Can Lululemon Athletica Stretch Its Growth?

Yoga's aspirational brand had a rough 2013 due to quality issues. Did Lululemon lose its edge to broader competitors Gap and Under Armour?

Jun 23, 2014 at 11:30AM
Lululemon Yoga

Source: Lululemon

Lululemon athletica (NASDAQ:LULU) shares have fallen nearly 35% in 2014 as the company continues to struggle past its spate of problems that occurred last year. The yoga-apparel company has had a CEO resignation, product recalls, public relations disasters, the withdrawal of its controversial founder, and the eventual placement of a new CEO. With all of this drama one has to wonder if Lululemon still has growth potential -- or if the company will become sidelined by competition from the likes of Under Armour (NYSE:UA) and Gap (NYSE:GPS)?

Customers wary of quality issues 
Lululemon found success by offering limited run, premium-priced yoga apparel that was noted for the quality of fabrics and design. The company deeply integrated its products with the local yoga community -- through free classes and teacher partnerships -- to further push that brand bond. Unfortunately, that customer trust was threatened with quality-control issues.

The issue garnering the most press was last year's black Luon pant recall, which triggered the recall of about 17% of the stores total bottoms inventory due its sheer fabric. This is on top of customers having previously complained about bleeding dyes. The Luon recall was followed with complaints of pilling, which prompted founder Chip Wilson to blame that problem on the thighs of women wearing the pants. 

So Lululemon has lost some of its high-quality, aspirational brand sheen. And while the company struggled, competitors rose up to take more of the market. 

Minding the Gap (and Under Armour) 
Gap and Under Armour aren't as fashion-forward and aspirational as Lululemon's products -- but both brands have broader ranges of merchandise that continue to attract devotees. 

Casual-wear stalwart Gap launched its Athleta stores nearly five years ago and hopes to have 100 locations open in the United States by year-end 2014.   That's not a fantastic growth rate even compared to Lululemon, which has existed since 1998 and only had 252 total stores by year-end 2013. But Gap does offer a clear advantage when it comes to product prices. 

And Gap and Under Armour both offer broader product ranges that appeal to a wider customer base -- and make it easier to expand the brands into more communities. Under Armour has particular expansion potential abroad, which only accounted for about 10% of overall revenue in the first-quarter report.

 Under Armour's share price has risen more than 100% in the past year even as the company hit some problems with global athletic- competition appearances. The company received well-publicized flack from the U.S. speedskating team during the Winter Olympics, with the athletes blaming Under Armour's newly designed suits for the team's poor performance. And the brand is nearly absent from the World Cup with Nike taking center stage.

 Under Armour still beats both Lululemon and Gap in terms of professional sports branding. And that branding comes with even greater name recognition around the world. 

Foolish final thoughts
Lululemon still has a struggle ahead in proving its devotion to quality control. This weak time for the brand has given the competition time to move in on the market --and customers time to see what those competitors have to offer. And Lululemon's niche focus will limit expansion possibilities more than the broader product ranges of Gap and Under Armour.

Try on a potential multibagger for size 
Give us five minutes and we'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks one stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.

 

Brandy Betz 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.

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