#277: Lululemon, the Market’s Most Undervalued Stock?

0:00it does have an incredibly powerful brand, it has extremely loyal customers, and it does have international momentum. them and the question i think is can it reinvent its product mix and can it fend off to competitors

0:19how are we getting on how are you doing mike how are you this week got some uh fun facts to open the show today so uh what do you know about the island of anguia nothing yeah zip yeah i was the same up until last week um so the thing about anguila is do you know how every country gets its own um its own like uh internet code so like an irish website is dot ie french website is dot fr and so on so forth or whatever and then the italian one is it which sometimes is useful like you know if you had a food company called eat you could have eat it you know eat dot it so yeah Got it. Well, that last point is very prudent right now because Anguilla's company, our internet code is.ai.

1:09Oh, wow. There you go. I'd say the locals are absolutely delighted with the change in events and the technology scene. So they brought in 40 million quid just from selling domain sites, domain titles for the last year. So I don't mean to put you on the spot, but approximately where is this? place anguila is in the caribbean it's like it's like the size of barbados or something so 40 million is a lot of a lot of takings for a company a country of its size oh my god it's like it's gonna be like 20 30 of the economy is just selling website domains apparently apparently one of the hubspot founders um bought the domain u you.ai for 700 grand in one go oh my goodness wow imagine just like this absolute gold mine arriving at your doorstep one day the lads are laughing sitting there in the middle of the caribbean for 10 000 years with nothing going on commercially i don't even want to say anything disparaging about their actual economic situation but it It just doesn't even, the fact that we haven't heard of it, it isn't an economic superpower.

2:21When all of a sudden, even you telling me there's a.ai, I'm thinking, oh, my Wall Street needs to buy profit.ai. That's for sure. So it's bringing in, it's going to expect to bring in 50 million quid this year from just website domains alone. Well, fair play to them. Hats off to them. Good luck to them, as we say in Ireland. I thought that was great. That's amazing. Yeah. So where are we going today? Do you want to give a little profit? Yeah, for sure. Well, as you know, like speaking of profit, well, we, My Wall Street is a business that's gone through quite an amount of change over the last 12 years.

2:56Every business has, but My Wall Street, like the rest, has changed a lot over the last decade or so. and profit is our first AI proof product. Well, apart from in life human get togethers like Investicon, which really can't be toppled, but profit is our first AI proof business. But it's a very important change for us because right now today, there are 50 billion free stock opinions live on X and AI is the place that a lot of new younger investors are going to decide what stocks they're going to buy. So AI and the court of public opinion is wide open. So you need to have a system that is going to outmaneuver the rest of them, which is why we launched Profit, apart from the fact that we were building it for nearly 17 years, measuring it, monitoring it, tweaking it, refining it, moving it to Rackspace with NVIDIA chips.

3:57And we now have a beautiful product that our listeners can try free of charge for seven days at useprofit.com backslash MWS7. Think of my Wall Street, seven free days. Useprofit.com backslash MWS7. I really strongly suggest you at least go in and give it a trial because the results and returns from this system are unlike anything else out there. So that's all I wanted to say. Top of the show. quick advert for the stuff we do. Brilliant. Okay. So I wanted to talk about a stock today that's very on topic, which is Nebius. Have you heard of Nebius? Never. No. Yeah. So I was making all the headlines.

4:42Essentially, what Nebius does is, do you remember we talked about CoreWeave on this podcast? I do. A couple of months ago. Actually, their stock took a big move in the last few days. I think it got thrashed. It fell about 20 % or something. So yeah, it had like a stupid run. from IPO for the first three or four months and then it's kind of all the way back down. It's kind of cooled off. I think we panned it. I can't remember exactly why, but I remember we panned it and I remember it doubled in about the space of two weeks after that episode. But Nebius is kind of a direct competitor, CoreWeave, except it's got a bit more international presence and it's not just US based, but we describe yourself as a full stack AI infrastructure company providing GPU do powered cloud computing specifically for AI workloads.

5:29What that essentially means is that if you're an AI startup or a research company or whatever you're doing, if you want to build emet.ai, first of all, you have to go to Anguilla to get the website domain. But after that, you can go to Nebius and you can essentially just rent the computer power, the infrastructure, the NVIDIA chips, like it's a huge partner with NVIDIA, all that good stuff. It's not dissimilar to what AWS does in a sense with servers, except it's very AI native. We're talking about it today because the stock is up. Just check. It is up. It's up 32 % at the time of speaking. It was up as much as 60 % last night when it announced the news.

