Analysts are bullish on Lululemon Athletica Inc. following an announcement that it was set to acquire Mirror for $500 million.
The sportswear brand said late Monday it had entered into a deal to snap up the in-home fitness startup, known for its interactive mirror workout platform that features live and on-demand classes. Wall Street analysts subsequently issued buy and overweight ratings on the company, whose stock traded up 5.7% to $311 at Tuesday’s market open.
Susquehanna Financial Group analyst Sam Poser, who maintained his price target of $360, wrote that the synergies between both brands will become evident over the next one to two years, particularly in coronavirus times. He added that Lululemon could leverage its global store base and e-commerce capabilities to sell Mirror, which is currently only available in the U.S. (About half of Mirror customers are Lululemon shoppers.)
“The acquisition of Mirror provides Lululemon a foothold in the home fitness market, which has become more important due to the COVID-19 crisis,” he wrote in a distribution note. “Lululemon management is confident, and we agree, that the investment in Mirror provides the Lululemon brand in-home access to both existing and new Lululemon customers.”
JPMorgan analyst Matt Boss also looked at the transaction as an opportunity for both brands to double down on the athletic and fitness markets.
“For Mirror, Lululemon brings strong brand credibility,” he explained. “On the flip side, Lululemon sees Mirror as a dynamic platform to enhance and scale omni-channel customer experiences, amplify Lululemon ambassadors and community, create an immediate revenue stream with path to profitability, and establish product integration opportunities.”
The Canada-based brand’s acquisition of Mirror — founded two years ago by former Lululemon ambassador Brynn Putnam — adds to its five-year growth plan unveiled in 2019. At the time, Lululemon CEO Calvin McDonald announced expectations to more than double its digital revenues by 2023 through omnichannel guest experiences.
“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,'” he said. “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.”
The partnership between the two firms began in mid-2019 with Lululemon’s initial investment in Mirror, which also included the launch of workouts and meditation classes on Mirror’s platform led by Lululemon’s global ambassadors.
“As part of Lululemon, Mirror can further strengthen its position and accelerate its growth by leveraging Lululemon’s deep relationships with its guests, ambassadors and communities, as well as the company’s infrastructure, including its store network and e-commerce channels, to acquire new users,” added Putnam.
Lululemon is financing the transaction through a combination of cash and its credit facilities. The deal is expected to close within one to two weeks. Following its completion, Mirror will operate as a standalone company within Lululemon. (Putnam will continue as Mirror’s CEO, reporting directly to McDonald.)
Shares for Lululemon are up about 33.5% in the year to date. It has a market capitalization of $40.5 billion.