It seems that beleaguered yoga-apparel retailer
Lululemon Athletica Inc.
) has now become a potential takeover target in the apparel retail
given the drastic decline in share price and the ongoing troubles
in its operations. Lululemon is likely to fall prey to the
acquisition aspirations of giant sports-related apparel retailers
Columbia Sportswear Co.
), all of which are looking to expand into the yoga product
Though a fundamentally strong company, the share price of
Lululemon is currently close to its 52-week low of $42.28,
reflecting a decline of over 44% in the last year. Moreover, the
stock price of this Zacks Rank #5 (Strong Sell) company has almost
halved from its 52-week high of $82.50 reached on Jun 10, 2013.
Lululemon has been in troubled waters since Mar 2013 when the
company was forced to recall its Black Luon yoga pants and crops
from its stores and e-Commerce site due to quality-related issues.
This created a lot of buzz in the press, which, coupled with
controversial comments from Lululemon's founder that offended many
of its women customers, led to lower traffic trends in the
company's stores throughout fiscal 2013, thus impacting the overall
Though an elaborate process, we believe that the company is on
the path to overcome these issues. To address these problems, the
company has already appointed a new Chief Operating Officer, Lauren
Potdevin, and is working hard towards improving supply chain and
Looking from the fundamental perspective, we note that Lululemon
has established itself as a market leader in the yoga apparel
segment of North America, dealing in elite and premium activewear
brand. We believe that the company possesses an unmatched level of
long-term growth opportunity in the industry based on its potential
to expand square footage and enhance its business globally as well
as by expanding its ivivva model.
Moreover, Lululemon has the ability to drive impressive top-line
growth by focusing on e-Commerce retailing channel, international
expansion and investment in innovating newer product categories.
The company ended fiscal 2013 with a total of 254 company-owned
stores, including 171 stores in the U.S., 54 in Canada, 25 in
Australia and 4 in New Zealand.
Though the stock looks attractive in terms of profitability
ratios with Return on Equity (ROE), Return on Assets (ROA) and
Return on Capital (ROC) substantially higher than the peer group
average, it looks expensive in terms of P/E multiple. Currently it
is trading at a P/E of 24.1, 48.9% higher than the peer average.
Thus, we believe the chances of being acquired at this lofty
valuation are dim.
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