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Speaker 1: Forgiven, do for Seo Siffany Bachelor Milford Asset Management. Hey, Stephanie, Hi,

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Speaker 1: Heather Stiffanie. I see Lululemon's shares are down something like

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Speaker 1: forty percent. At the moment, I thought that they were

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Speaker 1: wanting market darling, weren't they?

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Speaker 2: Yeah, that's right. So Lululemon has historically been a much

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Speaker 2: loved name for investors. It was really the pioneer of

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Speaker 2: ath leisure when it was founded over twenty five years ago,

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Speaker 2: and it did really well during COVID. You know, people

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Speaker 2: stopped going out, they were working from home wearing comfair clothes.

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Speaker 2: I know I pretty much lived in my Lululemon leggings

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Speaker 2: and shares have done well historically. So for example, from

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Speaker 2: twenty eighteen to twenty twenty three, Lulu shares delivered three

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Speaker 2: hundred and twenty percent, or about three times what the

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Speaker 2: broader US market delivered. But this year, as you mentioned,

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Speaker 2: it had a poor quarterly result in March and that

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Speaker 2: caused a big sell off. So share now down about

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Speaker 2: forty percent this year.

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Speaker 1: What's going on? Why is this happening?

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Speaker 2: Well, the big concern is around growth in the US.

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Speaker 2: Lulu was actually a Canadian brand, but you can think

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Speaker 2: of the US as Lulu's home market, and growth there

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Speaker 2: has slowed in the last couple of quarters from double

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Speaker 2: digit down to single digit. Now. There are a couple

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Speaker 2: of factors that Luluz management team have called out over

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Speaker 2: the last two result calls. The first one is that

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Speaker 2: they've talked about in trim steps. They said they didn't

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Speaker 2: have enough small sizes, they didn't have enough color, they

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Speaker 2: didn't have enough of the popular bags to satisfy customer demand.

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Speaker 2: But they're essentially saying the brand and the popularity is

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Speaker 2: fine and if they had the right product available, they

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Speaker 2: would have done much better. They also mentioned general macro weakness,

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Speaker 2: and we've seen that here in New Zealand and around

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Speaker 2: the world. With that painful cost of living, people are

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Speaker 2: cutting back in other more discretionary areas of spend. And

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Speaker 2: there are also questions around whether it just had such

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Speaker 2: a great run during COVID. You know, it was people

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Speaker 2: stocking up on active wear, and now people are out

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Speaker 2: and about wearing normal clothes again, so maybe they just

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Speaker 2: don't need to spend their money at luluvan them.

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Speaker 1: What about competition, because as you said, they were the

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Speaker 1: ones who started the athletes. But everybody else is doing

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Speaker 1: that as well, now, aren't they.

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Speaker 2: Yeah, So that's the other piece of the puzzle that

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Speaker 2: investors are really concerned about. There are a couple of

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Speaker 2: yoga apparel companies that are doing really well in the US.

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Speaker 2: One is Alo Yoga and y is Vori, and they've

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Speaker 2: been growing pretty quickly and actually opening stores right next

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Speaker 2: to Lululemon stores. So there are questions around whether Lulu

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Speaker 2: is falling behind or lacking innovation releved to these newcomers.

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Speaker 2: But it as worth noting competition isn't new for Lulu.

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Speaker 2: They've always competed against names like Nike and Adidas, and

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Speaker 2: six or seven years ago there was a lot of

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Speaker 2: concern around Lorna Jane athletea Sweaty Betty and a few others,

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Speaker 2: which Lulu seemed to navigate just fine.

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Speaker 1: So given how far the shares have fallen, at what

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Speaker 1: point do you think the investors start buying them again?

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Speaker 2: So it could take a couple more quarters until some

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Speaker 2: of the more bearish investors feel confident jumping back into

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Speaker 2: the shares. Management have said they planned to have the

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Speaker 2: inventory issues resolved in the second half and that they

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Speaker 2: have a healthy lineup of innovation set to come through,

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Speaker 2: so that will help to answer the question whether this

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Speaker 2: is just a short term blip or if there are

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Speaker 2: longer term issues around competition or the brand losing popularity.

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Speaker 2: And look, there are still a lot of positives the

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Speaker 2: underlying as leisure industry is still growing. The international growth

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Speaker 2: for Luulemon is incredibly strong. They've expanded into men'swear and

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Speaker 2: they've got market leading margins and profitability. So trying to

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Speaker 2: figure out exactly when a stop will recover is a

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Speaker 2: lost tricky, but right now it seems the more skeptical

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Speaker 2: investors are sitting back and waiting a bit to see

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Speaker 2: how things pan out before they start by your.

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Speaker 1: Gay Interesting and why, Steffanie, Thank you very much, Stephanie Bachelor,

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Speaker 1: Milford Asset Management.

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