Fashion

Lululemon Still Struggles for Balance as Yoga Rivals Multiply


It’s never a good sign in a financial update when the first thing a company offers is news of a share buyback. That was the lead from Lululemon (LULU) Thursday morning as the tattered retailer pledged to prop up shareholders with $450 million in stock purchases.

And why not? There certainly wasn’t much other positive news to report. Chip Wilson, the somewhat marginalized founder of the company, has even started taking shots at the chairman who replaced him, suggesting he wasn’t interested in the brand’s long-term health—this from the guy who ticked off a huge group of potential customers in an interview on Bloomberg TV.

Lululemon said business in May has been soggy and its product assortment of late has been “suboptimal.” Particularly troubling is that more shoppers have been coming into stores, yet fewer are buying. The company is dialing down its expectations for the year and turning to “revenue driving initiatives” (read: sales and pop-up stores). Profit in the past quarter slid 60 percent, in part because the company paid a big tax bill as it shuffled a slug of cash from Canada to the U.S. to start buying back shares. Finally, its longtime chief financial officer, John Currie, announced his retirement this morning.

A few of the scarce bright spots: Revenue rose 11 percent, due in part to international expansion, and the company is luring some male customers. Sales of apparel for guys was up 9 percent in the quarter.

At this point the transparent pants kerfuffle and C-suite shakeup may be obscuring a bigger problem: a rash of competition from companies relatively new to yogawear. Gap’s (GPS) Athleta brand is expanding quickly, and it’s strategically building stores near Lululemon shops. Under Armour (UA) is also bent on grabbing a chunk of the women’s sportswear market. Perhaps because of Lululemon’s initial success, the giants of fast fashion have now lumbered into the studio, too. Inditex (ITX:SM), the owner of Zara, is promoting its Oyshu with massive free yoga clinics all over Spain.

Morningstar analyst Jaime Katz said the newcomers are offering apparel that is “equally compelling.” Most also happen to be more affordable than Lululemon. ”After multiple quarters of weak performance, we are increasingly concerned that the brand is permanently damaged at some level,” Katz wrote this morning. “In our opinion, Lululemon’s lack of an economic moat has become even more evident.”

Perhaps instead of buying its own stock, Lululemon should be snapping up some shares of Gap or Under Armour—they might just make for more profitable investments.

 

Kyle-stock-190
Stock is an associate editor for Businessweek.com. Twitter: @kylestock

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Companies Mentioned

  • LULU
    (lululemon athletica Inc)
    • $54.4 USD
    • -0.16
    • -0.29%
  • GPS
    (Gap Inc/The)
    • $41.46 USD
    • 0.09
    • 0.22%
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