How Will Lululemon Fare Under New Boss Laurent Potdevin?

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 |  About: Lululemon Athletica Inc. (LULU)
by: Leigh Drogen

Lululemon Athletica Inc. (NASDAQ:LULU) is set to report FQ4 2014 earnings before the market opens on Thursday, March 27th. Lululemon is a retailer of upscale yoga inspired sportswear. One year ago things looked rocky as a problem surfaced with the company's black Luon yoga pants. Then in November founder Chip Wilson got himself into hot water on Bloomberg TV when he made a comment that "some women's bodies just don't actually work" with the company's pants. Since the two big PR disasters from 2013, a lot has changed at Lululemon. In December it was announced that Chip Wilson would step down as chairman and Laurent Potdevin, formerly of Toms Shoes, would be brought into to replace Christine Day as CEO. Since the shakeup Lululemon stock has dropped sharply as the company announced in January that sales slowed "meaningfully" and offered a lower quarterly outlook. Here's how investors are expecting Lululemon to report its first quarter under Laurent Potdevin on Thursday.

The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors.image

(Click Here to see Estimates and Interactive Features for Lululemon)

The current Wall Street consensus expectation is for Lululemon to report 72 cents EPS and $517.97M revenue while the current Estimize.com consensus from 41 Buy Side and Independent contributing analysts is 72 cents EPS and $515.93M in revenue. This quarter the buy-side as represented by the Estimize.com community is expecting Lululemon to match the Wall Street consensus EPS while coming up a couple million dollars short on sales.

Over the previous six quarters the consensus from Estimize.com has been more accurate than Wall Street in forecasting Lululemon's EPS and revenue 5 and 4 times, respectively. By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students and non professional investors Estimize has created a data set that is more accurate than Wall Street up to 69.5% of the time, but more importantly it does a better job of representing the market's actual expectations.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case we are seeing very little difference between the two groups' expectations.image

The distribution of estimates published by analysts on the Estimize.com platform range from 64 cents to 79 cents EPS and from $495.01M to $540.00M in revenues. This quarter we're seeing a wide distribution of estimates on Lululemon.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A wider distribution of estimates signaling less agreement in the market could mean greater volatility post earnings. image

Over the past four months the Wall Street EPS consensus dropped from 84 cents to 72 cents while the Estimize consensus fell from 88 cents to 72 cents. Meanwhile the Wall Street revenue forecast declined from $570.1M to $517.97M while the Estimize forecast also sank from a high of $583.1 to $515.93M. Timeliness is correlated with accuracy and falling analyst revisions at the end of the quarter are often a bearish indicator, although in this case revisions were mostly flat going into the report.image

The analyst with the highest estimate confidence rating this quarter is shahlamagne who projects 73 cents EPS and $520.00M in revenue. In the Winter 2014 season shahlamagne is rated as the 90th best analyst and is ranked 64th overall among over 4,000 contributing analysts. Overall shahlamagne has been more accurate than Wall Street in forecasting EPS and revenue 58% and 60% of the time, respectively, throughout 12 estimates. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case shahlamagne is making a bullish call expecting Lululemon to beat the Estimize community's expectations on both the top and bottom line.

This quarter contributing analysts on the Estimize.com platform are expecting Lululemon to report earnings that are very similar to the expectations from Wall Street. The slight differentiation being that the Estimize community is expecting LULU to miss the Street's revenue consensus by nearly $2 million. Both groups expect Lululemon to report between its January outlook range of 71 cents to 73 cents EPS and $513M to $518M in sales.

Disclosure: None.