SA News • Fri, Jan. 23
- Around 3 months ago, we proposed shorting LULU after arriving at a $29 price target for the stock.
- We have revisited our model and, after rectifying for what we believed to be inaccuracies in our first model, have arrived at a $50 price target for LULU.
- We do not believe the current market value is a fair value for LULU, as the numbers only add up if topline growth is accelerated going into 2018.
- LULU updated its 4Q14 guidance with both revenue and EPS higher on high single-digit comps.
- North American stores continue to face maturity issues, while Asia and Europe remain the more attractive market.
- I remain guarded on LULU as global expansion will weigh on earnings.
Update: Lululemon's Upward Revision Of Earnings Guidance Justifies Our Optimism
- The company has revised its earnings guidance upwards and it has resulted in a sharp rise in the stock price.
- We did not expect the company to revise its earnings guidance.
- The overall trend in revenues and earnings is according to our expectations.
- LULU announced Stuart Haselden as the company's new CFO effective February 2, 2015.
- LULU's management has turned over significantly since Laurent Potdevin replaced Christine Day in early 2014 and Chip Wilson continues to have leadership struggles with the Board.
- My price target range of $64 to $68 is unchanged.
- Athletic apparel manufacturer Lululemon Athletica has struggled to find profit growth in FY2014, hurt by rising cost pressures that have cut into its operating margin.
- The company's relatively weak financial performance has helped to produce a modestly negative stock price run over the past year.
- With a forward P/E multiple of roughly 32, Lululemon Athletica seems to be richly priced for its current profit growth prospects and investors should probably avoid the story.
- The company continues to invest money in its online sales channel and is investing extensive amounts to expand its operations geographically.
- Lululemon has plans to establish new stores in Hong Kong and the Middle East in the upcoming year while 20 new store openings are planned for Asia and Europe by 2017.
- The company reported a strong performance in its online sales during the recent quarter, which is indicative of the fact that its investments in this arena are beginning to pay off.
Lululemon Up Trend Will Continue: $64-$68 Price Target
- 2016 revenue looks on track to break the $2 billion mark.
- Management has indicated EBITDA margins should improve slightly ~25% and net margins to ~15%.
- I calculate a price target range of $64 to $68 per share based on a hybrid EV/EBITDA and P/E method.
Lululemon Not As Strong In Social Responsibility As You Might Expect
- Lululemon comes in fairly average for social responsibility.
- The company shows leadership in material sourcing, gender leadership, and hard work values.
- The company is weak in its diversity in labor, child labor issues, and environmental stewardship.
Lululemon: Flat Move In 2015 May Be Best-Case Scenario, Downward Move More Likely
- Lululemon has been on a tear after recent earnings but does that mean it will continue?
- The company continues to see strong margin compression that is worrisome.
- The stock prices in a best-case scenario are in the low-50s, but the stock is more likely pricing in around $45.
- Composition of sales growth is concerning with brick and mortar sales declining.
- Gross profit margin continues to erode.
- Successful strengthening of the company's sales and earnings will come through expressed store growth and product line growth.
Raising Concerns About The Positive Results Of Lululemon
- LULU reported its Q3 earnings with EPS $0.42, beating the forecast by 10.5%. Revenue totaled $419.4 million, slightly missing the Street estimate by 1%.
- The company intends to regain momentum by leveraging ivivva brand.
- Given the lower profits on sales, the cost control should be given priority.
- Lululemon posted Q3 EPS of $0.42 (a beat of $0.04) and a 10.4% increase in revenue compared to the same period last year.
- The company's Q3 results, reaffirms my opinion that the company's long-term strategic decisions are moving the company in the right direction.
- In my original article, I anticipated that earnings growth for the next several quarters would be slight as the company focused on key initiatives such as global expansion.
Update: Lululemon's Margins Are Under Pressure But The Long-Term Outlook Looks GoodIAEResearch • Dec. 13, 2014
- The company announced third quarter earnings, recording impressive growth in revenues.
- As we expected, the margins of the company are under pressure.
- As the company expands its products portfolio, the pressure on margins should ease and revenues should show stable and consistent growth.
- Laurent Potdevin has shrunk but tightened operations at the yoga retailer.
