I’ve been fortunate in the past with LULU, trading the $65-$80 range last year and then bailing when the founder (Chip Wilson) insulted women everywhere. Somewhat ironically he trashed the board of directors yesterday, attempting to oust the chairman who replaced him. Perhaps that was one sign to get out.
I wrote here last quarter that LULU could pop on EPS due to better than expected earnings as well as a high short interest. It did, going as high as $55, but fell back to where it had been previously before today’s, let’s say, disappointing results. I got my desired result and turned a winning play into a losing one. Mistake, try not to make the same one.
According to management , and who is really in charge is somewhat of a mystery, current CFO John Currie appears to be pulling the strings and is headed out of town by year end to do more skiing. True story.
New CEO Lauren Potdevin has been uninspiring during his first two earnings calls. I gave him a pass on the first one, having just taken the post, but today he still seemed somewhat lost and deferred to Currie and CPO (Chief Product Officer) Tara Poseley on almost every question during Q&A.
Too many instructors in the Yoga studio?
To be fair to Potdevin, there could be a language barrier at play here that keeps him from “starring” on these conference calls. His first language is clearly French, not English, but he could stell read his prepared remarks more like a halftime speech and less like a eulogy.
This morning many are pointing out that LULU is transitioning from a growth company to a mature one. That could be, but there is still room for growth here, plenty in fact so i think the issues are deeper.
Potdevin noted today about the company’s leadership that “the parents are fighting and that makes things awkward.” Obviously as a nod to yesterday’s developments. I’d substitute “problematic” for “awkward” but probably a good choice of words on his part.
That gem may have been trumped when Poseley, who just took her gig last year, added that the increased inventory they reported will also include a mix that is not ideal for the second half of the year. Translation: They have too much stuff of what people don’t want. Not exactly a reason to run right out and buy some stock today.
Frankly, I’m more irritated that I didn’t see this coming merely from casual observation. Less LULU, more Under Armour and Nike almost everywhere I go, the gym, grocery store etc… The analyst community for the most part has been asleep at the wheel. Currie seems to be very likable and appears to have cultivated good relationships with those that cover LULU. What happens when he’s skiing next year?
I think it’s pretty clear that LULU cannot recover or get back to growth with the founder still shooting his mouth of and owning (I believe) 28% of the company. Is their a such thing as a “turnaournd growth company”? This, one would think, could make LULU an acquisition target.
I’m not sure that someone rushes right in and buys a company it while in free fall though, especially a Canadian one.
Oh did I mention LULU is repatriating some foreign cash to buyback $450 million in stock? The U.S. government thanks you Lauren. Just to put that in perspective, Currie said on the call that of the $700 million on LULU’s balance sheet, about $100 million was here in the U.S. So the value of this “buyback” is roughly 4.5x that of their U.S. cash hoard. Read that back to yourself.
I’m also not aware of many growth companies that institute buyback programs while issuing downward guidance, but I digress.
It’s pretty clear that this leadership issue has to resolve itself before LULU can return to growth. A buyout would be the quickest resolution, but a company that’s talking about plans in 2016 and 2017 probably isn’t thinking buyout, despite the fact they should be.
Even Poseley, who I thought came off very well on the call last quarter seemed hesitance and guarded with her responses today. They all could be smarting from what Wilson said yesterday and the drama he creates overall, but at some point a leader has to overcome these issues. I’m not sure there’s a leader at Lululemon right now.
Now I find myself in a position of managing a losing trade. I suspect it will see the low 40’s again…..and fail miserably there when it does without any positive news. At least I can hope, which is what’s left at LULU right now, hope.