Lululemon Shares Plunged: What You Need to Know (LULU)

Lululemon Shares Plunged: What You Need to Know

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of yoga-gear specialist lululemon athletica (Nasdaq: LULU ) sank 11% today after its quarterly sales and outlook missed Wall Street expectations.

So what: Lululemon's third-quarter profit rose a whopping 51%, but a miss on revenue -- $230.2 million versus the consensus of $235.7 million -- suggests that its breakneck growth is slowing. Lululemon shares have skyrocketed over the past couple of years, baking in plenty of optimism along the way, so it's no surprise that Mr. Market is punishing even the slightest of hiccups.

Now what: "As we finish 2011, we are positioned where we want to be -- we continue to perform at the top of our sector and remain focused on our four strategic growth priorities, driving comparable-store sales, e-commerce, new stores and preparing for international expansion," CEO Christine Day said. But while Lululemon remains a great growth story, today's sell-off shows what kind of lofty expectations investors already have for it. Given the increasing competition in women's athletic apparel from the likes of Nike (NYSE: NKE ) and Gap (NYSE: GPS ) , Lululemon's valuation still doesn't seem to offer a big enough margin of safety.

Interested in more info on Lululemon? Add it to your watchlist.

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Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Fool owns shares of lululemon athletic and Gap. Motley Fool newsletter services have recommended buying shares of lululemon athletica and Nike, as well as creating a diagonal call position in Nike. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment icon found on every comment.

Report this Comment On December 01, 2011, at 12:42 PM, naughtyguy wrote:

Take a look at a two year chart to get a real idea of expectations.
Report this Comment On December 01, 2011, at 3:55 PM, paulf3333 wrote:

Am I missing something.....but with Lulu valuation at $6B, 137 stores open, average store size is 2,874SF [according to 10K] this would imply a revenue per store of $43.8M or sales PSF of $15,239!!! of course this does not contemplate new store openings but when compared to their actual sales PSF of $1,716 [again 10K] this would suggest that they would need to open another 1063 stores to match their actual sales PSF metric [which btw is already industry leading by 2-3 times]....can't see how this valuation is even remotely justified.
Report this Comment On December 01, 2011, at 3:57 PM, paulf3333 wrote:

I guess it also doesn't account for ecommerce sales just not sure how much that produces....maybe that it is HUGE equalizer....anybody have thoughts?
Report this Comment On December 01, 2011, at 4:17 PM, paulf3333 wrote:

last comment.....just found that ecommerce sales were 8% of total in 2010. lets say that becomes as much as 30% in the future which seems to me to be a reach...but lets assume anyway. that would mean that lulu would only need to open 713 new stores and lets assume further they open 50 new stores a year [double what they did in 2011]...that would require another 14yrs! again can't see how this valuation is justified.

updated 1 day ago Sponsored by:
	DOW	12,454.83	-74.92	-0.60%
	S&P 500	1,317.82	-2.86	-0.22%
	NASD	2,837.53	-1.85	-0.07%

LULU	$72.06		-0.61	-0.84%
Lululemon Athletic…		CAPS Rating:

NKE	$108.79		+1.31	+1.22%
Nike		CAPS Rating:

GPS	$27.16		+0.17	+0.63%
Gap		CAPS Rating:

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Lululemon Shares Plunged: What You Need to Know

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Comments from our Foolish Readers

Report this Comment On December 01, 2011, at 12:42 PM, naughtyguy wrote:

Report this Comment On December 01, 2011, at 3:55 PM, paulf3333 wrote:

Report this Comment On December 01, 2011, at 3:57 PM, paulf3333 wrote:

Report this Comment On December 01, 2011, at 4:17 PM, paulf3333 wrote:

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