Lululemon Pre-earnings Analysis
Lululemon’s market value has fallen 50% from its 12 month highs, reflecting the company’s slumping sales growth, but some may argue that the stock is entering an attractive range for buyers to begin stepping in. Fierce competition and a cutback on discretionary spending left Lululemon in a tough spot over the last two years. The company went from posting 25-30% quarterly sales growth to just 10% last quarter. This is a trend that we’ve seen across athletic wear, even companies as big as Nike reflecting slowing sales. Nike’s last quarter actually reflected negative growth of -1.44%, leaving investors completely uncertain about the future of the space.
Despite the decline in earnings growth, Lululemon’s earnings are still trending positively. The company’s correction from its all time high may actually be good for their stock, especially for investors who recognized how overvalued it was. Now that it has cooled down, it is finally back at a more reasonable trading range, which gives them an opportunity to post a comeback with good earnings. This quarter’s revenue and profit estimates are once again expected to grow, but the big question will be around guidance. A recent argument that an economic slowdown has surfaced, which makes Lulu’s ability to give strong guidance pivotal to where they head following the report.
Option chain analysis:
Lululemon’s option chain expiring on September 6th is currently reflecting an implied volatility reading of about 100%, which translates to about a projected move of $31 from the underlying stock between now and then. The direction of that move will depend on the earnings call and report.