Can Lululemon Keep Up The Growth Spurt?

A recent Barron's article discusses how Yoga apparel maker, Lululemon Athletica LULU seems to have gotten it's "groove" back as the company continues to grow in popularity. 2008 and 2009 were a bit of a challenge for the company as people were reluctant to buy $98 yoga pants. Sales surged 33% in the first half of FY11. Barron's reports total sales rose 62%, to $290.5 million, while earnings per share shot up 164%, to 58 cents, putting the Vancouver based company on track to earn $1.22 a share this year, up from 82 cents in fiscal 2010. LULU should not let its comeback go to its head yet as Lulu's post-recession growth is a function, in part, of its poor performance through much of 2008 and '09, when same-store sales and per-share earnings declined in several quarters. Barron's says, starting with the fiscal fourth, results will be compared against three consecutive quarters in which same-store sales grew by an average of 32%. That alone suggests Lulu's recent growth rate might not be sustainable, although it hasn't stopped some from estimating that growth will accelerate even further from here. Taposh Bari, an analyst at Jefferies recently downgraded LULU to Underperform from Hold, citing cautious comments from other retailers such as J.Crew JCG which suggest a slowing retail environment. In a report he wrote to his clients, Bari said, "We see EPS [earnings per share] and multiple risk, as LULU has the richest valuation and toughest comps in retail." Whitney Tilson, managing partner at T2 partners says "Companies such as Prana, Gaiam GAIA, Athleta, Lucy and even big names like Adidas have all jumped into the business. Lululemon, basically is selling a $1 piece of spandex for $100. Target's TGT Icon Women's Yoga Pant costs $19.99. LULU is trading lower today at $45.21