Here's How lululemon athletica Is Not Working for You

Over the last year or so, popular yoga-apparel maker lululemon athletica (NASDAQ: LULU  ) has battled controversy seemingly at every turn. After putting a massive product recall behind it, the company then had to deal with a public relations blunder involving founder Chip Wilson and a subsequent change in leadership. Unfortunately, investors paid the price, as Lululemon shares dropped roughly 30% in the last year. The challenging growth story stands in stark contrast to industry peer Under Armour  (NYSE: UA  ) , which has been excelling on all fronts as of late.

However, in recent months, lululemon appeared to be on the verge of a turnaround. Management acknowledged brand concerns and limitations and even seemed to have a viable plan to correct the issues. However, during a recent investor presentation, company management refused to go into detail about Lululemon's new strategy, and investors and analysts alike seemed concerned. Shares fell more than 5%, and a cloud of doubt has once again settled over Lululemon.

Source: Official Company Facebook

A possible turnaround at play
New CEO Laurent Potdevin seems to have acknowledged the company's shortcomings. He stated on the company's latest earnings call:

"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."

The company has also started to widen its loyal consumer base, which will lessen its dependence on a mostly female consumer. In order to do this, Lululemon is focusing more on new product categories and brands.

For instance, the company's &go line is basically athletic wear designed for use in multiple settings. Not only can the yoga apparel be used for work outs, but it is also designed to be worn at work and even to after-work social scenes like bars. Early indications suggest the product line is a hit.

The &go line is reminiscent of some of the products that athletic-apparel maker Under Armour has made over the years. While Under Armour started as a niche, male-centric brand with a focus on athletes, the brand is now a favorite among a variety of consumers. It is not uncommon to see everyday folks wearing Under Armour gear in casual settings.

Also, Lululemon's Ivivva Athletica line has targeted young women successfully over the years. The brand, which caters to young women between the ages of 6-12, grew revenue 17% over the last year; the company has plans to expand it going forward.

The targeting of youthful consumers is another smart strategy by Lululemon management, and it is one that has been done successfully by competitor Under Armour over the years as well. Under Armour's recent clever marketing of super hero-themed gear has resonated well with America's youth and has ingrained the company in the minds of the next generation of consumers. 

More dark clouds
While the company seems to have a viable growth strategy, management refuses to talk much about it. After the recent investor presentation in which management failed to provide any financial goals for 2014, analysts and investors alike began to complain about the company's overly vague statements. 

Sterne Agee analyst Sam Poser explained, "Management spoke of building an 'authentic relationship' with the guests, creating an 'authentic global voice." Unfortunately, according to Poser, CEO Potdevin offered "no explanation of what being 'authentic' means." 

Source: Official Company Facebook

Bottom line
Lululemon is still a relatively cheap growth opportunity. It is still projected to grow revenue 13% in the year ending January 2015. Although certainly less than Under Armour's projected 23.7% sales growth in the same time period, Lululemon trades at a significant discount, with a forward P/E of only 21.8 compared to Under Armour's forward P/E of 45.7.

However, with Lululemon management now appearing vague and noncommittal to the company's future growth goals, investors have to begin questioning whether current analyst estimates can be trusted. Just as Lululemon appeared to be getting back on track, the company's management team has made yet another serious blunder and has set shareholders back in the process.

3 stocks poised to be multi-baggers; Under Armour could be one of them
The one sure way to get wealthy is to invest in a groundbreaking company that goes on to dominate a multibillion-dollar industry. Our analysts have found multi-bagger stocks time and again. And now they think they've done it again with three stock picks that they believe could generate the same type of phenomenal returns. They've revealed these picks in a new free report that you can download instantly by clicking here now.

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: 2931499, ~/Articles/ArticleHandler.aspx, 8/29/2015 7:32:01 PM

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...

Philip Saglimbeni

Philip is an avid investor and writer. He contributes to The Motley Fool and Seeking Alpha. You can follow Philip on Twitter @philsags.

Today's Market

updated 22 hours ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 4:00 PM
LULU $63.17 Up +0.53 +0.85%
Lululemon Athletic… CAPS Rating: ***
UA $96.41 Up +0.72 +0.75%
Under Armour CAPS Rating: ****