Pulling Up Lululemon's Yoga Pants

It was revealed on Thursday that yoga clothing seller Lululemon LULU has seen its fourth-quarter profit jump 34% thanks to strong demand for the expensive sports-wear. However, the company's earnings outlook for the full year fell shy of analyst's estimates, in addition to shares dipping. According to CBS, the last quarter, ending January 29, saw LULU earn $73.5 million, or 51 cents per share, which is a rise from $54.8 million, or 38 cents per share, in the same quarter the previous year. There has been much discussion recently about whether the company's yoga pants are worth the $98 on the price tag, but it would seem that consumers definitely think so. Bootleggers are already selling cheap Lululemon knock offs which, while it might annoy the hell out of the company's top brass, points to the fact that this is considered a designer name worth bootlegging. That, in itself, is a sign of LULU‘s growth. It is also further proof that yoga in the western world has gone from being the practice of attaining physical, mental and spiritual discipline, borrowed from a Hindu concept, and used to achieve physical fitness, to being just another corporate avenue within the athletic industry. The pants, while apparently well-made, are still manufactured out of a relatively inexpensive material in spandex. Like most other clothing nowadays, the price is in the name on the label. However you look at it though, LULU is doing something right. Revenue has risen 51% to $371.5 million from $245.4 million, beating Wall Street predictions. Those behind the marketing should be commended, perhaps more than anyone else. Demand for the yoga pants is enormous, and while cautious customer spending and high costs have had some impact, LULU looks to be getting through it better than most. LULU said that it expects 1Q net income of 28 cents per share on $265 million to $270 million in revenue, with analysts predicting profit of 29 cents per share and $256.2 million in revenue. On Thursday, Jefferies published a research report stating that based on the market reaction (stock indicated down 1-2%), it seems the market was equally braced as well. If history repeats, guidance will ultimately prove to be conservative. Inventories look high but likely to be justified (by market) by stronger sell-through. Jefferies also said that, “With management guiding FY12 revenues up 30%, we expect to hear some more color behind the inventory ramp. The good news is sell-through appears robust with comps up 26% in 4Q11 and guided up low-20%'s in 1Q12. Recall that LULU's problem historically has been the lack of inventory. Most expected the company to enter 2012 with a healthier inventory position, which would in turn drive better sales and more normalized markdown rates. It looks like inventory turns will slow in the interim as supply/demand is re-balanced.”