The Market Is Buying Lululemon's Turnaround, but Should You?

With shares of lululemon soaring after the company's latest earnings release, investors now need to know whether management's turnaround plan is viable.

Apr 3, 2014 at 8:00AM

Source: Company Facebook 

In what is surely a sight for sore eyes for many investors, shares of yoga apparel maker lululemon athletica (NASDAQ:LULU) soared higher on the day the company announced its fourth quarter and full-year earnings results for fiscal 2013. After a very painful 2013, in which shares declined approximately 20%, the company's new management team appears to have heard the market's message and embarked on a turnaround.

As is often the case, a company with a strong brand like Lululemon will have trouble staying down for long. On the heels of a solid earnings release, it appears that Lululemon may finally be worth considering for long-term growth once again. When compared to peers like Nike (NYSE:NKE) and Under Armour (NYSE:UA), Lululemon remains a relatively cheap way to play the retail apparel segment.

Earnings release
The company's net revenue grew 7% in the fourth quarter, with comparable store sales decreasing 2%. But total comparable sales, which includes direct to consumer, grew 4%. Diluted earnings per share remained flat on a year-over-year basis. 

For the full 2013 year, Lululemon grew revenue 16% to $1.6 billion, up from 2012's $1.4 billion. Comparable store sales grew 4% while total comparable sales grew 9%. Diluted earnings per share grew 3.2% to $1.91, up from 2012's $1.85. 

Although Lululemon's fourth quarter and full-year results are not at all impressive for what was once considered a high-growth company, the brand did still manage to grow in 2013 despite a series of troublesome events, including a massive product recall and numerous managerial missteps. This indicates that Lululemon's brand is still strong among consumers.

The turnaround
The company's latest earnings release also marks a change in leadership at Lululemon. Newly instated Chief Executive Officer Laurent Potdevin explained how he plans to make the company better: "As we move into 2014, we are reflecting on our learnings with humility, and are entirely focused on our future. 2014 is an investment year with an emphasis on strengthening our foundation, reigniting our product engine, and accelerating sustainable and controlled global expansion." 

Some of the company's new investments are already in the marketplace. The company's Ivivva line for young women has already been successful and means the company should attract youth to its stores for years to come.  

Additionally, Lululemon's new &go line was designed to bridge the gap between the gym and social atmospheres like the workplace and bars. With these versatile products, Lululemon is trying to eliminate the need for consumers to change out of gym clothes after working out.

Although early customer reaction seems positive, as the line quickly sold out online, the real motivation behind a more versatile line for Lululemon is most likely brand expansion. Just like Under Armour managed to go from a male-centric brand that mainly targeted athletes, management over the years has diversified the company's consumer base by adding new product segments. Now, it is not at all uncommon to see Under Armour clothes worn in everyday settings by casual folks.

The same goes for Nike and its athletic footwear market. Yes, the sneaker giant continues to innovate the industry with flagship products like Magista, but over the years Nike has become much more. It is now a footwear company that offers a wide range of products, including many designed for consumers in their everyday lives.

In the way Under Armour and Nike have expanded their brands over the years, management at Lululemon looks set to follow suit. The move makes a great deal of sense considering Lululemon's main problem is that the brand still relies too heavily on its signature yoga products.

Management issued guidance for fiscal 2014. Revenue is expected to be in a range of $1.77-$1.82 billion and diluted EPS is expected to be in a range of $1.80-$1.90 for the full year. This means revenue is expected to grow approximately 14% this year while EPS is expected to remain largely flat. 

Although much slower than Under Armour's projected revenue and EPS growth rates of 23.7% and 13.3%, respectively, the company trades at a significant discount. Lululemon's forward P/E of 22.96 is much cheaper than Under Armour's 49.66.

With Nike's forward P/E being 21.76, this suggests Lululemon is fairly valued as it is growing revenue faster than Nike's expected 9.4%, but its EPS is slower than Nike's 13.8%.


Bottom line
While Lululemon is still in the early stages of a turnaround, there is now confirmation from the new management team that a brand problem has been identified and is being corrected. For patient investors seeking long-term growth, Lululemon's relatively cheap valuation, compared to peers, seems enticing.

6 stock picks poised for incredible growth, is lululemon one of them?
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Philip Saglimbeni owns shares of Under Armour. 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