Director of Lululemon Purchases Shares After Large Drop – Insider Weekends

Key Insights:

• Lululemon Athletica LULU is one of the more popular athletic apparel brands that sells clothing for yoga, running, training, and other activities.
• The company recently saw a big dip in stock price after full-year guidance fell short of analyst and consensus estimates, though this could be an opportunity for investors.
• Lululemon has grown greatly over the last few years and quarters, and also had a very strong fiscal 2023 – with net revenue for the year increasing by 19% to $9.6 billion.
• The company boasts attractive margins (a gross profit margin of 58.31% and a net income margin of 16.12% trumping many competitors) and maintains a strong balance sheet with cash and cash equivalents of $2.2 billion and total liabilities of $2.86 billion ($1.15 billion of which are capital leases)
• Following this drop in stock price, Chair of the Board Martha Morfitt (who has served on the board since 2008) purchased shares for the first time since 2021

Lululemon Athletica Inc. (LULU): $390.65

Market Cap: $49.23B

Enterprise Value: $48.38B

Lululemon Athletica (LULU) is one of the more popular athletic apparel brands that sells clothing for yoga, running, training, and other activities. Lululemon has taken the higher-end athleisure market by storm and investors have reacted enthusiastically – driving the stock price up by over 60% in 2023.

The Canadian company was founded in 1998 as a manufacturer of women's yoga pants, but has largely expanded its product offerings to various forms of apparel, accessories, and personal care products. With 711 stores across the globe, Lululemon is focused on global expansion while maintaining their high quality of goods – opening 25 net new stores during the fourth quarter of 2023. Thirteen of these stores were opened in mainland China, 7 in the US, and 5 others in the rest of the world.

Lululemon Growth

The company had a strong fiscal 2023 (ended January 28, 2024), with net revenue for the year increasing by 19% to $9.6 billion (compared to fiscal 2022). Comparable sales also increased by 13% – with mainland China comparable sales increasing by 39%, Americas comparable sales increasing by 8%, and the rest of the world comparable sales increasing by 32%. Gross profit increased by 25% to a strong $5.6 billion and net income grew by 81.4 % to $1.55 billion. In fiscal 2023, the company also announced a partnership with the exercise machinery company Peloton Inc. PTON, becoming their primary apparel provider.

Lululemon's Revenue Breakdown by Region

Lululemon also has relatively strong margins compared to its competitors – a gross profit margin of 58.31% and a net income margin of 16.12% trumps similar athletic apparel companies like Nike Inc. NKE, which has a gross profit and net income margins of 44.30% and 10.14% respectively. The company's balance sheet is also fairly attractive, with total inventories in Q4 2023 decreasing 9% to $1.3 billion compared to Q4 2022 – a good sign, especially considering that the fourth quarter of the year is typically when retailers end up with excess inventory after ramping up for the holidays. Cash and cash equivalents were also $2.2 billion at the end of Q4 2023, which is especially attractive considering total liabilities are $2.86 billion – $1.15 billion of which are capital leases.

Despite these strong results, the company took a hit in recent weeks after full-year guidance fell below analyst and investor expectations. The company expected Q1 2024 revenue to fall between $2.18 billion to $2.20 billion, versus the $2.26 billion consensus and full-year revenue to be between $10.7 billion and $10.8 billion, as opposed to the $11 billion consensus. This dip in stock price is likely what convinced Chair of the Board Martha Morfitt to purchase shares.

The last time Ms. Morfitt purchased shares was in June 2021, when the stock was trading at roughly $330 a share. Since then, the stock price has seen a high of over $500 (at which point many insiders of the company, such as the CFO, CEO, and Chief Brand Officer, began to sell shares) but Ms. Morfitt only purchased shares once more when the stock price settled back at roughly $389 a share.

We always like to see purchases by insiders that have been with a company for a long period of time and Ms. Morfitt has served on Lululemon's board since December 2008, observing the company operate through the Great Recession and the pandemic. Ms. Morfitt also serves as a principal of River Rock Partners, a business and cultural transformation consulting firm, and is a Director of the fluid handling systems and components company Graco Inc. GGG and the haircare company Olaplex Inc. OLPX.

The recent dip in Lululemon's stock price has made the company fairly attractive to us, although it does remain expensive with a P/E of 32.02. Despite the guidance not meeting consensus estimates, the company still expects growth over the next few quarters and years, and if they can maintain their favorable margins and balance sheet, the company is well positioned for the future. While we won't start a position in the company immediately, we may revisit it for an upcoming mid-month or monthly newsletter idea.

