lululemon's (NASDAQ:LULU) apparel would have been science fiction only a few decades ago. Alas, the future is here.

Now that companies like Under Armour (NYSE:UA) and Nike (NYSE:NKE) offer garments like Microfleece jerseys and Dri-FIT golf pants, my old standby uniform of oxford button-downs and khaki chinos has sunk into the realm of lameness. Regardless, this new stuff is selling. If lululemon's second-quarter results are any indication, consumers' enthusiasm for yoga-inspired athletic wear continues to gain momentum.

On the bright side, total revenue increased 14% to $97.7 million. But most of those gains came from new store openings and lulu's new e-commerce site. Same-store sales dropped 10% including the impact of a weaker Canadian dollar. Moreover, margins tightened, lowering net income by 17% year over year, to $9.2 million or $0.13 per share. Nevertheless, the company beat analysts' expectations of $0.10, and like the people who use lululemon's athletic wear, its balance sheet is fit as a fiddle.

We like these curves
From a financial standpoint, the company couldn't be healthier. lululemon's cash balance is more than sufficient to support working capital needs. It's carefully managing inventories to adjust for changes in the macroeconomic environment. Best of all, the company has no debt. It also does business in Canadian dollars, which gives investors some currency diversification. Moreover, despite some extensive capital expenditures, the company is managing to stay free cash flow-positive.

And lululemon isn't just selling merchandise; it's offering consumers a better, healthier lifestyle. Companies have targeted healthy-living customers for some time now. Just look at how Coca-Cola's (NYSE:KO) product line has changed over the past decade. The array of low-calorie beverages and sports drinks it now offers demonstrates that active consumers are a well-established niche. Even Garmin (NASDAQ:GRMN) offers GPS products specifically designed for outdoor activities, as well as training gadgets for athletics. Businesses recognize that being able to capitalize on people's desire for physical fitness can be very lucrative.

Sounds good, eh?
lululemon is an interesting investment idea indeed. As it takes advantage of benefits offered by e-commerce and increases its brand awareness, it should improve margins over the long term.

Unfortunately, this otherwise fit company sports a flabby valuation. At current prices, it's trading at a hefty premium. So unless you're sure that the recession is completely behind us, and that consumer confidence is back, leave this one on the watch list for now. It may become a future bargain.

Would you buy shares of lululemon, or does another apparel company seem like a smarter play? Are you avoiding consumer stocks altogether? Share your thoughts in the comments section below.

Further Foolishness isn't such a stretch:

The Fool owns shares of Under Armour, which is a Motley Fool Rule Breakers pick and a Motley Fool Hidden Gems recommendation. Coca-Cola is a Motley Fool Inside Value selection and a Motley Fool Income Investor recommendation. Garmin is a Motley Fool Global Gains pick. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Chris Jones owns no shares of any company mentioned in this article. Nor is he short anything, so quit your belly-aching. The Motley Fool's disclosure policy  wears clothes that are body-conscious.