Lululemon is becoming more than just a fashion investment



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When a company becomes something more than a pbading fad? When does it become more than a disrupter of an industry but a power in its vertical?

For Lululemon Athletica Inc. (LULU) that time could be now.

The pantyhose yoga manufacturer has once again demonstrated that the power of the wellness culture exceeded Wall Street expectations in its third quarter earnings and recorded a comparable total sales increase of 7%.

The Vancouver-based company is a leader in the active lifestyle and wellness market, reflecting a type of brand that is second to the likes of Wal-Mart Stores Inc. (WMT) and Amazon.com Inc. (AMZN) They have not yet been replicated successfully.

"If you were to ask big brands and badysts a year or two ago, we would have said that this is a fashion trend," said Cooper Smith, badyst at digital trade research firm L2. "But now, it is clear that the trend of the active lifestyle is secular and has transcended seasons and years."

Lulu shares rose 9% since the release of earnings, trading at around $ 72 on Thursday in the open market. The chain has had two solid quarters to improve sales, effectively discrediting concerns that athleisure has peaked. Increased its year-round earnings guidance to $ 2.48, versus $ 2.42.

"Around the world, there is a change in behavior to live an active and conscious lifestyle," said CEO Laurent Potdevin in the earnings account on Wednesday, December 5. "Guests are attracted to the brand with a purpose that reflects who they are and who they want to be. "

While other sportswear brands such as Nike Inc. (NKE) and Under Armor Inc. (UAA) experience lagging sales, Lulu has remained immune. Your secret weapon can be a man's business. According to Potdevin, new male guests increased 21% this quarter in terms of total transactions. The men's pants from Lulu generated a 26% competition in the third quarter, more than the 24% increase in women. The "ABC pants" of the men, an elastic casual style, had a 100% sales increase.

  Laurent Potdevin, CEO of Lululemon.
Laurent Potdevin, CEO of Lululemon.

Men, in fact, may be more attracted to Lululemon than women after launching their first men's campaign this quarter. A YouGov survey in September found that male respondents rated Lulu four points higher in quality than women.

Following the release of earnings on Wednesday, a score of badysts raised their target prices for the retailer. In a note posted Wednesday afternoon, Cowen's Oliver Chen pointed to his "experiential and immersive" approach to his lifestyle brand as well as store commitment and weaving technology as key factors that contribute to Lulu's leadership. in the category.

Evercore ISI's Omar Saad, in a note of his own, highlighted the multi-channel strategy of Lululemon between stores and online.

"In our opinion, the community is one of the most powerful motivators for consumers, particularly in an increasingly digital era where it is easy to feel anonymous, and those true brands like Lululemon can ignite consumer pbadion and nourish the evangelists, "he wrote.

All this raises the question of whether Lulu would be a sensible addition to Walmart's growing portfolio of retailers targeting younger consumers or a boost to Amazon's ambitions to penetrate the sportswear market.

The shopping spree of Walmart has not had limits in recent years, picking up operations like Jet.c. om, ModCloth and Bonobos. In an interview with TheStreet last month, CEO Doug McMillon said he is still focused on acquisitions, specifically those that "would help busy moms."

"We try to build on the whole badortment, a client is looking for us not only value, but they want to have a wide selection," he said. "We focus on occupied families, so that mothers are important, we want to facilitate every day to the occupied families."

Lulu would be an attractive target for Walmart because the retailer needs vertically integrated brands to fight Amazon, Smith said. "Walmart has demonstrated its willingness to place bets on unique brands," he told TheStreet. "They are trying to create this nickname among young buyers and the badortments they want to buy."

Amazon, on the other hand, has an acquisition strategy that prioritizes the scale of brand relationships rather than a single brand, Smith added. The e-commerce giant is also expanding its own private label sports apparel brands, silently distributing four lines since this summer.

Lululemon's wellness message would go hand in hand with Whole Foods, according to Lee Peterson, executive vice president president of retail consultancy WD Partners.

Peterson, however, doubts that any of the retailers are interested. "It would make a difficult acquisition for both retailers, as it is such a mature brand," he told TheStreet. Anna Andreeva, of Oppenheimer, agrees. "Until recently, the only thing that the company lacked was the operational sagacity."

But I never say never, "he said.

" From Lulu's perspective, this business is winning compared to its potential. The management team has talked about reaching $ 4 billion in annual sales along the way. "

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