Why Lululemon (LULU) Stock Is Down Today

NEW YORK (TheStreet) -- Lululemon (LULU) stock is slipping on Wednesday after its founder and 27% shareholder initiated a war of words with the board. Founder Chip Wilson said in a statement that he had voted against the re-election of board members Michael Casey and RoAnn Costin, arguing the board is not "aligned with the core values of product and innovation on which Lululemon was founded." 

In response, Lululemon issued its own statement, rebutting that board members are "aligned with the company's core values and possess the necessary expertise to successfully lead Lululemon forward. 

The battle lines have been drawn. By midafternoon, shares of the athletic apparel company had fallen 2.7% to $44.26.

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Separately, TheStreet Ratings team rates LULULEMON ATHLETICA INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate LULULEMON ATHLETICA INC (LULU) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we find that the stock has had a generally disappointing performance in the past year."

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

  • Despite its growing revenue, the company underperformed as compared with the industry average of 14.7%. Since the same quarter one year prior, revenues slightly increased by 7.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant 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 6.26, which clearly demonstrates the ability to cover short-term cash needs.
  • Net operating cash flow has slightly increased to $183.53 million or 9.98% when compared to the same quarter last year. Despite an increase in cash flow of 9.98%, LULULEMON ATHLETICA INC is still growing at a significantly lower rate than the industry average of 87.76%.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. When compared to other companies in the Textiles, Apparel & Luxury Goods industry and the overall market, LULULEMON ATHLETICA INC's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
  • LULU's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 45.66%, which is also worse than the performance of the S&P 500 Index. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
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