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Athletic apparel manufacturer Lululemon Athletica Inc. (NASDAQ:LULU) will step into the earnings limelight this Wednesday, and the company is facing a potential hard sell to investors. Essentially, the “athleisure” trend is dying. The fashion trend that saw a rise in popularity for athletic gear among those less athletically inclined is giving way to an industry stalwart — denim — an area in which Lululemon has virtually no presence.
Not only will this make guidance an issue for LULU stock, it will also significantly undermine year-over-year comparisons, setting up a potential bearish play heading into earnings.
By the numbers, Wall Street is expecting third-quarter earnings to rise 22.8% year-over-year to 43 cents per share from 35 cents per share. Revenue, meanwhile, is seen rising roughly 12.7% to $540.43 million for the quarter.
But targets may be set even higher for Lululemon stock. For instance, EarningsWhispers.com reports a third-quarter whisper number of 45 cents per share — two cents higher than the consensus.
Checking in with LULU’s sentient backdrop, we find that the brokerage community is slowly distancing itself from Lululemon stock. Last week, Canaccord Genuity downgraded the stock to “sell” from “hold” and cut its full-year/fourth-quarter earnings outlook.
Despite the downgrade, 17 of the 33 analysts following LULU stock still rate the shares a “buy” or better, leaving plenty of room for more brokerage firms to follow Canaccord’s lead. There is even room for price-target cuts, with the 12-month consensus price target of $67.30 resting nearly 22% north of LULU’s current trading range.
Outside the brokerage community, short interest fell during the most recent reporting period. Normally, a sharp drop in short interest results in an upside move in the stock due to added buying pressure. Yet, LULU stock failed to see any significant rally from the short-covering, indicating weak buying support for the shares.
As such, even though about 13.5% of LULU’s float remains sold short, continued short covering should have little effect on Lululemon stock.
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