Lululemon Athletica Inc. (NASDAQ:LULU) is a designer and retailer of technical athletic apparel operating primarily in North America and Australia. The company’s yoga-inspired apparel is marketed under the lululemon athletica brand name.
The company offers a range of performance apparel and accessories for women, men and female youth. The company’s fitness-related accessories include an array of items, such as bags, socks, underwear, yoga mats, instructional yoga digital versatile discs (DVDs) and water bottles. It operates in the U.S., Canada, Australia and New Zealand, and it is expanding into new international markets. Its offerings are generally chic.
The company operates 247 corporate-owned stores over the globe. The U.S. is the largest area of operations and has 166 stores across the country. Canada is the second largest market with 53 stores, followed by Australia and New Zealand with 25 and three stores, respectively.
- Warning! GuruFocus has detected 6 Warning Signs with LULU. Click here to check it out.
- LULU 15-Year Financial Data
- The intrinsic value of LULU
- Peter Lynch Chart of LULU
Performance Report Card
Lululemon reported $521 million revenue for the fourth quarter of 2013, $4 million higher than the analyst consensus of $517 million and a 7% increase over the same period in 2012. Fourth quarter net income came in at $109.7 million, resulting in earnings of 75 cents per share. On a full-year basis, Lululemon reported $1.6 billion in 2013 revenue, a 16% increase over 2012′s $1.4 billion in revenue. Full-year net income came in at $279.5 million, $8 million higher than 2012′s net income and resulting in a profit of $1.91 per share. Full-year 2013 comparable store sales increased 4%.
Moreover, e-commerce sales amounted to 16.3% of the company's latest quarter revenues and will further bolster the company's top line. Online sales offer a competitive edge and benefit the company because of the ease and time-saving benefits afforded to customers.
May Sail Through a Bright Future
In actuality, the company's customer base is loyal to the brand and isn't not ready to abandon its products. Also, the customer base is wealthy and therefore less reactive towards even premium prices charged by the company, preferring quality over price. In this scenario the company can drive growth by expanding its stores across the globe as indicated by the increasing trend in the company's square footage during the last nine months of 2013.
It now seems to be bouncing back in late fiscal 2014 aided by the changing market perception of the brand. Under the command of the company's new CEO and talented team, the product quality issues will surely be resolved. This will really help the brand regain the luster it had lost in 2013. However, it will take time to further strengthen its product portfolio and come up with quality products. However, the main thing is that the growth will ultimately continue.
The North American athletic apparel industry has a bright outlook for the coming two years (2014 and 2015). To avail this opportunity, Lululemon's management needs to change its behavior towards customers and needs to improve the quality of the products in its portfolio. The Chief Financial Officer has announced that the company now conducts extensive and constant testing of all its fabrics and that some additional investments will be made in order to improve product quality.
Going forward, LULU will continue to be in new locations and be able to provide their products to consumers that were not reachable before. This will ultimately increase sales and continue its high growth.
New CEO Promised Expansion
Lululemon’s newly-minted CEO, said in a statement that 2014 will be an investment year with an emphasis on strengthening the company’s foundation, reigniting its product engine and accelerating sustainable global expansion. Despite the stiff competition faced by the company, it managed to earn higher than industry and competitors' profit margins and sales growth over the year, proving the resilience of the brand.
Shares of the company soared 8.2% to $52.07 recently after Potdevin in a conference call said the company is ready to aggressively accelerate its expansion plans. Lululemon, which got 95% of its revenue from the U.S. and Canada in its most recent fiscal year, also can build partnerships to more quickly grow in regions that are too complex or too small for it to have a direct presence, he said.
The retailer will shift its international strategy away from a pattern of first opening showrooms — smaller locations with limited selections and shorter hours — before finding the right staff and locations for full, permanent stores. The company will now run those processes at the same time, Potdevin said on the call. Lululemon also hired a general manager for Asia.
The Lululemon brand is robust enough to attract customers in the long term due to its word of mouth marketing ever since the first day of the company's incorporation. The chief financial officer has announced that the company now conducts extensive and constant testing of all its fabrics and that some additional investments will be made in order to improve product quality.
Its marketing strategy has allowed Lululemon to attain great brand loyalty. The firm distributes its products through yoga studios and top fitness clubs and is also affiliated with yoga and fitness instructors. Thus, the company has developed great connection with its customers. This approach and the company´s adaptability to new market needs have proved right, since annual sales have risen almost six-fold since 2007.