Lululemon reports earnings after the bell today. The stock is up 33% since the recall. Will it reach a higher plane or is it about to do a downward dog?
Some of the saddest investors in the world are the ones who sold Lululemon’s stock back in March.
That when the company announced a recall of its black Luon yoga pants because it was embarrassingly too sheer. Black Luon pants made up about 17% of all the company’s total women’s pants sales. The March 18 recall led to the resignation of Chief Product Officer Sheree Waterson while share prices dropped to as low as $61.60 two days later.
Two weeks after the recall, RBC Capital Markets downgraded the stock from “outperform” to “sector perform”. Since the March lows, the stock has rebounded 33% and is now above $82 per share.
The consensus among analysts is that the company will report earnings of $0.30 per share this quarter, down from $0.32 last year. However, analysts are expecting sales to have increased to $341 million, up 19.4% from this time last year.
In the long-term, the March pants scandal may turn this lulu of a lemon into lululemon-aide. A public admission that a product doesn’t meet the company’s standards may build brand loyalty in the end.
“They have great products and a greater image,” says Brooke Moreland, Co-Founder and CEO of fashion website Fashism.com. “Customers just can't stay away.”
And, bringing customers into stores to return their defective pants could have even helped sales a little. “I usually by cheap workout gear,” admits Moreland, a Lululemon yoga class attendee. “But once inside a Lululemon, I’ll drop $85 on running pants without batting an eyelash.”
There may be plenty of customers willing to pay that for running pants or $125 for yoga pants. But should investors pay more than the current price of 40 times earnings for Lululemon’s stock? We ask Talking Numbers contributors Enis Taner, Global Macro Editor at RiskReversal.com, and Richard Ross, Global Technical Strategist at Auerbach Grayson if the stock will continue to climb higher of if it’s about to do a downward dog.
To hear Taner and Ross analyze Lululemon, watch the video above.
NEW! Talking Numbers Technicals Tutorials here: http://finance.yahoo.com/video/playlist/talking-numbers/