6:10So basically it signed this absolutely blockbuster deal with Microsoft. The news came out last night. it's a multi-year contract worth up to 19.4 billion so that goes up until 2031 and essentially it's going to supply computing power and gpus uh to microsoft that microsoft needs because it's doing all its ai business um so i just saw it absolutely i decided it took over my uh twitter feed and i just read into it and i was like this is a crazy one day move but but the extent of how much that contract, that single contract makes in terms of Nebius' whole business. I think the annual revenue from that 19.4 billion spread out over whatever it is, seven, eight years is more than like, you know, it's annual revenue forecast for 2025 alone.

7:02So it's just a kind of transformative contract. And then again, one fast swoop, this business has just achieved the next level and maybe even the next level beyond that again. It's interesting because there's a time where maybe there's a bit of fatigue with AI. There's too much hype. There's not enough ROI. I think Sam Altman came out a couple of weeks ago mentioning an AI bubble. It tends to lend itself like as in we've seen stuff like this happen before it's hard not to believe that there is a bubble i mean nebius is up i think it's 360 since its ipo in 2024 last year core we've was similar in the space of about three months you know like as in those moves are not normal and we've seen it with especially the especially the kind of the pick and shovel place so where those ai bottlenecks are happening are with computing power with cooling with uh goldman sachs i think published a report yesterday about water so these these pinch points where the hyperscalers the google's microsoft's the facebook's they want to move as fast as humanly possible and things stopping them are things like this and nebius is one of those we'll say gatekeepers at those pinch points um but obviously if you're seeing this and you're seeing this kind of demand or the expected demand there's so much potential built into these companies and so yeah you can get a bit shaky if sam altman who is kind of the poster boy of ai you know as we know it in this modern form at least is coming out and saying yeah maybe it is a bubble you would back off and especially companies like this these pure plays are the first to kind of suffer.

8:54So obviously there was a small bit of concern in the industry. The market kind of went sideways for a couple of weeks. But then deals like this on Microsoft where, you know, they have huge, obviously demand. They also have their own huge computing power as well. And then they're going to Nebius because they need more. It kind of is putting two fingers up to that idea. Maybe not of a bubble because I don't think we can say it is a bubble or isn't a bubble yet. Like it most likely is, or there's bubbles in certain parts. But in terms of demand, the demand is staying there. And I think this is a more significant deal than just one single company.

9:32More so of what it says for the wider AI market and where people's, where the money is being spent. Because we saw NVIDIA, there was talk about, you know, will NVIDIA slow down? And it didn't. Do you know what I mean? and Jensen Wang came out and said he thinks they're going to be$3 and$4 trillion spent a year in AI infrastructure alone by 2030. So those are big statements and it's very easy to get behind because you see it happening around you. And it's very easy to doubt them as well because it can't go on like this forever. But a deal like this is kind of saying, yes, it will. And that's why I just wanted to highlight it.

10:10We're not going to go into it too deeply. But I just think it's interesting. I think Nebius, I think CoreWeave, they're calling themselves this emerging like Neo cloud sector. So just a very AI native kind of similar to what AWS does or Azure does, but specifically for AI native apps or startups or whatever else. So yeah, I thought it was interesting. CoreWeave was up about eight or 9 % on the news as well. And we're just seeing it more and more where companies like this, we've always talked about ai as like you know the most well-resourced companies are probably going to benefit the most and that's what happens with a lot of new technologies and we've seen it with the hyperscalers whereas a company like nebulous coming at core weave can kind of make it more um they they they don't ring fence it as much do you know what i mean yeah well the fact that you can have a bunch of pizza eating kids in a basement building an ai platform thanks to core Weaver Nebulous kind of democratizes the access to that technology, which only a year ago was so expensive, was like off the scale, like the cost of trying to get an NVIDIA setup, as we did in my Wall Street, is just so, so high.

11:26And all of a sudden, you can only presume that those barriers are being eroded. But you know what they say about a bubble, Mike? A bubble is a rally you missed. So yeah, it was a bubble. Yeah, because we didn't buy it. I'd also say that I think, you know in the in the history of humankind ai it's fair to say is so new it's been around it feels like a millisecond so we're going to see every aspect of the business model that presented itself in the traditional internet model start to present itself in the equivalent ai context like the point you made about domains with a dot ai top level domain are now suddenly a hot ticket whether it's the hosting via Rax, I mean, say CoreWeave or Nebulous, or whether it's about the development tools or in fact the businesses that are just exploiting the technology.

