Some companies don't have to wow to impress Wall Street. They simply need to be a model of consistency and quiet the doubters to enjoy price success. I believe that defines Lululemon Athletica (LULU) .
The company's fourth quarter produced strong results. EPS of $1.85 came in eleven cents ahead of expectations while revenue of $1.2 billion nudged past estimates. For the first quarter, management guided the EPS midpoint one penny above the current consensus with the midpoint of revenue virtually in line with consensus. Full-year numbers were stronger on the EPS side by 2.5%, but again revenue is looking in-line with expectations.
These results and this guidance have been good enough for a 15% gain in the stock on Thursday. With a short-interest below 4%, it's not like we can really pinpoint a squeeze as the reason. I suppose we could if we retitled it a pessimism-squeeze or doubt-squeeze. Wall Street seemed to be leaning towards slowing sales, but it appears the company has stable sales growth along with strengthening margins. That's not a bad combination for a company intent are bringing in nearly $4 billion in fiscal year 2019.
I might be a bit biased in my experience with LULU. My daughters love the store. Every time we are in, there is a consistent flow of customers, seemingly every one leaving with a purchase. As of late, I've noticed more and more men in the store. Actual male customers, not clueless ones such as myself. This, along with a digital presence, should continue to pace growth. Given the strong double-digit teen growth in a specialty retail segment, some might take pause to a P/E twice that of the growth rate because of the specialty nature. Athletic wear is a different animal in my view. Customers are often brand loyal with price being a distant second.
Add in today's move has created a huge breakout on the weekly pattern of the stock, and naysayers have reason for concern while bulls will want to be patient here. Although it is not a perfect inverse head and shoulders pattern, LULU appears headed to $200 on a measured basis. We have a head around $110 with a neckline around $155 average. Add the difference of the two to the neckline and we get $200. The big push this week should turn the short-term moving average higher to match the long. Should LULU pullback to $150-$155 it will provide those who missed entry a chance to get in. If shares do fall under $140, then red flags will be plentiful and should not be ignored. Until we see significant weakness, the stock looks like one to own.
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