In the midst of plunging equity markets last week, investors found solace in lululemon's
Lululemon is the brainchild of Dennis "Chip" Wilson, a retail veteran. About 10 years ago, he realized that yoga apparel for women was fairly lackluster. So he launched a New Age specialty retailer to fill the void. He wanted clothing that was hip, comfortable, and helped improve performance.
A key growth driver is lululemon's "community-centric" marketing approach. Store employees are called "educators" and undergo 30 hours of training so as to understand the product line. Each store also has a community board for yoga activities as well as a community coordinator to organize events.
The word-of-mouth marketing has been rocket fuel for growth. From fiscal 2004 to 2006, revenues have surged from $40.7 million to $148.9 million. Last year's comparable-store sales increased 25%, and the average sales per square foot was an enviable $1,400.
There is competition from players like Nike
My concern is the valuation. At current levels, lululemon's shares are trading at a nosebleed 12.6 times revenues, and that doesn't give the company much flexibility in meeting its future financial performance requirements.
While it's true that premium retailers like Zumiez
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Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. The Fool's disclosure policy is ultrahip. Tom is currently ranked 1,590 out of more than 60,000 participants in Motley Fool CAPS.