Greedy shorts! That's what I am thinking about when it comes to Lululemon Athletica (LULU) today, and I am not talking about its latest yoga pants, where the company is most certainly greedy with the price it asks you to pay.
I am talking about the short squeeze that we are getting in Lululemon today from short-sellers who didn't cover on the bad news we got last quarter.
What was that bad news about? I can summarize it in one word: Inventory, as in too much inventory. That was the rap, that's what drove it down, and that's what gave you an amazing chance to cover the stock if you were betting against it. After all, the stock had plummeted from $63 down to $43, with the coup de grace being that last 20% lop off from November's high.
Here's the irony. What's causing the rally today? Inventory! That's right, it looks like that Lululemon had so much of the right inventory that it was able to blow the numbers away, an extraordinary performance that defies all the conventional thinking of what happens when you have too much inventory, notably that your product no longer has cache and there's going to be severe price-cutting ahead. Once you get price-cutting, you can almost never return to full price.
Now the stock is all the way back to where it started its descent, and I think that people are going to have to rethink the negatives here. For me, the stock is expensive. I would be thrilled to ring the register except for the fact that I doubt the shorts are done with the name. If that's the case, there's more pain ahead for them and more pleasure ahead for the longs.
