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Smart Strategic Move integrating Mirror

Hard to imagine a better example of a “strategic” acquisition. With pandemic conditions weighing on retail foot traffic and gym attendance, Lululemon Athletica Inc. (Nasdaq: LULU) moved to meet potential customers for its athletic apparel on their home turf. By acquiring home fitness start-up Mirror in June, Lululemon found a way to feature its brand in the homes of workout warriors while creating a completely new revenue stream.

Lululemon Athletica calls itself a “healthy lifestyle inspired athletic apparel company for yoga, running, training and most other sweaty pursuits.” The company operates 515 stores mainly in the U.S and Canada. Stores generate roughly two-thirds of revenue, with the remainder coming from direct-to-consumer sales. Revenue topped $4 billion in the 12 months through October.

Mirror is an interactive device that offers access to thousands of live and on-demand fitness classes. The sleek, wall-mounted display sells for $1,495, with users paying $39 a month for content. Subscriptions represent an entirely new opportunity for Lululemon in terms of scalable, recurring revenue. The company recently revised its estimate of Mirror’s contribution to fiscal 2020 revenue to “in excess of $150 million” from its initial forecast of more than $100 million. About half of the Lululemon and Mirror customer bases overlap, representing an audience that seems likely to be receptive to efforts to boost brand awareness and drive membership growth. Lululemon grew October-quarter earnings 21 percent, exceeding the consensus estimate by 32 percent. Revenue rose 22 percent, fueled in part by a 94 percent increase in direct-to-consumer sales. The company finished the quarter with $482 million in cash on its balance sheet.

[Ed Note] TipRanks analyst-tracking data reports that based on 19 analysts offering 12-month price targets for Lulelemon in the last 3 months. 15 analysts rate LULU a “Buy” and 4 a “Hold.” The average target price is $416.05 with a high forecast of $500.00 and a low forecast of $275.00.

Editor’s Note: Friess Associates is a growth-oriented investment manager driven by individual-company research.

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