Lululemon An Example Of Sticking To What's Working For Too Long?

Lululemon Athletica inc. (NASDAQ: LULU) shares are taking a beating on Thursday, declining over 21 percent on roughly five times their average volume.

The Catalyst Driving Shares Lower

The company reported after the market close on Wednesday fourth-quarter earnings per share that missed estimates, while it painted a bleak outlook for the first quarter and the full year.

Laurent Potdevin, the company's CEO, said, "Although we've had a slow start to 2017, our teams are passionately committed to delivering on our robust plans across product innovation, digital, North America and international as we realize our ambitious vision for the future."

Lack Of Dynamism Costing The Company

Commenting on the results and the guidance, Oppenheimer said Lululemon has proved it is not immune to broader retail trends, as the neutral color palette that worked in the second half of 2016 isn't resonating this spring. The consumer wants more fashion and newness, the firm added.

"LULU stuck to what worked for too long, with conversion this Spring still positive but traffic deteriorating," Oppenheimer elaborated. Meanwhile, the firm noted that the company is taking action, with new Nulux fabric, adding color next week and launching a bra in the second quarter of 2017.

"Additionally, LULU moving to its first global strategic brand campaign (digitally focused) vs. historical reliance on community outreach (allocation of marketing dollars to local stores)," the firm noted.

Q4 Review

Reviewing the fourth-quarter results, analysts Anna Andreeva and Samantha Lanman noted the fourth-quarter results beat on comps and margins. Gross margins accelerated by 200 basis points on a two-year basis, helped by strength in product margin, the analysts added. Among other things, the analysts termed inventories as clean (up 5 percent vs. sales growth of 12 percent).

Lowering Estimates, Price Target

Oppenheimer lowered its 2017 earnings per share estimate for Lululemon to $2.35 from $2.56. The firm also lowered its price target for the shares of the company to $65 from $75, while it still rates the company an Outperform.

At time of publication, shares of Lululemon were slumping 22.78 percent at $51.20.

Related Links:

Lululemon's Stock Could Drop 20%

Are Monthly Retail Sales Noise Or News?
________
Image Credit: By lululemon athletica (Flickr: Yoga Journal Conference) [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons