The company is facing aggressive competition from stores such as Gap Inc's Athleta, VF Corp's lucy, Macy's Inc and others selling activewear at lower prices at far more locations.
Small but hot yogawear brands such as Sweaty Betty and Lorna Jane also pose a potential threat, but the biggest competition is expected to come from Athleta, which will open 30 stores this year, tripling its locations to about 100 stores in just two years.
"Lulu has had clear sailing up until now. They were the gorilla in this category," said Kelsey Scroggins, a senior vice president at Marvin Traub Associates, a consulting firm in New York.
Long a Wall Street darling for its dizzying revenue growth, the Vancouver, Canada-based company recently reported its first decline in quarterly comparable sales since 2009.
Lululemon's stock is 36 percent below its 52-week high on investor concerns about growing competition. The company is expected to provide an update to Wall Street at its analyst day on Thursday.
Lululemon's U.S. sales hit the $1 billion mark for the first time last year, more than triple what they were two years earlier, making it the top specialty retailer in the $14.5 billion women's activewear market in the United States.
But Lululemon's 2 percent growth in same-store sales - a key measure of performance for retailers - lagged the womenswear market's 9 percent rise, according to NPD Group.
While Lululemon's international expansion is under way and the chain's first men's stores will open by 2016, investor worries persist about its U.S. business, which represents two-thirds of sales.
Lululemon declined to comment for this story. But Chief Executive Officer Laurent Potdevin admitted to investors last month that Lululemon is "not the only game in town anymore."
The company's image is still recovering from the yoga pants recall and a controversy in November when founder Dennis "Chip" Wilson said some women's shapes "actually don't work" with Lululemon's yoga pants.
YouGov BrandIndex, which scores consumer perception of brands on a scale of minus 100 to plus 100, said Lululemon's score was -8, well below the +15 before the controversy.
Nevertheless, the company still has devoted fans, and it has said there is room for 100 more U.S. stores on top of the 170 locations it currently has in its biggest market.
"If I have to buy new pants, I'm going to buy Lululemon," said Jennifer Stephens Acree, 44, an avid yogi from Los Angeles, who praises the pants' quality and fit over those of rivals.
UPWARD FACING RIVALS
Gap Inc's CEO, Glenn Murphy, expects Athleta, which was an online retailer when Gap bought it in 2008 for $150 million, to eventually emerge as the retailer's fourth major chain, after Gap, Banana Republic and Old Navy. The company does not break out sales for Athleta.
At Gap's investor day on Wednesday in San Francisco, Murphy said Athleta is "super" profitable with sales per square foot that are higher than Gap Inc's average, with potential for international stores eventually.
Jeff Kirwan, the president of Gap Inc's China business, told Reuters in an interview that opening Athleta stores there eventually made sense, but did not provide a timeline for such a move. The company projected overall sales would triple in three years in China.
With Gap Inc's comparable sales weak so far this year, after a modest 2 percent rise last year, Murphy is under pressure to make Athleta a hit.
Athleta's strategy has been to offer yoga wear at roughly 20 percent less than Lululemon, in part by tapping Gap's clout with vendors and stable of designers, and offering a wider array of casual clothing such as hoodies.
"A lot of spending on women's apparel has shifted to activewear," said Nancy Green, general manager of Athleta.
For example, Lulu sells standard black yoga pants for $98, while Athleta sells its version for $59 - though they are not made of the same materials. Athleta sells hoodies for $98, about $10 less than what they go for at Lululemon.
Macy's Ideology activewear brand will be sold at 400 stores this year, up from 160 in 2013, and Bloomingdale's recently started selling the hip Barry's Bootcamp activewear brand.
VF hopes to get in on the action, too, with its lucy yogawear. After buying the 60-store chain in 2010, VF, whose other brands include the North Face, is ready to expand the lucy brand, often seen as catering to a less fashion-forward customer than Lululemon.
"It's an area that's wide open," VF's Chief Financial Officer Bob Shearer said in a recent interview. "We are at a place where we can open new stores and build that business."