Lululemon Athletica inc. (LULU): What Does Billionaire Stephen Mandel Think?

Billionaire Stephen Mandel’s Lone Pine Capital recently upped his stake in Lululemon Athletica inc. (NASDAQ:LULU); he now owns 5.6 million shares, or 5.01% of the apparel company’s outstanding shares. Mandel’s recent purchase is a 16.5% increase from the shares that Lone Pine owned at the end of 2012.

Mandel has some $17 billion of assets under management and is a Tiger cub. Mandel left Julian Robertson’s Tiger Management in 1997 to launch Lone Pine, a fund that employs a “bottom-up” strategy for picking stocks.

The big news for Lululemon Athletica inc. (NASDAQ:LULU) of late was the mid-March announcement of a potential shortage in its supply of black Luon pants. This was due to the fact that a number of shipments had to be pulled from shelves because they failed to meet technical specifications (the sheerness issue). After briefly dropping below $63 per share on news that it would be recalling a number of yoga pants, the stock is now back up to pre-recall levels, above $68 per share.

Lululemon Athletica inc. (NASDAQ:LULU) also managed to post EPS last quarter that came in at $0.75, compared to $0.51 for the same period last year. This was on the back of 10% higher same- store sales and 31% higher revenue. The company also expects to post first- quarter revenue between $333 million and $343 million after accounting for lost revenue in the range of $12 million to $17 million due to the black-Luon issue.

I still have my reserves about Lululemon Athletica inc. (NASDAQ:LULU), given that its niche business model and risks related to expanding into other markets. Lululemon Athletica inc. (NASDAQ:LULU)’s future appears to be rooted in its eventual transition into general athletic wear and not just women’s yoga clothing. However, that market is already ripe with real apparel suppliers, including the likes of Under Armour Inc (NYSE:UA), Adidas and NIKE, Inc. (NYSE:NKE).

Is there a better way to invest in apparel?

Under Armour Inc (NYSE:UA) develops and distributes apparel, footwear and accessories. Apparel is expected to continue to be the revenue driver, accounting for more than 75% of the company’s revenue.

According to Standard & Poor’s, the synthetic performance-apparel market is around $3 billion, with Under Armour owning some 60% of that market. What’s more is that the company introduced cotton performance apparel in 2011, which expanded its addressable market to include the $12 billion active-use sports apparel market. Under Armour is also still limited geographically (especially compared to Nike), getting more than 95% of its revenue from North America.

Under Armour Inc (NYSE:UA) also announced first-quarter earnings results earlier this month, announcing that revenue increased 23% year-over-year. However, net income was down 47% due to an increase in marketing expenditures.