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Sozzi: ALERT ALERT! What You Should Do When Lululemon Reports

Stocks in this article: LULUUANKE

NEW YORK (TheStreet) - Why, hello there investor, who just so happens to wear tight Lululemon (LULU) pants and shirts to Crossfit sessions. You will shortly see Lululemon announce its earnings, most likely chock full of numbers that don't look like Lululemon of yesterday. You will also get the musings of a new CEO that joined the company on Jan. 20. Perplexed by what to do when social media lights up with opinions and the earnings conference call gets live tweeted by Under Armour (UA) and Nike (NKE) wearers such as myself?

When the numbers come out, here are the three not-so-obvious things to do with the report to determine whether this underperforming stock should be bought or avoided.

This fun process begins with same-store sales. Lululemon lowered its same-store sales guidance on Jan. 13 to a range of -1% to -5% from flat. To consider becoming a bull, same-store sales need to be slightly positive in what was a challenging weather quarter for mall-based retailers. Positive sales on lowered guidance in the face of harsh weather would suggest Lululemon is regaining lapsed customers.

But, and there is a but, positive sales must be a function of Lululemon showing signs it's breaking its 13 -quarter gross margin downtrend. Remember, Lululemon is a premium brand, it shouldn't have to become more promotional to regain traffic and sales.

Ultimately, what the new CEO says on the earnings call takes precedence over results that he had no hand in creating. Focus on comments regarding progress on new manufacturing techniques, quarter to date sales, and profit margins at the stores, not online, as the former have been weakening.

-- By Brian Sozzi CEO of Belus Capital Advisors, analyst to TheStreet.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

At the time of publication, Sozzi held no position in the stocks mentioned.

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