Photo: Wikimedia Commons
Lululemon Athletica, a darling stock for certain investors, has just been downgraded by FBR Capital Markets.The analyst at FBR says that the company will be hit by rising costs, and poor numbers for the company’s Q2 2011 could result in a share selloff.
Investors aren’t waiting for that June earnings report to act, however, with shares of the company’s stock tumbling today.
If you don’t know about the company, it’s an athletic clothing manufacturer based in Vancouver with at loyal following and emphasis on yoga-wear. Its shares surged throughout 2011.
Lululemon has grown from one tiny yoga shop in Vancouver to over 134 storefronts in the U.S., Canada and Australia with a market cap of $5.17 billion.
After launching in 1998 with one store in Vancouver the company's net revenue was $40.7 million by 2004.
It went public in 2007 and this week it revised its net revenue projection of $237 million to $239 million for 2011.
People spend $5.7 billion per year on yoga gear annually.
They like to look good while they are doing it even it means shelling out a some cash.
The poll said 15.8 million people practice yoga and 72% of them are women.
Lululemon's main customers are typically high-income women who are insulated to prices and downturns in the economy.
During the 2008 recession sales continued to grow with net revenue reaching $353.5 million up from $269.9 million.
The company has succeeded in capturing a very devoted following, some might even say cult-like.
The brand has inspired blogs such as 'Lululemon Addict' and hundreds of Facebook groups devoted to celebrating the company.
It also encourages its customers to embody the Lululemon lifestyle and identifies 'ambassadors' in the community who can show them this better way of life.
There are also Lululemon sponsored exercise classes and running groups.
Running apparel already accounts for about 20% of revenue and management also has its eyes on dance, gymnastics and other types of exercise.
It also isn't leaving men behind. Men's apparel currently accounts for only about 10% of the business but analysts believe it will start to expand over the next few years.
The recession in 2008 gave the time company to re-tailor its U.S. expansion when they found that their first 35 stores were not very productive.
The company started to research communities,demographics and income levels adequately to figure out what cities it needed to be in, said CFO John Currie.
It found its core customer group around large, trendy cities such as LA, Seattle, Vancouver, Toronto and New York.
It currently has 75 U.S. stores and plans to expand to 300 eventually with 20-25 being added in 2011.
International expansion has already started. There are 11 corporate-owned stores in Australia and its showroom in Hong Kong is getting positive results.
There is also some talk of a European expansion.
Lululemon is up 140% since 2009, only two years after its initial public offering.
Its IPO was 18.2 million shares trading around $27.65. It is now trading around $73.70 on 1.4 million shares.
It's the fourth straight quarter Lululemon's results have beat expectations.
Its earnings growth numbers managed to beat Under Armour, Nike, Adidas and Gap.
Omar Saad of Credit Suisse said the company is similar to Coach because in 2000 you could buy Coach shares at a steep valuation of 100 times price to earnings and still have made a great return.
He also compared it to Coach because of its ability to look into the female psyche and figure out what women want to ear and how they want to buy it.
'The brand captivates the female consumer through the combination of a pleasurable in-store experience and high-quality, stylish and flattering designs,' said Saad to the Financial Post.
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