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Criteria Ratings Points

Executive
Summary

8 to >6.0 pts

Advanced

• Provides a clear
overview of the
paper’s contents.
• Contains enough
information about the
case study.
• Captures the
purpose and the main
recommendation(s) in
1–2 sentences.
• Provides key
evidence for the
major points.
• Closes with a brief
summary and
rationale for the
chosen strategy.

6 to >5.0 pts

Proficient

• Provides an overview of
the paper’s contents.
• Contains some
information about the case
study. • Captures most of
the purpose and the main
recommendation(s) in 1–2
sentences. • Provides
most key evidence for the
major points. • Closes with
a brief summary that
contains some rationale for
the chosen strategy.

5 to >0.0 pts

Developing

• Provides a less than
clear overview of the
paper’s contents.
• Lacking in information
about the case study.
• Captures some of the
purpose and the main
recommendation(s) in 1–2
sentences. • Provides
some key evidence for
the major points. • Brief
summary and rationale
are lacking in content for
the chosen strategy.

0 pts

Not
Present

8 pts

Alternative
Strategies

10 to >8.0 pts

Advanced

Lists two or more
alternative strategies
(giving advantages
and alternatives for
each).

8 to >7.0 pts

Proficient

Lists 1 or more alternative
strategies giving some
advantages and
alternatives for each.

7 to >0.0 pts

Developing

Lists less than 2
alternative strategies and
gives a minimum amount
of advantages and
alternatives for each.

0 pts

Not
Present

10 pts

Pro-Forma
Financial
Statements

30 to >26.0 pts

Advanced

• Includes and
analyzes Pro-Forma
Financial Statements
(I/S, B/S and
Statement of Cash
Flows) with deltas out
3 years. • Each
Pro-Forma year has 2
columns: 1 with
strategy and 1
column without
strategy. • Includes
Pro-Forma ratios for
the first year out with
deltas contrasting
from the

26 to >20.0 pts

Proficient

• Includes and analyzes
Pro-Forma Financial
Statements (I/S, B/S and
Statement of Cash Flows)
with deltas out 3 years with
minor errors. • Each
Pro-Forma year has 2
columns: 1 with strategy
and 1 column without
strategy, with 2-5 minor
errors. • Includes most of
the Pro-Forma ratios for
the first year out with deltas
contrasting from the most
current year’s ratios.

20 to >0.0 pts

Developing

• Includes and analyzes
Pro-Forma Financial
Statements (I/S, B/S and
Statement of Cash Flows)
with deltas out 3 years.
• Each Pro-Forma year
has 2 columns: 1 with
strategy and 1 without
strategy, there are greater
than 6 errors. • Includes
some of the Pro-Forma
ratios for the first year out
with deltas contrasting
from the most current
year’s ratios.

0 pts

Not
Present

30 pts

Case Study: Projections, NPV, Compilation Grading Rubric |
BUSI690_B06_202220

Criteria Ratings Points

NPV and Cost
Analysis

20 to >16.0 pts

Advanced

• Develops an NPV
figure/table. • Clearly
articulates the cost of
the strategy (-cf0).
• Clearly articulates
the subsequent
Pro-Forma cash
flows (cf) for the NPV
analysis.
• Thoroughly
analyzes the NPV.

16 to >11.0 pts

Proficient

• Develops an NPV
figure/table, some minor
errors. • Articulates the
cost of the strategy (-cf0).
• Articulates the
subsequent Pro-Forma
cash flows (cf) for the NPV
analysis. • Analyzes the
NPV.

11 to >0.0 pts

Developing

• Develops an NPV
figure/table, calculation is
incorrect or missing key
components. • Discusses
but does not include
details of the cost of the
strategy (-cf0).
• Discusses the
Pro-Forma cash flows (cf)
for the NPV, lacks detail
and thoughtful analysis.
• Discusses the NPV,
analysis should be further
developed.

0 pts

Not
Present

20 pts

Implementation
of Strategic
Plan

10 to >8.0 pts

Advanced

• Includes an
actionable timetable
agenda for
accomplishing the
new strategy.
• Addresses the key
items of who, what,
how, and when of the
implementation
process.

8 to >7.0 pts

Proficient

• Includes a timetable
agenda, with most details,
for accomplishing the new
strategy. • Addresses
most of the key items of
who, what, how, and when
of the implementation
process.

7 to >0.0 pts

Developing

• Includes a basic
timetable agenda for
accomplishing the new
strategy, additional details
are needed. • Addresses
some of the key items of
who, what, how, and
when of the
implementation process.

0 pts

Not
Present

10 pts

Recommended
Strategies and
Objectives

20 to >17.0 pts

Advanced

• Thoroughly
analyzes the new
strategy. • States and
discusses the cost to
implement the new
strategy. • Explains
the benefits of the
new strategy for long
term organizational
success. • Outlines
the challenges and/or
disadvantages of the
strategic choice.

17 to >15.0 pts

Proficient

• Analyzes the new
strategy. • States and
discusses the cost to
implement the new
strategy, minor details
missing. • Explains the
benefits of the new
strategy for long term
organizational success.
• Outlines the challenges
and/or disadvantages of
the strategic choice.

15 to >0.0 pts

Developing

• Thoroughly analyzes
the new strategy. • States
and discusses the cost to
implement the new
strategy, missing details.
• Explains the benefits of
the new strategy for long
term organizational
success. • Outlines the
challenges and/or
disadvantages of the
strategic choice.

0 pts

Not
Present

20 pts

Case Study: Projections, NPV, Compilation Grading Rubric |
BUSI690_B06_202220

Criteria Ratings Points

Grammar,
Spelling,
Format, and
References

42 to >35.0 pts

Advanced

Proper spelling and
grammar are used.
APA format including
a cover page,
citations and
references are
correct. Matrices
were included and
properly labeled.

35 to >30.0 pts

Proficient

Between 1–4 spelling,
grammar, format or citation
errors are present.
Matrices were mostly
included but there were a
few errors or missing a few
data items.

30 to >0.0 pts

Developing

Between 5–9 spelling,
grammar, format or
citation errors are present.
Some matrices were
included but there were
errors or missing data.

0 pts

Not
Present

More
than 10
spelling,
grammar,
format, or
citation
errors are
present.

42 pts

Total Points: 140

Case Study: Projections, NPV, Compilation Grading Rubric |
BUSI690_B06_202220

BUSI 690

Page 1 of 3

CASE STUDY: PROJECTIONS, NPV, COMPILATION ASSIGNMENT INSTRUCTIONS

OVERVIEW

Continue working on the individual case study started in Case Study 1: Matrices Assignment

of ABC Corporation. Complete this portion of the case study: Case Study 3: Projections, NPV,

Compilation Assignment (3rd and final assignment).

A formal, in-depth case study analysis requires you to utilize the entire strategic management

process. Assume your group is a consulting team asked by the ABC Corporation to analyze its

external/internal environment and make strategic recommendations. You must include exhibits

to support your analysis and recommendations.

INSTRUCTIONS

The completed case study must include these components, with portions to be submitted over

several modules as the Case Study 1: Matrices Assignment, the Case Study 2: Historical

Financial Analysis Assignment, and the Case Study 3: Projections, NPV, Compilation

Assignment.

• Cover page (must include the company name, your name, the date of submission, and a
references page; the document must follow current APA guidelines)

• A total of 12 – 15 pages (for all there parts, combined) of narrative text, this does not
include the financial statements, reference pages, or matrices

• Reference page (follow current APA guidelines)

• Historical Financial Statements, Proforma Financial Statements, NPV Calculations and a
Cost Sheet for the strategy in an Excel document

• Matrices, which must be exhibits/attachments in the appendix and not part of the body of
the analysis (The Strategy Club has excellent templates/examples for exhibits and

matrices).

You will use the information completed in Case Study 1: Matrices, and

Case Study 2: Historical Financial Analysis as part of your Case Study 3: Projections, NPV,

Compilation Assignment final document. Be sure to make any corrections to Part One and Part

Two based on feedback given on each of the assignments.

Your Case Study 3: Projections, NPV, Compilation Assignment paper must include:

Case Study 1: 1-7

1. Executive Summary – this should be no more than one page and provide the reader
with an overview of what will be contained in the following pages. The problem and

strategic solution being recommended should be in this summary.

2. Existing mission, objectives, and strategies
3. A new mission statement (include the number of the component in parenthesis

before addressing that component)

4. Analysis of the firm’s existing business model
5. SWOT Analysis
6. TOWS Matrix
7. Competitive forces analysis

BUSI 690

Page 2 of 3

Case Study 2: 8-10

8. Historical Financial Statements (Income Statement, Balance Sheet, and Statement of
Cash Flows) from the 3 most current years for the firm

9. Historical Ratio Analysis
10. Competitors Ratio Analysis

Note from student: Parts 1-10 are already completed as they were part of case

study’s 1 and 2. These parts are being uploaded to show what was previously done in

order to complete part 3 accurately. Requesting assistance with part 3 only (highlight

in yellow).

Case Study 3: 11-18

11. Alternative strategies (giving advantages and disadvantages for each). There should
be at least two alternative strategies identified and discussed.

12. Projected Financial Statements (Income Statement, Balance Sheet and Statement of
Cash Flows) for 3 years into the future. This must be broken down by year into two

(2) columns: 1 column without your strategy and 1 column with your strategy. The

without column should serve as the basis for your with strategy column and only

those financial statement accounts that will be changed, based on your strategy,

should be impacted.

13. Include Projected ratios for the without and with strategy by year. Discuss how
these ratios compare and contrast with the historical findings.

14. Cost Analysis completed on an Excel tab that outlines the cost that will be incurred
to implement the strategy. This information should correspond with the With

Strategy on the Projected Financial Statements, linking of cells to the financial

statements is encouraged.

15. Net Present Value analysis of proposed strategy’s new cash flow – you may also use
Excel to solve for this. From the income statement the change in operating income

between your with and without strategy should serve as your cash inflow for each

year.

NOTE: To construct the first cash flow (cf1) the new revenue from your strategy(s) must

be discounted back to the present value by calculating EBIT (Operating Income on the

Income Statement) and that figure will be your cfn for each year. cf0 (initial cost of your

strategy), cf1 (discounted cash flow first year), r (opportunity cost of capital, the rate of

the next best alternative use of cash/debt/equity resources).

a. 𝑁𝑃𝑉 = −𝑐𝑓0 +
𝑐𝑓1

(1+𝑟)1
+

𝑐𝑓2
(1+𝑟)2

+
𝑐𝑓3

(1+𝑟)3

𝑐𝑓𝑛
(1+𝑟)𝑛

BUSI 690

Page 3 of 3

16. Implementation strategy – how and when will the strategy be implemented, this
should outline the who, how, what, and when of the implementation process.

17. Specific recommended strategy and long term objectives
Explain why you chose the strategy, discuss the advantages/benefits to

organizational success and sustainability. Incude a discussion of the challenges or

disadvantages that may arise as a result of the strategic choice.

18. Text must accompany all data for each section explaining the information on the
spreadsheet that was calculated. This will be completed in current APA level for

each component.

Place the results of the case study analysis in a Word document include matrices as appendices

and a reference page. Submit a separate Excel document for your Historical financials,

Projections, NPV, and Cost of the strategy.

Individual Case Study – Chipotle

BUSI 690 – Policy and Strategy in Global Competition

1

CHIPOTLE

Individual Case Study – Chipotle

Executive Summary

Chipotle Mexican Grill, Inc. is one of the leading quick-service restaurant chains in the US and

operates 2,622 restaurants. The company’s existing strategy and business model indicate that it

operates firm-owned restaurants and focuses on delivering high-quality food at low prices

everyday to customers. The company has been successful but faces numerous complaints

regarding food contamination. This report presents a new mission statement appropriate for its

businesses and carries an internal analysis of the company. Based on the internal and financial

analysis, two alternative strategies have been proposed, and projections based on the

recommended strategy to open up new casual dining restaurants in the US are presented in this

report. It is suggested that the new strategy will increase the company’s profitability and generate

a positive net present value.

Existing Mission, Objectives, and Strategies

The company’s existing mission is “food with integrity” [CITATION Chi201 l 1033 ] which

implies that it ensures that its supplies are from sustainable sources without the use of chemicals

that could have harmful effects on humans. The primary goal of the company is to “focus on safe

and delicious food made with better ingredients” [CITATION Chi202 l 1033 ]. Its strategy

remained to have a small menu that offers limited choices of healthy, nutritious, and good quality

food items at competitively low prices. Furthermore, its focus is on expanding the network on its

restaurants in the United States until recently, as the company has launched its online and mobile

food ordering systems. It relies on providing efficient customer service and carrying out strong

advertising and marketing programs to communicate with customers and increase its sales.

2

CHIPOTLE

A New Mission Statement

The new mission statement of Chipotle is to (1) serve customers (2) healthy and delicious food

(3) without boundaries (4) by using sustainable food production technologies (5) and consistently

growing its business (6) by expanding its network and following ethical practices (7) and

challenging its competitors (8) by giving best quality food and value and services (9) by its

highly trained employees.

Analysis Of the Firm’s Existing Business Model

The existing business model of Chipotle focuses on providing enhanced food experience to its

customers. The key to the company’s business model is that it was not based on the standards of

Quick Service Restaurants (QSR) and offered a new approach to the business that challenged

other companies in the market. The company operates a large network of more than two

thousand restaurants in the United States and thirty restaurants in internal markets. Its business

model is based on a simple menu with a limited number of options available to customers at

comparatively low prices. The reason for this approach is that it aims to deliver high-quality food

quickly and efficiently for its customers rather than giving them greater choices with a lack of

focus on maintaining the level of quality and cleanliness. The company only operates company-

owned restaurants and does not offer franchise opportunities. The model is also based on low-

profit margins and greater sales volume. The company maintains low risk and margins on its

products and also has a low-pricing strategy to attract customers and also gain their loyalty to the

brand. Chipotle also treats its employees differently as it is noted that the company pays them

higher sales and wages as compared to other companies. Moreover, the company has diversified

its point of sale by developing an online ordering website and a mobile app.

3

CHIPOTLE

SWOT Analysis

4

CHIPOTLE

Internal Factor Evaluation (IFE) Matrix.

External Factor Evaluation (EFE) Matrix.

5

CHIPOTLE

SWOT Bivariate Strategy Matrix

Boston Consulting Group (BCG) Matrix

Competitive Forces Analysis, Competitive Profile Matrix (CPM), and Competitor’s Ratio

Analysis

6

CHIPOTLE

Competitive forces analysis.

FP

SP

Defensive

Conservative Aggressive

Competitive

CP IP

7

-7.0 -5.0 -3.0 -1.0 1.0 3.0 5.0 7.0

-7.0

-5.0

-3.0

-1.0

1.0

3.0

5.0

7.0

CHIPOTLE

Competitive Profile Matrix (CPM).

Competitor’s Ratio Analysis.

