The Healthiest Thing About Lululemon Athletica

You’ll never guess the healthiest part of the popular yoga-wear retailer.

Jun 29, 2014 at 6:00PM

Lululemon Athletica (NASDAQ:LULU) has had its share of problems as of late. First, the high-end yoga-wear retailer dealt with the debacle that featured the company's founder and former CEO Chip Wilson saying that Lululemon's pants "don't work for some women" because of their weight and large frames. Then, the company, which is known for its high-quality products, had to recall a line of yoga pants because their material was so sheer that they were practically "see-through."

Shareholders want the company to focus on spreading its active-lifestyle message and growing its brand -- not dealing with product-quality issues and negative publicity. However, despite these issues and the added problems associated with finding a third CEO in just a few years, shareholders don't need to worry about one thing -- Lululemon's balance sheet.

Lululemon is definitely balanced
Simply put, a balance sheet lists a company's assets, liabilities, and shareholder's equity for a given period. A company owns assets in order to conduct its operations, and it owes liabilities to creditors. Whatever is left over after subtracting liabilities from assets is what shareholders can claim in a sale or liquidation -- shareholder's equity.

Looking at a balance sheet can tell you a lot about a company. It can tell you the health of the business, its bankruptcy risk, and provide numerous other insights. While it doesn't happen often, if a business is doing poorly and losing money, the balance sheet will look worse and worse as creditors keep piling up. This is bad for shareholders because the company must first pay all of its expenses before investors get anything.

Yoga balancing act
Lululemon's balance sheet is nothing short of perfection. Investors can say what they want about the company, its growth plans, and its CEO, but the one thing they cannot complain about is the company's balance sheet.

Lululemon Annual Balance Sheets

Financials

February 2, 2014

February 3, 2013

Jan. 29, 2012

Cash

$698.65 million

$590.18 million

$409.44 million

Total Current Assets

$942.84 million

$787.05 million

$527.09 million

Total Assets

$1.25 billion

$1.05 billion

$734.6 million

Total Liabilities

153.0 million

$163.78 million

$133.26 million

Shareholder's Equity

$1.097 billion

$887.3 million

$601.38 million

Lululemon clearly has the financial strength to handle its current problems. It uses no long-term debt (debt that expires in a year or more), and only has liabilities because of accounts payable for inventories. What is also interesting about Lululemon's balance sheet is that the company has an unusually large cash balance. In fact, the company's cash stood, as of Feb. 2, 2014, at 55.89% of its total assets. This might be why the company just announced a $450 million share buyback program. It doesn't appear to need the money, and its cash balance will continue to go up and up as time goes on.

Further proof
Investors can find even more proof for just how great Lululemon is doing financially by looking at the balance sheets of strong fashion brands Michael Kors Holdings (NYSE:KORS) and The Gap (NYSE:GPS).

Latest Annual Balance Sheets

Financials

Michael Kors Holdings as of 3/29/2014

The Gap as of 2/1/2014

Cash

$1.52 billion

$1.51 billion

Total Current Assets

$1.78 billion

$4.43 billion

Total Assets

$2.22 billion

$7.85 billion

Total Liabilities

$410.8 billion

$4.787 billion

Shareholder's Equity

$1.806 billion

$3.06 billion


Michael Kors appears to be almost as strong financially as Lululemon, which isn't surprising because it, too, is a specialty fashion brand with extremely loyal customers. The Gap, on the other hand, could learn a few things from Lululemon. The Gap's "Athleta" brand directly competes with Lululemon for sales in yoga-wear and accessories. The Gap likely created this high-end athletic brand because it saw the financial strength that Lululemon's business has earned for its shareholders. Time will tell if it succeeds in stealing away Lululemon's customers, but as far as financial strength goes, one might not want to bet on it.

Foolish takeaway
Lululemon's shares have recently been beaten up pretty badly as investors have begun to question the company's growth strategy and plans for the future. When focusing on these issues, it is important to remember that the company is operating from a position of financial strength and that the specialty yoga retailer clearly has the financial flexibility to figure out the best way to move forward. Foolish investors would be wise to take these points into consideration when deciding whether to buy shares in Lululemon. 

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Natalie O'Reilly has no position in any stocks mentioned. The Motley Fool recommends Lululemon Athletica and Michael Kors Holdings. The Motley Fool owns shares of Michael Kors Holdings. 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.

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