Why lululemon athletica Has Crashed 30% in 2014
Retail investors dream of finding the next big thing in fashion, knowing shoppers can jump on new ideas and create flash-in-the-pan sensations that mushroom into huge opportunities nearly overnight. Being first into what has become a huge niche in athletic apparel put yoga-wear retailer lululemon athletica into an enviable position among much larger peers, forcing companies such as Gap and Under Armour to play catch up in an effort to protect their own brands. Yet the other thing investors know about the retail industry is how fickle shoppers can be, and sudden adversity can knock even a promising company down for the count.
The story of Lululemon shows how an innovative company that successfully identifies a high-potential niche can turn it into a cash cow. Lululemon's ability to engage customers, yoga professionals, and the entire community was masterful for years, leading to a symbiotic relationship that raised awareness of yoga as a way of promoting fitness and healthy living. Yet after handling product-related problems badly, Lululemon has struggled to regain the confidence of its core shopping audience. Let's take a closer look at lululemon athletica to see whether there's hope for an eventual recovery.
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What crushed Lululemon this year
Coming into 2014, investors hoped Lululemon could put its controversial recall of a high-profile yoga-pant line behind it. After multiple missteps in handling the problem led to the resignation of former CEO Christine Day and landed founder Chip Wilson in hot water for blaming the problem on the body shapes of some of its customers, Lululemon sought to restore its name, with new CEO Laurent Potdevin working to refocus the company on creating innovative products again.
Despite those efforts, Lululemon's results have been mixed at best. When it announced holiday-quarter results in March, Lululemon outperformed low expectations among investors, but same-store sales actually dropped 2%. Moreover, Lululemon expected sluggish results during the first few months of 2014, despite expansion plans that Potdevin hopes will spur longer-term growth. By midyear, Lululemon had shown some signs of life, beating expectations with 13% year-over-year sales growth and a boost in guidance for the full fiscal year. Again, though, comparable results were weak, with a 5% drop in store-based comps pulling down strength in the e-commerce segment to produce overall flat total comparable sales for Lululemon. That has made share-price gains short-lived and left Lululemon shareholders wondering how much longer the bad times will last.
How can Lululemon turn things around for good?
In the long run, Lululemon needs to return to its roots in order to restore its reputation. Lululemon's partnerships with yoga studios, fitness centers, and other workout facilities have been an enormous source of wholesale business, but they've also helped build brand awareness that has led to greater direct sales from the shoppers who visit those facilities. With its brand ambassador program, Lululemon engages well-known practitioners of the discipline, encouraging their students and followers to purchase the company's products in support of their own fitness programs.
The other thing Lululemon is doing to spur greater business is to position its products as appropriate not just for working out but for wearing in everyday life. Initiatives like the new &go brand are designed to keep up with busy professionals while still harnessing the value of the Lululemon name. As long as the quality of its new products remains unquestioned, Lululemon can lay the foundation for the restoration of its reputation.
As the stock's 2014 performance shows, Lululemon will need time to turn things around. With so many people having once been captured by the appeal of the concept, though, Lululemon has the opportunity to regain its lost customers and its luster.
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The article Why lululemon athletica Has Crashed 30% in 2014 originally appeared on Fool.com.Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Lululemon Athletica and Under Armour. The Motley Fool owns shares of Under Armour. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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