LuLulemon Athletica (US) (LULU)

Iconic athleisure wear. Men's market didn't pan out. Activist group agitating for change, but he wouldn't bet on that. Had the pole position, but leadership position has changed.

Yesterday, LULU reported another disappointing quarter and shares were crushed 8.5% today, and is -45% this year, and -65% the past 12 months. Peers like Gap and Nike are also down. Leisurewear was a booming sector a few years ago during the pandemic, but is now a dog as people return to the office and don't need as much leisurewear. Also, LULU is no longer unique--it has many competitors now. People can buy similar clothes cheaper elsewhere. LULU's recent sales and earnings growth came in a little higher than expected, but guidance was dismal (cut their full-year revenue and slashed earnings forecast). Same-store sales in North America are down 5%.

Valuation quite cheap, but there's a question mark over the business. Lost their way, moving from athletic gear to daywear. Fight in the boardroom. Similar businesses have been resurrected, and others have disappeared. Tricky to know which.

Still a good brand. Good penetration around the globe.

Investors aren't loving the new CEO announcement because they're seeing it as a safe bet. NKE had significant problems while this CEO was there. Cultural and management issues with the company. Fashion is completely fickle. Look elsewhere.

He owns GIL.

Premium brand, but an affordable luxury. Valuation's getting much more compelling. Beat on Q1, but impacted by tariffs. Proxy battle going on. Turnaround plan needs to materially reduce inventory. Bumpy earnings profile for next 1-2 years. Only 13x PE, but remember that retail is fickle.

On risk/reward, better value out there. If you feel speculative right now, you could start building a position in your non-registered account. You could even sell puts.

Technical structure continues weak. Price below 200-day MA, which is falling. Product issues. Earnings growth looks flat over next few years. Not sure how long fledgling basing pattern will go on for.

Long-term speculative turnaround. He's built a position over the last 6 months. Sold a bit when it did well; if it drops again, he'll buy more. Quality and reputation are in its favour.

He had bought NKE as a turnaround story, which didn't really play out so he exited. Both are retail turnarounds with very strong brands. Logistically, it's very hard to turn around a brand and rejig the supply chain. These turnarounds take longer, with significantly more risk. (Compare that to a TD, which just had to cope with the one-time charge of a financial penalty.)

For NKE, with growing anti-American sentiment it could be hard to turn things around. LULU could, sometime, be a takeout target by private equity or another retailer. But that's not a reason to buy, especially when earnings and cashflow are still declining.

First thing to note is that it's in a big downtrend and has been for the better part of 2 years. However, looks as though it may have made a bottom. On a 1-year chart, you can see a floor starting to form around $160, and starting to creep back up. Now bumping up against resistance around $200-210. Selling pressure seems to be fairly exhausted, trying to form a nice saucer bottom.

What we want now, technically, is for it to break out -- want it to go up to $210-220, on volume, and hold onto those gains. On the cusp, but not quite there yet.

Sees a comeback. Started to reacquire stock last summer just below $200, and bought more at $160-170. Lots of things need to go right, but if they do then there's 50-70% upside. Doesn't think it's a broken brand, will still have lots of growth internationally. 

Key is getting US business back to growth, and the new CEO will need to deliver. Products from new designer hit the shelves this spring.

It pulled back massively the last two years. Revenues have been growing at 6-7% though slower than before, and margins have tightened

Their big misstep was their no-confrontation policy to let flashmobs come in and steal everything. Wait and see what happens with the founder making changes to the board.

Success attracts competition. Internal issues as well. Don't count it out yet, just a matter of getting back on track. And if it can, could do quite well. Customers still love them. 

Interesting at this valuation, but need 3-5 years. Accumulate slowly on weakness.