Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Why lululemon athletica Stock Hit a New Low Today

Investors pushed shares of lululemon athletica (NASDAQ: LULU  ) lower by more than 15% in trading today, following the retailer's first-quarter earnings results and weak guidance for its current quarter. The stock touched a fresh 52-week low of $37 a share as a result. But before you jump on the sell bandwagon, let's look at some key takeaways from Lululemon's earnings call and what investors can expect going forward.

Beyond the numbers
For the period ended May 4, Lululemon generated a profit of $0.34 per diluted share, which was above its prior guidance for earnings in the range of $0.31 to $0.33 per share. This also topped Wall Street's expectations, as analysts were looking for earnings per share of just $0.32 in the quarter. However, if you factor in the one-time tax charge related to Lululemon's recently announced share buyback plan, the company's earnings per share in the quarter were actually $0.13. 

The retailer said it would begin a $450 million share buyback program to enhance shareholder value. Moreover, Lululemon is funding its share buyback program with overseas earnings. As a result, the retailer was hit with a one-time tax charge of $30.9 million in the quarter as part of the planned repatriation of foreign earnings. The repurchase program will be completed in two years.

On top of this, Lululemon's chief financial officer, John Currie, will retire by the end of fiscal 2014. This puts Lululemon on the defensive once again as it must find a replacement for Currie, who has been with the company since 2007. The upscale athletic apparel retailer has endured a major management shuffle in the past year, which included the sudden exit of longtime CEO Christine Day.

More bad news
Management's weak guidance for the current quarter, however, was perhaps the biggest catalyst for today's sharp sell-off. The retailer now expects second-quarter net revenue in the range of $375 million to $380 million and a comparable-sales decline in the low- to mid-single digits. Lululemon also lowered its full-year guidance, saying it expects fiscal 2014 earnings of $1.71 to $1.76 per share, down from its prior outlook for full-year earnings of $1.80 to $1.90 per share. 

Given the market's response to these results, it seems investors were hoping for a more immediate turnaround in the business. But to be fair, Lululemon's new chief executive, Laurent Potdevin, has been very forthcoming about the company's recovery strategy. On the earnings call with analysts today, he explained that this is a transitional year for Lululemon as the company reinvigorates its brand with new product categories and expands its presence overseas. "Despite a reduced outlook, I am confident that the work we are doing today will only enhance our premium positioning as we continue to lead as the market innovator," Potdevin explained. Ultimately, investors need to understand that Lululemon's recovery isn't going to happen overnight.

Nevertheless, despite the ongoing challenges facing Lululemon today, there were some bright spots in its earnings release.

Where Lululemon is getting it right
It wasn't all bad news. The company's direct sales were up 25% year over year, which means people are buying more Lululemon products online. Potdevin said digital technology has been rolled out to Lululemon's entire network of stores that allows customers to shop Lululemon's online inventory while in the store.

The company's international expansion is another growth channel for Lululemon. The retailer recently celebrated the successful opening of its first London store, which is now on track to do $7 million in sales in its first year, according to Potdevin. Moreover, by the end of 2014, Lululemon will have a presence in eight countries outside of the U.S. and Canada. Lululemon ended its fiscal first quarter with just 263 stores worldwide -- leaving plenty of room for growth in the future. 

Taking stock of the situation
There's no doubt that Lululemon shareholders can expect a bumpy ride going forward. After all, the retailer is in the midst of a major overhaul of its business as it tries to win back the trust of customers and investors alike.

Given management's troubled outlook for the remainder of the year, it's not likely that the stock will recover much during the coming quarters -- shares are down more than 34% over the past year. However, longer term, Lululemon's efforts to reinvigorate the brand with a fresh product mix and renewed focus on menswear could pay off for patient investors.

Forget Lululemon, find out why Warren Buffett just bought 9 million shares of this company
Imagine a company that rents a very specific and valuable piece of machinery for $41,000 per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report details this company that already has over 50% market share. Just click HERE to discover more about this industry-leading stock... and join Buffett in his quest for a veritable landslide of profits!

Read/Post Comments (0) | Recommend This Article (1)

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 Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2992476, ~/Articles/ArticleHandler.aspx, 9/2/2015 3:24:28 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Tamara Rutter

I've been an analytical writer for The Motley Fool since 2011. I cover the sectors of Consumer Goods, Technology, and Industrials. Connect with me on Twitter using the handle, @TamaraRutter -- I'd love to hear from you!

Today's Market

updated Moments ago Sponsored by:
DOW 16,260.48 202.13 1.26%
S&P 500 1,933.94 20.09 1.05%
NASD 4,710.33 74.22 1.60%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/2/2015 3:08 PM
LULU $64.67 Up +1.60 +2.54%
Lululemon Athletic… CAPS Rating: ***