Unless you’re an affluent woman who’s into yoga. Or possibly an image-conscious man into running.
Or a short seller.
These types of people tend to have heard of clothing retailer LuLuLemon.
But, would you believe it has a market cap of $10bn?
John Hempton was amazed, and so are lots and lots of other investors, whether or not they have a position. The selling proposition seems to be:
- They are flattering and good quality.
- The branding is more appealing to women than, say, Nike.
- They are reassuringly expensive ($100 daks, anyone?)
- They have space-age fabrics (more about this below).
- They do a lot of yoga-based promotion
- We’re not sure if Ayn Rand has much to do with it.
The ponderous reasons go on and on in this vein.
Anyway, Hempton points out that the company’s valuation puts it at an astounding sales-to-market cap ratio:
A billion dollars in sales is huge for such a narrow category. But even that is small compared to lulu’s stock price. You see lulu market cap is now almost $10 billion. The stock is priced at 10 times sales. That is amazing for a fashion company. Nike by comparison has a market cap of $46 billion and a price to sales ratio of just over 2. And Nike is not a thin margin business. No other clothing company comes close.
But woe betide the short seller who gets in the way of a yoga aficionado and his or her coveted threads. It seems that a bunch of them (the shorts, not the aficionados) have been burnt before on this stock. About 12 per cent of the stock was on loan in mid-January, says Dataexplorers. That’s lower than another fitness-wear retailer, Hibbett Sports, they say, which had 18 per cent of shares on loan.
Because you’d had to have timed it pretty carefully, in the past three years at least, to do well on shorting this:
It turns out the whole short fascination with LuLuLemon goes back a long time. Check out this New York Times report from 2007, a few months after it listed:
One of its lines is called VitaSea, and the company says it is made with seaweed. The fabric, according to product tags, “releases marine amino acids, minerals and vitamins into the skin upon contact with moisture.”
Lululemon, which has received positive media coverage for its fabrics, also says the VitaSea clothing, made from seaweed fiber supplied by a company called SeaCell, reduces stress and provides anti-inflammatory, antibacterial, hydrating and detoxifying benefits.
You can guess where this is going:
The New York Times commissioned a laboratory test of a Lululemon shirt made of VitaSea, and reviewed a similar test performed at another lab, and both came to the same conclusion: there was no significant difference in mineral levels between the VitaSea fabric and cotton T-shirts.
Doesn’t seem to have held them back for long, anyway.
Related links:
Does my butt look fat in this? – Bronte Capital
The Lululemon Bull Case, Simplified – Kid Dynamite’s World