Feb 11, 2014
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Capital Group boosts stake in yoga wear company Lululemon

Feb 11, 2014

TORONTO, Canada - Capital Group, one of the world's largest investment management firms, said on Monday it had boosted its stake in Lululemon Athletica Inc, a vote of confidence in the embattled yogawear retailer.

The firm said its Capital Research Global Investors arm now owns 12.7 million shares in the company, giving it a roughly 11 percent stake in the company. This is up from 5.9 million shares or a 5.1 percent stake, as of September 30, 2013.

Image source: Lululemon

According to Thomson Reuters data, the increase would make the firm the third largest shareholder in the company.

The firm said it intends to maintain a passive position in the company and that the securities acquired are not being held for the purpose of changing or influencing the company in any manner.

Vancouver, British Columbia-based Lululemon, which has carved out a lucrative niche selling fashionable high-end workout clothes, ran into a spate of problems last year and its once high-flying stock has taken a beating.

Shares of the retailer, once an investor darling, slumped to its lowest level in more than two years in January after it warned that sales at established stores would likely fall in the latest quarter.

Complaints over quality culminated in a high-profile recall last March of yoga pants deemed too sheer for wear. The recall spurred costly ongoing supply chain troubles and bungled public relations which the company has vowed to fix.

Some analysts are turning more positive and the stock has risen nearly five percent in its last two trading sessions.

Late last week, RBC Capital Markets raised its rating on the stock to "outperform" from "sector perform," saying that the recent sell-off in Lululemon was a unique opportunity to buy into a still-compelling growth story.

Baird analyst Mark Altschwager also said on Monday Lululemon was an opportunity for patient investors, and noted that the retailer was well-positioned in a growing fitness apparel market.

Following discussions with management, Altschwager said Lulu's spring products arrived on time this month for the first time in several seasons. But he said management believes it would probably take until the fourth quarter of 2014 before improvements to the company's supply chain and changes in its design leadership would have a greater impact. He also said a dividend or share buyback appeared imminent.

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