Lululemon Athletica inc. (LULU) CEO Resignation Raises Questions

The company is quickly expanding through Canada. It plans to add a fifth Canadian store in 2016–the store would open in the fashion destination Yorkdale. The first four Nordstrom stores open in Canada next year. Those openings could help the firm’s price to book ratio, which indicates the company is overvalued. It’s up about 8% from last year at 6.1. Like Lululemon Athletica inc. (NASDAQ:LULU), this company is perceived in a very good light, and its merchandise has continued to be fashionable throughout the years of various trends, which justifies its valuation.

The Foot Locker way: anticipate trends

Foot Locker, Inc. (NYSE:FL) also operates throughout the world, and rules an area in which Lululemon could strengthen its branding. Most people think of Foot Locker as only offering footwear, but Foot Locker also sells apparel. While the company isn’t as diversified as Nordstrom, it is in a position for growth. In fact, last month the company announced the acquisition of Runners Point Warenhandelsges, an online retailer and specialty athletic store. This shows the firm is following trends, and is adaptive enough to realize flexibility is best in this market. If Foot Locker continues to act on accurate visions of future trends, the company will be in for many years of success.

The acquisition of Runners Point improves the company’s prospects. While the price to book ratio indicates the company is undervalued, the steady expansion could further that undervaluation. The ratio is below the retail apparel sector’s average at 2.1. Sales have increased by 27% over the last four years. Foot Locker is also relatively recession-proof because it is one of the most popular stores for running shoes, and people need new shoes even during a recession.

Is Lululemon lululosing its niche?

The company is heavily weighted in the current appeal of yoga, but looks confident enough to adjust with new trends if yoga’s appeal wanes. Basically, it will take the ingenuity of company management to make the merchandise relevant for the consumers of the day. Whether or not the exiting Lululemon Athletica inc. (NASDAQ:LULU) CEO sees the company fading along with yoga in the years ahead is uncertain, but the incoming CEO will have to have a lock on trends of the day to make the company as long-lasting as Nordstrom and Foot Locker.

Phillip Woolgar has no position in any stocks mentioned. The Motley Fool recommends Lululemon Athletica. Phillip is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Lululemon CEO Resignation Raises Questions originally appeared on Fool.com and is written by Phillip Woolgar.

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