12:19It is just the dawn of humankind when it comes to AI. So I think an awful lot of water is yet to flow under the bridge as it were, but that is one I'm going to put on my watch list and start to keep an eye on because if Microsoft outsources something to you, you can take it you're doing something well so i'll be quite curious to see what is it that has them in that pole position because they're in there now you know so i'm not saying that nothing can't be replaced but certainly the complexity of what they're they're allowing microsoft to shovel off the excess onto is obviously quite high yeah absolutely and it just it very much seems like the kind of bellwether right now um yeah in terms of is there waning confidence well actually no geez this is microsoft putting down 20 billion quid saying no there's absolutely no waning confidence so i thought it was interesting i thought it was worth pointing out and anytime a stock is up 60 or whatever it was in the space of a couple hours it's always a worth uh worth a little shout out well i'm going to talk about one that's down about 60 since the year began not in the last few trading hours and it's it's almost the opposite of ai and it is that sports apparel yoga mega brand lululemon and in preparation this headline yesterday it was the worst performing stock in the s &p 500 this year correct that is correct and i i i launched a tweet there yesterday recording on tuesday evening as opposed to wednesday morning again and um i i put out a tweet yesterday saying that i planned to dive into lululemon on this week's stock club and i'd love to hear your take so i asked uh my twitter followers to vote in a poll and before i go there i want to say to our listeners please follow me on twitter it's at emmet e-m-m-e-t l savage at emmet l savage follow me there because i uh random musings that are going to accelerate in the weeks and months ahead hopefully some of uh value so hopefully some of huge value the other day i i tweeted the list of all the crisper stocks i'm watching and I was quite surprised at the engagement it got and the thousands of views it got and all the rest.

14:35But anyway, Emmett L. Savage. So yesterday on Twitter I launched this poll and I asked people to vote and also to comment on their view on Lululemon. Now half the people, so as of this moment, 66 people have voted, which is probably statistically significant enough for us to have a conversation about the actual a poll uh so half of them never purchased from lululemon which means that's very easy for the remaining answers we just double it to get the kind of percentage weighting so 82 of the people who have engaged with lululemon or purchased a product still love their products which i think is quite interesting or another one's 41 percent of people responded to the poll but in fact 82 percent of the people who've engaged with the product still love lululemon gear 16 which is double the eight percent who said uh 16 used to love it but now they've moved into the meh territory so like any for those who have bought the lululemon gear and voted in my poll 16 of them are not too keen and then the remaining six percent actively dislike their gear don't like lululemon so just again just to summarize that if we minus that to people who never purchased from lululemon 82 percent of them are still brand evangelists and the remaining percentage are somewhere between dislike and meh but that's not insignificant that also i asked people to leave a comment and the two that are live at the moment while we're recording the first came from listener ashwin who said i am contemplating my position however i've been buying their apparel for a few years and uh it's been and i've been generally impressed and i'm it's and i'm pretty tough with my clothes i used to scoff about them offering men's clothing but i have been converted so that was ashwin's uh comment and the second comment which i thought was very interesting as well because they completely resonated my personal opinion was um i live in a wealthy american suburb kids all wear it my daughters love it moms all wear it i don't think it's going anywhere and i just found those between 82 of those who engage with the product still loving it and just those two comments from people uh observing i guess the strength of the product and the strength of the brand for me kind of was not it was not negligible information but what really matters we're talking about a multi multi multi billion dollar business so i thought it would be fun to dive in a little bit deeper and talk about the story of lululemon okay so i'll go well you know every story every business's story begins with its founder that's just the fact it starts with a person a woman or a man who is sitting down one day and conceived or happened across an idea that they executed upon excellently and Lululemon Athletica as it's more formally known is as I think most of our listeners know probably one of the top three or four most recognizable names in the western world anyway in activewear and it was founded in Vancouver in 1998 by a guy called Dennis Wilson also known as Chip Wilson now he was not a typical corporate person to put on mildly and and founders rarely are corporate beasts they're uh like an entrepreneur with a vision or an entrepreneur who happened across an opportunity as i said and his vision was to merge technical athletic apparel with the booming wellness culture of the late 1990s but he was absolutely a lightning rod for controversy like the guy really i remember watching him and you could just imagine in bloomberg he had teams of advisors on PR and and and uh people around him because the guy was a bit of a loose cannon and he kind of cultivated this uh kind of quasi spiritual corporate culture around Lululemon and he filled the stores to help you know um to this kind of self-style manifesto and insisted that his brand would transform lives not just make you look good and more comfortable and keep you warm keep the rain off your shoulders and i was an early shareholder probably something like 15 years ago and i remember this guy very well and he was totally notorious for his public remarks what was the founder of uh ubers a travis kalamak is that his name yeah yeah yeah he also was a loose lip sink ships and that guy travis kalamak and chip wilson kind of reminded me of each other because they said things that just varied from controversial to being quite insensitive, to be honest.

