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Lululemon Still In 'Warm-Up' Phase of Growth Story

Chen also believes that the company's luon pant mishap earlier this year was short-term glitch. Despite product quality concerns, "the company has implemented more stringent testing since the 'transparent' pants situation," the note says.

The company was forced to pull the popular pants in March after complaints that the pants were too sheer. It restocked shelves with its black luon yoga pants in June.

Investors will hopefully get an update to the CEO search and luon-pant ongoing affects when lululemon reports second-quarter earnings on Thursday.

Analysts, according to Thomson Reuters, expect the company to post earnings of 35 cents a share, 10% lower than the year-earlier period. Revenue is expected to rise 21% to $343 million.

Janney Capital Markets analysts Adrienne Tennant and Gabrielle Carbone write in a research note on Monday that with the luon pant replenishment occurring earlier than expected in late May to early June (rather than early August), it is possible that second-quarter sales have benefited, however lululemon was not likely to escape the weak mall traffic affecting all retailers this summer. Tenant and Carbone rate the company at "buy."

"We continue to believe LULU remains an attractive longer-term, global growth story; however, we believe meaningful contribution from new regions of growth are still several years away," the Janney note says. "In the near-term, we expect the stock to be volatile, and potentially range-bound, as the company seeks to find a new CEO, fill other open positions, pressures the fixed expense structure with investments for growth, and works to reaccelerate comp and margin expansion."

"We are maintaining our buy rating on a longer-term basis, but believe that consensus estimates should be reset to allow the company room to fund the proper infrastructure and foundation from which to grow," the note says.

-- Written by Laurie Kulikowski in New York.

To contact Laurie Kulikowski, send an email to: Laurie.Kulikowski@thestreet.com.

>To submit a news tip, email: tips@thestreet.com.



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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.
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