2 Reasons lululemon athletica Could Bounce Back

At Lululemon's Analyst Day last week, CEO Laurent Potdevin said that the casual wear and international expansion would help drive the company's growth.

Apr 22, 2014 at 11:51AM

For investors hoping lululemon athletica (NASDAQ:LULU) would return to its old tricks this year after the debacle that was 2013, results so far have been less than inspiring. The stock is down 17% since New Year's as fourth-quarter results disappointed, and comparable-store sales slipped into the red for the first time since 2009. 

The response to new CEO Laurent Potdevin seems to be middling as well. Shares fell 5% Monday following a cool reaction to Potdevin's first Analyst Day. Sterne Agee analyst Sam Poser said the presentation lacked any clear strategy; he maintained a sell rating on the stock, saying in a note, "A detailed constructive strategy, beyond the improved product, not just words, is needed to rebuild the aspirational quality of the Lululemon brand." While there may be no silver bullet for Lululemon to return to quality, the brand has been innovating. 


More than just yoga
Lululemon recently stretched into its own version of casual wear with a unique line of clothes it calls &go, which Potdevin said would be a significant growth opportunity for the company. The gear is more casual in appearance than Lululemon's regular exercise clothes, and is meant to be used for both working out and everyday activities. The apparel includes leather-looking shorts and leggings made from a stretchy material called Warpstreme, as well as dresses, skirts, and peplum tops designed for women to wear straight from "daybreak to midnight," Chief Product Officer Tara Poseley told the Daily Mail. At the Analyst Day presentation, Potdevin commented on the "recent success" of the line, which he said "speaks to the elasticity of the brand." Six of the line's 12 items available online sold out in less than a day. Still, some analysts have questioned the apparel expansion, saying the company is getting away from its core brand offering, while other critics have mocked the idea of not changing out of your workout clothes.   

London calling
The product line isn't the only thing about Lululemon that is expanding. The company earlier this month opened its long-awaited first store in Europe, in London's Covent Garden. In characteristic fashion, the company held an pre-opening yoga event at the Royal Opera House that drew 400 participants, will offer free yoga classes and group runs at the store, and uses its typical tongue-and-cheek tone in local marketing. The Covent Garden location is the company's first full-on store in the British capital, but it had previously established its brand there via three showrooms. One Lululemon ambassador said 25% of people at an average London yoga class are dressed in the high-performance gear, and Potdevin said initial sales had exceeded targets by 60%.

London isn't the only European market that Lululemon is priming -- it has showrooms in Berlin and Amsterdam and has been selling its wares online for years across the Atlantic. Asia may represent an even more promising opportunity, as early reports have indicated particularly high demand in Singapore. At the company's last earnings call, Potdevin said demand was strong in both Asia and Europe, and that several countries in those regions were ready for stores. 

Foolish takeaway
While Lululemon's stock price has been glued to the mat, the company is taking steps to move past its forgettable 2013. At a P/E of 25, shares are about as cheap as they've been in years. The company's guidance for the year was weak, and one strong international opening won't make up for sluggish sales at its North American stores, but the &go line and the London opening are reminders that Lululemon is still in its growth phase. The company faces competitors galore, but demand for yoga and athletic apparel has also grown as Lululemon has changed women's fashion. Plenty of challenges remain, but it's foolish to assume the company's growth days are over when so many new markets remain ripe for the picking. Look for updates on international expansion, the London opening, and the &go line in its next earnings report. An optimistic outlook could send shares flying once again. 

6 stock picks poised for incredible growth
Lululemon was once a standout growth star, and it was an early pick of Motley Fool co-founder David Gardner, who's found stock returns like 926%, 2,239%, and 4,371%. 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.

Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends lululemon athletica. 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 fool.com.

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 www.fool.com/beginners, 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 www.fool.com/podcasts.

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