The competitor selected for review in this section is McDonald’s Corporation, which is a leading,

global chain of QSR. The key ratios of two years, 2018 and 2019 are presented in the following

table:

8

CHIPOTLE

The profitability ratios indicate that the company operated at healthy profit margins in both

years. The ratio values improved in 2019 as compared to 2018, which was a positive sign for the

company’s shareholders[CITATION Reu201 l 1033 ]. The net profit margin of 28.8% and 28.5%

in 2018 and 2019 respectively implied that the company had strong profitability, which was

added to its retained earnings that could be used for further expansion and product development.

9

CHIPOTLE

The DuPont analysis indicates that the company’s asset turnover declined in 2019, which implies

that the company only generated $0.52 in sales in that year as compared to $0.63 in 2018 from

the use of its assets. The liquidity position of the company weakened in 2019 as its current ratio,

and quick ratio values fell below 1. However, the cash cycle of McDonald’s reduced from 2.3 in

2018 to 2.0 in 2019. Moreover, the times interest earned also reduced as the company’s interest

obligations increased more than proportional to the increase in its operating income. The

company’s long-term borrowing increased as a proportion to its equity. It implies that the

solvency position of McDonald’s was weak in both years, with a further decline in 2019. The

receivables turnover of the company also reduced in 2019, which is the reason it took a long time

to receive cash from its credit sales. On the other hand, the inventory turnover of McDonald’s

was significantly high, as in the case of the QSR business, and it only held inventory for less than

two days. The payable turnover had a similar trend as receivables. The ROIC of the company

also declined from 19.8% in 2018 to 16.5% in 2019, which implies that its investment capital

increases but did not generate a high return as compared to the previous year.

Historical Financial Statements

This section of the report performs trend analysis of Chipotle’s financial statements for the last

three years and also calculates deltas between those years.

Income Statement

10

CHIPOTLE

Note. Annual standardized in millions of U.S. dollars.

It is noted that the company;’s revenue increased by 14.83% in 2019 as compared to 8.68% in

2018. On the other hand, its cost of sales increased by 12.61% in 2019 as compared to 6.34% in

2018. There was a significant increase in the company’s selling, general, and administrative

expenses in 2019. Furthermore, there was a 5.35% increase in unusual income generated from

restructuring, impairment, and gain on sale of operating assets in 2019. The company did not

have any debt-related interest expense, and its interest income from investments increased by

41.58% in 2019. The net profit of the company increased by $173.6 million in 2019 as compared

to just $0.3 million in 2018[ CITATION Chi204 l 1033 ].

Balance Sheet

11

CHIPOTLE

Note. Annual standardized in millions of U.S. dollars.

The trend analysis of the company’s balance sheet indicates that its total assets increased by

$2.83901 billion in 2019 as compared to $219.8 million in 2018. It shows that the company

significantly invested in the expansion of its restaurant’s network. Moreover, the company’s cash

and cash equivalents increased by 92.24% in 2019 due to the sharp increase in its operating

income. As the company’s sales increased in 2019, the value of its receivables also soared by

73.84% in 2019. The company did not have any debt, and its total liabilities increased by

315.14% in 2019 as compared to just 20.99% in 2018. The significant increase in its liabilities

12

CHIPOTLE

was due to the other liabilities related to the purchase of properties for new restaurants. Finally, it

is noted that the company’s total equity increased by 16.77% in 2019 as compared to 5.64% in

2018. The company bought back treasury stocks, and this is the reason that its retained earnings

only increased by 13.51% in 2019 as compared to 7.36% in 2018 [ CITATION Chi204 l 1033 ].

Cash Flow

Note. Annual standardized in millions of U.S. dollars.

13

CHIPOTLE

The cash flow statement analysis indicates that the cash from operating activities increased by

$100 million in 2019, but the increase in 2018 was higher at $154.5 million. The reason for this

difference was due to the increase in the company’s working capital in 2019, which meant that a

significant amount of its cash was stuck in non-cash generating activities. In the last two years,

the company had made significant investments in buying new properties, which are now

managed by a separate entity, in expanding its sales network. The company had already repaid its

debt and was also buying back its stocks, which led to a cash outflow of $190.6 million, $160.9

million, and $285.9 million in 2019, 2018, and 2017 respectively. The company’s free cash flow

has improved over the last three years. In 2019, it increased by 16.01% and rose by 33.52% in

2018 [ CITATION Chi204 l 1033 ].

Ratio Analysis

Chipotle’s key financial ratios and their values for the last three years are provided in the

following table:

14

CHIPOTLE

The profitability analysis of the company indicates that its profitability improved in 2019 as

compared to 2018[ CITATION Reu0a l 1033 ]. The operating margin of the company had

declined in 2018 due to the case of food contamination. However, it has taken major steps to get

back the confidence of its customers by making improvements in its food management processes

15

CHIPOTLE

and also dealing with the issue effectively through media, including social media. The net profit

margin of the company increased by 2.8% in 2019 after it fell by 0.4% in 2018. The company’s

ROE was 22.4% in 2019 as compared to 12.1% and 12.7% in 2018 and 2017, respectively. It

indicates that the company’s asset turnover and net profit margin increased substantially in the

last year. The liquidity position weakened in 2019 as the values of both the current ratio and

quick ratio gradually declined over the last three years but remained above the value of one. It is

noted that the company did not have external borrowing, and its assets were financed by internal

equity and capital raised from the stock market. The receivable turnover of Chipotle declined in

the last three years as its sales increased. The inventory turnover also reduced in those years, but

it had a high value similar to McDonald’s. Chipotle paid its suppliers in almost 36 days in 2019,

and this strategy was the same in 2017 and 2018 as well. The ROIC increased by 1.60% in 2019

as compared to a 0.60% decline in 2018.

Alternative Strategies

The two proposed strategies based on the the company analysis are provided in the following

along with their justification and advantages for Chipotle.

Investment in Casual Dinning Restaurants

This strategy is recommended on the basis that the company keeps its focus on the US market

and diversifies its revenue channels by opening up casual dining restaurants that have a different

theme and menu from its QSR restaurants. The company has tested this strategy already by

opening up Tasty Made burger restaurant and has opened up more than 200 restaurants. Further

expansion of similarly casual dining restaurants can help the company to overcome its

weaknesses of targeting a small customer segment and also avoid disruptions in its revenue that

are commonly caused by complaints about food contamination in its Chipotle restaurants. The

16

CHIPOTLE

management will be able to pursue this strategy based on its experience and keep the risk of

failure low as compared to the other strategy proposed.

Expansion of International Business

The company does not have a significant international presence other than 30 restaurants

opening in Canada, the United Kingdom, France, and Germany. Chipotle can globally expand its

network of restaurants and target emerging markets like China and India that have more

significant potential for international brands. Although this strategy will increase the risk level of

business and the company will have to invest in R&D to develop products that suit consumer

tastes in those countries, the potential increase in its revenue and profitability is significantly

high. It will also assist the company to be less dependent on the US market and also benefit from

the localization of its strategy in international markets.

Pro-Forma Financial Statements

The projected income statement with and without the new strategy is provided in the following.

The ‘without strategy’ projections are based on the company’s recent quarterly report and the

‘with strategy’ projectsions are developed using the estimated increase in revenue of 3%.

Income Statement

Note. Annual standardized in millions of U.S. dollars.

17

CHIPOTLE

Balance Sheet

Note. Annual standardized in millions of U.S. dollars.

Cash Flow

Note. Annual standardized in millions of U.S. dollars.

Ratio Analysis

Net Present Value Analysis

Based on the estimated invement of $300 million and the expected increase in the company’s

EBIT between with and without strategy estimations, the Net Present Value (NPV) is calculated

in the following:

18

CHIPOTLE

The proposed strategy is expected to have a positive NPV. Therefore, the company should accept

it and go ahead with expanding its network by opening new casual dinning restaurants in the US.

EPS/EBIT Analysis

Specific Recommended Strategy and Long Term Objectives

Based on the current strategy and practices of Chipotle, it is recommended that the company

expands its network in the US by opening up casual dining restaurants. The justification of

proposing this strategy is that the company has no significant experience of the international

markets, and it has halted its franchise policy, which means that its risk level will phenomenally

increase if it decides to own and operate its restaurants in different countries. The management of

operations will become challenging, and this could lead to a significant financial loss and also

negatively affect its position in the US market. The company can develop new brands and offer a

19

CHIPOTLE

healthy casual dining experience to US customers by innovating its products and give better

choices to customers in the US. The company can invest $300 million in opening 100 new

locations, which will allow the company to experience an increase of three percent in its revenue.

The new strategy can be implemented over the next three years, as depicted below.

Proposed New Business Model

The proposed business model is based on the creation of different segments and a flatter

organizational structure. The company can hire key personnel to manage different brands and

restaurant chains. The new business model will allow significant investment in research and

development of new products that will increase the scope of operations and target different

20

CHIPOTLE

groups of customers other than low-income earners who are mainly served at Chipotle

restaurants. The company will have different teams to work on the marketing and advertising

strategies for its new brands and restaurants. The focus on the company will be expanding its

network and diversify its revenue channels. The company will have stricter controls over its

supplies and food preparation and hold its employees accountable after giving them the

necessary training.

References

Chipotle. (2020a). Day after day we’re committed. Retrieved from

https://www.chipotle.com/food-with-integrity

Chipotle. (2020b). Chipotle – Food sategy overview. Retrieved from

https://www.chipotle.com/foodsafety

Chipotle. (2020c). Chipotle Announces First Quarter 2020 Results. Retrieved from

https://ir.chipotle.com/2020-04-21-Chipotle-Announces-First-Quarter-2020-Results

Chipotle Mexican Grill. (2020). Chipotle Mexican Grill, Inc. – SEC Form 10K . Retrieved from

https://ir.chipotle.com/sec-filings

Reuters. (2020a). Chipotle Mexican Grill. Retrieved from Reuters

Reuters. (2020b). McDonald’s Corp. Retrieved from Reuters

21

  • References

CASE STUDY: PROJECTIONS, NPV, COMPILATION ASSIGNMENT 1

CASE STUDY: PROJECTIONS, NPV, COMPILATION ASSIGNMENT 11



Case Study Assignment: Lululemon Athletica Inc.

BUSI 690

Policy and Strategy in Global Competition

3/2/2022

Case Study Assignment: Lululemon Athletica Inc.

Executive Summary

Lululemon Athletica Inc. is one of the leaders in selling athletic apparel worldwide. The company focuses on healthy living and ensures their clothing provides comfort while performing strenuous activities. Lululemon is a yoga inspired clothing store but also makes a variety of other clothing. Some of the items include T-shirts, sweatshirts, pants, and shorts. The company wants its customers to know that they sell a lifestyle vice just selling clothing. As of February 2020, the company has 491 stores in 17 countries and an online presence on its website (Thompson & Harris, 2022). The company was founded in 1998 in Vancouver, Canada, by Chip Wilson. In the store, he sold clothing that he and his wife created. With the success that he received at this location; Chip decided the company. Chip’s intent was to create quality products to people who intend to live a healthy lifestyle.

Currently, the company has seen success as an international brand with about 300 stores that spans across Canada, the United States, India, Israel, China, and many other countries worldwide. The brand became so popular that mall owners/operators began seeking leasing options for the foot traffic they knew would come with the partnership. The company has seen success but not with seeing issues and problems. An ethics issue was discovered at their Youngone factory located in Bangladesh. The female workers at this facility reported verbal abuse, being beaten, being forced to work overtime, and being underpaid (Logan, 2019). Another issue was when the company was forced to pull certain yoga pants form its stores after finding out it was see-through when the individual bent over. This report offers a new mission statement appropriate for the brand and aligns with its business strategy. Based on the financial analysis conducted, alternative strategies have been proposed to ensure continues success of the company.

Existing mission, objectives, and strategies

Lululemon’s mission statement states, “To elevate the world from mediocrity to greatness.” The company’s mission is to “Creating components for people to live longer, healthier, fun lives.” Their mission/mission statement suggests that the company has a different perspective from other athletic brands and any other businesses. The statement indicates that the company wishes to give its customers a lifestyle rather than another company with a brand.

Objectives

Elevate the world by realizing its full potential. Inspire change by transforming its industry and creating a healthier world. The company has a set of values that puts quality first. The aim is to provide customer satisfaction and ensure the customer receives what they were told they would receive. This shows that the brand is committed to changing as the world changes and the styles change as they maintain their lifestyle of comfort clothing. An example of this would be the convenience of shopping online.

Strategies

The company aims to grow the business in North America, where most of its revenue comes from. Once the company has grown in North America, they would like to expand to other countries even more than they are currently doing. Another strategy would be to increase their brand awareness online and through their customer service. Another strategy the company wants to introduce is increasing their new product technology. The company also introduced its pickup in-store option when customers order online. Doing this gives customers the comfort of shopping at home but still receiving the same experience of shopping in-store. The company has seen sales increase by 45%, and direct-to-consumer revenue jumped to 155% in Quarter 2 of 2020.

New Mission Statement

· Customers: The study suggests that the company targets men and women in middle

upper class and higher. The company initially targeted women that were interested in yoga. As the study stated, this is the case that yoga paved the way for their company to expand. In 2013, the company aggressively took more consideration for their male customers. Their focus was an age group of men concerned about living a healthier lifestyle.

· Products or services: The firms’ major products are athletic wear and mainly catered to

their female customers. Their attire allows its customers to accomplish activities feeling comfortable but trendy. The yoga pants that the company sells promote fitness and encourage a particular lifestyle. Lululemon’s product innovation uses updated technology that makes the customer feel comfortable. The technology used in their products makes it easier to consume sweat and is breathable. Their services allow them to partner with yoga studios and run clubs.

· Markets: As the case study suggests, the company continues to add Lululemon stores in

its primary United States market and as well as worldwide. The company included 16 new stores in China throughout the years and planned to add more in 2020. The company also opened stores in Japan, Germany, France, the United Kingdom, Malaysia, Netherlands, South Korea, and many other countries. As clearly illustrated, the expansion allowed the company to report incredible advancements with their strategic progress in geographical market expansion.

· Technology: As indicated in the case study, the company continues to improve

In the technological area. The company focused on creating and providing products that introduced fabrics with technological improvements and performance-enhancing features throughout the years. These technological upgrades to their products have assisted the company in expanding its market share worldwide. Customers enjoy wearing Lululemon’s products because of its technology and how it makes them feel about themselves. As the company makes new products, they continue to incorporate technology within their product lines.

· Concern for survival, growth, and profitability: The company understands that the

the only way they will survive in this market is through expansion. Direct-to-consumer sales through their website have become a critical component for the company. As indicated in the reading, in 2011 the lululemon’s e-commerce sales increased from $106.3 million to $1.14 billion in the financial year ending 2019. During the pandemic, Lululemon’s majority of retail outlets in the domestic market were closed. Like many other businesses that figured it out, ordering online became the way to continue profit. This showed that the company could adjust through diversity overcome slight roadblocks and profit.

· Philosophy: The company takes its philosophy stance seriously as it aligns with its core

values and its mission. As it states, it allows “people with the components to live longer, healthier and more fun life.” Lululemon is set up to and has arranged to operate the company in the methodology in which it is stated within their mission. The company attempts to manage its staff ethically and encourages all to follow its motto. Ensuring the company is managed accordingly starts with the staff then the suppliers to ensure the products are produced and sold within company standards.

· Self-concept: Lululemon’s specific product design and its processes for innovation is the

The reason it can make quality products. This is believed to be the key to its competitive strength. Lululemon had to make well-designed products that offer a comfortable fit and competitive pricing to be competitive and set itself apart in this competitive athletic apparel market. Within this market, the company competes with brands such as Nike, Adidas, Reebok, and Under Armor, as stated in the strategic group map within this paper. Additionally, the company sets itself apart by focusing on the customer and what they want. Lululemon understands the importance of customer relationship management and promoting brand loyalty. This is part of their strategic market approach.

· Concern for public image: Yes, the company is responsive to community needs through

its business processes. One way it does this is by “Omni Guest Experiences.” It uses a marketing strategy that connects them with people who shop at its stores. The company creates opportunities through communities to live “sweatlife” and live long healthy lives. Through this avenue, people can connect. The company also takes part in dealing with environmental issues by following environmental protection protocols in its supply chain and within the community.

· Concern for employees: es, employees are an asset to the firm. Lululemon

provides its staff members with a supportive and encouraging working environment. It aims to encourage its employees to set goals in their personal and professional life. The employees are valuable assets of the company, and it shows in the numerous employee programs that lululemon offers. Some of these programs include personal development workshops and goal-coaching courses, just to name a few.

SWOT Analysis

A successful company such as Lululemon Inc needs to identify its areas of concern. To do so, it first needs to be identifying their issues by creating a SWOT matrix to include the four categories. When thoroughly conducted, the chart will show the company the improvements it needs to improve its sales or achieve sales goals.

Strength

Lululemon was created to create apparel for people to live healthier lives and have fun doing so. The first thing someone needs prior to starting a business is vision. In 1998, Wilson had a vision to “elevate the world from mediocrity to greatness” (Thompson & Harris., 2022, pg. C-81). The company hoped to serve their customer at all costs and be a leader in customer satisfaction. Understanding this, their strength is the detail they put in their clothing. Their fabric’s comfortable fit and feel has made them a trusted brand. The technology that the company puts in its line cannot be duplicated. The clothing prevents odor as the material restricts bacteria and can be washed often without worrying about washing away (Thompson & Harris, 2022).

Another strength the company possesses is being aware of its brand and the market. From the date of conception, the company has never switched or changed who they were. Lululemon Inc. has gained notoriety from its competitors as well as customers. Due to brand awareness, the company has jumped from 40% in sales in 2020. Wilson has also created a strong relationship within the community. The company’s mission statement resonated with its core audience.

Weaknesses

The company’s weaknesses may be attributes that they stressed with their strengths. Lululemon has a reputation for creating comfortable and excellent quality clothing. This is all too apparent because it is part of its mission statement and sales strategy. In 2013, the company saw issues with one of their pants lines that recalled the item. Another recall occurred in 2015 where the tops were said to have an issue with the neck area. All these concerns with the clothing did do not reflect their mission statement.

Another weakness the company has is its pricing compared to all its competitors’ prices. The company has set itself as a high-end company, while its competitors like Under Armor sell affordable clothing with the same comfortable quality. Another weakness would be the constraints on the company with supply chain issues.

Opportunities

When speaking of opportunities, the company has left an opening in the market for its competitors. Through the years, Lululemon has focused on women’s apparel. The company’s competitors have seen significant gains with men’s athletic apparel, which has accounted for over half of their sales. In 2020, research showed that more men are shopping for athletic gear than women. Men are now accounting for more of the sales than women. With the growth of men’s athletic apparel, the company should try to focus on shifting its focus on capitalizing on the recent surge of sales. CEO Laurent Potdevin stated, ” Retail is evolving at an increasingly rapid pace” Potdevin added, saying, “consumers now connect with brands in a way that is driven by experiences, rather than transactions” (Shaw, 2016).

A great opportunity for the company would be to open more stores in the United States. In 2020, the U.S will lead apparel sales within the market with sales of 160 billion dollars. In 2021. According to the article, “The market is growing enormously, as people are progressively enticed by the product’s capability to offer sweat-wicking and breathability and enhancement of physical movement” (Fortune Business, 2021).

Threats

The critical threat that should be listed is the threat of other companies. The price of their competitors is reasonable and well below that of Lululemon’s. The price of yoga pants was 20% lower than that of their competitors. Other stores also provide significant discounts that Lululemon does not. Another threat is that Lululemon does not provide a wide range of sizes like its competitors. The company typically caters to smaller sizes like sizes 2 to 12. At the same time, other stores like Under Armor sell XL and XX clothing. The final threat might be the possibility of a company creating better quality at a better price than Lululemon. The company must remain vigilant and continue looking for better quality at an affordable cost.

SWOT Analysis Chart

Internal Factor Evaluation (IFE) Matrix

External Factor Evaluation (EFE) Matrix

Tows Matrix

The TOW Matrix listed will assist in the strategic planning that Lululemon can use to enhance its strengths, eliminate its weaknesses, and avoid the challenges identified within the threats. The Matrix shows how the company can benefit from opportunities to enhance its profit margins.

TOW Matrix Chart

TOWS MATRIX

LULULEMON INC.

Strength – S (Internal)

1. An existing Brand

2. A loyal customer base

3. Brand awareness

Weaknesses – W (Internal)

1. Company Recalls/ Brand perception

2. Clothing issues

3. Third-party support

Opportunities – O (External)

1. Cross-selling

2. New Markets

3. New services

Strengths/Opportunities SO

Leverage the strength to maximize the opportunities at hand. = Attaching strategies

Weaknesses/Opportunities WO

Counter weakness through exploiting opportunities = Build strengths for attacking strategy

Threats – T

1. New competitors

2. Old competitors

3. Customer choices

ST Strategies

Leverage strengths to minimize threats = Defensive strategy

WT Strategies

Counter weakness and threats = Build strengths for defensive strategy

Strategic Group Map

The strategic group map of Lululemon depicts a brand that all belongs to the athletic apparel market. The prices, the quality of the brand, and the customer’s viewpoint then its reality the group map depicts them as such. Lululemon has made a name for the brand by having good quality products. The company also has a substantial female following. The Under Armer and Columbia company is more well-known and caters to a broader market with more sports apparel. Nike, Adidas, and Reebok are the signature brand. They are well known in sports and highly marketable within sports franchises. As shown on the map, these companies are highly favored and have a competitive edge over the other companies. The companies listed are highly competitive and are some of the world’s most recognized brands within the market. As listed, “The annual revenue of these three competitors approaches $50 billion, with Nike achieving revenues of more than $25 billion, Adidas nearly $20 billion, and Under Armor topping $2 billion” (Jensen et al., 2016, para. 2).


Strategic Group Map Diagram

PESTLE’s Analysis

Political

The company was able to stay ahead of the tariffs bill enacted for China. The company has limited its exposure to China as the U.S placed a levy of 15% on most clothing from China. The company was well ahead of the bill, shifting to other locations.

Economical

Canada remains a stable country with no significant economic issues that could affect the companies’ earnings. This also factors the pandemic that plagued the country and the rest of the world. Its Canadian clients are willing to spend their money, and the company is thriving within that market

Social

Certain social factors drive every market. This will determine how customers and clients respond to the market. The company could use yoga as a feel-good experience and create an experience for their customers. Also, In the wake of Covid-19, people stopped going to the stores and started buying products and merchandise online. The company was able to capitalize on and improve its online presence. Store sales suffered due to closures, but the company’s online business surged 70%, accounting for 54% of overall sales compared with 27% a year earlier (Terlep, 2020).

