After another fairly quiet quarter on the news front-hah!-high-end yoga and athletic wear maker Lululemon Athletica (LULU) is slated to report its second-quarter financial results next Thursday.
Reuters Nomura analyst Robert Drbul, who rates the company at Buy, wrote today in a note that great things are expected from Lululemon, although it's still impossible to ignore the stock's sharp decline this year:
We would note that sentiment remains largely negative, with the stock down 34% year to date versus a 1% increase for the S&P Retailing Index and an 8% increase for the S&P 500. We believe there are a number of remaining growth opportunities for the company, and are optimistic around the management transitions underway as the team is further built out with capable leaders.
Canaccord’s Camilo Lyon is less sure of Lululemon’s prospects:
In our opinion, the issue with LULU is that the assortment for the most part remains stale with only brief pops of newness (e.g., &Go line). As such, it will be important to see how traffic was sustained during the quarter. Recall traffic was up last quarter but conversion was down, clearly indicating customers wanted to buy but were not inspired to do so.
Competitive threats from Under Armour (UA), Nike (NKE), and other niche athletic apparel brands could result in further share loss for LULU as we believe rightsizing the assortment mix of fashion and basics are six to nine months away. Moreover, we believe there is risk that H2/14 comp expectations could reset lower as we believe the pace of change has been slow to yield consistent improvements.
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Shares of Lululemon ticked up 0.2% at $39.11 at 2:57 p.m. this afternoon, while Nike has gained 2.3% to $81.72, Under Armour has risen 0.6% to $72.40, and Gap (GPS), whose Athleta brand competes with Lululemon, is down 4.3% at $44.60 after reporting disappointing same-store sales.
Lululemon will report earnings on Thursday, Sept. 11 at 9:00 AM.
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