5 Reasons to Believe in Lululemon’s Turnaround

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5 Reasons to Believe in Lululemon’s Turnaround

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Lululemon in downward dog position

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What caused Lululemon’s downfall? Lulu was forced to recall 17% of its signature luon pants last year because they were inadvertently see-through. This damaged Lulu’s reputation for quality. Shares of Lululemon are down nearly 25% so far this year.

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Other reasons for the selloff… Negative PR surrounding controversial comments made by Lululemon’s founder Chip Wilson. The sudden exit of former chief executive Christine Day. However, as you’ll see in the following slides there are plenty of reasons to be optimistic about the retailer’s comeback.

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1. New leadership at the top Potdevin took over for Mrs. Day in January. As part of the management shuffle, the retailer’s founder Chip Wilson resigned from his position as chairman of the board. Meet Laurent Potdevin, Lulu’s new CEO.

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2. A cult-like following While investors have been quick to pull out of the stock, customers keep coming back for more. Lulu beat estimates for its fiscal fourth quarter, reporting a 7% jump in net revenue to $521 million. The retailer also achieved double-digit sales growth in its direct-to-consumer segment, earning $97.8 million in online sales during the fourth quarter.

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3. New opportunities in the men’s market Potdevin says Lulu’s men’s segment could become a billion-dollar business. The slacks shown to the right cost $128 and are already nearly sold out online. Lululemon is making a greater push into men’s fitness and everyday apparel.

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4. A fresh product pipeline Items from the new &go line cost 40% more than the retailer’s typical yoga gear, which could boost Lulu’s margins if they’re a hit with customers. Lulu’s new line for women dubbed “&go” could reinvigorate the brand.

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5. New product categories By adding new product categories including beach gear, cycling, and running, Lulu is addressing new growth markets. Lululemon is diversifying its product mix in a big way.

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The hidden opportunity for investors From new leadership at the top to a fresh product mix, Lululemon’s turnaround is just starting to take form. Yet, Lululemon’s stock is stuck in the dumps… trading around $45 today, or nearly 46% below its 52-week high. This creates an opportunity for investors to get in at the bottom. Investors can get more insight into Lulu’s business when the retailer reports fiscal 2014 first-quarter earnings on Thursday, June 12.

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