Canadian activewear brand Lululemon Athletica is to acquire in-home fitness company Mirror for US$500m amid a rise in home workouts sparked by lockdowns following the Covid-19 pandemic.
Launched in 2018, Mirror has developed an interactive workout platform that offers live and on-demand fitness classes and personal training in a variety of workout genres via its mirror device.
The firm’s full-length mirror costs $1,495 (excludes delivery/installation) and features unlimited live and on-demand classes as well as one-on-one personal training ($40 per class).
Described as a “nearly invisible, interactive home gym”, the mirror can be synced with a Bluetooth heart rate monitor or Apple Watch so users can track their heart rate in real-time, according to the company’s website.
The acquisition builds upon Lululemon’s Power of Three five-year plan which was announced last year and aims to drive product innovation, create integrated omni-guest experiences, and expand deeper in key markets around the world, ultimately boosting revenue and earnings growth.
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Speaking at the time, CEO Calvin McDonald said Lululemon has a unique opportunity to push beyond traditional expectations to develop innovative products and become a fully experiential brand that “creates compelling experiences for guests who want to completely live into the sweatlife.”
Now, he says the acquisition of Mirror provides an opportunity to build upon that vision and enhance Lululemon’s digital and interactive capabilities.
The transaction builds on a successful partnership between the two companies, which began in mid-2019 with an initial investment in Mirror by Lululemon, and also includes a content partnership that brought sweat and meditation classes to the Mirror platform by Lululemon’s global ambassadors. The acquisition will further expand the content creation partnership between the two brands and will help all parties reach new guests.
“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,” says Mirror founder and CEO, Brynn Putnam.
The purchase price is expected to be paid from the company’s primary sources of liquidity, which include more than $800m in cash, its existing $400m revolving credit facility, and a new one-year, $300m revolving credit facility.
Following completion of the transaction, Mirror will operate as a standalone company within Lululemon with Putnam continuing as the firm’s CEO, reporting to McDonald.
The transaction comes amid an increase in home workouts as gyms were shuttered amid country-wide lockdowns as a result of Covid-19. It is subject to customary closing conditions and is expected to close in the second quarter of fiscal 2020.
What the deal means
Shares in Lululemon jumped 3.6% on the news.
According to Bank of America Global Research analyst, Rafe Jadrosich, Mirror’s growth strengthening since the Covid outbreak can leverage Lululemon’s customer base and distribution.
“Similar to Peloton and other in-home exercise options, Mirror’s growth has accelerated with the Covid-19 outbreak in North America. Mirror’s website traffic, app downloads and Google trends have increased rapidly over the last three months.”
Daily website visits to mirror.com have increased roughly 87% year-on-year since the beginning of March including a significant acceleration in mid-March during the Covid-19 outbreak in North America, according to Jadrosich. Meanwhile, daily website visits to shop.lululemon.com have increased roughly 57% year-on-year since the beginning of March including a significant acceleration in May.
“We believe Lululemon can enhance Mirror’s growth by providing access to Lululemon’s large and growing active lifestyle customer base and new distribution channels…Lululemon gains an additional revenue stream and an opportunity to reach new customers.”
B.Riley analyst Susan Anderson concurs, noting the transaction will allow Lululemon to utilise its brand power to help drive not only Mirror sales but also Mirror users to purchase Lululemon apparel.
“Based on our estimate that Mirror will have approximately 60k-80k subscribers this year, we believe that there is a strong opportunity for Mirror to further expand into the home workout space.”
She adds Lululemon stated that Mirror is on track to exceed over $100m in revenue in FY20 and notes while the transaction will be modestly dilutive in FY20, it is expected to be modestly profitable in FY21 when excluding the purchase cost.
“We have observed that home workouts have increased as people remain at home due to Covid, and we believe that Mirror can benefit from the change in exercise habits going forward.”
Earlier this month, Lululemon reported a 70% drop in first-quarter profit as sales slumped amid the temporary closures of stores worldwide following the outbreak of coronavirus.
