The Walls Are Closing In On Lululemon (LULU)

Lululemon is no longer the golden child of retail.
Today, the company reported earnings today to a chilly reception from analysts.
Lululemon recently announced it was recalling 17 percent of its yoga pants because of a defect that made them appear too sheer. Same-store sales growth has slowed, and the company has more competition than ever before, leading investors to say the shares are “overvalued.”
On a company conference call today, Lululemon CEO Christine Day said that consumers will be out in full force by summer, when luon pants are once again freely available. 
“The fundamentals of our business are strong, we delivered excellent results in 2012, and we plan to continue to earn the loyalty of our customers and shareholders every day going forward,” Day said.
But there are a host of problems that could hold back her yoga brand.
The sheer-pants debacle ”has opened the window wide for competitors to showcase their newest yoga efforts for spring,” said Brian Sozzi, chief equities analyst at NBG Productions in New York. 
There are general problems with Lululemon’s supply chain: the see-through pants scandal was its fourth quality-control issue in the past year. This is even more troubling considering the intense competition the brand is up against. 
Competitors like Nike, Under Armour, and Gap are offering very similar products in response to Lululemon’s popularity. Nordstrom was accused of poaching the brand’s designers, while Calvin Klein was sued for allegedly copying the signature waistband of Lululemon’s pants. 
Same store sales growth also slowed to 10 percent from 26 percent a year earlier, showing a declining public interest in Lululemon. 
Even blogger Caroline Beauchesne, once the retailer’s biggest proponent, complained about how the company has changed. 
“Day has ruined everything special about lululemon. The bullet proof quality, the fit, the femininity, the lululemoness of the product,” Beauchesne, who goes by “Lulu Addict,” wrote. “She is a one-trick pony who grew the company through expansion.”
And that’s not all. John Zolidis at Buckingham Research said that the company’s high inventories are concerning.
“This is a sign that sales were not as good as the company was hoping and could be a factor in its ability to avoid markdowns in the future,” he said in a note. 
And equity firm The Oxen Group called Lululemon’s stock “strongly overvalued.” 
“The company is working against rising competition from other high-quality fitness clothing brands and we do not see any concrete plans for the 2013 fiscal year that counteract this,” the group said in a note. 
The recent troubles come as a surprise because Lululemon has been touted as an untouchable success for years.
The yoga and athletic-wear maker had the perfect mix of unique product, eager customers, and impeccable merchandising. Day boasted that the brand sold 95 percent of its product at full price. 
Lululemon declined to comment on Wall Street’s negative outlook.
SEE ALSO: 15 Hot Brands Vying To Be The Next Lululemon >

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