lululemon athletica Simply Can't Win

With a poor outlook, departing management, and infighting, lululemon athletica continues its downward spiral.

Jun 12, 2014 at 2:46PM

Here's what I imagine a bad week looks like for a business. First, your founder calls out your board of directors. Second, your chief financial officer announces his exit from the company, leaving you with a brand-new chief executive officer, a brand-new head of product, and a CFO search to undertake. Finally, you post your first-quarter earnings result, dropping your earnings per share by around 60%. Coincidentally, that imaginary week looks identical to the week that lululemon athletica (NASDAQ:LULU) just had.

Founder Chip Wilson kicked things off by voting against board chairman Michael Casey, who replaced Wilson after he stepped in a deep pile of PR last year. Now Lululemon is sitting on a 14% drop in its share price, giving investors a 40% decline over the last 12 months. Is there any reason to think that this is the end of Lululemon's hard times?

Community drives sales at Lululemon
In his angry letter, Wilson said that the Lululemon board had overlooked the long-term interests of the company by focusing on the short-term at the expense of "product, culture and brand and longer-term corporate goals." All of those points ring true for investors, who have watched Lululemon self-destruct over the last year as it has failed to adequately deal with customer concerns over product quality and community engagement.

The company has yet to recapture its core community, choosing to focus on simply releasing new products and saying that things are getting better. Customers are turning a deaf ear to those claims and instead leaving the brand for competitors like Under Armour (NYSE:UA). Under Armour has scooped up female athletes, focusing marketing and product developments on them and, more important, engaging women by changing the layout of stores and increasing the amount of one-on-one training that the company offers.

The impact of shortfalls for Lululemon
In its fourth-quarter release, Lululemon said that it expected earnings per share to be in the $0.31 to $0.33 range. Taking out the company's repatriation of some foreign cash, it turned in $0.34 per share. Instead, accounting for the tax hit required for the repatriation, it hit $0.13 per share, which is probably part of the reason investors were so taken aback.

Lululemon also dropped its annual earnings per share estimate -- excluding the tax issue -- from between $1.80 and $1.90 down to between $1.71 and $1.76. Contrast that with Under Armour, which raised its annual outlook for revenue and operating income in its last quarter. The sharp divide between the two businesses just goes to highlight how weak Lululemon looks right now.

All is probably not lost, but it's not looking good. Lululemon has to find solid ground to rebound off, and that ground is a strong community of consumers. Unfortunately, the company seems set on simply launching new lines in order to bring in new customers without first fixing its foundation. Under Armour is in the comfortable position of not having alienated its customer base, and so it can focus on products and marketing in way that Lululemon can't. For now, I can't see any reason to invest in Lululemon, which continues to record bad news and bad results.

Good news for long-term investors
The smartest investors know that dividend stocks simply crush their non-dividend-paying counterparts over the long term. That’s beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor’s portfolio. To see our free report on these stocks, just click here now.

Andrew Marder has no position in any stocks mentioned. The Motley Fool recommends lululemon athletica and Under Armour. The Motley Fool owns shares of 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

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.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

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. The show is also heard weekly on dozens of 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. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers