If health is wealth, then lululemon athletica's
A trend with staying power
Even after a recent drop in its stock price, Lululemon has still nearly tripled since going public in 2007 at $18 a share, and continues to generate above-average profits compared to competitors. Today, Lululemon's products are sold online and in 147 company-owned stores and four franchised stores in Canada, the United States, and Australia.
The retailer also came up strong in same-store sales in its second quarter, rising 20% on a constant dollar basis. Still, many investors doubt Lululemon's stock can live up to its hefty valuation.
Competition from both Nike
Playing the trump card
After starting a trend, Lululemon held all the aces in developing superior products and strong community-centric branding. As a Lululemon addict myself, I can attest to the quality and superiority of its products.
I'm a fan of the fabrics used in Lululemon's clothing, including quality materials like Luon and Silverescent. They offer a WetDry feature that pulls moisture away from your skin, spreading it evenly throughout the fabric so that the garment dries in record time.
As I've seen firsthand, the quality of Lululemon's products is simply unmatched. With the cost of that quality already built into its business model, it demonstrates the tremendous pricing power of its products.
Lululemon has another important advantage over the competition: its position as a lifestyle brand. Similar to Apple
The company continues to generate impressive sales growth and at a fraction of the cost of what industry peers have paid to promote their brands. Both Under Armour
You might be surprised to learn that Lululemon doesn't need expensive endorsement deals to sell its products. Instead, Lululemon holds free yoga classes in all of its stores and recruits fitness instructors from local gyms to become community ambassadors for the brand. Instead of paying these ambassadors, Lululemon offers them $1,000 worth of apparel and the invite to teach the free classes. That fits in with the company's healthy growth strategy focused on community involvement.
Lululemon's belief that a company can only be truly great when it has a close relationship to the communities it serves is the driving force behind the company's grassroots marketing strategy and growth plan.
It's also reassuring that the company executes its growth strategies at a gradual rate, testing each new phase of development and getting the technical features right before pushing to market. A key contributor to the company's sales strategy has been its ability to delay store openings until the demand has been created, as it demonstrated with its recent line of girls' dance apparel.
Like mother, like daughter
Lululemon's newly launched dance and athletic apparel line for teenage girls is called ivivva athletica, and first debuted as an online storefront in Canada. Although I'm not a teenager, I couldn't be happier -- this shows investors that Lululemon is spending its cash wisely.
Ever on the cutting edge, Lululemon's new apparel line for teens will feature a "help us design" section on its website where customers can email feedback directly to ivivva designers, along with an inspiration board in the form of a blog for dancers and athletes.
Clearly, this is a company that knows its customers and brings value to its employees, shareholders, and communities worldwide.
At 43 times expected earnings for fiscal year 2012, Lululemon's stock price looks as overpriced as some view its merchandise. But can you really call it overpriced if customers are willing to pay at these price points?
One thing's for sure: Lulu's pricing power, growth potential and strong branding give it a wide competitive moat.
Whether you're a fan of Lululemon's clothing or not, it's worth keeping an eye on this stock as it continues to crush the competition. Track the company with My Watchlist, our free, customized stock tracking service. Click here to get started -- it's free!