Why lululemon athletica Is Getting Hammered Today

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Here's a telling detail: Since Jan. 13, 2012, there has only been about one month in which buying lululemon athletica (NASDAQ: LULU  ) would have you in the black today. Seemingly constant quality and image issues have plagued the company, driving the stock further into the dirt. Today, Lululemon got a fresh blow on the head from Credit Suisse analyst Christian Buss.

Buss said that, even though product issues were beginning to clear, communications missteps -- like, for instance, saying that your product isn't for overweight people -- have damaged the brand. That, Buss says, is going to have a negative impact on store sales, driving the company down further. Ouch. Looks like [insert your favorite recycled downward dog joke here].

Lululemon's missteps give competitors an opening
Imagine you're playing golf with Tiger Woods. Let's pretend he's having bad day, so you might have a shot, vague but existent, of beating him. If you're Lululemon, you step up to the 18th tee, turn around, and swing as hard as you can with your putter.

Bigger athletic brands like Nike (NYSE: NKE  ) and Under Armour (NYSE: UA  ) were slow to get on the studio/yoga bandwagon, giving Lululemon free rein to take over the lucrative segment. At the end of 2012, Lululemon had increased annual comparable-store sales by 16% and revenue by 37%. The yoga studio was awash in black Luon fabric.

Then, in early 2013, the fabric unraveled and Lululemon's lax production oversight brought the whole thing crashing down. Over the rest of the year, the business lost key management members, had new product issues pop up, saw its founder go off the rails, and dropped sales like a farmer carrying a greased pig. Lululemon's most recent fourth-quarter guidance is for flat comparable-store sales and a fall in revenue. 

How the competition is making Lululemon hurt
Yoga hasn't stopped, though, and more and more women are turning away from Lululemon to Nike and Under Armour, both of which have increased the focus on their women's workout lines. Nike is building its own community for women, focusing on runners. These clubs have generated extra sales for the company, and have no doubt pulled in some unhappy Lululemon customers.

Under Armour has made a more direct approach with its women's studio line, underpinned by strong sales of its Armour Bra. In addition, Under Armour is finding that its products are increasingly becoming popular as fashion items, another role that Lululemon traditionally played.

Today's report from Buss shouldn't come as a surprise to anyone who's been watching Lululemon over the last year. With ample opportunity to make a turnaround, Lululemon has seemed content to just plow ahead with self-destructive behavior. The company's new CEO, Laurent Potdevin, has his work cut out for him, and it seems unlikely to be a job that's completed in 2014. This brand needs a lot of work if it's going to look anything like its former self.

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Read/Post Comments (3) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 01, 2014, at 11:02 AM, acg143 wrote:

    I commented yesterday and it looks as if you didn't like what I had to say. Why give the option to post a comment if you are not going to post it? Typical media: omit everything relevant; only speak on your agenda. It's too bad. I was hoping this site was better than the rest.

  • Report this Comment On March 01, 2014, at 6:16 PM, NapyBlue wrote:

    Christian Buss may understand lululemon's market but it is apparent the author of this article does not.

    Women who buy lululemon's products don't lower themselves to purchase, let alone wear, Nike and Under Armour. Lululemon's market is the woman who purchases very high-end purses, shoes, etc. They may have put away their wallets until they have faith in the product again but they aren't buying mainstream. If Prada had a production or PR hiccup would it's clientele run to Coach?

  • Report this Comment On March 02, 2014, at 1:11 PM, XMFRedRam wrote:

    Hey acq143 and NapyBlue,

    Thanks for reading. Sorry about the missing comment, I don't know where it went as I don't have any oversight of the commenting system. Feel free to post it again.

    Napy, I think there are certainly folks who won't slum it with other brands, but plenty of shoppers will. A cursory search of Lululemon Addict -- the most influential Lululemon blog and community online -- shows that customers have been switching to Under Armour and Nike, as well as Prada and Patagonia.

    Check out from April last year to get an idea of what folks think.



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Andrew Marder

Andrew Marder worked in retail for years, holding jobs ranging from bookseller to bank strategy analyst. He has worked for the Motley Fool since 2012, and loves coffee.

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