Lululemon: Not a Downward Dog

One of the most impressive retail stories in the recession has been Lululemon Athletica, the Canadian seller of women's yoga and running apparel.


The company raised guidance for the fourth quarterTuesday evening, sending its shares soaring, and this morning at the ICR Xchange retail conference in California, it provided more details.

"It's like trying to ride a rocket ship," says CFO John Currie about a company where revenue growth continues to accelerate.

Lululemon now projects fourth-quarter same-store sales will grow in the mid-twenty percent range, the highest increase in its history. While revenue has been growing annually from 2005 through 2009 at an average rate of 52.3%, in 2010 it's projected to have topped 55 percent, or more than $700 million.

CEO Christine Day, who will appear live on Power Lunch, says the company's goal is to become the No. 1 women's athletic apparel company.

This year, Lululemon will roll out new products, like apparel for "hot yoga" and an "innovative bra." It will invest in its e-commerce site and lay the groundwork for international expansion beyond North America.

Lululemon has been late to e-commerce, as 2010 was its first full year on the Web. Internet sales are projected to have been 7 percent to 8 percent of all sales last year. The target is to bring that to 10 percent to 12 percent.

But there are challenges. Some analysts believe the stock is fully valued at its current price. The company projects costs for making its clothes will pressure margins by 150 basis points in 2011. Then there is the problem of inventory. The company says it continues to "chase inventory" to try to keep shelves stocked, and that adds costs. But that's kind of a good problem to have.

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