Technological

The company has invested accurately in the latest technology through sound and deliberate strategic moves. This strategic step has given the company the ability to improve the efficiency of its product and maintain customer satisfaction. Doing this has also secured their competitive advantage over their competitors.

Legal

Not all companies can follow all rules and regulations dictated by certain regions that they operate in, but lululemon has followed the legal stipulations by law. They have remained compliant with regulations as required to operate. They have avoided fines that would affect their bottom line.

Environmental

Lululemon strives to lead from the front in limiting emissions within the atmosphere. The company also manages its waste accurately before it goes out in the environment. They understand that if they do not respect the environment, it may negatively affect their reputation.

PESTLE Chart

Political

Economical

1. Tariffs on Chinese goods


1. Stable economy

2. COVID 19

Social

Technological

1. Using Yoga as a feel-good idea across the world.

2. COVID 19.

1. Constant technological innovations to enhance customer satisfaction.

2. Technolgy for fit and performance.

Legal

Environmental

1. Ensuring tax laws are adequate in all regions.

1. Limit waste footprint

2. Balancing greenhouse emissions

3. Accountability for raw materials

Porter’s Five Force’s Chart

Competitive Rivalry

Lululemon has multiple competitors, and they are aware of that. Some of these competitors are Nike, Adidas, Reebok, and Under Armor, just to name a few. As far as cost, Lululemon prices are higher than their competitors, and the company does not provide discounts on their product, unlike its competitors, which offer a more comprehensive range of discounts.

Supplier Power

Lululemon has a great partnership with its suppliers. This is due to having multiple suppliers throughout different countries with which they have created a strong relationship. Due to their strategic approach, lululemon has enforced strict ethical manufacturing practices within the facilities.

Buyer Power

Lululemon does not offer discounts on its apparels at their main store. The company does provide discounts on merchandise but only at their few outlet stores. The company prices on their products are much higher than their competitors, but it is due to the material and fabrics they use to make their products. The company states that premium raw material is what they use, and the cost of those materials is much more than what their competitors are using.

Threat of Substitution

Many athletic gear producers within this market, such as Nike, Adidas, and Reebok. These companies make it easier for lululemon customers to stay loyal to the company. The loyal consumers of the lululemon company would consider these companies as substitutes. Meaning their quality would never match up to those of lululemon.

Threat of New Entry

The possibility of new entry within the industry of high-quality athletic gear is low. This is because the apparel market requires a large amount of capital even to begin. If a new entrant attempted to step into the market, the new company would need much money to compete.

Porter’s Five Force’s Chart


Threat of new entrants

Legal Constraints


-Low entry barriers due to the internet

-No cultural barrier, athletic clothing worn by many


-Environmental

Conditions







-Buyer Choice

-Brand loyalty

-Product service quality

Industry Rivalry

Nike, Adidas, Under Armor and many others.



-increase material pricing

-relationship with customers

-Product service quality




Bargaining power

of consumers


Bargaining power

of suppliers


-An attractive industry to get into.

-Trendy clothing and comfortable.

-Many customers for that market


Threat of substitute products

Analyzing the company’s overall performance over the last three years, the metrics indicate an up trajectory, which can be seen clearly in the horizontal analysis of the organization. The historical financial analysis of the company, together with comparisons of its ratios and those of competitors, indicates a lot financially about lululemon. As indicated in lesson one, the top competitors for the analysis are Adidas and Nike. Looking at the company’s profitability, it is doing better than its competitors, and this is because it has a higher gross profit margin and net profit margin than the others. The data indicated shows that the company can increase shareholder wealth because the investors can pay net profits through dividends (Zorn et al., 2018). Looking at the return on Equity and the Return on Assets, Nike has a higher rate than Lululemon. When talking about weaknesses, the data shows that the company needs to increase its productivity and put its assets and equity from its investors into work (Rashid, 2018). Looking at the company’s profitability over the last three years, it is evident that it is increasing in profit. These numbers give the company an idea of possible growth if it wants to expand even further. Regarding the company’s liquidity position, the charts indicate it is doing better than its competitors also. The business’s liquidity is slightly improving, and with the current ratio of above two over the years, it means that the company has been able to settle its short-term obligations quickly. Lululemon has stable financial leverage due to its operations being financed by more considerable equity than debt, which is a precarious option for any company in the instance the company is unable to pay the debt. In a scenario like this, the company would need to sell off its assets to pay debts (Zeller et al., 2019). Lululemon has an average collection period of only five days; this means that the company collects its payments for sales within five days.

When reviewing all the financial information, its financial position can support its strategic choice to introduce its new product technology. With the improvement of its technology by offering in-store pick options, this could increase profits. For lululemon, this strategic direction of the company could lead to placing stores more geographically. Exposing to new markets translates to new clients, new customers, and new investors.

Balance Sheet

Income Statement

Statement of Cashflows

Ratio Analysis

Alternative strategies

List two or more alternative strategies…

Advantages

Disadvantages

Projected Financial Statements 3 Years in the Future

Income Statement

Balance Sheet

Statement of Cash Flows

Projected Ratios

Cost Analysis

Net Present Value (NPV) Analysis

Implementation Strategy

Recommended Strategies and Objectives

Reason of Chosen Strategy

Advantages/Benefits to Organizational Success and Sustainability

References

Fortune Business (2021). Apparel & Footwear.

https://www.fortunebusinessinsights.com/sportswear-market-102571

Jensen, J. A., Wakefield, L., Cobbs, J. B., & Turner, B. A. (2016). Forecasting sponsorship costs:

marketing intelligence in the athletic apparel industry. Marketing Intelligence & Planning, 34(2),

https://www.proquest.com/central/docview/1776674712/DBA5DAE211F4463FPQ/6?accountid=12085

Press, T. C. (2020). Lululemon withholds 2020 forecast due to COVID-19 as Q4

profits rise – BNN Bloomberg. https://www.bnnbloomberg.ca/lululemon- withholds-2020-forecast-due-to-covid-19-as-q4-profits-rise-1.1413041

Rashid, C. A. (2018). Efficiency of financial ratios analysis for evaluating companies’

liquidity. International Journal of Social Sciences & Educational Studies4(4), 110.

Shaw, H. (2016). Lululemon sales jump with athleticwear frenzy; Lululemon sees sales jump 14

% in Q2. The London Free Press. https://www.proquest.com/central/docview/2232496237/FE71AA3F095B4545PQ/1?accountid=12085

Terlep, S. (2020). Lululemon Sales Slump on Closings. Wall Street Journal

https://www.proquest.com/central/docview/2412018933/FE71AA3F095B4545PQ/2?accountid=12085

Thompson, A. A., Harris, R.D. (2022) Lululemon athletica’s strategy in 2020: Is the recent

growth in retail stores, revenues, and profitability sustainable? (23RD ed.). McGraw-Hill

References

Zeller, T., Kostolansky, J., & Bozoudis, M. (2019). An IFRS-based taxonomy of financial

ratios. Accounting Research Journal.

Zorn, A., Esteves, M., Baur, I., & Lips, M. (2018). Financial ratios as indicators of economic

sustainability: A quantitative analysis for Swiss dairy farms. Sustainability10(8), 2942.

.

