Is holding onto this company still a prudent measure, or is it time to cut losses and move onto other opportunities? I would be very happy to read your thoughts on this company. Thanks so much, and I look forward to your response.
LULU's last quarter was mixed. One of the issues we think is that historically, LULU has always 'bounced back' much faster after fundamental downturns. Lululemon's new offerings were well received in 1Q, yet softer traffic driven by consumer uncertainty and added levies are weighing on the outlook. Mitigation efforts like price hikes and sourcing efficiencies could start to help in 2H and into next year. Still, full-year gross margin may fall 110 bps (vs. 60 bps prior), based on guidance, amid tariffs. Notably, in 2Q, sales might rise 7-8%, also per guidance, trailing consensus. Gross margin could fall 200 bps on higher costs tied to tariffs and bigger markdowns. In 1Q, sales rose 7%, topping guidance as China's gained 21%. Management lowered its full-year EPS view to $14.58-$14.78 vs. $14.95-$15.15 previously. We like it long term, and it is as cheap on valuation as it has ever been. The balance sheet is fine and growth is still expected next year. BUT...momentum is clearly going the wrong way here. We think it can be a HOLD, but at the same time we doubt it does much this year and we would be fine with a tax-loss/re-buy strategy (if losses can be utilized) with a view to look at it later in the year after some more clarity on tariffs.
Authors of this answer, directors, partners and/or officers of 5i Research and/or affiliated companies have a financial or other interest in LULU.