“Armchair Trader Series” Recommendations
- Week Beginning -
Monday, March 26, 2018

by Ian Harvey

IMPORTANT NOTE: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

You may also wish to read Stock Options Made Easy Trading Philosophy

Lululemon Athletica inc. (NASDAQ:LULU) Calls Are Winners

Thursday, March 29, 2018

This trade hit $6.35 yesterday -- WELL DONE!

Option Trade - Lululemon Athletica inc. (NASDAQ:LULU) Calls

Monday, March 26, 2018

** OPTION TRADE: Buy the LULU APRIL 20 2018 82.500 CALL at approximately $3.10. Place a pre-determined sell at $6.20.

Also include a protective stop loss of $1.25.

Athleisure giant, Lululemon Athletica inc. (NASDAQ:LULU), will report its fourth quarter numbers March 27 after the market close. The company is expected to post earnings of $1.27 per share, up from $1.00 during the same period last year. Analysts see the company growing its earnings by 18.2% during the current year, and by 15.4% per annum over the next five years.

LULU has managed to post positive earnings and revenue surprises the last three quarters, and the market expects another beat, with a whisper number of $1.30 versus the consensus $1.27.

While Nike still dominates the athletic apparel space, and Adidas is popular with teens and millennials, some analysts peg Lululemon as a smaller North America sports apparel brand to watch. RBC Capital Markets reaffirmed in January the view that Lululemon is on track for its $4 billion sales target for 2020.

Wall Street largely isn't fazed by the recent departure of CEO Laurent Potdevin in February, which reportedly involved a relationship with a subordinate and was not related to the company's finances or operations. Gap (GPS) vet Glenn Murphy is now at the helm until a replacement is found.

LULU shares have gained a modest 0.1% on the year.

Influencing Factors

Sales momentum -- Lululemon entered the holiday quarter with the wind at its back as comparable-store sales rose a healthy 7%. Sure, most of that gain came from booming demand in its digital sales channel, but Lululemon's network of stores performed well, too. Comps sped up to a 2% gain at physical locations, improving upon a 1% uptick in the prior quarter.

The retailer's initial holiday quarter guidance predicted that overall comps would end up rising in the mid-single-digits, with sales coming in between $870 million and $885 million. In early January, though, management boosted that outlook to forecast high single-digit comps and revenue of between $905 million and $915 million. Executives said they were thrilled to see an "accelerating trend across all parts of our business" over the holidays, so investors have every reason to expect good news on this score.

Profit rebound -- Gross profit margin improved by more than a full percentage point in the prior quarter, rising to 52% of sales. That result suggests the retailer felt little pressure to ramp up its promotions to keep customer traffic humming along.

The retailer's latest forecast calls for earnings of $1.25 per share at the midpoint of guidance, which would amount to a solid 25% boost over the prior year's result. Profitability should also improve modestly from the 50% rate Lululemon managed a year ago. Keep in mind that the reported profit figure will be different because management's earnings projection came before the recent tax law changes were enacted.

Also, Lululemon Athletica announced that its board has initiated a stock buyback program on Wednesday, December 6th that authorizes the company to buyback $200.00 million in outstanding shares. This buyback authorization authorizes the apparel retailer to buy shares of its stock through open market purchases. Stock buyback programs are often an indication that the company’s management believes its shares are undervalued.

Analysts and Hedge Funds Opinions

Equities research analysts at Credit Suisse Group assumed coverage on shares of Lululemon Athletica in a report issued on Monday, March 12th. The brokerage set an “outperform” rating and a $96.00 price target on the apparel retailer’s stock. Credit Suisse Group’s target price suggests a potential upside of 19.58% from the company’s previous close.

Also, several other equities analysts have recently commented on the company…..

  • Oppenheimer restated an “outperform” rating and issued a $88.00 price objective on shares of Lululemon Athletica in a report on Tuesday, February 6th.
  • Canaccord Genuity set a $75.00 price objective on shares of Lululemon Athletica and gave the stock a “hold” rating in a report on Tuesday, February 6th.
  • SunTrust Banks restated a “buy” rating and issued a $95.00 price objective on shares of Lululemon Athletica in a report on Friday, February 2nd.
  • Finally, Zacks Investment Research upgraded shares of Lululemon Athletica from a “hold” rating to a “buy” rating and set a $88.00 price objective for the company in a report on Friday, February 2nd.

Institutional investors that have recently made a change to their positions in the stock….

