Arguably the most important retail trend of the last 10 years has been the emergence of fast fashion retailers. Inditex (Zara), H&M and Forever 21 have seen explosive growth to the extent that Inditex’s founder is now wealthier than Warren Buffett.
What’s more amazing is that because Inditex and H&M aren’t US listed companies and Forever 21 is private, most US investors haven’t had a chance to participate in the trend. Because of this there’s been less focus on the behemoths that these companies have become here in the states. Inditex has a larger market cap than Target, Macy’s, Nordstrom and Gap combined. Below are some comps to show how it gets there. Needless to say the multiple is rather generous.
Below is a comp table for a few specialty apparel retailers that I put together. Similar to CMG, it’s pretty amazing to see the value that the market puts on Lululemon relative to the current size of its business. LULU has phenomenal operating metrics compared to its peers to be certain, but the price that a shareholder has to pay to own a part of the business is pretty exorbitant.
At a $7.5B enterprise value, LULU’s 180 stores are valued at ~$42m per store and a whopping $14,875 per square foot. Obviously you’re paying that price for growth not current operations, but think of the number of stores that need to be opened to bring the price per square foot more in line with the company’s peers. That price is nearly 10x more than the closest comp on this table. LTD has 16x more stores than LULU but only 2.2x the market value.