19:27And in fact, in one infamous 2013 Bloomberg TV interview, he suggested that, quote, some women's bodies just actually don't work for Lululemon pants, which understandably was a comment widely seen as body shaming. And years earlier, he had resisted expanding into plus sizes for Lululemon gear, saying it would compromise the brand identity and and you know people were commenting that this uh was building a perception of exclusivity and that lululemon was not for everyone and even though it alienated some people very understandably it also created this sense of identity amongst its target customers who are affluent fitness focused at that time women who viewed the brand as aspirational uh but now in 2025 with hindsight his chip wilson's remarks it really did create two things a double-edged sword it created a lasting damage and a brand strength so that kind of controversy amplified lululemon's name and recognition uh but as they say it left scars uh to heal which i can't even say if they're fully healed to this day but he stepped down as from the ceo ship in 2005 which is before he actually IPO'd but he left the board in 2015 after quote governance uh disputes whatever that means uh but his fingerprints as it were remain all over the company's dna uh to this day which is premium pricing tightly controlled brand image and a mission that extends far beyond comfortable and flexi clothing into community and lifestyle and going into a shop and doing uh yoga in their retail store going out for a yoga session with Lula Lemon in the local park or whatever it is that they do so he created this kind of brand mystique around around basically sportswear so there so here's the story of the business rather than just the story of the founder in and I'm going to try and wrap it up into I suppose a rather big nutshell so Lula Lemon began as a single Vancouver design studio.

21:41And just as we've all seen, snowballed into this retail powerhouse. And its big break was the yoga boom in and around the year 2000. And its fabric known as Luon, L-U-O-N, which I only assume is how the name was derived, although I'm not too sure about that. The Luon fabric is this stretchy, breathable, and pretty often a very flattering kind of material that leggings are made out of. And it became synonymous with this modern yoga culture. And by the mid-2000s, yoga pants were no longer something that were just reserved for doing yoga in the studio. They were seen out and about in the streets.

22:21And if you're in New York, you were living in New York in around that time. Is that right, Mike? 2017, yeah. Oh, no, it was a bit later. But yeah, you know yourself, like Lululemon pants are worn out and about in the streets. Oh, 100%, yeah. i wouldn't have to say it's a new york thing i would say it's universal like well absolutely universal but i think it's the the first adoption of it being every day everywhere where was new york la kind of the coast of america either way lululemon leaned hard into this kind of shift in in in clothing and athletic wear or at leisure as they call that athleisure was the turn was the term that they actually came up it came up with so they positioned themselves uh as a sports brand uh but not like nike or adidas they position themselves as this premium lifestyle company so it wasn't just about wearing a lululemon top or pants it was about the fact that you bought into the ideology and doing yoga in open spaces and having a healthy lifestyle and and what is conventionally regarded as a healthy body.

