for improvement. High reinvestment needs consume a meaningful portion of operating cash flow.

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.01

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)9.06%

Cost of Debt

Pre-tax Cost of Debt0.00%

Tax Rate29.56%

After-tax Cost of Debt0.00%

Equity Weight (E/V)93.15%

Debt Weight (D/V)6.85%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (93.15% × 9.06%) + (6.85% × 0.00%)

= 8.44%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$11.0B	$12.2B	$13.5B	$14.1B	$15.4B
EBIT	$3.1B	$3.4B	$3.8B	$4.0B	$4.3B
Tax	$922M	$1.0B	$1.1B	$1.2B	$1.3B
NOPAT	$2.2B	$2.4B	$2.7B	$2.8B	$3.1B
+ Depreciation	$319M	$351M	$388M	$408M	$444M
- Capex	$543M	$573M	$607M	$609M	$615M
- Δ NWC	$21M	$29M	$14M	$16M	$20M
Free Cash Flow	$2.0B	$2.2B	$2.4B	$2.6B	$2.9B
Discount Factor	0.922	0.784	0.667	0.567	0.445
Present Value	$1.8B	$1.7B	$1.6B	$1.5B	$1.3B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$2.9B

Terminal Growth Rate3.00%

WACC8.44%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$54.3B

PV of Terminal Value$24.1B

Exit Multiple Method

Year 10 EBITDA$4.8B

Exit Multiple (EV/EBITDA)20.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$95.8B

PV of Terminal Value$42.6B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$15.6B

PV of Terminal Value$24.1B

Enterprise Value$39.7B

(-) Net Debt-$409M

Equity Value$40.2B

Shares Outstanding124M

Price per Share$324.51

Exit Multiple Method

PV of Projected FCFs$15.6B

PV of Terminal Value$42.6B

Enterprise Value$58.2B

(-) Net Debt-$409M

Equity Value$58.6B

Shares Outstanding124M

Price per Share$473.59

Pure Model Fair Value

$399.05

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.00%	2.50%	3.00%	3.50%	4.00%
6.44%	$492.26	$511.13	$535.48	$568.11	$614.11
7.44%	$430.44	$441.73	$455.57	$472.92	$495.31
8.44%	$383.10	$390.40	$399.05	$409.44	$422.17
9.44%	$345.02	$350.00	$355.76	$362.48	$370.44
10.44%	$313.37	$316.91	$320.92	$325.51	$330.81

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$322.22

86.0% vs current

• -25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 1.27

Base Case

$399.05

130.4% vs current

• Analyst consensus
• Terminal growth: 3.0%
• Beta: 1.01

Bull Case

$483.90

179.4% vs current

• +25% vs analyst consensus
• Terminal growth: 3.5%
• Beta: 0.86

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Consumer Cyclical Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth4.29%

Year 3 Revenue Growth5.53%

Year 5 Revenue Growth2.29%

Year 7 Revenue Growth2.57%

Year 10 Revenue Growth3.00%

Terminal Growth Rate3.00%

Margin & Efficiency

Current EBIT Margin28.24%

Tax Rate29.56%

Historical Capex / Rev4.92%

Terminal Capex / Rev4.00%

NWC / Revenue4.52%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 20x EV/EBITDA (Consumer Cyclical sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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