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Hanesbrands Inc HBI

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Morningstar’s Analysis

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We Think Lululemon Is Overvalued and Have Identified Risks That Investors Should Consider

David Swartz Equity Analyst

Analyst Note

| David Swartz |

Lululemon has posted stellar sales and earnings results since 2018, which has resulted in a 56% annual return to investors over the past three years. We acknowledge that Lululemon has a popular brand and assign it a narrow-moat rating. However, its shares trade at a 100% premium to our per share fair value estimate of $155 and even a 45% premium to our bull-case fair value estimate of $213. For comparison, Lululemon’s $40 billion market capitalization is now more than that of no-moat fast fashion retailer Hennes & Mauritz, which produces about 5 times as much annual revenue. While we do not necessarily foresee any short-term problems for Lululemon, we remind investors that apparel is a brutally competitive industry in which fashion trends can and will change rapidly.

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Company Profile

Business Description

Hanesbrands manufactures basic and athletic apparel under brands including Hanes, Champion, Playtex, Bali, and Bonds. The company sells wholesale to discount, midmarket, and department store retailers as well as direct to consumers. Hanesbrands is vertically integrated as it produces more than 70% of its products in company-controlled factories in more than three dozen nations. Hanesbrands distributes products in the Americas, Europe, and Asia-Pacific. The company was founded in 1901 and is based in Winston-Salem, North Carolina.

1000 East Hanes Mill Road
Winston-Salem, NC, 27105
T +1 336 519-8080
Sector Consumer Cyclical
Industry Apparel Manufacturing
Most Recent Earnings Dec 31, 2020
Fiscal Year End Jan 1, 2022
Stock Type Cyclical
Employees 61,000