Lululemon Athletica Q3 Earnings Report: Keep Shorting?

The Q3 2016 earnings report forlarge cap technical athletic apparel stock Lululemon Athletica inc (NASDAQ: LULU) isscheduled forafter the marketcloses onWednesday (December 7th) as the company gets hit by analyst downgrades:

Nov-29-16 Initiated Buckingham Research Neutral $55
Nov-16-16 Downgrade Credit Suisse Outperform Neutral
Sep-16-16 Initiated Susquehanna Positive
Sep-08-16 Downgrade Jefferies Buy Hold
Sep-02-16 Reiterated Canaccord Genuity Hold $70 $65
Sep-02-16 Downgrade Morgan Stanley Overweight Equal-Weight

In mid Septempber, our Elite Opportunity Pronewsletter also suggested a speculative short trade on shares, saying:

I will say we used to like LULU, but that was way back around much lower levels than where the stock is now. We suggested LULU back in 2014 as a buy when the stock was down around $40 per share. We set a long-term target in the idea at $64, and now it’s trading at $65 and change. Enough said there As you can see with LULU, the stock has already broke down. Although it has every right to retrace some of those losses, I think it will inevitably find its way down to just below $58 when it’s all said and done, so we’re going to go ahead and suggest getting short LULU around current levels.

A technical chart for Lululemon Athletica shows shares hitting lower lows and dropping below a key support level at the beginning of October:

A long term performance chart shows shares of Lululemon Athletica basically range boundwhile other players in the athletic apparel or yoga space like large capsUnder Armour Inc (NYSE: UA), Nike Inc (NYSE: NKE) and The Gap Inc (NYSE: GPS) have performed better except for the latter:

At the beginning of September, Lululemon Athletica reportedthat second quarter net revenuesincreased by 14% (or by 15% on a constant dollar basis) to $514.5 million as total comparable sales, which includes comparable store sales and direct to consumer, increased by 4% (or by 5% on a constant dollar basis) and comparable store sales increased by 3% (or by 4% on a constant dollar basis). Direct to consumer net revenue increased by 6% (or by 7% on a constant dollar basis) to $87.4 million (Excluding the impact of an online warehouse sale, direct to consumer net revenue would have increased by 16%). Net income was $53.625 million versus $47.668 million. The CEO commented:

“The second quarter demonstrated strong results as we delivered sales and EPS at the high-end of our guidance and saw an important inflection in our gross margin and earnings performance.”

“Our progress in the second quarter, especially in gross margin and inventory, marks the beginning of our recovery in profitability and sustainable long term growth.”

Finally, here is a quick recap of mid cap Lululemon Athleticas recent earnings history along with EPS estimate trends from the Yahoo! Finance analyst estimates page:

EPS Est. 0.37 0.8 0.31 0.38
EPS Actual 0.35 0.85 0.3 0.38
Difference -0.02 0.05 -0.01 N/A
Surprise % -5.40% 6.20% -3.20% N/A
EPS TrendCurrent Qtr.Next Qtr.Current YearNext Year
Current Estimate 0.43 1.01 2.12 2.5
7 Days Ago 0.43 1.01 2.13 2.51
30 Days Ago 0.44 1.02 2.13 2.52
60 Days Ago 0.43 1.01 2.12 2.51
90 Days Ago 0.44 1.02 2.13 2.52

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