Latest / Best of Business / Stephanie Batchelor: Milford Asset Management spokesperson on Lululemon shares plummeting 40 percent

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Stephanie Batchelor: Milford Asset Management spokesperson on Lululemon shares plummeting 40 percent · Best of Business

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  Speaker 1: Do the Seelan.
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  Speaker 2: Siffany Bacheler, Milford Asset Management. Hey, Stephanie, Hi, Heather Stiffanie.
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  Speaker 2: I see Lululemon's shares are down something like forty percent.
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  Speaker 2: At the moment, I thought that they were wanting market Darling,
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  Speaker 2: weren't they?
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  Speaker 3: Yeah, that's right. So Lululemon has historically been a much
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  Speaker 3: loved name for investors. It was really the pioneer of
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  Speaker 3: ath leisure when it was founded over twenty five years ago,
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  Speaker 3: and it did really well during COVID. You know, people
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  Speaker 3: stopped going out, they were working from home wearing comfed clothes.
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  Speaker 3: I know, I pretty much lived in my Lululemon leggings.
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  Speaker 3: And shares have done well historically. So for example, from
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  Speaker 3: twenty eighteen to twenty twenty three, Lulu shares delivered three
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  Speaker 3: hundred and twenty percent, or about three times what the
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  Speaker 3: broader US market delivered. But this year, as you mentioned,
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  Speaker 3: it had a poor quarterly result in March and that
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  Speaker 3: caused a big sell off. So sheare now down about
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  Speaker 3: forty percent this.
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  Speaker 2: Year what's going on? Why is this happening?
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  Speaker 3: Well, the big concern is around growth in the US.
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  Speaker 3: Lulu is actually a Canadian brand, but you can think
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  Speaker 3: of the US as Lulu's home market, and growth there
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  Speaker 3: has slowed in the last couple of quarters from double
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  Speaker 3: digit down to single digit. Now. There are a couple
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  Speaker 3: of factors that Lulu's management team have called out over
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  Speaker 3: the last two result calls. The first one is that
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  Speaker 3: they've talked about in trim steps. They said they didn't
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  Speaker 3: have enough small sizes, they didn't have enough color, they
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  Speaker 3: didn't have enough of the popular bags to satisfy customer demand.
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  Speaker 3: So they're essentially saying the brand and the popularity is
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  Speaker 3: fine and if they'd had the right product available, they
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  Speaker 3: would have done much better. They also mentioned general macro weakness,
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  Speaker 3: and we've seen that here in New Zealand and around
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  Speaker 3: the world. With that painful cost of living, people are
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  Speaker 3: cutting back in other more discretionary areas of spend. And
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  Speaker 3: there are also questions around whether it just had such
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  Speaker 3: a great run during COVID, you know it, with people
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  Speaker 3: stocking up on active wear, and now people are out
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  Speaker 3: and about wearing normal clothes again, so maybe they just
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  Speaker 3: don't need to spend their money at Lululmm.
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  Speaker 2: What about competition, because as you said, they were the
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  Speaker 2: ones who started the athletes, but everybody else is doing
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  Speaker 2: that as well now, aren't they.
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  Speaker 3: Yeah, So that's the other piece of the puzzle that
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  Speaker 3: investors are really concerned about. There are a couple of
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  Speaker 3: yoga apparel companies that are doing really well in the US.
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  Speaker 3: One is Alo Yoga, and yet is Vori, and they've
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  Speaker 3: been growing pretty quickly and actually opening stores right next
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  Speaker 3: to Lululemon stores. So there are questions around whether Lulu
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  Speaker 3: is falling behind or lacking innovation releved to these newcomers.
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  Speaker 3: But as worth noting, competition isn't new for Lulu. They've
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  Speaker 3: always competed against names like Nike and Adidas, and six
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  Speaker 3: or seven years ago there was a lot of concern
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  Speaker 3: around Lorna Jane athletea Sweaty Betty and a few others,
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  Speaker 3: which Lulu seemed to navigate just fine.
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  Speaker 2: So given how far the shares have fallen, at what
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  Speaker 2: point do you think the investors start buying them again?
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  Speaker 3: So it could take a couple more quarters until some
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  Speaker 3: of the more bearish investors feel confident jumping back into
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  Speaker 3: the shares. Management have said they play and to have
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  Speaker 3: the inventory issues resolved in the second half and that
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  Speaker 3: they have a healthy lineup of innovation set to come through,
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  Speaker 3: so that will help to answer the question on whether
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  Speaker 3: this is just a short term blip or if there
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  Speaker 3: are longer term issues around competition or the brand losing popularity.
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  Speaker 3: And look, there are still a lot of positives the
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  Speaker 3: underlying as leisure industry is still growing. The international growth
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  Speaker 3: for Lululemon is incredibly strong. They've expanded into men'swear and
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  Speaker 3: they've got market leading margins and profitability. So trying to
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  Speaker 3: figure out exactly when a stop will recover as a
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  Speaker 3: lost tricky, But right now it seems the more skeptical
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  Speaker 3: investors are sitting back and waiting a bit to see
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  Speaker 3: how things pan out before they start. Find you gazing.
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  Speaker 2: Interesting and why Steffanie. Thank you very much, Stephanie Bachelor,
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  Speaker 2: Milford Asset Management.
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