23:30So stores doubled as community hubs and they were giving, as I said, these free yoga classes and wellness talks and sales associates were known as educators and they were really meant to inspire instead of sell. And the formula definitely worked because in 2007, Lululemon went public on the NASDAQ stock market with the ticker LULU, as i'm sure most of our listeners know and it raised about 327 million dollars on ipo day um and its growth was extraordinary by mid 2010s revenue was topping 2 billion annually mostly fueled by the store expansion all across the 50 states of america um and products like the align pant and scuba hoodie were a hot trend they were just well known by the kids in the street at that particular uh chapter of time and uh like lululemon proved that customers were willing to pay triple digit prices for leggings once they came with that brand cachet so you know there was probably a preconceived notion i don't know for sure but imagine leggings were something that were double digit price you know 40 50 60 bucks maybe but suddenly lululemon with that little i don't know what you call alpha symbol uh on the back it looks like a greek alpha to me um like anyway uh suddenly people are paying over 100 120 bucks 150 bucks for leggings so one two skip few 99 100 and by the year 2020 lululemon had really achieved this cult status and its products were omnipresent they were in airports and cafes and gyms and as you said they were just and i think 2020 was a very appropriate year as well because that's all people wore for about nine months was gym gear around the house oh yeah you're absolutely right that the covet 19 pandemic uh changed not only how we dress for every day but also changed how we we buy stuff which everybody knows went online and i'll come back to that point in a minute and i was about to say yeah that really feeds into lululemon as well and how they've completely controlled their own selling experience because then there's no third parties with them at all is there it's just straight through their brand exactly and probably courtesy of that that virus that we all we all lived through revenue doubled for lululemon between 2018 and 2021 so it just blew past six billion dollars and sure enough the stock followed suit because it was the hottest ticket you might say in in casual athletic sportswear whatever label you want to put it on it but it was the hottest ticket an hottest brand and now even uh at the height of the popularity the company faced uh reputational headwinds you know so above all the other reputational headwinds was this long-standing resistance to uh having exclusive sizing um are are like i think it's probably the right turn of phase but inclusive sizing i'm not too sure but either way lululemon lululemon was kind of saying if you're not slim we don't want you in your in our gear you know and they put different various messages on it but it was clear what they were up to i remember at the time you're saying well it's down to logistics and we can fit more product in boxes for shipping and like you're you're listening you're sitting there listening to a quarterly call going this is baloney they just simply if you excuse the language don't want fat people uh in their product and are i should say non-slim people whatever the politically correct way of saying it is and competitors like nike and adidas um always allowed plus sizes always provided plus sizes but but lululemon was sticking this narrow range saying that it was down to technical and brand identity reasons brand identity constraints if you can believe such thing and really rooted in that was chip wilson's comments and and people remembered that because it wasn't that long ago now however since then before we move into how's the business doing since then they have backtracked and expanded size ranges thankfully because i'm a loyal and happy customer and they uh attempt to project inclusivity but uh but the perception still lingers you know it's very hard to come from that from those beginnings and then suddenly go we are the brand of inclusiveness and and uh you know especially as body positivity has become a bit of a cultural and commercial force it's very important that businesses do what's right and for a brand that was really accused of exclusivity i think correctly accused of exclusivity winning back broader trust is a slower process anywho getting on to the story of so that's the the founder and that's the kind of the backstory of the business and its growth but since 2018 the business has been led by a guy called calvin mcdonald who is a canadian uh retail veteran who previously ran sephora's american business so he the guy totally knows retail and he also knows the space i think sephora and lululemon you can just see a dotted line between those two brands and you can imagine that someone who buys one more it's probably more likely to buy the other brand um but his his view is he wants to evolve lululemon beyond yoga pants because that's kind of what they were they were the yoga pants company and i remember as a shareholder being in new york uh going into a lululemon place and i was surprised at how little stock there was way way way back they're all just these kind of mannequin legs up above eye level with these different types of uh yoga pants and underneath you know the ones it just seemed to be i just couldn't believe it was the success it was but it was but anyway this guy the newer ceo calvin mcdonald who's there as i said for the last seven or eight years he um he had this power of three growth plan when he eventually got his feet under the desk and started to do his business the first uh pillar of of the power of three was to double men's revenue which i suspect was in large part driven by me because i wear something from lululemon 365 days a year just always wear it in this that's only happened the last three or four years So his first thing was double men's revenue.

30:02His second thing was double digital revenue, enter coronavirus. And then his third thing was to quadruple international revenue, which I think most of our listeners will probably get a sense as to the success around those. um so in fairness he made great progress so they made the business made great progress on all fronts and men's apparel gained traction with joggers and shorts and outwear and stretchy trousers and stretchy tops and all that kind of stuff and and e-commerce as we already said went gangbusters as a consequence of the pandemic and china became a major growth engine and by 2022 the company was generating over eight billion dollars annually in sales with nearly 30 percent of sales coming from outside of america so it was no longer the the the brand of the stars and stripes it wasn't just this preserve of the united states it had cracked to a point the rest of the world um and the company branched into new categories in 2020 i recall it acquired this high-tech business called mirror do you remember that one mike yes that was a very of its time acquisition wasn't it it really was it really was i remember fitness trend was really kicking off oh yeah yeah my my um there was a friend of mine a guy i know in painting my house i don't mean with an with an easel and oil painting i mean literally painting the walls and he had come back from a holiday in america saying oh have you heard about a mirror um lula lemon had bought it and it was the first i'd heard of the product mirror and basically it was a it was like a floor to see not a floor to ceiling what do you call those dressing room mirrors the ones that are about human sized yeah um and it was high tech like it kind of showed you how to move and bend and do exercises and you're looking in the mirror and i don't really it was a little bit of harry potter wizardry going on you're looking in the mirror and you're seeing something else if you know what i mean and how to move and bend but they bought anyway lou lemon bought this company just call mirror for 500 million dollars and and the idea at the time was to blend hardware software and their apparel into this kind of ecosystem where you could do your yoga at home and look in the mirror and the instructor was visible to you as you looked in the mirror um but unfortunately it just underperformed they like integrations are so hard and you know if your if your core business is um manufacturing branding distributing apparel bringing in a very high-tech piece of kit and trying to make it fit into your portfolio is tricky and integrations are tricky to begin with so it was that was written down and sold off in 2023 which i didn't even know or notice until i started to research uh this segment for the podcast i thought they still had me or i just hadn't noticed it in any of their points of sale and it was a rare misstep for a company really so accustomed to winning so the real question that i have it's an open-ended question is where does lululemon stand today and is it a good investment now if we were to look at its revenue per year top line revenue money into the till it looks like um if you look at 2021 22 23 all the way through to to now it looks like what's the best bashed up teeth you know one is one longer than the next and the other looks like a like kind of like a cartoon character's bottom row of teeth there's no rhyme or reason to it there just isn't i imagine an awful lot of what they're feeling the pain for in 2025 is through tariffs no oh apps 100 especially from yeah posting canada stuff from canada down to the to america is uh is fraught with tariffs and i'll come on to that point but just for the sake of our listeners apart from revenue being up down up down and sideways a little bit and apart from the fact that return on equity isn't all that glamorous what i would say is this kind of niche metric well niche is probably it's too strong word but less than first metric you'd look at which is ev divided by ebitda enterprise value in other words what you'd pay if you if you had to buy the whole business right now and write a check uh ev divided by EBITDA earnings before interest tax and depreciation and amortization which is regarded as the least uh revenues a number that's least uh fiddlable you can't really fiddle with it as easily as you can with bottom line between R &D and depreciation all that kind of crack so we take enterprise value divided by EBITDA it gives a fairly static read on how cheap or expensive the market is valuing that company at the moment it's a trend line it's a single line and the lower it is the historical lowest lowest share price has actually been and although i probably won't get a nobel prize for the explanation of the ev divided by ebitda there what i would say is it's at its lowest it's on the floor the stock price has been completely maligned destroyed melted down like in uh in december last 28th to december a couple of days after christmas noodle lemon uh was about 508 bucks a share right now it's about 168 bucks per share so what what we're saying and what we said top of the show as as we did a segue from ai to yoga pants like this this business has really been trashed and hence it being the worst performer in the S &P 500 this year.

