Downward Facing Dog’-The Fall of Lululemon Athletica inc. (LULU)

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By Carly Forster

Lululemon Athletica inc. (NASDAQ:LULU) is a Vancouver, British Columbia based yoga-inspired athletic apparel company who produces its own clothing line which is sold internationally in Lululemon stores. Early Thursday morning, the retailer revealed better-than-expected earnings per share for the fiscal first quarter, which ended May 4, at 34 cents. Profit increased 11% to $384.6 million. However, the company announced less than impressive same-store sales along with falling operating margins.

Lululemon Athletica inc. (NASDAQ:LULU) practically slashed its full-year financial forecast, now expecting between $1.71 to $1.76 earnings per share and revenue between $1.77 billion and $1.80 billion. The retailer previously predicted between $1.80 to $1.90 earnings per share on revenue of $1.77 billion to $1.82 billion. CEO Laurent Potdevin said in a press release, “… 2014 is very much a transitional year for lululemon, and we are on track with the improvements we have set out to achieve … Despite a reduced outlook, I am confident that the work we are doing today will only enhance our premium positioning as we continue to lead as the market innovator.”

In Lululemon’s latest quarterly earnings, they reported $0.13 earnings per share, missing analysts’ consensus estimate of $0.32 by $0.19. During the same quarter last year, the retailer posted $0.32 earnings per share. The company had revenue of $384.60 million for the quarter, compared to analysts’ consensus of $381.21 million. Lululemon Athletica inc. (NASDAQ:LULU)’s quarterly proceeds were up 11.2% on a year-over-year basis. On average, analysts’ predict that Lululemon will post $1.89 earnings per share for the current fiscal year.

Shares of Lululemon Athletica inc. (NASDAQ:LULU) opened at $37.21 on Friday, June 13. The retailer has a 1-year high of $77.5 and a 1-year low of $36.26. The stock’s daily moving average is $36.95 and had a 50-day moving average of $44.53. The market cap for Lululemon is $5.47 billion and its P/E ratio is 19.69.

On June 12, Wedbush analyst Corinna Freedman downgraded her rating for Lululemon to Neutral and lowered her price target from $64 to $40. She noted, “The forward guidance is very disappointing . . . It doesn’t sound like comps (same-store sales) are going to turn positive.” Freedman has a +14.0% average return on all stocks and a 78% success rate in making recommendations according to TipRanks. She has a -28.4% average return on Lululemon Athletica inc. (NASDAQ:LULU).

Sterne Agee analyst Sam Poser also kept a Neutral rating for the stock on June 12. He recommended, “staying away as no concrete plans have been provided to fix the business. . . We contend that increased pop-up stores may alleviate the near-term pain of high inventory, but it is not a fix to the core issues, namely consumer engagement and competition.” Poser has a +6.1% average return on all stocks and a 65% success rate in making recommendations. He has a +2.3% average return on Lululemon.

However, not all financial experts agree.

On June 13, Motley Fool blogger Simon Erickson highly recommended Lululemon, pointing out that he himself owns shares in the company. He has a +15.1% average return on all stocks and a 67% success rate in making recommendations.

Lululemon Athletica inc. (NASDAQ:LULU) currently has an analyst consensus of HOLD.

Carly Forster writes about stock market news. She can be reached at [email protected]

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