There aren’t a lot of growth stories on Wall Street these days. So when you see a stock posting numbers like Lululemon Athletica (NASDAQ:LULU) is Thursday morning, investors should take notice.
The high-end athletic clothing store — best known for its yoga pants — just posted its 13th consecutive quarter of sales growth and 11th consecutive quarter of profit growth.
Despite those numbers, LULU stock tanked as much as 14% before the bell. That’s partially because of some disappointing details about future projections — but mainly about the fact that investors have almost no stomach for risk. Even when it involves a stock with a great track record like Lululemon.
Let’s go over the earnings details first before I wax philosophical about investor appetites for risk and expectations of growth:
LULU Growing Fast, But Not Fast Enough for Some
Just look at the LULU earnings details for a moment, and tell me if you spot any warning bells.
Revenue was $286 million on the quarter. That’s up 56% from Q1 last year, and more than double sales from two years ago. In fact, this one quarter of revenue is more than the company did in all of fiscal 2008. And same-store sales — an all-important measure of performance at older locations open for at least a year instead of new locations that have some buzz — were up 25%.
It’s not just sales at Lululemon, either. Earnings were up 40%, from $33.4 million to $46.4 million the previous year. On a per-share basis, that was a jump from 23 cents to 32 cents. And longer-term, that’s bigger EPS than the company recorded in all of 2009. To top it off, Wall Street had forecast only 30 cents a share in profits, so the 32-cent total handily beat expectations.
Not exactly reason to panic, right?
Well, unfortunately, investors latched onto two items with utter disregard for everything else. The company predicted that same-store sales growth would slow to the “low double digits” in the current quarter and into the future. Also, LULU noted full-year profit in fiscal 2013 will be as much as $1.60 per share compared with the average forecast of $1.63.
In short, Lululemon might be growing at a fast pace. But for some investors, it’s not growing fast enough — and that means it’s time to bail out.
Maybe a Bargain Buy in LULU …
Click to Enlarge Back on Dec. 1, we saw a very similar script play out. LULU “only” grew its revenue 30% and its earnings 16%. The stock gapped down almost 19% at the open as investors freaked out — going from a close of $49.70 the day before to an opening price of $41.94.
Except by the end of the day, it had run back up to a close of $47.80. One month later it was above $50, and it had been trading above $70 before the mayhem this morning. That’s a roughly 40% gain from that “horrible” report in December.
We could see another sideways move in Lululemon for a few weeks as some investors cash out their positions. After all, the stock is up nearly 1,700% since early 2009, so you can hardly blame traders looking to take some money off the table. But just because those big gains are behind us doesn’t mean LULU has run out of room. There very well could be a decent gain in the coming months — because a “low double-digit” growth rate right now still is a growth rate, as opposed to the headwinds other companies are facing.
The company has a 52-week high of $81.09 — over 25% upside from here if all LULU does is reclaim that level. The mean price target on Lululemon right now is $79.20, according to 15 analysts surveyed by Thomson/First Call, and the median target is $83. So that’s not an unrealistic expectation.