Is Lululemon Beyond The Headwinds
After a volatile spring throughout which saw Lululemon Outlet Online (LULU) minimize its earnings forecast for 2013 by greater than 15% on its now infamous pants recalls, the newest data from our proprietary channel checks indicates that demand may perhaps have substantially improved.
Revisiting last quarter’s messy results and outlook, most analysts believe that Lululemon probably saw both deteriorating testimonials from customers and slowing sales which put prior Q1 estimates in jeopardy. Some analysts believe they put to use the opportunity to blame faulty/sheer yoga pants. On the other hand, the fact that these pants have already been in production because late December (from reviews seen here), its timing of waiting till March clearly indicates that the corporation was hoping “Lulu addicts” wouldn’t notice the thinner pants and hence poorer quality.
Finally, LULU decided to throw its Taiwanese supplier of pants under the bus and later fired its Chief Solution Officer (complete release right here). Lululemon management put to use clever phrasing so that you can spin the problem as a oneoff as the recall stated “We have determined that particular shipments of product received from our factories and accessible in store from March 1, 2013 do not meet our technical specifications.”
Interestingly, the supplier defended itself inside a effectively publicized fashion magazine highlighted by the WSJ’s create up here. The manufacturer Eclat’s CFO Roger Lo told the WSJ that “All the pants had been manufactured according to the requirements set out within the contract with Lululemon.”
In the aftermath in the “recall”, management put to use the opportunity to reduced the bar for the whole 2013 outlook, dropping its eps target to a midpoint of $1.97 too as implying a reduced growth price than the preceding expectation close to 25%. To date, most LULU analysts have shown a very poor capability to forecast underlying trends. In the low point for 2013, together with the stock close to $64 around the heels on the poor outlook, a slew of them downgraded the stock and lowered their targets. Numerous LULU analysts that investors can wish to be wary of incorporate: Janney Capital analyst Adrienne Tennant and Betty Chan at Wedbush, each of whom bottom ticked shares. Also delivering poor forecasts have been Goldman Sachs and Macquarie both of which initiated together with the dreaded neutral rating and price targets which are now well under water.
With far more realistic development targets, quite a few variables are no longer headwinds for LULU and could result in superior than expected Q2 outcomes, but significantly more importantly the FY 2013 all round outlook. Enhanced weather within the Northeast, Midwest and Canada, a area where more than 60 stores operate, should certainly add significantly to comparable very same retailer sales performance in the 2nd quarter.
Additionally, our checks indicate a a great deal wider assortment of spring and summer time gear compared having a year ago, which focused primarily on swimming through the summer season months. Despite fewer varieties of the previously widely used yoga pants for instance the Astro pant on the market, other brightly colored pants have shown quite strong demand. Proprietary store checks of more than 24 shops indicate that the brand is still effectively received, and despite costs almost double that of competitor goods, affluent ladies within the 3045 demographic continue to gladly overpay for the brand’s allure.
Time will inform if shoppers will continue to pay a premium price tag for an apparel item that is available in near identical good quality at 6080% under its $95 price tag tag at retailers like Target, Costco and other individuals. So far, wellfunded, established competitors for instance Gap’s Athletica and Lucy have already been unable to knock off Lululemon Hoodies from its perch in the major from the yoga pants fad.
Over the past few weeks, in conjunction with practically each and every other consumer stock, LULU shares have vaulted greater and are now up on the year, in spite of lowering growth. For Q1, analysts are attempting to find $341mm in sales, that is near the larger end of management’s recently supplied guidance for $333$343 million. In terms of comps, expectations are for mid single digit comp growth. In spite of this, if management will not deliver a detailed time frame for restocking the well-liked pants, operating final results could possibly be of lessor importance. So far, LULU management has been in a position to sell its story effectively for the street, and its share value has been rewarded as one with the most highly-priced within the complete apparel universe but another slipup could derail shares.