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Summary

  • Advent International has officially taken a near 15% stake in the retailer, reducing former CEO and co-founder Chip Wilson’s stake by half.
  • Our thesis remains bullish, as the company still trades well below peers but still has a couple key growth opportunities.
  • We didn’t expect CEO Chip Wilson’s departure, but are encouraged by the somewhat peaceful resolution with Advent.

Advent International officially completed its purchase of 50% of Lululemon's (NASDAQ:LULU) co-founder Chip Wilson's stake. Advent now owns 14.8%. The firm initially invested in Lululemon back in 2005. Many see this as a peaceful resolution that will prevent a proxy fight between Wilson and Lululemon. It'll also allow the company to fully focus on its turnaround. Advent plans to appoint two directors - potentially one of Advent's managing partners and one of its managing directors.

We're down 25% since we first covered the stock back in February. As we noted in February:

There is plenty of room for growth outside the U.S. and the company has just opened its first store in London with more to follow, and further expansion opportunities in Europe. The new management is proficient in selling retail luxury items in international markets and should prove to be a source of strength. Its stores are 40% smaller than its competitors allowing it to open stores in crowded urban areas with high sales potential.

The valuation, still doesn't appear to be able to attract any major buyers, with shares still trading at 23x earnings and 10.8x EV/EBITDA. The key will be the company's ability to start resonating with men and its ability to diffuse in international markets. But Advent has knowledge here, noting they:

...helped the company [Lululemon] identify key cities to expand into, including San Francisco, Los Angeles, Colorado, Chicago, New York, Portland and Boston in the U.S.; Brisbane, Melbourne, Perth and Sydney in Australia; and Aichi and Tokyo in Japan. We also assisted the company in formalizing a real-estate selection process and building out its financial and IT systems.

Source: Update: Lululemon 13D Filing