Just How Profitable Is Lululemon Athletica?

Compared to those of its fellow retail rivals, lululemon's balance sheet has a lot going for it.

Jul 10, 2014 at 1:00PM

Lululemon athletica (NASDAQ:LULU) has been attracting a lot of competition in recent years. Not only did Gap (NYSE:GPS) acquire and grow the Athleta brand of yoga-wear expressly to compete with lululemon and get its share of the growing yoga market, numerous other retailers, including Victoria's Secret of L Brands (NYSE:LB), have also begun stocking their shelves with premium-priced active-wear and yoga apparel. This, of course, begs the question -- just what is so great about lululemon's business that warrants all of the imitators?

It's all about returns
One of the most, if not the most, important metrics for evaluating the profitability of a business is its return on capital. The number, expressed as a percentage, is calculated by dividing a company's net income by its assets. This basically compares the annual return of the business with the amount of money that has been invested in it. This is important because it lets shareholders and the company's management know if they are doing a good job. Unfortunately, this also lets competitors know they can make money by opening up competing operations if the retailer reports exceptional returns. Unfortunately for lululemon, that seems to be the case.

Yes, it is that good
Lululemon's profitability compared to the total amount of money that has been invested in the business is, to put it simply, pretty incredible.

Return on Assets:

Company Name

FY 2011

FY 2012

FY 2013

lululemon athletica








L Brands




Even though it has gone up against two of the strongest retail brands in the world, lululemon has managed to generate some fantastic returns. Lululemon's return on total capital is even more impressive when investors realize that the company's total asset balance of $1.25 billion includes a huge cash balance of $698 million. This means that out of that $1.25 billion in assets the company needs far less than that number to fund its operations.

It's no wonder why Gap's Athleta, L Brands' Victoria's Secret, and numerous other retailers are trying to get in on the yoga and active-wear scene. From these figures, it appears that Gap has increased its return on assets more consistently than L Brands, where return on assets actually slipped in fiscal 2013. For now, both Gap and L Brands still have a ways to go before their returns on assets equal those of lululemon.

Foolish takeaway
Foolish investors should definitely remember the true strength of lululemon's business when they evaluate the company's shares. The company has had its share of troubles in the past, but its success seems to be attracting competition from all sides. Only time will tell if lululemon's brand is strong enough to withstand this competition. However, if returns on capital are any indication, it seems that lululemon's competitors won't be able to touch lululemon's fantastic profitability for a very long time. 

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Natalie O'Reilly has no position in any stocks mentioned. The Motley Fool recommends Lululemon Athletica. 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