Why Lululemon (LULU) is Getting Shellacked on Monday

NEW YORK (TheStreet) -- Lululemon (LULU) isn't having a great day after plunging in early morning trading Monday after updating fourth-quarter guidance for the period ending Feb. 2.

The athletic apparel company said it now expects revenue between $513 million and $518 million and net income in the range of 71 cents to 73 cents a share. Management had previously estimated revenue between $535 million and $540 million and earnings of 78 cents to 80 cents a share.

The updated guidance falls significantly short of consensus. Analysts polled by Thomson Reuters had expected net income of 79 cents a share on $539.87 million in revenue.

The Vancouver-based business said it expects comparable-store sales to fall in the low-to-mid single digits, compared to previous estimates of flat comparable-store sales.

"We were on track to deliver on our sales and earnings guidance through the month of December; however, since the beginning of January, we have seen traffic and sales trends decelerate meaningfully," said CFO John Currie in a statement.

Shortly after market open, shares had plummeted 16% to $50.06.

TheStreet Ratings team reiterates LULULEMON ATHLETICA INC as a Buy with a ratings score of B. The team has this to say about their recommendation:

"We rate LULULEMON ATHLETICA INC (LULU) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, impressive record of earnings per share growth, expanding profit margins and compelling growth in net income. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • LULU's revenue growth has slightly outpaced the industry average of 18.6%. Since the same quarter one year prior, revenues rose by 20.0%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • LULU has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 6.48, which clearly demonstrates the ability to cover short-term cash needs.
  • LULULEMON ATHLETICA INC has improved earnings per share by 15.4% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, LULULEMON ATHLETICA INC increased its bottom line by earning $1.85 versus $1.27 in the prior year. This year, the market expects an improvement in earnings ($1.95 versus $1.85).
  • The gross profit margin for LULULEMON ATHLETICA INC is rather high; currently it is at 57.26%. Regardless of LULU's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, LULU's net profit margin of 17.40% compares favorably to the industry average.
  • The company, on the basis of net income growth from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and the Textiles, Apparel & Luxury Goods industry average. The net income increased by 15.3% when compared to the same quarter one year prior, going from $57.32 million to $66.11 million.

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