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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 • Sat, Dec. 13
- 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'.
Why Shares Of Lululemon Athletica Have Tremendous Upside
- While shares of Lululemon Athletica are down, we believe the company’s best days still lie ahead.
- Lululemon shares are very attractively valued when compared to peers in this space.
- The company has tremendous long term growth prospects, both within North America and internationally, especially as healthful living comes center stage.
- New management has taken steps to ensure Lululemon’s future remains bright.
Lululemon Athletica: Do Q2 Earnings Point To An Attractive Investment Opportunity?
- The company’s online sales were better than the sales of the traditional brick and mortar stores.
- The efforts by the company to boost its business cost it heavily and hurt its profit margin.
- The average price of athletic goods is expected to decline as an outcome of rising competition and this would further stress the company’s margins.
- Lululemon’s share price surged as much as 18% last week as the company reported better than expected second quarter fiscal year 2014 results.
- The company’s revenue climbed 13% topping the company’s projection and leading to earnings beating the Street’s estimates.
- I believe that the company’s margin pressure will begin to ease because of the cleaner inventory heading into the second half of fiscal year 2014.
- Lululemon is planning to open a standalone men’s store to drive growth from this segment and is also planning to have 20 stores in Europe and Asia by 2017.
Geographic Expansion Will Bring Growth For Lululemon
- Lululemon posted better-than-expected results and raised its full year earnings guidance by a $0.01.
- The company’s margins deteriorated during this quarter but are still better than the industry averages. The margins are expected to improve in the next couple of years.
- The expansion in high-growth international markets is anticipated to bring strong revenue growth for the company.
- Despite the surge in LULU's stock price, I am still bullish on the company's growth potential.
- A discussion about Ivivva Athletica explaining how LULU is developing the next generation of its adults' brand.
- Lululemon targets men's market share.
- LULU has handily beaten the market over the last five years.
- However, post the widely publicized fiasco behind its "see-through" yoga pants, the stock has fallen 35% over the past year.
- An investment in LULU assumes that the stock will return to historical levels of growth and profitability.
- Conservative investors should stay away - the stock is still fraught with risk.
Lululemon: My Assumptions In Levered Returns' Valuation Model Suggest Cramer Is Right
- The Q2 earnings beat was the result of conservative guidance from management.
- Cramer suggests 5% comparable store sales decline is the real story. I propose an alternative.
- EBITDA margins will likely not return to the high-20% range due to pricing pressure from new competition.
- My assumptions in the Levered Returns 5-year valuation model yields a fair value per share of $36, which is 21% below its September 12th closing price of $45.19.
- The company beat on the top and bottom lines, sending shares up over 12%.
- We still have a cautious outlook on the company given the rising competition.
- We didn’t expect the strong earnings and stock reaction but give credit where it’s due.
Today, 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).
Yesterday, 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).
Thu, Dec. 18, 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.
Fri, Dec. 12, 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%.
Fri, Dec. 12, 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.
Thu, Dec. 11, 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
Thu, Dec. 11, 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.
Thu, Dec. 11, 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.
Thu, Dec. 11, 5:50 AM| 5 Comments
Wed, Dec. 10, 5:30 PM
Wed, Dec. 10, 9:17 AM
- Shares of Lululemon (NASDAQ:LULU) are higher in early action to extend on the stock's recent mini-rally in front of earnings.
- SA contributor Shifeng Guo thinks Lululemon's thriving e-commerce channel bodes well for Q3 margin improvement
- A positive comp from the retailer could show it has turned a corner.
- LULU +1.7% premarket to $48.55.
Tue, Dec. 9, 8:13 AM
- Lululemon (NASDAQ:LULU) drifts higher in early trading after Wells Fargo turns in a favorable report on the retailer.
- Shares are upgraded to Outperform from Market Perform on optimism that the company's supply chain issues have been resolved.
- Lululemon reports earnings on December 11.
- LULU +1.1% premarket.
Thu, Dec. 4, 1:28 PM
- Wedbush Securities thinks Lululemon (LULU +1.2%) can increase revenue and margins as initiatives from management take hold.
- Though the new competition from Athleta and Nike can't be ignored, Wedbush notes the long-term shift by consumers into more athletic lifestyle products supports sales growth and pricing for Lululemon.
- Shares of LULU are likely to trade at a lush premium with M&A and international expansion still on the table, reasons Wedbush.
Thu, Dec. 4, 10:31 AM
- Shares of Destination Maternity (DEST -7.8%) slide after the company misses earnings estimates.
- A frank assessment from the company on a misfire with its assortment to millennial-aged moms-to-be strikes a bit of a chord across the apparel and department store sector.
- Many of the earnings hits and misses this quarter have been tied to on-trend or off-trend assortments. A millennial group which is hard to nail down is becoming a bigger part of that puzzle.
- Apparel stocks: KATE, ANN, LULU, RL, PVH, VNCE, CRI, UA, HBI, VFC, COLM, KORS, 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, TJX.
Wed, Dec. 3, 9:58 AM
- The e-commerce team at UBS does a quick dive into retail to pull our four companies where online sales will be a significant story this holiday season.
- American Eagle Outfitters (NYSE:AEO): UBS sees 24% of Q4 sales coming from the online channel.
- Urban Outfitters (NASDAQ:URBN): The company aims to become more nimble with its assortment and stay on trend by using social media channels. The investment firm thinks online will make up a whopping 38% of total sales this holiday season.
- Lululemon (NASDAQ:LULU): The premium workout clothes juggernaut continues to grow its e-commerce business. UBS estimates 22% of holiday sales will come from online.
- Abercrombie & Fitch (NYSE:ANF): Online will account for 29% of total sales at the struggling chain, tips UBS.
Mon, Dec. 1, 7:50 AM
- Comscore estimates e-commerce spending rose 32% on Thanksgiving Day to $1.01B and 26% on Black Friday to $1.51B.
- Most retail analysts are sticking with their forecast for 4.0%-4.5% growth for holiday sales this year, with early shopping and e-commerce making up for a dip in store traffic on Black Friday.
- Apparel sellers in particular came out with a stronger online push this year.
- Related stocks: OTCPK:AMZZ, EBAY, AEO, ANF, JCP, JNY, JWN, KSS, LB, M, URBN, PSUN, BKE, WTSL, GPS, FDX, UPS, DKS, BBY, LULU, KATE, VRA, SPLS.
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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