Stephanie Batchelor: Milford Asset Management spokesperson on Lululemon shares plummeting 40 percent

Former market darling Lululemon's been having a rough year, with shares plummeting 40 percent in 2024.

The famed athleisure brand is experiencing a drop in popularity after five years of steady growth.

Milford Asset Management's Stephanie Batchelor says this is down to inventory missteps and people turning away from discretionary spending.

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Episode Transcript

Speaker 1 (00:00):
Forgiven, do for Seo Siffany Bachelor Milford Asset Management. Hey, Stephanie, Hi,
Heather Stiffanie. I see Lululemon's shares are down something like
forty percent. At the moment, I thought that they were
wanting market darling, weren't they?

Speaker 2 (00:12):
Yeah, that's right. So Lululemon has historically been a much
loved name for investors. It was really the pioneer of
ath leisure when it was founded over twenty five years ago,
and it did really well during COVID. You know, people
stopped going out, they were working from home wearing comfair clothes.
I know I pretty much lived in my Lululemon leggings
and shares have done well historically. So for example, from

(00:34):
twenty eighteen to twenty twenty three, Lulu shares delivered three
hundred and twenty percent, or about three times what the
broader US market delivered. But this year, as you mentioned,
it had a poor quarterly result in March and that
caused a big sell off. So share now down about
forty percent this year.

Speaker 1 (00:51):
What's going on? Why is this happening?

Speaker 2 (00:54):
Well, the big concern is around growth in the US.
Lulu was actually a Canadian brand, but you can think
of the US as Lulu's home market, and growth there
has slowed in the last couple of quarters from double
digit down to single digit. Now. There are a couple
of factors that Luluz management team have called out over
the last two result calls. The first one is that
they've talked about in trim steps. They said they didn't

(01:17):
have enough small sizes, they didn't have enough color, they
didn't have enough of the popular bags to satisfy customer demand.
But they're essentially saying the brand and the popularity is
fine and if they had the right product available, they
would have done much better. They also mentioned general macro weakness,
and we've seen that here in New Zealand and around
the world. With that painful cost of living, people are

(01:37):
cutting back in other more discretionary areas of spend. And
there are also questions around whether it just had such
a great run during COVID. You know, it was people
stocking up on active wear, and now people are out
and about wearing normal clothes again, so maybe they just
don't need to spend their money at luluvan them.

Speaker 1 (01:52):
What about competition, because as you said, they were the
ones who started the athletes. But everybody else is doing
that as well, now, aren't they.

Speaker 2 (01:59):
Yeah, So that's the other piece of the puzzle that
investors are really concerned about. There are a couple of
yoga apparel companies that are doing really well in the US.
One is Alo Yoga and y is Vori, and they've
been growing pretty quickly and actually opening stores right next
to Lululemon stores. So there are questions around whether Lulu
is falling behind or lacking innovation releved to these newcomers.

(02:21):
But it as worth noting competition isn't new for Lulu.
They've always competed against names like Nike and Adidas, and
six or seven years ago there was a lot of
concern around Lorna Jane athletea Sweaty Betty and a few others,
which Lulu seemed to navigate just fine.

Speaker 1 (02:37):
So given how far the shares have fallen, at what
point do you think the investors start buying them again?

Speaker 2 (02:42):
So it could take a couple more quarters until some
of the more bearish investors feel confident jumping back into
the shares. Management have said they planned to have the
inventory issues resolved in the second half and that they
have a healthy lineup of innovation set to come through,
so that will help to answer the question whether this
is just a short term blip or if there are
longer term issues around competition or the brand losing popularity.

(03:06):
And look, there are still a lot of positives the
underlying as leisure industry is still growing. The international growth
for Luulemon is incredibly strong. They've expanded into men'swear and
they've got market leading margins and profitability. So trying to
figure out exactly when a stop will recover is a
lost tricky, but right now it seems the more skeptical

(03:27):
investors are sitting back and waiting a bit to see
how things pan out before they start by your.

Speaker 1 (03:31):
Gay Interesting and why, Steffanie, Thank you very much, Stephanie Bachelor,
Milford Asset Management.

Speaker 2 (03:36):
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