Here’s why Lululemon spent $500M to acquire MIRROR

Here’s why Lululemon spent $500M to acquire MIRROR
Written by:
Jayson Derrick
29th June, 22:43
Updated: 29th June, 22:44
  • Lululemon said Monday it will spend $500 million to acquire MIRROR.
  • The at-home fitness company offers live and on-demand fitness videos.
  • The acquisition fits in with management's “Power Of Three” strategic plan.

Lululemon Athletica inc. (NASDAQ: LULU) reached an agreement to acquire in-home fitness company MIRROR for $500 million as part of the athleisurewear maker’s “Power of Three growth plan,” the company said in a Monday press release.

The growth plan

Lululemon detailed in April 2019 what it called the “Power of Three” plan to accelerate growth. The five-year roadmap calls for the company to: 1) double men’s revenue, 2) double digital revenue, and 3) quadruple international revenue.

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Monday’s acquisition announcement will help management accelerate its vision as Mirror will leverage Lululemon’s digital sweatlife offerings and create personalized in-home sweat and mindfulness solutions to both new and existing customers.

Mirror offers both weekly live classes and on-demand workouts on top of customizable personal training. The two companies struck a relationship in mid-2019 when Lululemon invested in Mirror and collaborated on a content partnership.

Lululemon will finance the acquisition mostly through its primary sources of liquidity, which include more than $800 million in cash, $400 million in a revolving credit facility, and a one-year, $300 million revolving credit facility, the company said.

CEO McDonald: Mirror will be profitable

Lululemon’s management recognized its clients have shown a desire to interact with the brand outside of its core athleisurewear products, company CEO Calvin McDonald said on CNBC’s “Closing Bell.” The acquisition of Mirror gives the company a new platform to expand on the relationship by offering a new online product developed in-house.

The timing of the acquisition coincided with gyms and other fitness studios reopening after months of closures due to the COVID-19 pandemic. But McDonald said he isn’t concerned this will have an impact on the acquisition.

Mirror was founded in 2016 and launched in 2018, the CEO said. Mirror is on track to collect $100 million in revenue in 2020 and is modeled to be profitable next year. Under Lululemon’s control, the more mature company can easily leverage it to its millions of guests and drive further awareness.

Why now?

The COVID-19 pandemic continues to spread across some regions while both the near-term and long-term outlook are uncertain. The decision to spend $500 million amid a concerning time is based in part on the company being one of the few to report a first-quarter profit in “challenging times.” The company is in a position to “weather a variety of scenarios” moving forward.

“We are very confident with the momentum we are having in the business, the demand we have behind the product, the growth that we are seeing,” McDonald said.

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