Editor's Note: Tamanna Suria contributed to this article.

Welcome to edition 727 of Insider Weekends. Insider buying increased last week; with insiders purchasing $110.06 million of stock compared to $74.12 million in the week prior. Selling declined sharply to $ 1.94 billion compared to $3.29 billion in the week prior.

Sell/Buy Ratio: The Insider Sell/Buy ratio is calculated by dividing the total insider sales in a given week by the total insider purchases that week. The adjusted ratio dropped notably to 17.65 . In other words, insiders sold almost 18 times as much stock as they purchased. This week again the Sell/Buy ratio was favorable; compared to the prior week when the ratio stood at 44.5.

Notable Insider Buys:

1. Snowflake Inc. SNOW: $161.6

Chief Executive Officer Sridhar Ramaswamy acquired 31,542 shares of this cloud-based data warehousing company, paying $158.52 per share for a total amount of $5.00 million.

While not revealed in the Form 4 filing, as you can see from the second page of his employment agreement, the new CEO of Snowflake will receive an additional RSU grant of $5 million if he purchases $5 million worth of stock in the open market.

2. Lululemon Athletica Inc. (LULU): $390.65

Director Martha A. Morfitt acquired 3,700 shares of this premium athletic apparel company, paying $389.05 per share for a total amount of $1.44 million.

3. OmniAb Inc OABI: $5.42

President and CEO Matthew W. Foehr acquired 225,000 shares of this biotechnology company, paying $5.19 per share for a total amount of $1.17 million. Mr. Foehr increased his stake by 8.38% to 2,908,803 shares with this purchase.

4. Grocery Outlet Holding Corp GO: $28.78

Director Erik D. Ragatz acquired 36,500 shares of this discount grocery retail chain, paying $28.25 per share for a total amount of $1.03 million.

5. Summit Therapeutics Inc. SMMT: $4.14

Shares of this biopharmaceutical company were acquired by 2 insiders:

• Chief Executive Officer Mahkam Zanganeh acquired 110,321 shares, paying $3.73 per share for a total amount of $411,094. Mr. Zanganeh increased his stake by 0.44% to 24,923,800 shares with this purchase.
• Chief Financial Officer Ankur Dhingra acquired 100,000 shares, paying $3.75 per share for a total amount of $375,000.

Notable Insider Sales:

1. Meta Platforms Inc. META: $485.58

Shares of Meta were sold by 3 insiders:

• COB and CEO Mark Zuckerberg sold 386,636 shares for $503.79, generating $194.78 million from the sale. A majority of these shares were sold through the Chan Zuckerberg Initiative Foundation.
• Chief Legal Officer Jennifer Newstead sold 585 shares for $505.29, generating $295,595 from the sale.
• Chief Operating Officer Javier Olivan sold 490 shares for $507.00, generating $248,430 from the sale.

2. Autozone Inc. AZO: $3151.65

Executive Chairman William C. Rhodes sold 18,751 shares of this specialty automotive retail company for $3189.77, generating $59.81 million from the sale.

3. Microstrategy Inc. MSTR: $1704.56

Executive Chairman Michael J. Saylor sold 25,000 shares of this business intelligence software company for $1776.62, generating $44.42 million from the sale.

4. Arista Networks Inc. ANET: $289.98

President and CEO Jayshree Ullal sold 111,500 shares of this leading networking technology company for $299.70, generating $33.42 million from the sale.

5. Salesforce Inc CRM: $301.18

Shares of this cloud-based software company were sold by 6 insiders:

• Chair and CEO Marc Benioff sold 75,000 shares for $304.61, generating $22.85 million from the sale.
• Co-Founder and CTO, Slack Parker Harris sold 5,142 shares for $306.31, generating $1.58 million from the sale. These shares were sold as a result of exercising options immediately prior to the sale.
• President and COO Brian Millham sold 3,342 shares for $306.47, generating $1.02 million from the sale.
• President and CFO Amy E. Weaver sold 942 shares for $305.46, generating $287,741 from the sale.
• Pres/Chief Engineering Officer Srinivas Tallapragada sold 942 shares for $305.46, generating $287,741 from the sale.
• EVP & Chief Accounting Officer Sundeep G. Reddy sold 66 shares for $305.46, generating $20,160 from the sale.