Monday, September 29, 2014

Bought Lululemon (LULU)

I bought a small amount of Lululemon (LULU) within recent weeks at an average price around $40.  This is intended to be a short to medium term trade.

Support for the trade:

  • Stock is down 50% from recent historical highs
  • The scuffle with founder Chip Wilson has calmed after the deal with Advent International
  • Advent knows this business very well and their involvement is a positive signal
  • No debt, strong cash position
  • A profitable business with loyal customer base
  • I don't believe the core customer will migrate to cheaper alternatives--do you really want to show up at mommy&me yoga wearing the discount brand?
Potential catalysts:

  • M&A, inversion transaction?
  • Share buybacks
  • Continue to 'beat' quarterly analyst expectations
  • Positive signals from international expansion
  • Less appealing acquisition target from use of cash for buybacks and the U.S. crackdown on the tax inversion trade
  • Continued downward trend on comparable store sales
  • Poor execution in the direct to consumer channel
  • Poor results from international foray

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