35:45And as of now, the business is absolutely at a crossroads. But the company still is a giant. It has nearly 800 stores worldwide. It has a market capitalization in tens of billions, but cracks are showing. So let's just get down to numbers because that's how, unfortunately, the short term is measured for stock price movements. Well, in Q2 2025, revenue rose seven percent year on year to about two and a half billion dollars which is quite a cry away from a multiple of that a couple of years previously and a seven percent growth as you and i know and as i think all of our listeners know year on year is not that glamorous uh international sales were the bright spot and china was up 25 year on year and rest of the world which is this big broad term used to describe everywhere except america was up 19 however america which still and i'm when i say america i mean the united states of america uh still makes up 70 percent of lululemon sales and it was flat revenue was up shave i think it was up one percent uh and comparable sales comps as it's known in the world of retail where you take this shop and compare the exact actually compare a little bit like compare each shop to itself one year later the comps was actually down four percent and that's a very important number in retail and in restaurants because um it's harder to to fiddle with because you can't mask it by opening new shops so if i had you know 100 restaurants and next year 200 restaurants and say and i said that uh revenue was up 50 well what you want to know is what's the revenue per shop or per restaurant so comps were down 4%.

37:33That's not a good look. And net income fell slightly to about$370,$371 million and gross margin contracted. And as you said, it was pressured by tariffs and markdowns. And this CEO, Calvin McDonald, who I think is an impressive character when I've listened to the guy, he acknowledged the US weakness. I mean, he couldn't do anything, but you can't say that didn't happen um and he called lululemon's loungewear and social offerings stale which worried me greatly mike because i don't want him to change their abc pants which are a gift from god if you ask me i was like no no no no no they're fine don't go changing them it is it is an interesting wording because you mentioned and i know like it was only a small survey but you mentioned one of the comments and it was like yes the kids and the moms still wearing them and loving them and i said why and like is that what you want to see in terms of your brand and i don't think that was lululemon five years ago i don't think it was a kids and mom's brand and and him coming out and saying is stale might be indicative of a wider problem because you can you can look at a lot of factors in terms of especially like us slowing down 100 150 yoga pants are very discretionary spend and that could be people feeling the pinch but in terms of branding i think this is where a lot of the damage has been done is is it become as he said still is it is it what you know 22 year old people are wearing now or are there new things coming in is like i remember the big threat and this is this was last year when people were getting worried about this was the the development of the brand aloe and i think it had a lot of influencers behind it and all the rest and yeah yeah it seems like those concerns have really played out now i know there's more behind this than just brand damage i think it's it's supply chain is definitely under the microscope as well with tariffs and all the rest but in general it does seem like lula lemon as in terms of brand power just doesn't have the same ring to it as it used to yeah i agree well you know i think i used to always say i don't invest in finance and fashion because they're too fickle or too difficult to understand i used to had pharma in there the three f's but fashion pharma and and and um finance but but i've actually breached those rules multiple multiple times over the years it's not quite true but they're they either suffer from a fickle nature or from a excessively complex nature but um yeah there is there are definitely listeners to this show who understand fast fashion and retail and have a greater sense for where the line of success begins and where it ends because even to our listener who commented on the twitter uh account about um i mean say my ex account on um moms and kids like i would have thought like isn't that sure you know yeah so but that's that's not that's that's the head of a 50 year old irish dude and ever sold uh fashion like maybe they only want 20 something year old new york's new york females drinking frappuccinos i don't know but you're dead right i mean the point you made there the activewear market has become brutally crowded like whether we're talking about aloe or there's one called vori v-u-o-r-i which my sister-in-law is part of the new york set she's a big yoga person she's amazingly into yoga and she's gone off to study with yogas or yogis or whatever they're called in India and she said Vori is the brand on the up then there's Gymshark and it is brutally crowded and I think young customers as we saw what UA Ben Under Armour benefited because young kids did not want to wear Nike because that was the brand their parents wore their parents wore and I just wonder now are the kids ultimately going to go towards uh aloe avori and jim shark because their moms wear lula lemon i don't know i mean it is a it's a kind of a convoluted equation and fast fashion players like zara and she and i mean they turn out cheap alternatives so there's also this other cycle like um sign wave in the background i've observed which is the move to the anti-brand like people sometimes go i don't want any brand i don't care i'm too cool for that i don't want any logo on my gear and it's it's a tough one to call but i can tell you what analysts are saying i have three analysts views and we don't usually lean on other people's opinions but i think it's interesting morgan stanley argued uh lulu's valuation should resemble a speciality retailer as opposed to a high growth disruptor so there's one opinion uh jeffrey said that brand is quote becoming less relevant and as forecast sales declines throughout 2026 and william blair pointed out that 40 of lululemon's mix is non-performance apparel which is precisely the segment dragging on results and then when you had to bring into that all of that huge mix is the very point that you said to me earlier mike which is tariffs and the end of the u.s de minimis exception which means that lululemon can't ship small packages tariff-free from Canada down into America or the US, which the company estimates will dent profits by 240 million this fiscal year.