OpportunitiesWeightRatingWeighted Score

1The Company should focus on Men’s clothing to capitalize on men’s interest in athletic apparel.0.0810.08

2The Company should capitalize on the massive numbers that North America generates.0.0530.15

3Open more stores in North America.0.0930.27

4Company needs to work on its international operations.0.0710.07

5Online market growing fast.0.0220.4

6Leading in new technology for sports apparel.0.0420.08

7Growing in store pick up.0.0520.1

8Consider making less expensive products to cater to a certain demographic.0.0520.1

9Improve its marketing by involving sports personalities in their campaigns.0.0620.12

10Work on brand awareness for improved sales. 0.0330.09

ThreatsWeightRatingWeighted Score

1Many competitors in the athletic clothing arena such as Under Armor, Athleta, Adidas and Nike.0.0730.21

2Many of their competitors offer more sizes of clothing.0.0330.09

3Competitors cover a more comprehensive range of customers that lululemon cannot reach.0.0320.06

4Local government laws and regulations. 0.0630.18

5Lack of marketing that involves endorsements from sports teams and associations.0.0230.06

6Price conscious buyers may choose brands that are less expensive. 0.0520.1

7Disruption in the supply chain could lead to significant financial losses.0.0630.18

8Safety issues of workers at overseas factories. 0.0320.06

9Violations of labor laws can lead to financial penalties. 0.0620.12

10Brand appeal to a trendier brand. 0.0520.1

CONSOLIDATED BALANCE SHEETS – USD ($) $ in Thousands

Percentage

Change between

2020 and 2021

Percentage

change

between

2019 and

2020

2021 line

items as a

percentage

of Total

assets

2020 line

items as a

percentage

of total

assets

2019 line

items as a

percentage

of total

assets

Vertical Analysis

202120202019

Current assets

Cash and cash equivalents115051710935058813205.21%24.08%27.49%33.32%42.28%

Accounts receivable62399402193578655.15%12.39%1.49%1.23%1.72%

Inventories64723051851340484224.82%28.08%15.46%15.80%19.42%

Prepaid and receivable income taxes139126851594938563.37%72.44%3.32%2.60%2.37%

Prepaid expenses and other current assets125107705425794977.35%21.73%2.99%2.15%2.78%

Total current assets21243791807938142928217.50%26.49%50.76%55.10%68.56%

Property and equipment, net74568767169356723711.02%18.41%17.82%20.47%27.21%

Right-of-use lease assets7348356896646.55%17.56%21.02%0.00%

Goodwill38687724182242391499.86%-0.24%9.24%0.74%1.16%

Intangible assets, net8008024133128.22%1.91%0.01%0.00%

Deferred income tax assets67313143526549-78.59%18.40%0.16%0.96%1.27%

Other non-current assets106626562013740489.72%50.25%2.55%1.71%1.79%

Total assets41852153281354208471127.55%57.40%100.00%100.00%100.00%

Current liabilities

Accounts payable1722467999795533115.32%-16.26%4.12%2.44%4.58%

Accrued inventory liabilities14956634416241135.75%-60.94%0.36%0.19%0.78%

Other accrued liabilities21191111264188.13%5.06%3.43%0.00%

Accrued compensation and related expenses130171133688109181-2.63%22.45%3.11%4.07%5.24%

Current lease liabilities16609112849729.26%3.97%3.92%0.00%

Current income taxes payable83572643667412-68.39%-60.78%0.20%0.81%3.23%

Unredeemed gift card liability1558481204139941229.43%21.13%3.72%3.67%4.77%

Other current liabilities235981240211269890.28%-89.00%0.56%0.38%5.41%

Total current liabilities88317862041850047742.35%23.97%21.10%18.91%24.01%

Non-current lease liabilities6325906114643.45%15.11%18.63%0.00%

Non-current income taxes payable431504822642099-10.53%14.55%1.03%1.47%2.02%

Deferred income tax liabilities58755434321424935.28%204.81%1.40%1.32%0.68%

Other non-current liabilities897655968191160.40%-93.17%0.21%0.17%3.93%

Total liabilities1626649132913663873622.38%108.09%38.87%40.51%30.64%

Commitments and contingencies

Stockholders’ equity

Undesignated preferred stock, $0.01 par value: 5,000 shares

authorized; none issued and outstanding000

Exchangeable stock, no par value: 60,000 shares authorized; 5,203

and 6,227 issued and outstanding000

Special voting stock, $0.000005 par value: 60,000 shares authorized;

5,203 and 6,227 issued and outstanding000

Common stock, $0.005 par value: 400,000 shares authorized;

125,150 and 124,122 issued and outstanding6266216080.81%2.14%0.01%0.02%0.03%

Additional paid-in capital3886673555413152859.32%12.77%9.29%10.84%15.12%

Retained earnings23464281820637134689028.88%35.17%56.06%55.48%64.61%

Accumulated other comprehensive loss-177155-224581-216808-21.12%3.59%-4.23%-6.84%-10.40%

Total stockholders’ equity25585661952218144597531.06%35.01%61.13%59.49%69.36%

Total liabilities and stockholders’ equity41852153281354208471127.55%57.40%100.00%100.00%100.00%

Horizontal Analysis

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE

INCOME – USD ($) shares in Thousands, $ in Thousands

Percentage

Change

between 2020

and 2021

Percentage

Change

between 2019

and 2020

2021 line items

as a percentage

of total

revenue

2020 line

items as a

percentage of

Total revenue

2019 line items

as a percentage

of total

revenue

202120202019

Income Statement [Abstract]

Net revenue44018793979296328831910.62%21.01%100.00%100.00%100.00%

Cost of goods sold19378881755910147203210.36%19.28%44.02%44.13%44.77%

Gross profit24639912223386181628710.82%22.41%55.98%55.87%55.23%

Selling, general and administrative expenses16090031334247111037920.59%20.16%36.55%33.53%33.77%

Amortization of intangible assets5160297217693.10%-59.72%0.12%0.00%0.00%

Acquisition-related expenses29842000.68%

Income from operations819986889110705836-7.77%25.97%18.63%22.34%21.46%

Other income (expense), net-63682839414-107.68%-12.01%-0.01%0.21%0.29%

Income before income tax expense819350897393715250-8.70%25.47%18.61%22.55%21.75%

Income tax expense230437251797231449-8.48%8.79%5.23%6.33%7.04%

Net income588913645596483801-8.78%33.44%13.38%16.22%14.71%

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustment47426-7773-73885-710.14%-89.48%1.08%-0.20%-2.25%

Comprehensive income636339637823409916-0.23%55.60%14.46%16.03%12.47%

Basic earnings per share4.524.953.63-8.69%36.36%0.00%0.00%0.00%

Diluted earnings per share4.54.933.61-8.72%36.57%0.00%0.00%0.00%

Basic weighted-average number of shares outstanding (in shares)130289130393133413-0.08%-2.26%2.96%3.28%4.06%

Diluted weighted-average number of shares outstanding (in shares)130871130955133971-0.06%-2.25%2.97%3.29%4.07%

Horizontal Analysis Vertical Analysis

Percentage

change between

2020 and 2021

Percentage

change

between 2019

and 2020

2021 line items as

a percentage of

the ending cash

balance

2020 line items

as a percentage

of ending cash

balance

2019 line

items as a

percentage of

ending cash

balance

202120202019

Cash flows from operating activities

Net income588913645596483801-8.78%33.44%51.19%59.04%54.90%

Adjustments to reconcile net income to net cash provided by operating

activities: 0.00%0.00%0.00%

Depreciation and amortization18547816193312248414.54%32.21%16.12%14.81%13.90%

Stock-based compensation expense50797455932856811.41%59.59%4.42%4.17%3.24%

Derecognition of unredeemed gift card liability-13696-11939-685914.72%74.06%-1.19%-1.09%-0.78%

