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Also, given the revenue per store trend, and given that the company projects 15% revenue with similar square footage growth - are they not implicitly assuming that revenue per sq ft will remain constant? May DTC pick that up a bit. What is your 5 year out store count? And any thoughts on capex per store?

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This is not the case. Although they expect stores to grow at double digit rates, the same does not apply for square footage. Sharing this quote from analyst day for clarity:

"And our store productivity remains high at over $1,400 per square foot. Over the next 5 years, we will grow our square footage by 5% annually, including new store openings and optimization. Yet on top of that, we will also leverage our pop-up and agile strategy to ensure we have a physical presence in communities big and small."

Hope that helps.

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I see what you mean. But when I read the analyst day presentation it said on Page 161: Capital expenditures of 7-9% of Sales

Tax rate of 30% (2023-2026)

EPS growth in excess of sales growth

Square footage growth in the *low double digits*

Unit inventory growth in-line with sales growth

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Get it. There seems to be an inconsistency here. They state 5% CAGR footage growth on page 124 and low-double digit square footage growth for stores in pages 159 and 161.

If we compound the 5% for 5 years it yields 28%. Not sure if they define this as low double digit growth.

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I see. Great discussion. Thanks guys!

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Indeed :). You are welcome Fairway Research.

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Also, what are your thoughts about the declining revenue per sq ft?

“However, in recent years, revenue per square foot in the retail space has declined. From $1,595 in 2018, this metric declined to $1,425 in 2019 and it further dropped down to only $755 in 2020. However, this figure increased to $1086 in 2021, due to increased economic activity after a long period of stores shutdown during the onset of pandemic.”

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What is the source of this? Per the annual report of 2019 they state sales per sq foot of $1,657. Per 2021, a figure of $1,443 is stated.

Our thoughts? It makes sense given expansion and given that it takes time for a store to reach full potential. For instance, by 2019 the number of stores in China & Hong Kong were 38 compared to 86 by the end of 2021. It's hard if not impossible to achieve the same sales for each new store. Let alone the impact from zero Covid policy.

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Thanks for sharing these links. Looking at annual reports there was an increase from 2017 to 2019. Regarding the drop after that, our thoughts are shared above.

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On EBIT margins - do you think the fact that a lot of what Lulu sells is a single material / fabric and hence they can source is cheaper? I see that even Aritzia does not do wholesale but Lulu has higher margins. Ofcourse size is a factor. Given how much real estate they give to yoga pants within stores - it must be 25-30% of revenue

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Compared to Aritzia, without digging into the company though, we believe that scale plays a role in the differential in margins but we cannot infer the same compared to the big players.

Sourcing 27% of its fabric from a single supplier definitely helps them achieve better prices. Yet there is a risk of disruption given its reliance to this supplier.

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Excellent article. I've been very intrigued by this name over the past months and the curious thing is that Conor's articles were the catalysts. Great job re-sharing that write-up!

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Thank you Giuliano! Glad you enjoyed it.

Indeed. Conor has done outstanding work on Lulu.

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