Capital Group boosts stake in yoga wear company Lululemon

TORONTO Mon Feb 10, 2014 5:54pm EST

A shopper walks out of the Lululemon Athletica store in New York, December 16, 2013. REUTERS/Shannon Stapleton

A shopper walks out of the Lululemon Athletica store in New York, December 16, 2013.

Credit: Reuters/Shannon Stapleton

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TORONTO (Reuters) - Capital Group, one of the world's largest investment management firms, said on Monday it had boosted its stake in Lululemon Athletica Inc (LULU.O), a vote of confidence in the embattled yogawear retailer.

The firm said its Capital Research Global Investors arm now owns 12.7 million shares in the company, giving it a roughly 11 percent stake in the company. This is up from 5.9 million shares or a 5.1 percent stake, as of September 30, 2013.

According to Thomson Reuters data, the increase would make the firm the third largest shareholder in the company.

The firm said it intends to maintain a passive position in the company and that the securities acquired are not being held for the purpose of changing or influencing the company in any manner.

Vancouver, British Columbia-based Lululemon, which has carved out a lucrative niche selling fashionable high-end workout clothes, ran into a spate of problems last year and its once high-flying stock has taken a beating.

Shares of the retailer, once an investor darling, slumped to its lowest level in more than two years in January after it warned that sales at established stores would likely fall in the latest quarter.

Complaints over quality culminated in a high-profile recall last March of yoga pants deemed too sheer for wear. The recall spurred costly ongoing supply chain troubles and bungled public relations which the company has vowed to fix.

Some analysts are turning more positive and the stock has risen nearly five percent in its last two trading sessions.

Late last week, RBC Capital Markets raised its rating on the stock to "outperform" from "sector perform," saying that the recent sell-off in Lululemon was a unique opportunity to buy into a still-compelling growth story.

Baird analyst Mark Altschwager also said on Monday Lululemon was an opportunity for patient investors, and noted that the retailer was well-positioned in a growing fitness apparel market.

Following discussions with management, Altschwager said Lulu's spring products arrived on time this month for the first time in several seasons. But he said management believes it would probably take until the fourth quarter of 2014 before improvements to the company's supply chain and changes in its design leadership would have a greater impact. He also said a dividend or share buyback appeared imminent.

(Reporting by Solarina Ho and Euan Rocha; Editing by Bernard Orr)

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Comments (1)
Stratexpert wrote:
The lulu problem is not only on quality problem but also the marketing strategy problem.The store in Shanghai is closed,the store
in taiwan is closed.In the mean time the adidas opened a new flagstore in Beijing and Shanghai.The another brand Roxy’s selling also quite good.

When youenter the lululemon’s store you will find The guest age is most between 30-48years old.The sports is limited in Yoga.The color is only few color.With lululemon’s culture ,the selling is very successful in USA,Canada and some in Europe.the people who love lululemon already have one in hand,if lululemon try to increase the sales revenue.The best way is to spend the advertising and activities in new market will be much better.To convince someone who takes lululemon in new market is easier than Cananda or USA.Because you have to spend double cost and time to convince someone who doesn’t like yoga or excersize to accept it again.
But if the lululemon want to go internationalize,the way of of running business has to make a big change.The style of management is too localized. If you want to expand the market in China or other country in Asia ,the store management has to make change.
The apple Iphone want to get successful selling in China ,who find a China Mobile to help them to get the market chanel .That means the apple will do something different strategy selling compare with USA market.For example in China :In the morning there are a lots old people(20million) exercise Taiji who can wear lululemon’s cloth.In the evening there a lots people(20million) who are dancing in the park who can wear lululemon also.
What lululemon has to do is to need seting up a new strategy for the international market and make some change about the way of running the shop out side of Cananda and America.This is a reasonable requirement.If not that will narrow your customer in certain field.
Becuase the customer will be limited as below:
1.To break the sport limit
Except yoga can wear,the walker can wear,the leisure time also can wear.that means people don’t sweat also can wear lululemon to walk around.
2.To break the age limit
Yong people can wear ,old people can wear and children also wear.Family Yoga also is a truly new market.
3.To break the color limit
Black is good and gray is ok ,but lovely sunshine color also is good selection.
4.To put muti culture instead of single culture
The way of running has to make some change to fit the local market.

To use the same method to run the store in worldwide business is not
workable.If the lulu very satisfied with their own unique way to run worldwide business.I can forecast the share price will maintain 45-55 dollar.Because it is very difficult to make sales revenue increase
From the mature market unless to make some change.

Feb 16, 2014 1:48pm EST  --  Report as abuse
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