As the Dow continues to fly high, pointing to an expansion post the Great Recession, there are some stocks reaching their 52 week lows. The mighty Apple Inc. (NASDAQ:AAPL) is down to mid-$400s, despite release of any material public information to support the slump. The company is holding hoards of cash, has little to no debt, is making money quarter after quarter, sells premium quality products and maintains a strong brand recognition. Speaking of its attributes, one retailer stock pops up in my head that shares the exact same characteristics and has met with a similar fate – Lululemon Athletica inc. (NASDAQ:LULU).
Although, the former has only 2% of its float short, which makes one optimistic about its prospects, the latter has more than an alarming 19% of its float currently short, which is up from 15% exactly three months ago when I last covered it. It makes one wonder why, with all its strengths and attractive prospects, is this stock suddenly the bears’ point of interest.
Now, I’ve reiterated this time and again that Lululemon Athletica inc. (NASDAQ:LULU) has a very conservative management. They have always been so in their earnings guidance and have more than a three year-long history of beating their own estimates each quarter. They are also conservative in their cash spending, as they so far refuse to pay out dividends or even buy real estate for their store locations. Additionally, management is averse to using too much leverage as it gradually expands its foothold to continents beyond North America.
Keeping this in context, imagine the management upping their own guidance just a month before the latest quarter earnings announcement. That’s right! Lululemon’s CEO, Christine Day, guided earlier last month that the company will be beating its previously guided EPS estimate of $0.71-$0.73. She also indicated that the company anticipates to earn revenue towards the higher end of $475-$480. Every quarter, Lululemon’s management proves its credibility by living up to its promises. Yet, the stock plummeted. It is very obvious that the company fell prey to the same analyst-victimization that Apple did.
Their dilemma is the same – the management gives a reasonable guidance but analysts decide to set it much higher and when the company doesn’t meet it, they jam the ticker feed with bearish calls. And then there are the Wall St. traders ready to take advantage of the following price slump. All of this despite the company being very profitable and generally having positive long term prospects and a very loyal customer-base.
It’s not over yet
Most critics connect lululemon’s success to a cult following, speculating that its high growth years are almost (or will soon be) over. I beg to differ. The company has so far reached just four countries and is still in its early expansion stage in all. Company store count grew by 27% in the past one year. In the third quarter 8 new stores were opened in the US, 3 in Australia and one ivivva (subsidiary of lululemon) store in Canada. For the fourth quarter, management guided to open 10 more. The company is in a nascent phase in its new markets of Hong Kong and New Zealand and hasn’t even touched the high growth emerging markets of Brazil, India, China and Russia, yet.
In addition to opening brick and mortar outlets, Lululemon Athletica inc. (NASDAQ:LULU) is also launching country-specific websites as it expands. LULU’s e-commerce segment accounted for 14.3% of the total revenue in Q3, up from 10.4% in the same quarter of yesteryear. You can get an idea of how important this direct-selling channel is by comparing lululemon’s last quarter comparable sales growth. During Q3, comparable sales grew by 18%, but add e-commerce sales and that growth jumps to 26%. Overall, the last quarter e-commerce sales grew by a whopping 89%, generating $45.1 million in revenue.