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Lululemon Joins Ranks of Poorly Performing Athletic Giants

- By Sangara Narayanan

The athletic apparel market in the U.S. has slowed down, adding Lululemon (LULU) to the growing list of companies that see a hard road ahead due to tightening market conditions. Lululemon's sales for the fourth quarter increased 12% compared to last year, which is much better than Nike's (NKE) and equal to Under Armour's (UA)(UAA) growth rate during the most recent quarter.


The real problem was Lululemon told investors that the company expects earnings per share of 25 cents to 27 cents during the first quarter, considerably lower than the market expectation of around 39 cents per share.

Lululemon's bad outlook, coupled with Nike's and Under Armour's recent slowdown, is a clear indication that all is not well in the athletic apparel and footwear market. All three stocks are considerably down in the last 12 months. With all of them trying to bring down investor expectations, stock recovery is going to be hard for the segment to achieve in the short term.

The company expects total comparable sales to decrease in the low single digits during the first quarter but recover during the later part of the year as it expects comps to increase in the low single digits for the full fiscal 2017.

"Although we've had a slow start to 2017, our teams are passionately committed to delivering on our robust plans across product innovation, digital, North America and international as we realize our ambitious vision for the future," said CEO Laurent Potdevin in the earnings press release.

The retail segment as a whole has been a mixed bag during the second half of 2016 with some companies doing well and some not so well. Home improvement stores, for example, did really well during the second half of the year, but non-niche retailers struggled across the board with increasing competition and deflation throughout the year. Fortunately, that eased up in the past few months.

Target (TGT) and Kroger (KR) saw their comparable sales slow down while Walmart (WMT) and Costco (COST) posted comps growth. Some parts of the economy did really well while other parts didn't. Unfortunately, the sports apparel and footwear market seems to have fallen in the latter category with Nike, Under Armour and Lululemon all watching over a slow growth period.

These companies are still posting sales growth numbers, but compared to their own past performances it was unimpressive, to say the least, and the worst part is all these companies were expecting to keep moving at double-digit rates during the near term.

Things don't look good in the short term, but since the whole segment is taking a hit, investors should use the negative sentiment of the market to accumulate apparel and footwear stocks while the proverbial iron is hot.

Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.

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This article first appeared on GuruFocus.