3 Areas to Watch With Lululemon Athletica inc. (LULU)

3. Competitive threat
As discussed above, the expansion of Athleta and other similar brands could eat into Lululemon’s business. Women’s athletic apparel is certainly a growing market, and rivals such as The Gap Inc. (NYSE:GPS) and Nordstrom, Inc. (NYSE:JWN) could take a bigger piece of the larger pie in the future. The company’s previous litigation over design patents with Calvin Klein has since been settled out of court with both companies not disclosing any details. Without an official decision from the courts, this suggests Lululemon may be more susceptible to different competitors’ products.

Investors should also keep an eye on the yoga retailer’s profit margins. Its current operating margin of 27% crushes the industry average, but competition, especially in the form of lower prices, tends to eat away at that advantage over time. Lululemon’s ability to withstand the wannabes will best be seen through this financial metric. Sustaining those margins will indicate continuing demand as well as consumers’ willingness to pay the high prices Lululemon charges.

The article 3 Areas to Watch With lululemon athletica (NASDAQ:LULU) originally appeared on Fool.com and is written by Jeremy Bowman.

Fool contributor Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends lululemon athletica.

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