Narrow-Moat Lululemon Overcomes Obstacles Bringing Pain to Competitors; Shares Expensive

Lululemon recorded impressive results in 2022’s second quarter, showing little impact from the inflation, supply chain, and economic concerns that have slowed competitors. We believe the popularity of Lululemon’s brand, the source of our narrow-moat rating, has allowed it to overcome the industry’s challenges. Given its momentum, we expect to lift our $216 fair value estimate on its shares by a mid-single-digit percentage, but continue to view them as overvalued. Our concerns mainly lie with Lululemon’s valuation in an increasingly crowded activewear space that includes powerful participants like wide-moat Nike.