One of the Canadian stocks the members of our Inner Circle have asked about more than once is popular athletic wear company lululemon. Here’s my response to the latest question on the stock that positioned itself as a “lifestyle educator.”

Q: Hi Pat: I am interested in your take on lululemon. Thanks.

A: lululemon athletica Inc., symbol LLL on Toronto, is a Vancouver-based designer and seller of yoga-inspired athletic wear and accessories. Part of its brand image is that it doesn’t capitalize the first letters in the words making up its corporate name.

lululemon began trading on Toronto in July 2007. The shares also trade in the U.S. on the Nasdaq market under the symbol LULU.

Dennis “Chip” Wilson founded lululemon in 1998, after noticing that more women were taking up yoga and other physical activities. Wilson had 20 years of experience making surfing and snowboard clothing. He believed that the all-cotton fabrics then used for yoga were inappropriate.

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Canadian stocks: How expert feedback helped create new fabrics

When Wilson opened the first lululemon store in the Kitsilano Beach area of Vancouver in 2000, he positioned its staff not just as salespeople, but as “lifestyle” educators. Wilson invited yoga, Pilates, fitness and dance instructors to join lululemon’s “R&D team,” and give feedback on its apparel, in return for a 15% discount. He also recruited some of them to appear on lululemon’s posters, web site and postcards.

lululemon has also developed its own stretch fabrics, such as Luon, its signature fabric, and Silverescent, which uses silver yarn that has anti-bacterial qualities (which lululemon calls “anti-stink”). As well, all of lululemon’s athletic wear has premium features, such as flat seams, which reduce chafing.

lululemon is one of those Canadian stocks that has expanded abroad successfully. It has 45 stores in Canada, 85 in the U.S. and 12 in Australia. The company plans to open 25 more stores within the next year.

Most of the company’s stores operate under the lululemon althletica banner. However, three of its outlets sell dance-related apparel for girls under the ivivva althetica banner. The company recently launched a new e-commerce site, www.ivivva.com, to sell ivivva merchandise.

Canadian stocks: lululemon counts on loyalty in a fickle market

In the three months ended May 1, 2011, lululemon’s revenue rose 35.1% to $186.8 million from $138.3 million a year earlier (all figures in U.S. dollars). Same-store sales rose 16%. Earnings jumped 70.4% to $33.4 million, or $0.23 a share.

The company holds cash of $260.9 million, or $2.41 a share. It has no long-term debt.

lululemon operates in a competitive and fickle market. However, the company has built a high-quality and popular brand that attracts a wide range of loyal and higher-income customers.

Over the longer term, the company’s growth could stall if the economic recovery slows. That could result in a drop in its share price. lululemon also faces rising costs for its products from its manufacturers. But in the near term, its new stores should continue to push its sales and earnings higher.

lululemon okay to hold, but only for aggressive investors.