There Goes Another of the Former Teflon Stocks – Lululemon (LULU)

We had an interesting discussion in the comments section of yesterday’s post on the ‘junk stocks are leading’ about the damage so many of the leadership stocks of the last 12-24 months have taken the past month.  Among those stocks is lululemon athletic (LULU) which peaked this summer, and has made a series of 2 “lower highs” since (bearish).  This morning the company reported earnings and it seems high end yoga wear is not as impervious  to the economy as once thought.  While matching estimates on the bottom line, revenue was a miss… and guidance was just in line.  For the type of multiples afforded this type of stock that is not good enough.  While the numbers are still fine in an absolute sense (>30% revenue growth, mid teens same store sales) the trend is the thing, and the numbers are decelerating.  The stock is down 11% in premarket to $44.  We’ll see if the dip buyers come in to save it before it tests those October lows of $42ish.

  • Lululemon Athletica Inc’s profit rose but sales growth in existing stores slowed from the previous quarter, and its shares dropped after it said it saw no substantial pickup in the current quarter.  The company said sales at established stores rose 16 percent in the third quarter ended Oct. 30.
  • In the previous quarter, same-store sales rose 20 percent, and the company forecast a third-quarter slowdown in growth to the low to mid-teens in percentage terms.
  • Even as it slightly topped that outlook, on Thursday the company made the same forecast for the fourth quarter.
  • The Vancouver-based retailer said on Thursday its third quarter profit rose to $38.8 million, or 27 cents a share, from $25.7 million, or 18 cents, a year earlier. Revenue rose 31 percent to $230.2 million.
  • Analysts surveyed by FactSet Research were looking for earnings of 25 cents a share, on average, with sales of $235.7 million. For the fourth quarter, the Vancouver-based retailer predicts earnings in the range of 40 cents to 42 cents a share. Wall Street anticipates earnings of 42 cents a share.

One positive is gross margins expanded: 0.7% year over year.

  • Gross profit for the quarter increased 33% to $128.5 million, and as a percentage of net revenue gross profit increased to 55.8% for the quarter from 55.1% in the third quarter of fiscal 2010.

Full report here.

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About Mark Hanna 542 Articles

Affiliation: Hanna Capital, LLC

Mark Hanna is President and Owner of Hanna Capital, LLC, a registered investment advisory firm. Mark has been a follower of markets since the late 80s, with a focus on individual equities since the mid 90s. He has been a well known commentator in the financial blogosphere for the past 5 years, following a career in corpoporate finance and accounting. Mark attended the University of Michigan where he graduated with a degree in Economics.

As an avid reader, Market Montage is the personal blogging site for Mark to share his views on economics, markets, and the like. Occasional cynicism and wit shall be deployed in his postings.

Follow Mark on Twitter @fundmyfund.

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