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Why Lululemon Athletica Is Not a Good Investment Yet

July 28, 2014 | About:
jaggom

jaggom

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Sports clothing and accessories producer Lululemon Athletica (LULU) has been in the news for a long while for all the worst reasons. The sheer pants controversy prompted a massive advertising disaster while the resignations of ex-CEO Christine Day and originator Chip Wilson also fanned the flame. Besides, Lululemon's development has slowed down surprisingly.

In the final quarter, Lululemon's net revenue increased 7% to $521 million from the year back period. Despite the fact that its gross profit for the quarter also rose 2% to $278.8 million, however as a percentage of net revenue, it decreased to 53.5% from 56.5% a year back.

In any case, Lululemon is looking to make a rebound and brought in Laurent Potdevin as CEO. How about we see what moves the organization is making to realize a turnaround and in the event that it could succeed in doing so.

Expansion and brand re-building strategies

Lululemon's new CEO says that 2014 will be a year where the organization will be making investments to develop the business in a sustainable and controlled way. Lululemon will be opening its first store in London, and as a special strategy, it has been hosting yoga sessions at the Royal Opera House. The response it has received thus far has been overpowering. On March 9, 700 individuals started lining up for the occasion two hours before it started, twofold of its normal limit. To keep the additional crowd captivated, Lululemon started extra group activities like brazen yoga. Besides, the organization is giving reciprocal yoga classes all through London.

Lululemon has sorted out a lot of people such events and it has gotten great response. Its Seawheeze half marathon race sold in excess of 10,000 spots in 66 minutes, with 45% of the guests registering from outside Canada, to support more than 100 Olympians through yoga. Lululemon is looking to take the brand across the globe as it looks to tap more markets and accumulate more customers.

Focus on item improvement

With a developing business in North America, Lululemon sees increased interest for seasonal products, which possess a bigger share in its item blend. Customers have been purchasing these items at a really fast rate, as a result of which Lululemon is experiencing sell through at a rate four times faster than foreseen. Nonetheless, Lululemon also understands the threats that it faces as customers can shift to different options in the event that they are not satisfied. As a result, the organization is working upon item advancement.

So, alongside expansion, Lululemon is exceptionally enthusiastic about development and item advancement as it believes that the right item is the way to success. It is attempting to produce energy at its store with capsules and collaborations. Such offerings incorporate lab-co-lab, and go capsules, which were a success among consumers.

Massive concerns here

Notwithstanding, Lululemon had an extreme time last year, as it struggled with terrible reputation alongside slowing development and an item review. Furthermore to top that, Lululemon was accused of cheating shareholders. So, it may be a long while before the organization regains its fame at the end of the day. As such, at a trailing P/E proportion of 27, Lululemon looks like a risky proposition at it trades at the industry normal P/E.

Analysts aren't exactly sure about the organization's prospects either. Lululemon's earnings are relied upon to develop just 0.50% this fiscal year, with an incredible 20 analysts decreasing their earnings expectations. So, it makes sense to Lululemon for the present until and unless the organization gives out signs of a turnaround or trades at cheaper levels.

Conclusion

Looking advance, Lululemon's administration is positive about the turnaround, headed by its new CEO Laurent Potdevin. Notwithstanding, they will need to convey and execute well to show signs of improvement. Given the organization's valuation levels and overcast forecast, investors shouldn't risk their cash in Lululemon just yet, and sit tight for cement signs of a turnaround.


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