43:20Like a quarter of a billion is quite the body blow to profits as a consequence of revenue. And we've all seen and observed President Trump's approaches to tariffs and we know it will have an impact downstream. And on this one particular stream of yoga pants in the United States, it's going to hurt Lula Lemon by a quarter of a billion, give or take. And the CFO, her name is Megan Frank, she acknowledged price increases and cost mitigation will only partially offset the blow of tariffs. So tariffs are real and they are very much. So the question is, what are its prospects? What's Lula Lemon's prospects for the future?

44:01Now, despite all these struggles and it's in the eye of the storm at the moment for all these various reasons, It's hardly finished. I mean, I asked AI, I asked one of the AI models to calculate the probability that Lululemon will be alive, well, and larger in 20 years. And I said, don't give me any words, just give me a percentage. And it said 72%. There you go. So like, I really should have gone deeper and went, how did you calculate that? What I thought was interesting was that with all the information available to it, I reckoned, yeah, it's probably going to be around in 20 years. Well, if I just used the head stuck on top of my neck, I would be inclined to think that Lululemon will manage its way through the year ahead, the 5, 10, and 20 years ahead.

44:52But back to the poll I mentioned at the very top of this segment, really what Lululemon has is a powerful brand. And 82 % of the handful of people who answered my question and who have bought the product don't just like it. they love it i love lululemon i no longer think about where am i going to buy my next trousers or top i just go to lemon and buy the stuff i know and i remember i was there and i can just throw it in the basket and off i go um but not to say that an anecdote makes data and every shoppers are different and you know if i encountered a brand that was warmer in the winter and cooler in the summer but it was the same trousers you know i'd be like oh yeah like i like that that's great um so yeah it does have an incredibly powerful brand it has extremely loyal customers and it does have international momentum and the question i think is can it reinvent its product mix and can it fend off to competitors and and the ceo mcdonald is is he's good i mean i'm impressed so like let's just say before i move this storyboard in for a close So on the positive side for Lululemon, categories like running and training and yoga are obviously very strong.

46:04I mean, that's what it does. That's what it's known for. And they're defensible and to a point. And they have technical segments where Lululemon still absolutely commands respect. And I don't think there will be a day where someone scoffs or scorns at someone wearing Lululemon gear. Just there are other things there. It's the buyer's choice. The second thing is, I mean, China and Asia and Pacific are going at double digits. and no one can argue against this. I wouldn't say infinitely long runway in those markets, but there's huge runway in those markets, especially if you're a hot trend. And then of course, as I mentioned already, management plans to increase new products to 35 % of assortment by spring 2026, up from 23 % now.

