Lululemon Athletica inc. (LULU): Estimates “Need A Haircut”


Lululemon Athletica inc. (NASDAQ:LULU) is scheduled to release its fourth fiscal quarter earnings report Thursday before opening bell. The company did lower guidance for the quarter in January because of decelerating traffic and sales trends during the month. Because of this, Janney Capital Markets analysts expect management’s first quarter earnings per share guidance will be conservative or perhaps even weaker than expected. In fact, they think Wall Street’s estimates are actually a bit too high.

Expectations for Lululemon Athletica

In a report dated March 25, 2014, analysts Adrienne Tennant and Gabriella Carbone said they expect Lululemon Athletica inc. (NASDAQ:LULU) to report results which are roughly in line with Wall Street. Their estimate for earnings is 71 cents a share, while consensus estimates are at 72 cents a share. Guidance was for between 71 cents and 73 cents per share. Their estimate for first fiscal quarter guidance is at 33 cents a share, compared to consensus estimates of 40 cents per share.

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The Janney team said they expect Lululemon Athletica inc. (NASDAQ:LULU) to further differentiate its products throughout the year. However, so far this spring, they don’t believe the company has shown enough “special product” depth. They believe too many customer choices are only in multiple colors of the company’s core products rather than in multiple styles.

They note that Lululemon Athletica inc. (NASDAQ:LULU) will host its analyst day on April 17.

Why Janney remains Neutral

The analysts maintained their Neutral rating and $49 a share price estimate, citing a number of reasons they would remain on the sidelines at this time. First, they say it has taken a longer time for the company to recover from its PR problems, like the Luon issue. Also they see the potential for negative comps at the store level, as well as associate deleverage and margin pressure over the next few quarters. They actually expect management to switch over to reporting comps, including direct to consumer sales this year.

They also see continuing potential that Lululemon Athletica inc. (NASDAQ:LULU) management will keep revising downward its guidance for earnings. They’re about 10% below consensus, in fact. In addition, they see more and more threats from new entrants into the market. Specifically, they say Athleta, which is part of The Gap Inc. (NYSE:GPS), could be a threat.

Strength remains in Lululemon

However, the analysts haven’t entirely given up on Lululemon Athletica inc. (NASDAQ:LULU). They believe the company is still strong even though there are still issues with product quality and the company’s supply chain. They see more long term potential, especially in the company’s loyal customer base.

They believe the big near term problem is a lack of catalysts which would take Lululemon Athletica inc. (NASDAQ:LULU) shares “meaningfully higher.” That is, until the company can once again accelerate positive store comp performance and “consistently ‘beat and raise’ once again.”