It's been three whole months since the last time shares of Lululemon (LULU) blew up, and now they've gone and done it again. While the previous 20% implosion was caused by the unexpected resignation of CEO Christine Day, the current one is more general and tied to a weak forecast.
Specifically, the high-end Canadian yoga apparel retailer now sees third quarter sales at $370 million -$375 million, versus a $390 million consensus estimate, and earnings $0.39 to $0.41 per share compared to expectations of $0.45. Similar reductions were made to Lulu's full year outlook too, as the company's guidance and store growth seem modest compared to the stellar valuations (30x 2013 estimated EPS) the stock trades at.
"One of the issues for the stock is that it doesn't have any valuation support," says Yahoo Finance senior columnist Michael Santoli in the attached video. "When these cult, momentum growth stocks break, they kind of stay broken for a little while."
Even before today's misstep, the company was already trying to erase a 10% year-to-date loss, having recouped nearly half the ground lost from the tumble in June.
Another risk overhang is the fact that Lulu has yet to name a new CEO or fill at least three other senior management positions that are seen as critical for the $10 billion company to expands its breadth beyond Canada and the U.S. Recent reports had speculated that current Lulu board member and former Coach executive Jerry Stritzke might be in line for the top job, but he just signed on to run outdoor equipment retailer REI, replacing Sally Jewel, who left to serve as U.S. Secretary of the Interior.
Bottom line: Lulu's CEO search continues at a time when the company needs to get in gear and fight back burgeoning competitors like the Gap's (GPS) Athleta brand which has new management, store growth and positive momentum.
As it stands, only 38% of analysts currently rate the stock a ''buy'' although the median price target of $77 is still about 20% above the current price, yet well below the all-time high of $82.50 hit three months ago.
"I do think they're going to grow into this valuation," Santoli says, "but it's just going to take longer than people thought."
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