Archive for the ‘LULU’ category

Lululemon (LULU) – The Downward Dog

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On April 15, I sent out a note (here) asking, “Would you short this company?”

My conclusion was simple: it was time to short LULU.

That was at $52.50. Here’s what’s happened since:

LULU Performance

Yesterday, with the stock down 16% I found myself tempted to cover. But then I began reading the rather sharp words Chip Wilson had for the Board (here):

I am concerned that the board is not aligned with the core values of product and innovation on which lululemon was founded and on which the company thrived.

I have found a palpable imbalance in board representation, which is heavily weighted towards short-term results at the expense of product, culture and brand and longer-term corporate goals. I believe this is impacting the company’s prospects. My vote today sends a signal to the financial community that the company must address this imbalance if lululemon is to fully recover.

And I tried to rationalize why the Company would publish such an apathetic response (here):

Would You Short This Company?

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1. A specialty retailer trading at 25x earnings.

2. With negative same store sales comps:

Guidance - SSS Comp

3. Expanding into new locations with lower population density and income than current stores (which implies margin pressure going forward):

Market Size per Store

Note: Distinct Market Size per Store is comprised of spending on women’s apparel and sporting goods in a 10-mile radius trade area. Source: Signal Data.

4.  With worldwide online search trends that recently turned negative (side note: if you aren’t tracking worldwide search trends, you are missing out on huge alpha opportunities in the consumer / tech space; the correlation between search to sales is not insignificant – see here):

Google Search Trends

Would you short this company?

To me, the answer is clear: the time to short LULU is now.

Gaiam (GAIA) – A Value Investor’s Dream and a LULU Shareholder’s Nightmare

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Jirka Rysavy, the founder of Gaiam, is a rather remarkable guy. He came to the US in 1984 from Czechoslovakia with no money, spoke very little English and proceeded to roll up the office supply market into Corporate Express which Staples bought in 2008 for $2.65BN. He also started Gaiam in 1988. Sometime in-between then and now, he bought an 80-acre forested tract in mountains above Boulder, complete with a cabin, no running water and an outhouse so he could live sustainably and meditate. Which brings me back to Gaiam – a company that makes products and media for sustainable living. Gaiam is Jirka’s baby. Up until very recently, Gaiam was a mish-mash of unrelated business units, making it difficult for investors to understand what exactly they were investing in. To give you a sense, since Gaiam began they: