The weakening of Lululemon’s (LULU) stock yesterday, after a strong start based on what appeared to be blowout numbers, shouldn’t be surprising. The 2 cent per share “beat” wasn’t a beat, after all — at least not after taking into account a lower-than-expected tax rate and about one million fewer shares than the prior quarter, which both added about 2 cents. The strong Canadian dollar also provided a pop. Then there margins, which were lower than expected, and the announced departure in several months of CEO Bob Meers, who is no stranger to readers.
But rather than dwell on the stuff many of you already know — or would prefer to ignore — let’s go straight to Lucy vs. Lulu battle, which has been largely overlooked.
When I track companies, I always want to know who the competition is, especially if it’s private or if it’s owned by a larger company. The non-public companies often make less noise and are often lost and/or forgotten in the hype and noise over a fast-growing, public rival.
A good example is Portland-based Lucy, a direct Lulu competitor that was quietly acquired last year by VF Corp. (VFC) — not known as a shabby operator. According to VF’s 10-K, VF has plans to “significantly expand” the number of Lucy stores, which numbered 60 as of the date of VF’s March annual report.
How important should that be to Lulu investors? I asked one very smart retail watcher, who said that Lucy may be a topic of discussion a year or two from today. “A better question,” he says, “is whether Lulu works in middle-America.” He was referring to the company’s comment that it has had a slower-than-expected ramp in Texas. The company blamed that on having “shortcut” its “winning formula” for opening stores. Or maybe, just maybe, it’s the beginning of the Lucy effect.