Lululemon Athletica inc. (LULU)’s Revenue at Risk in Product Recall: The Gap Inc. (GPS), Under Armour Inc (UA)

Remember when the lights went out at the Super Bowl and Oreo made waves with one, little tweet? That’s the sort of thing that should be happening at Gap and Under Armour. That’s taking advantage of the situation and making the most from a competitor’s weakness. As of midday on Tuesday, neither brand had tweeted, posted to their Facebook Inc (NASDAQ:FB) page, or put their yoga lines on the front of their websites. I’m going to go ahead and say that’s money lost.

The cycle repeats
Setting aside competitors for a moment — as it seems like they’ve set themselves aside — let’s look at one more troubling issue. This isn’t the first time Lululemon Athletica inc. (NASDAQ:LULU) has had inventory problems. Over the last few years, the company has swung between too little and too much product. Investors should be concerned about the follow-on effects of this snafu. With bad press and limited core inventory, customers will cut down on visits to the store, which means other products will linger as well. That’s going to come back to bite lululemon in the next quarter, when it has excess inventory in other lines.

The bottom line for investors is all bad news. The stock has fallen 9% over the past two days, and with more details coming out on Thursday’s call, there could still be a little way left to fall. The company is still trading at a P/E near 40, which is well above the sector average of 20. Investors considering a change of heart might look to the equally expensive, but stronger Under Armour, or Gap, which is much cheaper, P/E-wise.

The article lululemon’s Revenue at Risk in Product Recall originally appeared on Fool.com and is written by Andrew Marder.

Fool contributor Andrew Marder has no position in any stocks mentioned. The Motley Fool recommends Facebook, lululemon athletica, and Under Armour. The Motley Fool owns shares of Facebook and Under Armour.

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