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Can Lululemon Regain Its Shining Star Status?

NEW YORK (TheStreet) -- Lululemon Athletica (LULU - Get Report) would like nothing more than to regain its shining star status, a time when women viewed the active wear as both hip and accessible. But that was a mood of a different era. 

These days, Lululemon remains a brand in flux, sometimes even flummoxed. So, has the yoga apparel retailer lost its luster, for good?

The Vancouver-based company is trying to stem the bleeding caused by its Luon pants fiasco last year by re-merchandising stores, focusing on international expansion and driving sales through social media as well as in-store technology, CEO Laurent Potdevin noted on today's earnings call, but it sounds like by the time Lulu gets to where it wants to be it may be too late.

"In an athletic apparel market that remains competitive, with new entrants offering merchandise that is equally compelling, we believe it is imperative for lululemon to ensure it is putting its best foot forward in all capacities. After multiple quarters of weak performance, we are increasingly concerned that the brand is permanently damaged at some level," Morningstar analyst Jaime Katz wrote in a note on Thursday. "In our opinion, lululemon's lack of an economic moat has become even more evident over recent quarters, as same-store sales have remained negative and the competition has grabbed share of the lucrative athletic apparel market."

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The women's activewear category is becoming increasingly competitive as the product becomes part of the mainstream. Activewear represents one of the fastest apparel categories in the U.S., Wells Fargo analyst Paul Lejuez wrote in a May 30 note, citing NPD, a consumer research firm. With names like Under Armour (UA), Nike (NKE) and retailers like Gap's (GPS) Athleta as well as fashion retailers VF Corp (VFC) and H&M all seeing opportunity all playing in Lululemon's sandbox (not to mention retailers that sell cheaper merchandise alternatives), it will be especially difficult for the yoga apparel maker to reclaim its reign.

"They're in a hyper-competitive space that is very fashion forward. [Lululemon] has to be on the pulse of the trend," says David Tawil, co-founder and portfolio manager at Maglan Capital, a hedge fund that focuses on distressed companies. "I think that they have a very good following in terms of older consumers and I think those consumers are much stickier than younger consumers which is a great thing for them. They can flub it for a while and make a bunch of mistakes and not lose their shirts. The question is will they be able to regain that excitement or that devotion of the younger consumer?"

"They need to have high-end and creative marketing, but it must be supported by great ground-breaking product," Tawil adds. "They constantly have to be generating product that is not yet copied -- showing the world what it should be wearing. That's their place. They were the first in so many of their products. Whether they can get those elements together to regain the momentum they had I'm not sure." Tawil does not own or short any shares of Lululemon.

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