Option Trade – LULU - Lululemon Athletica Inc.
Wednesday June 06, 2012

LULU -- Athletic Apparel to Make that Workout Just a Little Easier – And also Profit from the Earnings Report!

by Ian Harvey

*OPTION TRADE: Buy the LULU Jul 2012 75.000 call (LULU120721C00075000) at or under $3.30, good for the day. Place a protective stop limit at $1.70 and a pre-determined sell at $4.50.



Lululemon Athletica ((LULU) is scheduled to report its first quarter earnings results tomorrow, June 07, 2012, before market open. However, we will take a longer-term view; allow the report to unfold in-case of any volatility shift, and cash in at an appropriate time in the future.

With the onset of swimsuit season it's time to get serious about hitting the gym before hitting the pool. And since looking good is feeling good, LULU outfits you with athletic apparel to make that workout just a little easier.

The stock has been sprinting higher in 2012, rising close to 55%. LULU shares gapped higher in January following a blowout earnings report, and have continued to climb, hitting an all-time high in early May. The shares recently pulled back near support at the 65 region, providing us with a nice entry point, and now seems poised for continued upside.

Description of Lululemon Athletica Inc.

Lululemon Athletica Inc. is a yoga-inspired athletic apparel company that creates components for people to live a long, healthy and fun life.

By producing products that help keep people active and stress free, lululemon believes that the world will be a better place. Setting the bar in technical fabrics and functional designs, lululemon works with yogis and athletes in local communities for continuous research and product feedback.

Reasoning for the Option Tip

Rising unemployment and continuing trouble in Europe have eroded consumer confidence. But analysts still expect the maker of posh yoga pants and workout clothes to post a 36.4% jump in earnings -- that would be the 10th straight quarter of double-digit growth for profit and revenue.

The chain is looking to expand from the bright lights of New York, Los Angeles and Chicago, opening more stores in Middle America. It also is growing beyond its North American roots and opened showrooms in London and Hong Kong this year that may turn into permanent stores. Other growth markets could include Japan, Australia and Europe.


Technical Overview

Lululemon Athletica has a market cap of $10.69 billion and it is currently trading around $70.66 with a 52 week range of $41.18 to $81.09. The stock has 59.82% price performance for the year 2012. The following table provides the key financial ratios for Lululemon Athletica:

LULU technicals

Recent News

• On June 05, 2012, UBS analyst rated LULU shares as a “Buy” with a $91 price target.

• On May 29, 2012, Wedbush initiated coverage on shares of Lululemon Athletica with an Outperform rating and a $90 price target.

• On May 25, 2012, KeyBanc downgraded Lululemon Athletica from Buy to Hold.

• On April 27, 2012, Ford Equity Research upgraded Lululemon Athletica from FAVORABLE to BUY.

• On April 25, 2012, Lululemon Athletica announced that it has nominated Jerry Stritzke for election to the company's Board of Directors.

• On April 24, 2012 Zacks Investment Research downgraded Lululemon Athletica from BUY to HOLD.

Analyst Guidance and Earnings History

The overall expectations for the first quarter revenues are $269.67 million when compared to $186.78 million for the same quarter last year. Earnings per share for the first quarter are expected to be 30 cents a share, up from 22 cents a share in the year-ago period.

A UBS analyst expects Lululemon to report Q1 EPS of 30c, above guidance of 28c-29c, driven by comps and direct sales given higher inventories, product innovation, strong fashion, and product flows. The firm’s checks indicate Q1 markdowns were controlled and online selling was strong. The analyst expects Q2 sales upside but less than Q1 given softness in Canada and gross margin pressure. Shares are rated “BUY” with a $91 price target.

The average price target from analysts for Lululemon Athletica is $79.67 with average rating is OVERWEIGHT.

Out of the last 4 quarters, Lululemon Athletica has exceeded the EPS estimates all the 4 times. The following chart shows the Analyst estimates history and the actual EPS results:

LULU-earnings history

Some analysts have their doubts about Lululemon's growth and chalk it up to nothing more than a fad. But Lulu keeps customers returning, with fourth-quarter sales at stores open at least a year surging 26%.


While the stock has retreated somewhat from an all time high of 81.09 on May 3, it has more than doubled in the past year.

Lululemon's strong sales stem from its unique product offerings. Its clothing isn't just fashionable, but functional as well.

While its yoga pants can retail for $95 or more, they are made from a high tech fabric that wicks away moisture keeping the wearer drier and reduces irritation. Its Silverescent brand features silver as an odor reducer.

Lululemon, like many other retailers, is emphasizing online sales while building stores.

*OPTION TRADING PLAY: Buy the LULU Jul 2012 75.000 call (LULU120721C00075000) at or under $3.30, good for the day. Place a protective stop limit at $1.70 and a pre-determined sell at $4.50.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!

Options traders are not successful because they win.
Options traders win because they are successful.

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