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Will CEO's Ethical Missteps Tarnish Lululemon's Brand?

While there is always brand risk associated with allegations of ethical missteps, we think the board's swift and decisive action will likely mitigate this.

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Although we acknowledge that there is always brand risk associated with such allegations, we think the board’s swift and decisive action will likely mitigate this. In our opinion, the board successfully got in front of this story and took a firm stance both in word and action about the brand’s commitment to the highest levels of integrity and respect. Therefore, we see no change to our standard stewardship rating and foresee minimal impact to demand. We continue to model low-double-digit revenue growth on average annually over the next five years and adjusted operating margin expansion from the high-teens to the low 20% range. That said, we think the market has more than baked this upside into the share price with the stock trading north of our $66 fair value estimate. We would wait for a more attractive entry point.

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About the Author

Bridget Weishaar

Senior Equity Analyst

Bridget Weishaar is a senior equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. She covers apparel retailers.

Before joining Morningstar in 2013, Weishaar spent five years as an equity analyst on the Internet research team at J.P. Morgan. She also worked as a retail analyst for Bear Stearns.

Weishaar holds a bachelor’s degree in science pre-professional studies from the University of Notre Dame and a master’s degree in business administration from The Wharton School of the University of Pennsylvania.

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