Lululemon's Downward Dog Gnaws at Yoga Bubble

Agenda-Setting Financial Insight.
June 8 2012 9:54 AM

Lululemon's Downward Dog Gnaws at Yoga Bubble

144985460
More than 15 million Americans practice yoga today, with their ranks growing by some 20 percent annually, according to StatisticsBrain.com.

Photo by LEO RAMIREZ/AFP/GettyImages

Did Lululemon’s downward dog just take a bite out of the yoga bubble? The $9 billion producer of pricey sweatpants and other athletic apparel rattled investors’ chakras by warning of slowing sales and profit growth. Yoga may still be one of the fastest-growing exercise practices in the world, but Lululemon’s stretched valuation is predicated more on fashion than the proliferation of yogi practitioners. 

The Vancouver-based company, whose surfer-founder opened his first store near a beach in 1998, has had a stellar run since going public five years ago at $18 a share. Just last month the stock hit a new high of nearly $80. And the company’s sales have been on a tear, rising from $354 million in 2008 to some $1.3 billion this year.

So it came as a shock when Lululemon on Thursday forecast fiscal second-quarter net revenue of as much as $278 million. That’s below the $289.8 million expected by analysts, according to Thomson Reuters I/B/E/S. The company projected earnings of up to 30 cents a share, below the consensus forecast of 33 cents a share. Investors sliced some 9 percent off the company’s value in response.

But don’t necessarily blame yoga for the slowdown. By all accounts, the business of stretching and breathing (or for bikram followers, sweating) is still in fine shape. More than 15 million Americans practice yoga today, with their ranks growing by some 20 percent annually, according to StatisticsBrain.com. Moreover, these aspiring yogis spend some $27 billion on mats, stretch pants and other accoutrements. 

The problem appears to be more a Lululemon phenomenon. The rapid growth of yoga culture - and its attendant fashion - has heated up competition in the space. Deeper-pocketed fashion rivals like Gap and Victoria’s Secret, a division of Limited Brands, have introduced yoga lines at lower prices than Lululemon’s, which appeal to more price-conscious consumers. 

Even with the company’s revised guidance, Lululemon is trading at about 31 times estimated earnings. That’s about twice the price-to-earnings ratio that Gap and Limited fetch. Lululemon may still have the brand cachet that its contorting rivals lack. But to believe the company is twice as valuable requires a stretch not even found on a yoga mat.

Read more at Reuters Breakingviews.

Meg Miller is a Thomson Reuters Research Assistant. Previously, she worked as an editorial assistant and freelance reporter for New York Magazine.

TODAY IN SLATE

Politics

The Democrats’ War at Home

How can the president’s party defend itself from the president’s foreign policy blunders?

Congress’ Public Shaming of the Secret Service Was Political Grandstanding at Its Best

Michigan’s Tradition of Football “Toughness” Needs to Go—Starting With Coach Hoke

A Plentiful, Renewable Resource That America Keeps Overlooking

Animal manure.

Windows 8 Was So Bad That Microsoft Will Skip Straight to Windows 10

Politics

Cringing. Ducking. Mumbling.

How GOP candidates react whenever someone brings up reproductive rights or gay marriage.

Building a Better Workplace

You Deserve a Pre-cation

The smartest job perk you’ve never heard of.

Hasbro Is Cracking Down on Scrabble Players Who Turn Its Official Word List Into Popular Apps

Florida State’s New President Is Underqualified and Mistrusted. He Just Might Save the University.

  News & Politics
Politics
Sept. 30 2014 9:33 PM Political Theater With a Purpose Darrell Issa’s public shaming of the head of the Secret Service was congressional grandstanding at its best.
  Business
Moneybox
Sept. 30 2014 7:02 PM At Long Last, eBay Sets PayPal Free
  Life
Gaming
Sept. 30 2014 7:35 PM Who Owns Scrabble’s Word List? Hasbro says the list of playable words belongs to the company. Players beg to differ.
  Double X
The XX Factor
Sept. 30 2014 12:34 PM Parents, Get Your Teenage Daughters the IUD
  Slate Plus
Behind the Scenes
Sept. 30 2014 3:21 PM Meet Jordan Weissmann Five questions with Slate’s senior business and economics correspondent.
  Arts
Brow Beat
Sept. 30 2014 8:54 PM Bette Davis Talks Gender Roles in a Delightful, Animated Interview From 1963
  Technology
Future Tense
Sept. 30 2014 7:00 PM There’s Going to Be a Live-Action Tetris Movie for Some Reason
  Health & Science
Medical Examiner
Sept. 30 2014 11:51 PM Should You Freeze Your Eggs? An egg freezing party is not a great place to find answers to this or other questions.
  Sports
Sports Nut
Sept. 30 2014 5:54 PM Goodbye, Tough Guy It’s time for Michigan to fire its toughness-obsessed coach, Brady Hoke.