Analysis: Lululemon's next challenge: overseas growth

Wed Oct 9, 2013 8:15am EDT
 
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By Solarina Ho

TORONTO (Reuters) - In a narrow, bustling street in Hong Kong's trendy Soho district, a small Lululemon Athletica Inc (LULU.O: Quote) test boutique is helping to lay the groundwork for what the premium yogawear maker sees as a promising avenue for growth.

The Canadian retailer is casting an eye on international markets even as it grapples with the demands of finding a new chief executive, mending a tarnished image after an embarrassing recall of overly sheer pants and pursuing expansion in the United States.

It's a tricky move even in the best of times. While the rewards are alluring, such global markets can be fickle, complicated and risky.

For now, investors looking at Lululemon's largely successful track record are betting it can juggle the numerous balls needed to maintain a lofty valuation and recapture some of its earlier meteoric growth.

The stock, which closed on Tuesday at $73.64, has soared some 500 percent since the company went public in 2007.

In the latest quarter ended August 4, revenue rose nearly 22 percent, to $344.5 million, but the retailer said sales at established stores for the coming quarter will likely be in the mid-single digits, far removed from the days when quarterly sales growth could exceed 30 percent.

The retailer may see its biggest medium-term opportunity in the United States - where industry experts say the market has the capacity to handle some 300 stores, doubling its current footprint - but analysts say it needs to look further afield for the long term.

"For a long-term investor, there has to be the potential for international expansion," said Credit Suisse analyst Christian Buss, who just returned from visiting Hong Kong's two showrooms.   Continued...

 
A Lululemon Athletica logo is seen outside one of the company's stores in New York, March 19, 2013. REUTERS/Lucas Jackson