NEW BEARISH Plays
Lululemon Athletica - LULU - close: 47.57 change: -2.51
Stop Loss: 50.05
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on November -- at $---.--
Listed on November 11, 2015
Time Frame: Exit PRIOR to earnings in mid December
Average Daily Volume = 2.9 million
New Positions: Yes, see below
Disappointing earnings guidance and rising competition have been tough on shares of LULU. It doesn't help that expectations for this holiday season are falling.
LULU is in the consumer goods sector. According to the company,
"lululemon athletica inc. (LULU) is a yoga-inspired athletic apparel company with products that create transformational experiences for people to live happy, healthy, fun lives. Setting the bar in technical fabrics and functional designs, lululemon works with yogis and athletes in local communities for continuous research and product feedback."
LULU's most recent earnings report was September 10, 2015. The company beat the bottom line estimate by a penny. Revenues were up +16% from a year ago and came in above estimates. Comps showed strength with a +11% improvement on a constant dollar basis. However, management spoiled the news by drastically lowering their Q3 estimates below Wall Street expectations. The stock was crushed on this outlook.
LULU is facing a few challenges. The biggest challenge is rising competition. The athleisure trend in apparel has been around for a while now but everyone is trying to cash in on it. That includes heavyweights like Under Armour and Nike. Nike plans to almost double its sales in women's apparel by 2020. You can bet they plan on stealing some market share from its smaller rivals like LULU. LULU also has competition from other apparel stores like the Gap (with all of its various labels) and Victoria's Secret.
If rising competition wasn't enough LULU has also raised their prices, which could further drive consumers toward lower cost alternatives.
Bigger picture the outlook for holiday spending this year is wilting. In the last couple of weeks multiple analyst firms have released reports that consumers will spend less time in stores (lower traffic). Plus, retail sales growth is expected to fall from last year, especially on apparel.
Technically LULU is in another bear market. The stock is down -32% from its 2015 highs. Shares have a bearish trend of lower highs as investors keep selling the rallies. Now LULU has fallen to short-term support in the $47.40-47.50 area.
My biggest concern is the elevated short interest. The most recent data listed short interest at 27% of the 110 million share float. That many shorts can make this stock volatile as weak hands could panic on any bounce. Of course longer-term the bears are probably right on LULU until the story changes. Readers may want to trade the put options to limit their risk. Tonight we are suggesting a trigger to launch bearish positions at $47.25.
Plan on exiting prior to LULU's earnings report in mid December.
Trigger @ $47.25
- Suggested Positions -
Short LULU stock @ $47.25
- (or for more adventurous traders, try this option) -
Buy the DEC $45 PUT (LULU151218P45) current ask $2.28
option price is a current quote and not a suggested entry price.
Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.
Option Format: symbol-year-month-day-call-strike