Author: Carrie Luckner
Covestor model: Long-Short Hedged
Disclosure: Short LULU
Lululemon Athletica inc. (NASDAQ: LULU) reports 1st quarter earnings Friday (6/10) before the open, with consensus EPS at $0.38. This stock has been a monster, with breakouts above $83 and $93 over the last few months. Stockholders also just approved a 2 for 1 stock split yesterday.
As noted in their 2010 results, they enjoyed margin expansion and consistent sales growth; however, they admitted that because of a strong sell through of Q4 product, they had short term unmet demand at the beginning of Q1. Couple that with spiking commodity costs earlier this year with little sign of prices abating even now (CEO Christine Day pointed out they will see cost pressures in 2011), and weather related issues, I think it’s going to be difficult for them to make their numbers.
Also worth mentioning— just down the road from me is Americana Manhasset or “Miracle Mile,” home to retailers like J.Crew and Brooks Brothers and Ferragamo and Prada. The Lululemon store in that center actually closed their doors a few months ago, along with H&M, Abercrombie and Victoria’s Secret. Manhasset is arguably one of the richest areas of Long Island, and if a store like LULU can’t make it, well hmmm….
I covered my Chipotle Mexican Grill, Inc. (NYSE:CMG) short on Wednesday, 6/8 with a small gain, and shorted an equal amount of LULU. I am nervous about this one, particularly because they always seem to say the right things. They’ve exhibited great earnings power over the last year. But I also look at it as just an apparel company, an expensive one at that, with a small range of sizing (sizing goes up to a 12 in women’s, which is not considered plus size, thus leaving out a lot of the American public), and wonder if the run will continue.
Sources:
LULU EPS estimates from Yahoo Finance, https://finance.yahoo.com/q/ae?s=LULU
Lululemon Athletica inc. Press Release, 6/9 https://www.sec.gov/Archives/edgar/data/1397187/000095012311057704/0000950123-11-057704-index.htm
Lululemon Athletica inc. 10-K for 2010, https://www.sec.gov/Archives/edgar/data/1397187/000095012311026220/0000950123-11-026220-index.htm
