Lululemon Athletica Lays Out the Road to Recovery

Besieged by bad press, Lululemon finally has a good day at the office.

Mar 30, 2014 at 1:00PM

Back in January this year, lululemon athletica (NASDAQ:LULU) had some bad news -- the fourth quarter wasn't looking good. Comparable sale were going to be down, the company was going to bring in less revenue than previously expected, and earnings were going to take a hit, coming in at between $0.71 and $0.73 per share. The stock dropped on the announcement, falling 16% on the day.

Yesterday Lululemon said -- and I'm paraphrasing here -- "Hey! It's not all that bad! (But it's still not great.)"

Source: Lululemon Athletica

Lululemon's fourth quarter
Since it's precipitous drop, Lululemon has been relatively flat. Investors have bought into the narrative that the business is having a hard time -- a narrative that's true -- and have held off on the brand, seeking out competitors like Nike (NYSE:NKE) and Under Armour (NYSE:UA) instead. In its fourth quarter, Lululemon had a lot to prove.

First, it needed to show the world that it could get its woefully inadequate product oversight back in line. On the earnings conference call, new CEO Laurent Potdevin said that the company was "seeing a constantly increasing level of [its] product meeting [its] very high quality standards." 

Refocusing on quality gave the business the breathing room it needed in the fourth quarter. A period without any major quality issues, resignations, or bad press helped boost Lululemon beyond its original expectations. Comparable store sales were down and margins were down, but earnings per share were flat with last year at $0.75. 

Laurent Potdevin's grand plan for Lululemon
Potdevin came to Lululemon from TOMS, the semialtruistic shoe, glasses, and coffee seller. In his first quarterly call, Potdevin indicated that he had a bigger vision for Lululemon that required breaking out of the traditional, grassroots mold that has defined the business for so long.

For Potdevin, the old ways have run their course. This new version of Lululemon is going to move beyond the traditional grassroots market program, but not onto television or other traditional platforms. Instead, Lululemon is going to continue to try and reach customers through videos and community interaction, but with an increased focus on having a specific voice in those channels. 

Challengers to the Lululemon plan
It's a strategy that makes sense for Lululemon and could help it claw back into the hearts and minds of its core demographic. As Potdevin said on the call, "[Unlike] a few years ago, [Lululemon is] not the only game in town." 

Last year was marred by every conceivable brand mistake that a company could make, from product issues to bad public relations to unstable leadership. All of those slips gave Nike and Under Armour additional footholds in the studio and yoga space.

Nike has opted to focus on building a community of female athletes to rival the Lululemon that many women feel let them down in 2013. Nike has had success with its Nike Training Club, which has helped push women's sales growth ahead of men's. The business is hoping to have 50 training locations up and running -- ha! -- by the end of 2014.

Under Armour has focused on product instead of community, piggybacking on the existing strength of its Armour Bra line. The company has seen a shift in its consumers who are now "increasingly wearing 'athletic product' outside of the gym." Workout clothing as fashion statement was Lululemon's bread and butter until its brand collapse last year.

2014 for Lululemon
If Lululemon wants to end the year in a much stronger position than it started with it's going to have to get back on top of its messaging and product. Obviously, all the quality issues need to be kept under wraps, with nary a stitch out of place. On top of that, though, Lululemon needs to get its name back out there. It has to demonstrate that it makes good products and that it's building a community of like-minded athletes. If it can't do that, Nike and Under Armour are just going to continue growing their share of the market until Lululemon is nothing more than an also-ran.

Potdevin has the background to make the brand strong again and, with new employees running the product side, quality shouldn't be an issue anymore. I'm cautiously optimistic that 2014 can be a solid rebuilding year for Lululemon, setting it up for success in years to come. I'm not expecting a miracle, but I'd be surprised by another disaster.

Take advantage of this little-known government tax rule
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Andrew Marder has no position in any stocks mentioned. The Motley Fool recommends Lululemon Athletica, Nike, and Under Armour. The Motley Fool owns shares of Nike and Under Armour. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers