I have been in and out several times on lulu. I love this company but I have been out since 1-15-2013 when it crossed over on the negative side of the 200 day MA. That was a technical trade. I always sell on technicals and I buy on fundamentals and technical analysis. This works very well for me and I highly recommend it if you have a good system with a strong data base and tools for analysis. I love the management in particular Christine Day and John Currie. They presented the issue of the sheer pants in a logical, upfront discussion. That is great. I am more than a little concerned that the lack of a disciplined QA did not catch the problem at the factories. I am sure this is being addressed and will be corrected. In the meantime I have shorted the stock as this was as close to a "Black Swan "event that this company has faced since I have been trading it. This is not the usual idiotic short claim that the PE is too high therefore it is a short sell. Most of these people went broke unless they were technical trading on a timing discipline. believe me most were only day traders or swing traders begging for a correction. It is different this time. The forecast that John gave is conservative to be sure and there is a caveat that they may be able to reprocess these goods to bring them to a quality level that will bring them back to the standard. If that happens cover the short at once.The target for me not withstanding an acceptable rework is 52. I do have some concerns about the company's ability to bring the momentum back in any short time frame to the same level that it maintained in the past. They are a wonderful company with a great long term growth opportunity but it will be sometime in my opinion before they regain the high forward PE ratio that they have enjoyed in the past. The growth calculation clock needs to be reset and beaten again. I do believe the forecast John gave will be beat in any case but it will not pop the stock back to 68-70 for 2 qtrs.
Well put, sir. I also admired the conservatism of John's pronouncements about the zero recovery of the garments, but I noted that he failed to account for lost purchases.
More generally, dissatisfaction over quality has been growing with long time LLL fans, and they've been branching out -- there's less of a LLL cult now. I've heard a lot of positive things about Athleta's product, and especially about their return policies -- eds in LLL stores are forcing some customers to literally bend over before accepting returns.
Finally, this issue is going to suck up a lot of management's time, slow the innovation process, and take management energy away from international growth and expansion.
Longer term, I see lower margins, slower growth, and more conservative designs -- not exactly the recipe for a 10b company with 1.5b of sales.