How Lululemon's Peloton Partnership Reframes The MIRROR Setback: Analyst's Take

Raymond James analyst Rick B. Patel sees Lululemon Athletica Inc's LULU (Strong Buy rating) partnership with Peloton Interactive Inc PTON as an incremental positive, with the negative impact of MIRROR already reflected in the stock.

Yesterday, Lululemon announced a five-year strategic partnership with Peloton. Under the partnership, PTON will become the exclusive digital fitness content provider for Lululemon. LULU will become the primary athletic apparel partner to PTON.

In the analyst's view, the deal is a way to extract value for MIRROR, which was acquired in 2020 for $500 million at the peak of home-fitness demand.

Press reports indicated LULU was trying to sell the MIRROR business, but it appears those efforts didn't bear fruit, noted the analyst. LULU took a $442.7 million impairment for MIRROR in 4Q22.

The analyst said that by selling co-branded products in PTON stores, LULU increases distribution and visibility for its products with fitness-conscious consumers.

Having PTON as the exclusive fitness content partner enables the LULU brand to reach a wider audience globally, and discontinuing the sale of MIRROR helps free up inventory/working capital that could be invested in better ways, opined the analyst.

The analyst specified that it allows management to focus more on apparel, LULU's core growth engine.

Price Action: LULU shares are trading higher by 0.40% at $380.65 on the last check Thursday.