Lululemon Plans to Acquire MIRROR, Stock Rises

On Monday, Lululemon Athletic (NASDAQ:LULU) announced that it signed an agreement to acquire an in-home fitness company, MIRROR, for $500 million. Lululemon hopes that MIRROR’s high-quality content and versatile platform will build on its ecosystem and fuel its three-point growth strategy. In April 2019, Luluemon identified three growth drivers—product innovation, omni-guest experiences, and market expansion.

Amid the COVID-19 outbreak, there has been an increased demand for personalized remote exercise content. Brynn Putnam launched MIRROR in 2018 and raised $72 million. Through the company’s wall-mounted mirror device, it offers weekly live classes, on-demand workouts, and one-on-one personal training. Meanwhile, Lululemon made an initial investment of $1 million in MIRROR last year. So, the acquisition could expand the partnership between Lululemon and MIRROR.

The acquisition could close in the second quarter of fiscal 2020. However, the deal has to meet the necessary closing conditions. After the acquisition, MIRROR will operate as a stand-alone entity under Lululemon. Putnam will still serve as the company’s CEO and report directly to Lululemon CEO Calvin McDonald.

On the acquisition, McDonald said, “In 2019, we detailed our vision to be the experiential brand that ignites a community of people living the sweatlife through sweat, grow and connect. The acquisition of MIRROR is an exciting opportunity to build upon that vision, enhance our digital and interactive capabilities, and deepen our roots in the sweatlife. We look forward to learning from and working with Brynn Putnam and the team at MIRROR to accelerate the growth of personalized in-home fitness.”

Lululemon stock rose

The announcement about Lululemon’s intent to acquire MIRROR improved investors’ sentiments. The company’s stock price rose 4% in the after-hours of trading on Monday. Lululemon has returned 27.1% year-to-date as of Monday. Investors’ excitement about reopening stores, strong fourth-quarter sales, and growth in e-commerce sales drove the stock higher. However, the lower-than-expected first-quarter performance offset some of the increases. So far this year, the company has outperformed the broader equity markets and its peers. The S&P 500 Index has declined by 5.5% this year as of Monday, while Nike (NYSE:NKE), Under Armour (NYSE:UAA), and Columbia Sportswear (NASDAQ:COLM) have fallen by 5.4%, 54.5%, and 20.3%, respectively.

Analysts’ recommendations

Since Lululemon’s acquisition announcement, Cowen raised its target price from $311 to $335. Overall, analysts’ consensus target price was $320.42, which represents a 12-month return potential of 8.9%. Wall Street favors a “buy” rating for Lulululemon. Among the 35 analysts, 65.7% recommend a “buy,” while 34.3% recommend a “hold.” None of the analysts recommend a “sell.”