Don't Sell lululemon athletica Inc. Because of This

Lululemon shares have struggled this week. Source: lululemon athletica.

Winston Churchill once said, "A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty."

And so it goes this week with shares of yoga apparel specialist lululemon athletica (NASDAQ: LULU  ) , which fell after Sterne Agee's already pessimistic Sam Poser voiced disappointment with what he described as an "uneventful" analyst day last week. As a result, Poser reiterated his existing "underperform" rating and $43-per-share price target for Lululemon stock. 

Specifically, while he thinks Lululemon's new product "looks good" and noted its Asia market is performing "very well," Poser was concerned with a lack of substance in Lululemon's plan to increase same-store sales. Moreover, he insisted its women's product focuses too much on already-loyal customers, expressed disappointment that Lululemon didn't outline detailed mid- or long-term financial goals, and said management didn't address specific plans to improve customers' store-level experience and "reignite a new customer following."

So what's the problem with his thinking? 

Source: lululemon athletica.

First and foremost, remember how Lululemon ignited its customer following to begin with -- namely, the brand grew by eschewing traditional advertising. Instead, it relied on positive word-of-mouth from those rabidly loyal consumers.

After last year's string of veritable PR nightmares, I think Lululemon is doing the right thing by focusing first on fully restoring itself in the eyes of its existing customer base. When that happens, new fans of the brand will follow.

What's more, Lululemon management already outlined plans for the rest of 2014 during its earnings conference call only a few weeks ago, saying they will emphasize "strenghtening our foundation" to lay the groundwork for future growth. Given the supply chain and quality challenges that led to last spring's massive pants recall, I'd say that's a fair place to start.

Then again, I'll readily admit new CEO Laurent Potdevin's language was a tad flowery -- I actually described it as "fluffy" at the time. Potdevin spoke of Lululemon's "magic" in "creating technical beautiful product and sharing our distinct culture with our communities." He also emphasized the "emotional connection that lululemon creates" as being "at the heart of what we stand for."

The thing is, Potdevin knows all too well these kinds of intangible traits are exactly what makes brands like Lululemon so powerful in the first place. After all, he started his career at Louis Vuitton parent LVMH, later served as president and CEO of Burton Snowboards, and then most recently worked as president of socially conscious shoemaker Toms.

As a result, I'm simply not concerned that Lululemon chose to forgo detailing its long-term financial goals with analysts last week. Instead, I'm more than happy to let Lululemon focus on building up its core business and setting the stage for its accelerated global expansion. As it does so, same-store sales will gradually improve as the year progresses -- which management did suggest in their most recent guidance, by the way -- and Lululemon's business will enjoy a steady return to its former glory.

Don't get me wrong. Lululemon's efforts will take time to bear fruit, so we're bound to see some volatility in the near term. In the end, though, I'm convinced pullbacks like these represent fantastic buying opportunities for patient, long-term investors.

Six stock picks poised for incredible growth
I'll be holding on to my shares of Lululemon for years to come, but that doesn't mean it's the only great growth stock out there. So where else can you look?

Consider the investing expertise of Motley Fool co-founder David Gardner, who has proved skeptics 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.


Read/Post Comments (0) | Recommend This Article (3)

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.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2924225, ~/Articles/ArticleHandler.aspx, 10/25/2014 6:39:29 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement