Who is really doing well in retail? We've heard the latest out of Macy's (M), Wal-Mart (WMT), Target (TGT), J.C. Penney (JCP), Kohl's (KSS) and, last night, on Mad Money, Ascena (ASNA) (don't laugh they are that big now after a spate of acquisitions) and we know things have gotten tough. My feeling is with the fiscal cliff looming to the point of being mainstream that your take-home pay is going to be reduced by a shocking amount if there is no deal -- things are not going to get any better.
Which is why the lululemon athletica (LULU) number yesterday was so astounding. Of course, we had to go through the usual rigmarole to see this. A spectacular 18% comp-store sales gain -- best I have seen from any company -- coupled with terrific gross margins looked like enough to send the stock to the low $70s. But the downbeat high-single-digit comp-store projections stopped the elephant in its tracks and then sent it down to the high $60s.
Until the conference call began.
On that conference call, you realized five things very quickly about LULU:
- The runway here is gigantic. LULU has about 200 stores in the U.S. and could triple that if it wants to.
- The men's business is coming on strong, even if it is only 12% of total revenues.
- The international ramp is just beginning, and it could be much bigger than the U.S.
- LULU itself is a real proselytizer for the activities for which its clothes are meant: Yoga. They have a great anecdote about what happened to the town of Columbus, Ohio, when LULU opened; a cornucopia of yoga studios opened. It just didn't seem like a fad.
- It has a clean inventory posture, so even if the fiscal cliff dents spending, it appeals to those that are wealthy -- the price points are ridiculous -- and the company wouldn't have to take markdowns.
LULU is in an unenviable position once shared by Chipotle (CMG) and Whole Foods (WFM): It's growing so much faster than anyone else it gets a multiple that is tough to justify: 40x next year's growth rate. That's because mutual fund managers are always looking for the highest growth name and then deciding that it might be inexpensive on a multiple basis in the outyears -- let's call them 20145-2015. Eventually, that game ends as it did for Whole Foods when the law of large numbers made it impossible to keep blowing numbers away and it ended for Chipotle with a rapid deceleration of same-store sales.
Both could happen to LULU and its high, short base -- 14% of shares -- shows you how the bet continues to be made.
But that bet was unrequited this quarter because this company, even at $10 billion, has more going for it in a secular fashion -- the strength of the health movements with which it is heavily identified, and the technology of the clothes, which is regarded as unique and more innovative than any other clothier out there, including Under Armour (UA).
So, the ardor continues, the shorts get confounded and, yes, once again, those who don't bother to wait until the conference call were smoked to smithereens.