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  • KPB & Co Research

Summary

It has been 3 years since Chip Wilson made comments about women's bodies that led to the rapid decline in the sales and the stock price of Lululemon. The company also suffered from issues around the design quality of women's tights. The gave an opportunity for a firm with subject matter expertise to come in and make operational changes in a turn around situation. Advent international did that and is now cashing in on some their hard work.

Advent Cashes In

After 3+ years of holding their investment in Lululemon (NASDAQ: LULU), Advent International decided to take some money off the table. Advent International disposed of approximately half of their total holdings at US$121 per share, after buying it for US$42 per share in 2014, netting an annualized return of 42% on the amount disposed. The private equity shop netted US$1.2Bn in before tax proceeds so far, from an US$845Mn initial investment, and still holds close to 8% of the company. In addition, they also still have the right to hold at least 2 board seats and so will have significant say in the operations of the company going forward (see our initial report on the company). All the other shareholders with "skin in the game" did not sell statistically significant amounts, including executive chairman Glenn Murphy, who still has more than US$10Mn invested in the company. As part of the deal with Advent International, Lululemon bought back approximately 3.3Mn shares from Advent at US$121 a piece for approximately US$400Mn. At the end of April-2018 the company had cash on hand of approximately US$966Mn which is more than double the amount spent to make the purchase.

Final Thoughts

In our view, this act possibly points to further strong results down the road, as the company will undergo a number of investments in infrastructure to support continued expansion in Asia and Europe. It is likely the case that management believes that such a large sum of cash can be replaced in the quarters ahead from the general operations of the business.‚Äč


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