- Potdevin has been transparent on company problems and moved into new markets.
- The company won't be a high flier but could be a takeover target.
Lululemon Athletica's Q3 Earnings Have Sent Shares Lower, Should You Buy On The Dip?
- Q3 2014 earnings were released on December 11.
- Earnings per share beat expectations and revenue fell short.
- Total comparable sales increased 3%.
- The stock has reacted by falling slightly.
- Since the drop to its 52-week low back in June, Lululemon has recovered, aided by the solid earnings the company reported in quarter two.
- The low expectation of Wall Street consensus bodes well for the Yoga Wear maker as newer product lines and D2C looks to push growth.
- While near-term prospects are improving, the long-term picture remains murky. The company has not listed a plan to get back to its margin goals. International expansion has also been slow.
- Recent controversies at Lululemon have dogged the company, resulting in damaged brand equity.
- Nike went through a similar process in the 1990s, which resulted in a stronger company.
- Recent lows indicate a potential buy for a growth stock type trajectory.
- After one of the hottest growth surges in retail from 2009-2012, Lululemon fell 20% in 2013 and has fallen over 30% YTD.
- A lack of patented technology in its yoga-wear is allowing Lululemon's competitors to sell identical yoga-wear at cheaper prices.
- We believe a fair price target for LULU to be $29 per share by the end of FY 16.
- The company has a strong business model which gives it an advantage over its competitors.
- The risk of third-party suppliers exists in the industry and it has the potential to have an impact on the brand value of the company.
- Lululemon is still generating impressive margins and the expansion in European and Asian markets should further enhance its margins.
- The market is highly competitive and the company faces competition from Nike and Under Armor.
- The company reported strong results in Q2 2014, but they were still a drop from the same quarter last year.
- Competition for LULU is tough: Gap and VF Corp have expansion plans.
- The company has overseas expansion plans which should be completed by 2017.
- The consensus on LULU’s stock was ‘hold’ with a price target of $46.79. Eighteen analysts rated the stock as a hold, while only seven rated it as a 'buy'.
Fri, Jan. 23, 1:45 PM
- Lululemon (LULU +4.1%) trades above $66 for the first time since 2013 as investors continue to pour in.
- The general take on Lululemon is that production execution has been been improved by management and that the retailer's assortment is still firmly on-trend.
- Investment firm Topeka Capital Markets and SA contributor Main Street Wins get credit for taking the long view on LULU through some turmoil.
- Shares of LULU are now up 75% over six months in a dazzling comeback.
- Previously: Lululemon higher after lifting Q4 guidance (Jan. 12 2015)
Fri, Jan. 23, 7:01 AM| 3 Comments
Mon, Jan. 12, 9:14 AM
Mon, Jan. 12, 8:39 AM
- Lululemon (NASDAQ:LULU) updates guidance for Q4 as part of its ICR XChange presentation.
- The company sees revenue of $595M-$600M for the quarter vs. $570M-$585M prior guidance on a 6%-7% lift in comps.
- EPS is pegged at $0.71-$0.73 vs. $0.65-$0.69 prior.
- "We are entering 2015 in very good shape," tips management.
- LULU +6.6% premarket.
Thu, Jan. 8, 8:18 PM
- Holiday retail sales rose 4.6% vs. expectations for a 3.8% lift, according to a read from ShopperTrak. The growth rate is the highest since 2005 for the period.
- The rush of positive reports from retailers on holiday sales comes off of some beaten-down expectations, notes Chain Store Age.
- Concerns on mall traffic, a West Coast port slowdown, and a frenzied level of promotions drove consensus estimates lower before some macroeconomic factors improved and $2 gas entered the scene.
- A cross-section of retailers that surprised on the upside includes Barnes & Noble, Pier 1 Imports, Walgreens, Urban Outfitters, and Sonic.
- What to watch: Costco (NASDAQ:COST) put up a 5% comp for December, putting some pressure on Wal-Mart (NYSE:WMT) and Target (NYSE:TGT) to show signs of late-quarter strength. Signs of weakness at dollar stores (DG, DLTR, FDO, FIVE) and electronics chains (HGG, CONN, BBY) are a concern. Retailers seen as on-trend for the holiday season include Foot Locker (NYSE:FL), Lululemon (NASDAQ:LULU), and Williams-Sonoma (NYSE:WSM).
