Lululemon Athletica Inc. (NASDAQ: LULU ) announces second-quarter earnings after the markets close on Thursday, August 31.
LULU stock seems to be losing some of its recent momentum l eading into earnings , as investors speculate whether Lululemon is headed down the same path as Foot Locker, Inc. (NYSE: FL ) and other footwear-related businesses that have recently disappointed the markets.
Analyst estimates call for $567.8 million in revenue in the second quarter, with earnings per share of 35 cents.
Will Lululemon deliver the goods in Q2 2017?
I don't have a crystal ball, but one thing's for certain; the experts are split on the company's fate.
LULU Stock Longs
In one of my more recent articles about LULU stock, I suggested that readers embrace its volatility . So far in 2017, its high-low spread is around $23, the lowest it's been in the past six years. I suspect the spread is about to get a whole lot bigger; the only question is whether it's through an upward or downward movement in its stock price after earnings.
Bank of America Corp (NYSE: BAC ) analyst Rate Jadrosich is an enthusiastic supporter of LULU stock. On August 21, the analyst raised Lululemon's rating to "buy" from "underperform" suggesting it, not denim, is taking market share from Nike and Under Armour.
"[Lululemon] is gaining share from saturated competitors. We believe weakness in Nike and Under Armour North America apparel sales creates share gain opportunity for Lululemon," Jadrosich wrote in a note to clients. "Nike and Under Armour have suffered from a lack of innovation, over-distribution in moderate channels, and heavy promotions."
The analyst believes that the company's fabric and product innovation will drive Lululemon's sales higher, not to mention its margins; as a result, Jadrosich has also raised LULU's 12-month price target to $70, 30% higher than where it was August 20.
He's not the only one who sees good things happening at Lululemon.
MKM Partners surveyed both men and women consumers. It found that men were very positive about the company's recent product offerings, especially Lululemon's bottoms, and were opening their wallets in increasing fashion.
That's good news for the company who've set a goal to sell $1 billion in men's clothing by 2020.
LULU Stock Shorts
People are making the argument that the athleisure trend is over; that denim is making a comeback, and apparel sold by Lululemon is on the way out.
"The largest issue, in our opinion, is the end of the fashion athletic trend or 'ath-leisure' as it has been called. This trend, driven by Under Armour and Nike Inc (NYSE: NKE ) as well as Lululemon has been the most important contributor to Dicks Sporting Goods Inc (NYSE: DKS ) same-store sales growth over the last several years, by our estimates," said Quo Vadis Capital founder John Zolidis recently. "This trend is now officially over, in our opinion."
It's a nice theory but it's not entirely accurate.
Nike and Under Armour might be suffering from a sales malaise; so too, its retail partners, but it's a stretch to suggest that the athleisure trend is over because sporting goods' retailers aren't getting the sell-through analysts were expecting.
Sure, denim is slowly recovering its position within the consumer's wardrobe, but that doesn't mean it's going to replace the comfortable fit of a Lululemon yoga pant, top, and sport's bra. It's just not going to happen.
Lululemon is going to have to figure out how to successfully co-exist with denim brands; a task CEO Laurent Potdevin is more than capable of handling.
If this is the short's best argument against LULU stock, Lululemon shareholders ought to be very excited about the success of their investment well beyond Q2 2017.
Bottom Line on LULU Stock
In June, I called Lululemon one of the seven best stocks to buy at any price.
Whatever it delivers earnings-wise, I'm still very much on board because I believe the company is far stronger than it was under former CEO Christine Day despite some of the headwinds it's faced (like denim revival) in recent quarters.
"In the last five fiscal years, LULU stock has traded below $55 in every one of those years; the odds that it will do it again sometime in the remaining 46 weeks of the fiscal year are high," I said in March. "If you look at the midpoint of each year's spread, they all come in around $65. It's currently trading below that. I thought it was a buy at almost $69 back in September; I definitely think it's a buy at $64 and change."
If Investors decide to send it lower tomorrow, it will have traded below $55 for a sixth consecutive year. And like I would have said in each of those years, "Buy on the dip!"
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
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