Lululemon Athletica inc. (LULU) — Retailers have been hit with heavy selling recently following weak earnings and guidance from the group and a disappointing October retail sales report. And they will remain under the microscope as we head into the all-important holiday shopping season.
That’s why the inventory imbalance at athletic apparel retailer Lululemon is so troubling. On Friday, Benzinga ran a story that Lululemon was one of seven retailers with inventories growing faster than sales.
In the most recently reported quarter, the company’s total inventory was 55% higher than a year ago, while sales were up 16% year over year. Furthermore, the increase in sales came at the expense of profit margins, which fell to 46.8% from 50.5% a year earlier.
Technically LULU stock formed a triple-top with sell signals from my proprietary indictor, the Collins-Bollinger Reversal (CBR), at each peak. Following the earnings report in early September, the 50-day moving average crossed down through the 200-day forming the dreaded death cross, a long-term sell signal.
Last week, another CBR sell signal was triggered just prior to a breakdown on Friday from a double-bottom at about $47.80. MACD is also flashing a sell, and there are a number of high-volume selling days.
Sell LULU stock short at $45 or higher with a downside target of $35 for a potential gain of more than 22% by year end. A stop-loss order should be entered at $51.
Short sellers should check with their broker for any unusual restrictions on shorting this or any other stock.