- Related ETFs: XLY, XRT, VCR, RTH, RETL, IYK, FXD, IYC, FDIS, SCC, UCC, PMR, UGE, RCD, SZK
Wed, Jan. 7, 4:33 PM
Mon, Jan. 5, 7:38 AM
- A slowdown at West Coast ports continues to impact the retail sector as negotiations between dockworkers and shippers progresses slowly.
- Fast-fashion firms (OTCPK:HMRZF, OTCPK:FRCOY, OTCPK:IDEXY) and apparel sellers (LULU, ANN, GPS, KATE, ANF) are most at risk notes, Cowen Research.
- Inventory dislocation in the sector could boost TJX Companies (NYSE:TJX) and Ross Stores (NASDAQ:ROST).
Dec. 22, 2014, 10:07 AM| Comment!
Dec. 20, 2014, 10:17 AM
- The S&P Retail ETF (NYSEARCA:XRT) is up 3.4% over the last month to outpace the S&P 500 Index as consumer spending trends improve. Analysts have honed in on some categories which show some promise for growth.
- Drugstores: The transition by the sector into more health/wellness services sets it up for new growth channels. CVS Health (NYSE:CVS) reported strong comparable-store sales despite the full tobacco exit, while Rite Aid (NYSE:RAD) is prepping for a roll-out of RediClinics and HealthSpot kiosks. The visibility on Walgreen (NYSE:WAG) is somewhat clouded by the giant Alliance Boots integration, although it's ahead of rivals on the tech front with its rewards program, pharmacy app and developing online doctor concept.
- Athleisure: There's some gender initiatives going on in the athletic apparel sector with Under Armour (NYSE:UA) and Nike (NYSE:NKE) growing their women's business and Lululemon (NASDAQ:LULU) expanding on the men's side. All three companies have been closely on-trend with their assortment in a category with explosive demand. Importantly, pricing has held up this holiday season in the U.S., note retail watchers.
- Online replenishing: Fresh research into shopping trends indicates certain categories see continued buying through the online channel as consumers become attuned to a brand. Retailers positioned well to see more gains from the trend include Williams-Sonoma (NYSE:WSM), Ulta Beauty (NASDAQ:ULTA), Staples (NASDAQ:SPLS), Office Depot (NASDAQ:ODP), Sephora (OTCPK:LVMHF), Dick's Sporting Goods (NYSE:DKS), and of course Amazon (NASDAQ:AMZN).
- P-E buyouts: There are plenty of candidates in the retail sector for a leveraged buyout similar to the action that helped propel shares of PetSmart (NASDAQ:PETM) +40% from their lows. Keep an eye on Abercrombie & Fitch (NYSE:ANF), Aeropostale (NYSE:ARO), and Ann (NYSE:ANN).
Dec. 19, 2014, 9:29 AM
- The Pacific Maritime Association and International Longshore & Warehouse Union are far apart in their negotiations on a new labor contract, according to reports.
- The ports of Long Beach and Los Angeles have seen a loss of productivity due to worker slowdown actions as the stalemate continues.
- FedEx (NYSE:FDX) warned yesterday that deliveries to retailers have been delayed more than expected. Both FedEx and UPS (NYSE:UPS) face extra logistical costs due to the shipping delays and could see a slight dip in total volume.
- Lululemon (NASDAQ:LULU) is one of the few retailers to put a number to the shipment backup, saying Q4 revenue would be impacted by $10M.
- Other companies viewed as having some risk associated with the slowdown include Wal-Mart (NYSE:WMT), Ann (NYSE:ANN), Macy's (NYSE:M), Kohl's (NYSE:KSS), Ralph Lauren (NYSE:RL), and Carter's (NYSE:CRI).
Dec. 18, 2014, 7:01 AM
- Apparel prices fell 1.1% in the U.S. during November, according to yesterday's CPI report.
- The drop followed a 0.2% slide in apparel prices for October.
- Retail analysts note that a higher mix of e-commerce sales and the lingering promotional haze threaten margin expansion in the sector, despite overall tighter inventory control.
