Back in early April, I turned bearish on shares of Lululemon Athletica (LULU) . Since then the stock is up about 16%, easily outperforming the S&P 500. The company reports Thursday. Will I ever be right on this name?
I have been bearish (and wrong) on shares of Lululemon. As early as June, I thought the stock would get chopped in half. I still think Lululemon will have a hard time in the back half of the year -- coming up against increasingly difficult comparisons. Then the stock will fall. I also think expectations regarding gross margins are too high.
Lululemon reported a strong first quarter. First-quarter fiscal 2016 revenue rose 17% to $495.5 million, vs. the $487.8 million estimate. Earnings of 33 cents were 2 cents ahead of analysts' estimates.
On a currency-neutral basis, the company reported that total comparable-store sales rose 8%, but that was against an easy comp from last year, when the company was hit by the West Coast port strike. If you recall, when the port strike ended, second-quarter comps jumped to 11%. There is no way Lululemon will do an 11% comp this quarter. For comparison, last year Lululemon did a 9% comp. Most same-store estimates are at half that number. And it doesn't get any easier.
I think the 8% comparable-store sales number drove the stock, but that comp is actually made up of a direct-to-consumer (i.e. e-commerce) number and the traditional same-store sales number. Lululemon's e-commerce number grew 17%, but same-store sales grew just 3%. Add them up and you get the overall 8% comp. If 3% was the headline number, I doubt the stock would have moved the way it did.
