Capital Group Increases Stake In Lululemon Athletica To 11%

Investment management firm Capital Group reported early this week that it has increased stake in Lululemon Athletica to 11%, more than doubling its previous holdings in the company.

Capital Group now holds 12.7 million shares, up from 5.9 million shares, or a 5.1% stake, in September 2013, according to an article from Reuters. Representatives from Capital Group indicated that the firm will still have a “passive position in the company” despite the increase in investment. 

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Capital Group’s announcement comes after a series of blows to Lululemon and in turn, its stock value. During the summer of 2013, the brand came under fire for selling yoga pants that became sheer when worn. Former CEO Christine Day stepped down shortly after the controversy, and in December 2013, founder Chip Wilson stepped down after indicating that some women’s bodies “don’t actually work” with Lululemon’s notorious yoga pants.

In January 2014, the athletic gear brand and retailer updated its net revenue for the 2013 fiscal year, which ended on Feb. 2, 2014. According to the updated results posted on the web site, Lululemon anticipates that net revenue will be between $513 million and $518 million.

This is a notable decrease from the brand’s initial report of $535 million to $540 million in net revenue. Diluted earnings per share now are expected to be between $0.71 and $0.73 for the quarter, versus previously anticipated $0.78 and $0.80 range.

“We were on track to deliver on our sales and earnings guidance through the month of December; however, since the beginning of January, we have seen traffic and sales trends decelerate meaningfully,” said John Currie, CFO of Lululemon. “Based on this recent performance and assuming these trends continue through the remainder of January, we are reducing our outlook for the fourth quarter.”

Despite this challenge, Lululemon will continue to improve and optimize its back-end operations and overall structure, Currie added. “While we realize that it will require continued investment and time to get to best-in-class status, with our new leadership in place we are very focused on building on this stronger foundation to execute our long-term growth strategies.”

Tracking and responding to product re-sales also has become a top priority. Lululemon confirmed that it is striving to prohibit customers from purchasing products online, then reselling them on eBay and other marketplaces for a profit.

The statement continued: “We do not support the re-sale of new product, especially if it is at an elevated price point. Sometimes re-sellers also include used product in their inventory, however our focus is on new product re-sales, especially items listed at an elevated price point.”

Return policies have been revised to support this brand initiative. Now, consumers can only return unworn merchandise within 14 days of purchase.

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