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TheStreet Open House

Lululemon Pant(ies) in a Bunch: Get Over It and Buy

NEW YORK (TheStreet) -- Last Monday after the close, shares of Lululemon athletica (LULU) fell off a cliff as management took investors by complete surprise during its first quarter earnings report.

While investors were anxiously waiting to see how the company fared from the effects of the see-through pants issue, CEO Christine Day dropped a bomb on them by announcing her resignation.

She did what?! Yes, Day has decided to step down, but will remain at the helm until a replacement is found. Shareholders were not happy, flushing the stock down approximately 20% over the next two trading sessions.

With the exception of one company executive, everyone was taken by complete surprise. But this is not the end of the world. Day was not fired. She was not caught up in a horrendous scandal that all but forced her resignation. No, she resigned on her own, for personal reasons.

Management likely expected shareholders to be upset, but probably thought that the nice earnings beat would soften the blow. As if a top and bottom line beat wasn't enough, the company also provided excellent second quarter guidance.

While analysts were expecting earnings of 33 cents per share on $328 million in revenue, Lululemon guided way above expectations, looking for earnings of 33 cents per share to 35 cents per share on revenue of $340 million to $345 million.

Earnings per share estimates are fairly close to what analysts expected, but revenue was much higher than most had anticipated. Assume for a moment that Lululemon hits the middle of the provided range ($342.5 million) and that analysts don't adjust their revenue figures. Then we're talking about a $14.5 million dollar beat on top line results.

It would appear that the company (which typically beats its own estimates quite handily) thinks they are fine -- with or without Christine Day. In fact, Day believes this too, stating on the conference call:

"Plans have been laid for the next five years and a vision set for the next 10. Now is the right time to bring in a CEO who will drive the next phase of Lululemon's development and growth. I will continue to actively lead the organization while the board searches for a new CEO, and will work to ensure a smooth transition."

Did you hear that? Essentially what Day is saying is that nothing has materially changed with the company and its plans for the next five years are unaffected. With the exception of a few hiccups and bumps in the road that are bound to happen, everything should be fine.

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