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Steve Mandel's Second Increase After LULU Yoga Pants Crisis

By: GuruFocus
Posted: 4/16/2013 6:08:00 PM
Referenced Stocks: LULU

The ultimate yoga pants quality check came from the top. Meeting "unacceptable levels of sheerness" and the recall crisis head on, Lululemon Athletica's CEO Christine Day said, "The only way you can test for the pants is put the pants on and bend over."

The Lululemon brand received plenty of attention last month for its chic workout apparel, thanks to the historic "see-through yoga pants" glitch that went viral and created a frenzy of media pokes and jokes. But it's not stopping billionaire Gurus from investing in a company known for having some of the highest margins in the retail industry.

Legendary hedge fund investor Steve Mandel , founder of Lone Pine Capital LLC, added to his Lululemon Athletica Inc. ( LULU ) position by 16.6%, as of April 15, 2013, in spite of the athletic apparel company's recent quality nightmare about the inadvertently sheer stretch pants. In a certain light, at a certain angle, the pants became transparent as too many yoga buffs discovered in real time and started complaining to the company. The Taiwanese manufacturers said they were following the specs, proving once again that quality has to check everything, even the lighting that surrounds the product.

The quality error and resulting recall will cut Lululemon's revenue by $45 million to $50 million for the rest of 2013, according to the Wall Street Journal. LULU's stock price began to fall around March 15, 2013, as the news spread but the share price is gradually climbing back up.

As of April 15, 2013, Steve Mandel owns 5,632,431 LULU shares, making an impact of 0.35% on his equity portfolio. Mandel's LULU holding history shows an average cost per share of $51 with a gain of 39% since fourth quarter 2011.

Lululemon Athletica Inc. has a market cap of $7.96 billion; its shares currently trade at around $69.68 with a P/E ratio of 37.8 and a P/S ratio of 7.5. Lululemon Athletica Inc. had an annual average earnings growth of 54.7% over the past five years, and is ranked higher 98% of 41 companies in the industry for revenue. The stock is down 4% since January, and off 5% over the last 12 months.

GuruFocus performed another financial and performance checkup on LULU and found three good signs recently: Lululemon Athletic Inc. has no debt, and the company's operating margin is expanding, usually a good sign. LULU's P/B Ratio (8.82) is close to a three-year low of 8.61.

The Lone Pine Capital website is closed to the public, but according to GuruFocus research as of April 15, 2013, Steve Mandel's portfolio has 52 stocks, 12 of them new, with a total value of $15.9 billion, and a quarter-over-quarter turnover of 26%.

Mandel's other top buys, sells and holdings:

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