Lululemon: Capitalizing on Yoga’s Billion-Dollar Industry
Susannah is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Note: The original version of this story contained a paragraph with incorrect information on Under Armour's revenue growth and inventory levels. The paragraph has been removed.
Lululemon athletica Inc. (NASDAQ: LULU) is a high-performing stock that continues to grow and could be a valuable addition to your portfolio. The Vancouver-based yoga apparel company’s stock increased roughly 70 percent during the past year from $45.65 on March May 3, 2011 to $79.43 on May 2, 2012, beating the S&P 500’s performance of about a 20 percent increase during the same period.
While the company even raised its fourth quarter expectations to $358-363 million, earnings still beat even those milestones reaching $371.5 million, making sales up over 50 percent from its third quarter earnings of $230 million. During the same Christmas-time quarter a year earlier, sales were $245.4 million, 51.4 percent lower. Such strong results boosted the company to reach the $1 billion mark in overall revenue.
And the future continues to look bright. It has proven that it can expand and consistently produce sales growth. While it opened 18 new stores during the third quarter of 2011 alone, it was still able to yield comparable stores sales growth by 26% for the fourth quarter on a constant dollar basis.
Its financials appear to be in a strong position, with a current ratio of 5.18. While first quarter 2012 sales will obviously be slightly less, due to the Christmas season upswing during the 4th quarter, analysts are still projecting sales to reach $265-$270 million, well above its revenue earned during the third quarter 2011, based on comparable stores sales percentage inreases.
Aside from its healthy financial positions and strong sales projections, the real reason this stock will continue to perform is its position in the changing market for fitness apparel.
The company has become the first athletic apparel company to successfully harness the demand of yoga practitioners. None of its rivals Nike (NYSE: NKE), Adidas or Under Armour (NYSE: UA) have been able to market their products to the roughly one in ten Americans that practice yoga (according to the Yoga Business Academy).
Nike has successfully entered the market but with lower margins. Yoga pants that lululemon sells for $98 dollars, Nike sells for $64. A recognizable brand, Nike is unable to target the high-end affluent customers that lululemon is able to grap by self proclaimed "cult" followers. Nike simply cannot charge more than $50 for a yoga top, while lululemon can make it the standard. Nike can only offer an alternative to "the brand" of the yoga realm.
And a lucrative realm it is. A 2008 study conducted by Yoga Journal placed spending on the hobby at a lucractive $6 billion, making it more certain that lululemon could easily double its $1 billion in sales.
If the economy can continue its path of recovery and if textile prices can remain stable, there is no reason lululemon’s stock should not hit $100 by this time next year. Yoga is no longer a niche market. In 2011 alone, there were 24,000 yoga and pilates studios in the U.S, with more opening each year. Exercise trends are changing and so is the apparel that goes along with it. Even if you're not one of the millions practicing yoga, consider adding lululemon to your portfolio to give it some inner peace. Namaste.
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