  • Fred Alger Management Inc. purchased a new position in shares of Lululemon in the 4th quarter. The institutional investor purchased 117,887 shares of the apparel retailer’s stock, valued at approximately $9,265,000.
  • Bank of New York Mellon Corp grew its position in shares of Lululemon Athletica by 132.6% during the third quarter. Bank of New York Mellon Corp now owns 1,014,384 shares of the apparel retailer’s stock worth $63,146,000 after acquiring an additional 578,248 shares during the last quarter.
  • Geode Capital Management LLC grew its position in shares of Lululemon Athletica by 0.7% during the fourth quarter. Geode Capital Management LLC now owns 976,136 shares of the apparel retailer’s stock worth $76,672,000 after acquiring an additional 6,483 shares during the last quarter.
  • Jennison Associates LLC grew its position in shares of Lululemon Athletica by 37.6% during the fourth quarter. Jennison Associates LLC now owns 839,936 shares of the apparel retailer’s stock worth $66,011,000 after acquiring an additional 229,552 shares during the last quarter.

Harvey’s Options Volatility Indicator


Lululemon has a market capitalization of $10,763.98, a PE ratio of 39.56, a price-to-earnings-growth ratio of 2.04 and a beta of 0.22. Lululemon Athletica inc. has a twelve month low of $47.26 and a twelve month high of $83.98.

Armchair Traders - Update on Trading Conditions

Monday, 26th March, 2018

As we all know -- WALL Street took another tumble on Friday, with the Dow falling 400 points, for a loss of more than 1100 points in the two days since President Donald Trump launched a high-stakes trade confrontation with China.

The broadbased S & P 500 dropped 2.1 per cent to end the week at 2,588.26, while the tech-rich Nasdaq Composite Index fell 2.4 per cent to 6,992.66.

Economic data helped boost sentiment early in the session as a big gain in US aircraft sales last month led to a jump in durable goods orders that was double what analysts were expecting, a good sign for economic growth.

And this may be the case although it has been devastating for any call trades – Trump on Friday said his tough policies — including steep tariffs on steel and aluminium imports, and harsh penalties on Chinese goods and trade practices — have brought trading partners to the negotiating table.”

But China and the European Union warned Washington they will not hold talks while being threatened. And China said it was not afraid of a trade war and would not rule out the possibility of scaling back purchases of US Treasury debt as one option for retaliation.

Still, the first steps announced by Beijing against the United States seemed moderate and did not include the vital aircraft and soybean sectors, which initially allayed some of the concerns among investors.

Schwab analysts noted that China presented a “measured response” to the US announcement, saying it would target 128 US products, including ethanol, fresh fruit, pork, steel and wine.

Earlier in the week – Wednesday -- Jay Powell kicked off his first news conference as Fed chairman after a Fed rate hike that came with an outlook just slightly more hawkish than anticipated. Job gains were well above the long-term pace to absorb new entrants, he said in his opening statement, but against a backdrop of a "strengthened economic outlook," inflation is still below the Fed's 2% long-term objective.

And Thursday -- Congressional leaders reached an agreement on a $1.3T spending bill, which boosts defense spending by $80B and domestic spending by $63B above limits set in 2011, as well as $1.6B for a border wall with Mexico and $100M for autonomous car research and testing. With Trump's signature, the bill will avert another government shutdown and keep federal agencies funded until Sept. 30.

Stocks certainly became victims after; Facebook (FB) was slammed by lawmakers over the previous weekend for not providing more information about its ties to Cambridge Analytica. The data firm, which worked for President Trump in the 2016 election, improperly kept Facebook (FB) user data for years despite saying the records were destroyed. Facebook shares fell throughout the week on the news – and continued to upset other stock prices.

The week ahead -- the recent stock market stumbles, which culminated in a brisk selloff late last week and a fall for the Standard & Poor's 500 below its 100-day moving average, are a positive development – which means that the bull market is still intact – “a fast and furious pullback is 'indicative of bull market’.” 

It's actually a positive to see the S&P 500 gap down in the way that it did -- for the first time, we have an oversold condition this month and the last time we had that was at the February lows.

As well, China and the US have opened high-level talks to ease the trade dispute. US Treasury Secretary Steven Mnuchin, trade representative Robert Lighthizer and China's top economic adviser Liu He have opened talks on a trade dispute between the two powers.

And, looking at the futures they are looking quite positive at the time of writing!


Last week was quite successful trading on the negatives created by Facebook – twice – and then QUALCOMM.

Therefore, this week, due to likely volatility continuing, let us see if the positives will stick before playing too many trades. An earnings trade that looks to be quite good is LULU, which will be with you shortly.


Best of luck with your trading,