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Lululemon stretches ahead of copycat competitors

Photograph of a Lululemon store in downtown Toronto on June 7, 2012.

Fred Lum/The Globe and Mail

Neither copycat pants nor low-priced athletic wear at rival Gap Inc. are taking the stretch out of Lululemon Athletica Inc.

The Vancouver-based retailer of yoga fashion keeps defying naysayers and beating analysts' financial targets. It does so even while swimming against the tide. During the U.S. Black Friday holiday weekend, which followed the American Thanksgiving in late November, Lululemon was one of the few specialty merchants that refrained from running promotions.

Lululemon stores were "medium busy" leading up to Black Friday and throughout the weekend, said Jennifer Black, chief executive officer of retail research firm Jennifer Black & Associates in Lake Oswego, Ore. On the other hand, some rival retailers were teeming with shoppers who were hunting for big markdowns.

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Even so, Lululemon "should do very well this holiday season," she predicted. On Thursday, when the company releases its third-quarter results, its executives may provide clues of how Lululemon will fare in its crucial fourth quarter.

Despite an uncertain economy, Lululemon is counting on its premium pants and bags to make it a destination and differentiate it from a growing array of rivals that stock similar goods at lower prices.

The company said in November it had reached an out-of-court settlement with rival Calvin Klein Inc., which allegedly developed a line of athletic pants that were similar to the Canadian retailer's designs.

Lululemon made some mistakes earlier this year, including stocking clothing with bleeding colour dyes and discontinuing a popular loose-fitting pant style. But the stumbles didn't seem to pinch results: The retailer reported an almost 50-per-cent jump in second-quarter profit to $57.2-million (U.S.) and boosted its 2012 outlook.

Now the chain is gearing up for the crucial holiday period by touting "chalet" wear such as a merino wool "fireplace" long-sleeved jersey. Some of the items are "pushing the price limit," Ms. Black said. The wool jersey is $138 (Canadian) while a "down to the studio" jacket is $298.

The pricey offerings have prompted investor fears that competitor Gap and its growing U.S. Athleta chain will entice customers with cheaper athletic wear. Still, analyst Roxanne Meyer at financial firm UBS doesn't anticipate that Athleta will be a short- or medium-term threat to Lululemon. Lululemon "is more technical, fashion-forward and focused (read: authentic), which lessens risk of substitution by Athleta," she said in a recent report.

Athleta's prices are 13 per cent lower than those at the Canadian chain, a spread that is declining and was 16 per cent in the spring.

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