Pondering The Under Armour, Lululemon Acquisition Chatter

Lululemon store in London
Lululemon store in London
Getty Images.

Will a Lululemon Athletica Inc. acquisition be Under Armour’s Inc.’s next power move?

One report suggesting the growing athletic footwear-and-apparel brand is eyeing the yoga-inspired athletic company has set the industry ablaze, although some analysts have said the talks are based mostly on speculation.

The chatter followed an earlier report suggesting that athletic-footwear-and-apparel giant Nike Inc. should be eyeing a Lululemon deal as opposed to using $12 billion for its new share repurchase program, announced after market close Thursday.

While he would not dismiss the sales talks altogether, Sterne Agee CRT analyst Sam Poser said “both scenarios are very unlikely to occur.”

Both Nike and Under Armour are focused on building their own respective brand,” Poser wrote Monday. “Adding another brand to the mix would prove a distraction. The differences between the primary consumer of each brand are subtle but real. An acquisition of course, would be good for Lulemon shareholders, but would prove to be bad for shareholders of Nike or Under Armour.”

While more management turnover — in October the company announced the elimination of the role of chief product officer, held by Tara Poseley — and concerns over product and supply chain initiatives had pressured Lululemon this year, the acquisition talks pushed its stock higher Monday. The firm closed the day with its share price up about 7 percent, while Under Armour’s share price ended with a modest 0.14 percent gain. Nike’s stock closed down slightly, shedding about 8 cents to $132.46.

While some market watchers have posited that Under Armour — which has been aggressively expanding by snapping up fitness and digital platforms over the past two years — could stand to benefit from a jolt to its women’s business, Poser suggests the growing athletic brand does not need a Lululemon boost.

Both Nike and Under Armour have been investing millions, if not more, in their respective women’s businesses,” Poser said. “Buying Lululemon would not be a substitute for building a branded women’s business. Neither Nike or Under Armour can be a true global athletic brand without its own branded women’s business.”

When Lululemon last reported, its second quarter, the firm’s sales grew 16 percent to $453 million and earnings fell slightly to $48 million, from $49 million in the comparable quarter.