46:48And again, if that's executed well, it could refresh consumer excitement. And then Lululemon's grassroots brand things the free workouts the ambassador networks the the drinking what they call that grass thing um no you know those oh what's it called again this green grass they crush down in a juicer and you drink tastes lovely oh i forgot some kind of anyway look they do all this lovely stuff but then on the other hand so that's all the reasons why little lemon is good and may be better in the future 70 of revenues are still in america and stagnation is dangerous 70 is a lot at leisure is trend driven and if the new colors and cuts and whatever it is that come out um in the months ahead fail it will further hurt the business and penultimately investors no longer treat little lemon like a hyper growth stock it's a it's like speciality retailer is a kind of speciality and then finally past exclusivity issues like no plus sizes it still perhaps overshadows the business i'm not too sure if it's much of a thing but uh competitors with more inclusive positioning could grab the minds and hearts of the younger buyer the 17 year old who is is coming into their the springtime of their yoga life you might say so the absolute answer will come from the court of public opinion there's no doubt about it like when you just think about every fashion company that ever existed really it's all about how are your products perceived how how do they make you look and feel and and that level of desire because at the end of the day clothing serves far more function than just keeping us warm and dry and Lula Lemon's journey from Chip Wilson's controversial Vancouver studio to this mega powerhouse that even is here in ireland but a little lemon store on grafton street in dublin and heaven knows where else is really one of the most remarkable retail stories of the last 25 years it's like another nike i think a lot of our listeners and we certainly know the phil knight story and and i think chip wilson's story is is kind of an alternative version to that and it has created a new category but don't forget under armor created a new category with their compression where they had these um moisture wicking tops and the heat gear and the cold gear and all this stuff that men and climbers and rugby players and the rest wore underneath their tops and they created a category but Lula Lemon has done the same and it's built this kind of community driven brand but like successful but success will always breed competition and and I think in 2025 2026 and beyond Lululemon is going to have its biggest battle yet which is all these other brands that we spoke about coming into the marketplace coming in to eat their lunch and the next chapter will determine whether Lululemon remains the defining active rare brand of its generation or become more like Under Armour if you know what I mean which isn't it's no longer super cool it's just up there on the shelf beside all the other stuff so in conclusion Mike you've sat there listening to me rabbit on about lululemon and i know you know the business and we've spoken about it if your fictitious nephew handed you their savings a hundred dollars and said uncle mike i think i want you to buy me lululemon or whatever you prefer would you buy lululemon for this nephew no um i am concerned about the under armor comparisons even though they've gone about it very differently like under armor's brand value was diminished from kind of selling cheap and doing the third-party retailer thing which lululemon has been the opposite of it's actually we compared them in the past very favorably to under armor because they control their buying experience so well but i do think you talk about the court of public opinion and you talk about me and you aren't really the uh the people who lululemon care about it'll be 20 to 25 year women i imagine and and if if it loses its core market there because it's great yeah that they have stretchy pants for men but the yoga pants are the core of the business and if it loses that the fact that i like their gear makes it less desirable yes for somebody else it's the no question about the moms and kids issue um that you said at the start of the show so yeah i would be more concerned about that than anything else because that for a clothing company that has been perceived as very trendy for so long for them to lose that could be could be the kind of not obviously not the nail in the coffin like as in they're still going to be around and they still produce high quality clothes and people are going to buy it but um i don't know if it's going to be on that same pedestal as it was so that would be my concern and I would my nephew would be going Lululemon free and he was in his portfolio can wear whatever he likes yeah if you could only invest in his money in Lululemon or what was the AI company you spoke about at the top of the show?

52:00Nebius, Jesus I don't know about Nebius either but for now I know where I'd put the money where? I'd put it in not Lululemon essentially Nebius nebius okay the trend is your friend nebulous or nebius nebius oh yeah i probably did see it last night yeah life moves fast anyway uh very interesting little chat we had about two companies that may or may not be giants in the next few years for what it's worth i actually am quite intrigued by lululemon right now i wouldn't buy i would certainly have it on a hot watch list because i i believe its brand is more like nike and less like under armor and what i mean by that is i think it's going to turn out to be less vulnerable to the fickle nature that that ua and the problems ua experienced were actually quite different with discounting and going into these big woodbury common outlet type stores but i actually think lululemon will rise again and really what i'll be watching is the new gear so when when they release the new gear i'll decide if it's nice and then i go yeah i'm gonna invest millions based on this very very interesting tactics uh 25 years in the stock market this is what it's come down to yeah i always say that tongue-in-cheek but um yeah but definitely i'm actually 30 i'm 31 years 31 years that's not Let's not ask, but here's getting pedantic.

53:31Follow me on Twitter. I'm at Hell Savage. But okay. So what else? So what remains, Mike? All that remains is for anyone who hasn't signed up for free trial to profit to do it. Because if they don't, they'll regret it because we're going to do something. But you can get seven days free trial and use profit.com backslash MWS7. Perfect. Okay. Emmett, thank you for joining me. Thank you, everyone, for listening. We'll talk to you next week.