In this report, we look at Lululemon Athletica Inc. and highlight some key points on why we are issuing a buy recommendation. We base our recommendation and assumptions based on the following:

• LULU has stronger margins relative to peers.
• Low global penetration relative to peers provides LULU with a long-term growth proposition driven by global expansion. The current North America/International revenue proportion is 79%/21% with a long-term 50%/50% target we anticipate over the next eight years in our base case. Growth forecast of earnings is at 8% five-year CAGR in our base case, flat in our bear and an 11% in our bull case.
• The returns on assets (ROA) and returns on equity (ROE) are typically higher-than-peers with its ROEs only rivalled by Nike.
• The balance sheet has low levels of long-term non-lease liabilities.