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Lululemon Shares Jump After $500 Million Deal To Mirror

Mirror, one of the key challengers to Peloton Interactive in the at-home fitness market, will be sold online and in Lululemon stores later this year.

Lululemon Athletica Inc.  (LULU) - Get Free Report shares surged higher Tuesday after the athletic apparel company said it would purchase upstart at-home fitness company Mirror for around $500 million.

Lululemon, which previously held a private investment in Mirror, said it would sell the company's key fitness device -- a full-length mirror that customers use in an interactive fitness regime -- both online and in its stores once the deal is complete. With a 2020 run rate of $100 million in annual revenues, Mirror is likely to be modestly dilutive to earnings this year, Lululemon said, before adding modestly to the group's overall bottom line in 2021.

At around $1,500 per unit, Mirror's signature fitness product is cheaper than the Peloton Interactive  (PTON) - Get Free Report bicycle but charges a similarly-priced monthly subscription fee of around $40 for live and on-demand classes.

"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," said CEO Calvin McDonald. "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 shares were marked 4.7% higher in early trading Tuesday to change hands at $308.24 each, a move that would extend their year-to-date gain to around 33%.

“While there are very few case studies of profitable connected fitness businesses, we see several synergistic opportunities for Lululemon,” said Credit Suisse analyst Michael Binetti. 

“Taking a step back, we think a small acquisition price ($500 million vs Lululemon's ~$39 billion enterprise value) and valuation at ~5x revenues (versus Peloton Interactive trading at >8.5x CY20 sales today) seems like a solid entry point for a shot on goal to connect LULU’s strong existing relationships with highly influential fitness instructors to its loyal/high frequency customer base.”