Apparel Stocks: Lululemon Athletica (LULU) is initiated with a Buy and $68 price objective at Auriga, which thinks they are well positioned to capture discretionary dollar spend as consumers shift focus to healthier lifestyles --- LOOKS like NIKE is doing the same !!
Exactly. But, the forward PE is overly aggressive. Analysts have properly modeled the real growth rate. Comp store sales growth in the US in particular will slow rapidly over the next 2 years, even if we have "slow growth" and not a recession. New stores take a few years to reach maturity because LULU is both an athletic gear and a fashion play. It takes a few years for word to get out and for people to load up on the basic yoga/athletic gear. Then, the local market becomes a little saturated and it is really more of a fashion play. That core growth ramps strongly for a few year and then things settle down.
From the call, comp store sales in Canada, mid single digits. In US, 30%. But, US will soon be low teens, even in an optimistic macroeconomic context.
The new store growth is a declining percentage of total sales. So, that growth lever is diminishing.
Finally, and I cannot emphasize this enough, YOY comps will be rough over the next 12 months from currency effects. The CFO's estimates are far too low because currency is moving further than he expected after the post debt ceiling recovery. What's more, he was looking at the "direct effect" on margins. But, the indirect effect (wealth and income effect for Canadians who represent 55% of sales) is not easily estimated except to get a sense for how much comp sales in Canada went UP when the CAD went from $.83 or so in the depths of the recession to $1.05+ earlier this year. As it reverses, canadian comp sales are likely to go negative (and that still is a HUGE fraction of LULU's business)....
We'll see. I've been clear on where I stand and why...
Funny how all talk on this board is lulu not a sports brand, its a fashion brand...unless sports brands riding high and whoop there it is....maybe it is both...and maybe thats why pe is double what it should be...think i am onto something
Actually, I think it has been both over the past two years and that is a SIGNIFICANT risk for this stock. New stores see slower growth from the basic yoga gear after a few years and the store portfolio is aging in the US. It has gotten added lift from being fashionable. If that changes, it will take a hit obviously. Both effects together with currency hit could (will IMHO) pummel this stock.