Lululemon's (LULU) stock has been sitting out the broader market rally, and there is one good reason for that.
Basically, Wall Street can't agree on what the near-term future has in store for the pioneer of athleisure. On one hand, most retailers in the mall are being decimated by the shift to online shopping and competitive pricing pressures. Lululemon is, of course, primarily a mall-based apparel retailer that is feeling competition from discount-loving Under Armour (UA) and Nike (NKE) , as well as Kate Hudson's value-based Fabletics line. There are also concerns bubbling beneath the surface that the athleisure trend is on its way to the dustbin of fashion trends that include bell-bottom jeans and platform shoes.
As TheStreet recently reported, analysts at Canaccord wrote that the latest tastes in fashion call for an "inverted triangle," the very opposite of Lululemon's signature body-hugging tops and bottoms. "The new trends in denim suggest that triangle is turning right-side up (tight tops paired with roomy bottoms)," they wrote, a fashion shift they saw at the MAGIC/Platform trade show in August.
They also suggested Lululemon's innovation has peaked, and consumers have started to notice. Some takeaways from a new study:
- The women said they'd buy about 18% fewer pants from Lululemon.
- Only half the consumers who bought the company's pants last year plan to do it again this year.
- Lululemon's products represent 53% of women's total athletic pant assortment, likely setting a ceiling for future share gain potential.
- Half the respondents wear its pants for fashion versus function.
While those are some respectable concerns, there could easily be a case for viewing Lululemon's stock slide as an attractive buying opportunity.
First off, the management team has proven itself to be a deliverer of results well above their own guidance. In the current retail climate, that should be commended. There also seems to be a budding movement by consumers back to a willingness to pay more for higher-quality garments such as the ones Lululemon and accessories maker Coach (COH) sell. Consumers may finally be realizing that fast-fashion from H&M is not worth the money over time, and neither are often-inferior Michael Kors (KORS) handbags.
"While we wouldn't expect that Lululemon necessarily bucked industry trends in early February, our [new] survey provided its most bullish reads across all seven surveys as it relates to brand loyalty, perception of quality, as well as recent, current and intended spending at Lululemon, while new customer acquisition trends remain solid," wrote MKM Partners analyst Roxanne Meyer in a new note.
Color me as falling in the optimistic camp right now on Lululemon. CEO Laurent Potdevin was impressive when we sat down a month or so ago, in particular as it pertains to articulating global expansion plans and the investments in product innovation. The stock could be worth buying ahead of earnings on March 30. Guidance for the first quarter could mildly disappoint, but the fourth quarter is likely to be a standout from every other retailer in the mall. And that may finally get Lululemon some long-overdue credit on Wall Street.