- Apparel stocks: KATE, ANN, LULU, PVH, VNCE, CRI, UA, HBI, VFC, COLM, GIL, SQBG, JCP, KSS, DDS, M, JWN, RL, ARO, AEO, ANF, WTSL, TLYS, CACH, ZUMZ, PSUN, EXPR, BKE, KORS, UA, GIII, SQBG, HBI, SKX, FL, VRA, ICON, NKE, WWW, DECK, CROX, SHOO, BWS, PERY, DXLG, SHLD, BONT, GPS, GES, URBN.
Dec. 12, 2014, 10:17 AM
- The S&P Retail ETF (XRT +0.5%) is out ahead of market averages again on enthusiasm over consumer spending forecasts.
- Today it's apparel/footwear sellers and department store chains with the broad set of gains.
- Gainers: Lululemon (NASDAQ:LULU) +2.7%, Ralph Lauren (NYSE:RL) +1.0%, Under Armour (NYSE:UA) +1.1%, Sequential Brands (NASDAQ:SQBG) +0.7%, Michael Kors (NYSE:KORS) +0.5%, Coach (NYSE:COH) +2.3%, Nike (NYSE:NKE) +0.7%, Deckers Outdoor (NYSE:DECK) +1.1%, Macy's (NYSE:M) +2.4%, Sears Holdings (NASDAQ:SHLD) +1.7%, J.C. Penney (NYSE:JCP) +1.5%, Nordstrom (NYSE:JWN) +0.8%.
Dec. 12, 2014, 7:35 AM
- Telsey Advisory Group upgrades Lululemon (NASDAQ:LULU) to Outperform and sets a $60 price target on shares.
- Yesterday's rally in Lululemon, +9% on lukewarm guidance, was tied largely to analysts and investors seeing the athletic apparel seller as turning a corner with its late quarter strength and execution.
- Previously: Lululemon's guidance in the spotlight (Dec. 11 2014)
- Previously: Bulls winning the day on Lululemon after earnings (Dec. 11 2014)
- LULU +0.3% premarket to $51.10.
Dec. 11, 2014, 3:32 PM
- Lululemon (LULU +9.4%) sails over $50 as investors give the company a pass for issuing guidance below expectations.
- The positive vibe appears to be tied to the improving sales trend the company saw during the course of Q3.
- Execs with Lululemon cited a solid traffic trend for the first part of Q4 during the conference call this morning.
- Investment firms are mixed on LULU. Bulls give it a best-in-class premium, while bears see valuation way ahead of growth.
- Lululemon earnings call transcript
- Previously: Margins slide at Lululemon in Q3
Dec. 11, 2014, 7:34 AM
- Shares of Lululemon (NASDAQ:LULU) are up slightly in early trading after the company reported Q3 earnings.
- Though guidance from the retailer was below expectations, the issues were tied to delayed store openings and a slowdown at West Coast ports instead of demand problems.
- A conference call scheduled for 9:00 a.m. ET could give investors some more color on Lululemon's growth track.
- LULU +0.6% premarket.
Dec. 11, 2014, 6:50 AM
- Lululemon (NASDAQ:LULU) reports comparable-store sales fell 3.0% in Q3.
- Direct-to-consumer sales rose 16.3% to $77.2M.
- Gross profit rate -360 bps to 50.3%.
- Operating margin -490 bps to 19.4%.
- Inventory +9.95% to $229.86M.
- Store count +19 Q/Q to 289.
- Q4 Guidance: Net revenue: $570M to $585M; Comparable-store sales: increase in the low single digits on a constant dollar basis; EPS: $0.65 to $0.69; Shares outstanding: 142.6M; Tax rate: 30.2%.
FY2014 Guidance: Net revenue: $1.765B to $1.780B; Comparable-store sales: increase in the low single digits on a constant dollar basis; EPS: $1.53 to $1.57; Normalized EPS: $1.74 to $1.78; Shares outstanding: 144.3M; Tax rate: 37.9%.
- LULU +0.64% premarket.
LULU vs. ETF Alternatives
Lululemon Athletica Inc is a designer and retailer of technical athletic apparel operating primarily in North America and Australia. Its yoga-inspired apparel is marketed under the lululemon athletica and ivivva athletica brand names.
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