Lululemon eyes continued jump in sales

Who knew that yoga gear was so popular? Lululemon Athletica, the purveyor of expensive yoga products, is one of the most successful retail companies of the past few years, thanks in no small part to its chief executive.

Lululemon, based in Vancouver, Canada, employs a markedly different retail strategy from many of its competitors. The company is known for the pricey yoga mats, clothing and accessories it sells at store locations throughout North America, but it has been able to accomplish something few chains have over the past few years: it has continued to post record sales gains.

The Wall Street Journal reports that Lululemon now boasts a market value of approximately $10.4 billion. In 2011, it reported sales of $712 million, representing a significant jump from the year prior. Lululemon has successfully cultivated a reputation as a premier shopping destination when its sales per square foot – an important indicator of profitability – hit $1,800 in its last quarter. Recording such a figure is impressive for any kind of retail store, and it is more than 300 percent higher than that of Neiman Marcus, one of the most prominent luxury brands in the world.

Yoga may not be considered a niche activity in the U.S. anymore, as more than 20 million Americans practice. However, it is altogether remarkable that a retail chain that sells only a select number of items could achieve such a torrid rate of sales growth over the past few years, particularly considering the tepid economic climate that has dominated in the post-recession U.S.

According to Lululemon executives, the company's strategic sourcing and superior supply chain management have enabled it to outpace its rivals. Under chief executive Christine Day, Lululemon has executed a strategy that relies on close contact with customers as a means of understanding what, exactly, they are searching for when they shop at Lululemon.

Moreover, unlike chains such as Target and Wal-Mart that have aggressively cut prices in an effort to drive traffic, Lululemon has largely bucked such a sales-driven retail approach. The company employs pricing power to help fuel sales, and it intentionally stocks less inventory than it is capable of holding on shelves in its brick-and-mortar stores, a move that has helped fuel the brand's mystique.

Lululemon has posted nine quarters over the past three years in which sales have risen by more than 30 percent, according to the WSJ. While other retail chains have introduced discount and sale campaigns to lure shoppers to their stores, Lululemon has merely kept up contact with its core group of patrons, according to company executives.

This week, Lululemon posted a fourth quarter profit of $73.5 million, representing a 34 percent jump from the same period the year prior. What's more, Lululemon's revenue also increased 51 percent to $371.5 million, underscoring how its unique approach has helped fuel its ascent.

Still, critics contend that the winning streak will inevitably end, as the company continually targets double-digit sales increases. NBG Inc. chief equities analyst Brian Sozzi said Lululemon cannot escape the fate of every super successful business.

"I think across the board it's going to slow – earnings, revenue and margins – just because of how fast and how quickly this brand has grown," he said. "The law of large numbers eventually catches up to these retailers."

Lululemon is charging ahead in its latest fiscal year, and the retailer continues to eye a significant rise in sales and revenue. Day is confident the retailer can record more than $1.3 billion in revenue in its current fiscal year.