Settlement of derivatives not designated in a hedging relationship4485-1925-14876-332.99%-87.06%0.39%-0.18%-1.69%

Deferred income taxes34908241291678644.67%43.74%3.03%2.21%1.90%

Changes in operating assets and liabilities: 0.00%0.00%0.00%

Inventories-96548-117591-85942-17.90%36.83%-8.39%-10.75%-9.75%

Prepaid and receivable income taxes-53966-35775-43750.85%8086.50%-4.69%-3.27%-0.05%

Prepaid expenses and other current assets-70999-53754-2854632.08%88.31%-6.17%-4.92%-3.24%

Other non-current assets-49056-27852-210776.13%1221.88%-4.26%-2.55%-0.24%

Accounts payable82663-1481071962-658.16%-120.58%7.18%-1.35%8.17%

Accrued inventory liabilities8046-95984312-183.83%-322.59%0.70%-0.88%0.49%

Other accrued liabilities91115142769416538.24%51.61%7.92%1.31%1.07%

Accrued compensation and related expenses-66922532641600-126.42%-39.12%-0.58%2.32%4.72%

Current and non-current income taxes payable-24125-3413746428-29.33%-173.53%-2.10%-3.12%5.27%

Unredeemed gift card liability47962332892488544.08%33.77%4.17%3.04%2.82%

Right-of-use lease assets and current and non-current lease liabilities13267174220-23.85%1.15%1.59%0.00%

Other current and non-current liabilities1078491333130418.08%-70.82%0.94%0.84%3.55%

Net cash provided by operating activities80333666931674277920.02%-9.89%69.82%61.21%84.28%

Cash flows from investing activities 0.00%0.00%0.00%

Purchase of property and equipment-229226-283048-225807-19.02%25.35%-19.92%-25.88%-25.62%

Settlement of net investment hedges-14607347-16216-4309.51%-102.14%-1.27%0.03%-1.84%

Acquisition, net of cash acquired-45258100-39.34%0.00%0.00%

Other investing activities8824293-771-79.45%-656.81%0.08%0.39%-0.09%

Net cash used in investing activities-695532-278408-242794149.82%14.67%-60.45%-25.46%-27.55%

Cash flows from financing activities 0.00%0.00%0.00%

Proceeds from settlement of stock-based compensation152631817017650-16.00%2.95%1.33%1.66%2.00%

Taxes paid related to net share settlement of stock-based compensation-32388-21944-877947.59%149.96%-2.82%-2.01%-1.00%

Repurchase of common stock-63663-173399-598340-63.29%-71.02%-5.53%-15.86%-67.89%

Other financing activities00-745-100.00%0.00%0.00%-0.08%

Net cash used in financing activities-80788-177173-590214-54.40%-69.98%-7.02%-16.20%-66.97%

Effect of exchange rate changes on cash29996-1550-18952-2035.23%-91.82%2.61%-0.14%-2.15%

Increase (decrease) in cash and cash equivalents57012212185-109181-73.13%-294.34%4.96%19.40%-12.39%

Cash and cash equivalents, beginning of period109350588132099050124.08%-11.02%95.04%80.60%112.39%

Cash and cash equivalents, end of period115051710935058813205.21%24.08%100.00%100.00%100.00%

Horizontal Analysis Vertical Analysis

CONSOLIDATED STATEMENTS OF CASH FLOWS – USD ($) $ in Thousands

AdidasNike202120202019

Change of Ratios

between 2020 and

2021

Change of

Ratios between

2019 and 2020

Ratio Analysis

Profitability Ratios

Gross profit margin52%45.97%55.98%55.87%55.23%0.10%0.64%

Operating profit margin6.80%15.48%18.63%22.34%21.46%-3.72%0.88%

Net profit margin9.52%13.32%13.38%16.22%7.04%-2.85%9.19%

Return on total assets9.70%16.73%14.07%19.67%23.21%-5.60%-3.53%

Return on stockholder’s equity21.60%48.26%23.02%33.07%33.46%-10.05%-0.39%

Earnings per share2.343.641.471.611.21-0.140.40

Liquidity Ratios

Current Ratio1.662.72.412.912.86-50.87%5.82%

Quick Ratio1.341.771.672.082.05-0.410.03

Working capital1241201118752092880553681258715

Leverage Ratios

Debt to asset ratio0.470.270.390.410.31-1.64%9.87%

Debt to equity Ratio0.312.890.640.680.44-4.51%23.91%

Longterm debt to equity ratio0.630.290.220.107.46%12.04%

Times-interest-earned ratio

Activity Ratios

Days of inventory92 days54484563

Inventory turnover2.273.976.807.678.12-0.87-0.45

Average collection period54410

Price earnings ratio29.8538.4144.7443.7643.650.980.11

Lululemon

Strengths

1One of the fastest growing athletic clothing apparels globally.

2Has a signature line of Yoga apparel and often imitated.

3Best quality for the price of their products.

4The Company leads the market in brand awareness from 40% in 2020.

5Strong relationship within the community.

6Online sales increase from last year.

7An increase in revenue from last year.

8Strong community presence.

9Strong marketing team.

10Quality clothing.

Weaknesses

1The company must deal with recalls that goes against their mission statement.

2The clothing not fitting comfortable or pilling in the inner thighs.

3Shirt tops are a threat to safety.

4Time delays within their supply chains.

5Ethics issues within their factory.

6Not taking advantage of growing market.

7Not being available in malls.

8High price point that limits their customer range.

9Issues with inventory and logistics concerns.

10Limited international presence.

Opportunities

1The Company should focus on Men’s clothing to capitalize on men’s interest in athletic apparel.

2The Company should capitalize on the massive numbers that North America generates.

3Open more stores in North America.

4Company needs to work on its international operations.

5Online market growing fast.

6Leading in new technology for sports apparel.

7Growing in store pick up.

8Consider making less expensive products to cater to a certain demographic.

9Improve its marketing by involving sports personalities in their campaigns.

10Work on brand awareness for improved sales.

Threats

1Many competitors in the athletic clothing arena such as Under Armor, Athleta, Adidas and Nike.

2Many of their competitors offer more sizes of clothing.

3Competitors cover a more comprehensive range of customers that lululemon cannot reach.

4Local government laws and regulations.

5Lack of marketing that involves endorsements from sports teams and associations.

6Price conscious buyers may choose brands that are less expensive.

7Disruption in the supply chain could lead to significant financial losses.

8Safety issues of workers at overseas factories.

9Violations of labor laws can lead to financial penalties.

10Brand appeal to a trendier brand.

StrengthsWeightRatingWeighted Score

1One of the fastest growing athletic clothing apparels globally.0.140.4

2Has a signature line of Yoga apparel and often imitated.0.0840.32

3Best quality for the price of their products.0.0430.12

4The Company leads the market in brand awareness from 40% in 2020.0.0340.2

5Strong relationship within the community.0.0540.08

6Online sales increase from last year.0.0240.2

7An increase in revenue from last year.0.0540.09

8Strong community presence. 0.0330.09

9Strong marketing team.0.0330.09

10Quality clothing. 0.0330.09

WeaknessesWeightRatingWeighted Score

1The company must deal with recalls that goes against their mission statement. 0.0720.14

2The clothing not fitting comfortable or pilling in the inner thighs.0.0510..05

3Shirt tops are a threat to safety.0.0510.05

4Time delays within their supply chains.0.0810.08

5Ethics issues within their factory. 0.0610.06

6Not taking advantage of growing market.0.0810.08

7Not being available in malls.0.0520.1

8High price point that limits their customer range. 0.0520.1

9Issues with inventory and logistics concerns.0.0220.04

10Limited international presence.0.0320.06

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