Lululemon Athletica is an athletic apparel retailer known for its high-quality yoga-inspired activewear. It started as a design studio by day and a yoga studio by night. The company initially focused on creating high-performance yoga wear, particularly for women.
As Lululemon has grown, the athleisure market has become increasingly crowded. Competitors such as Nike, Adidas and Under Armour started offering similar products at competitive prices, putting significant pressure on Lululemon. However, this pressure has also spurred the brand to differentiate and innovate, ensuring its continued success.
Athleta aims to compete at a lower price point, while Vuori has become popular on the higher end. Competitive pressures have contributed to slowing growth. The consensus is that the company will report year-over-year quarterly revenue growth below 10% for the first time since supply chain disruptions affected their business during the Covid-19 pandemic.
Nevertheless, full-year revenue growth forecasts for fiscal 2026 (their fiscal year ends in January, so effectively, we're looking at the calendar year 2025) are still about 11%, with net income expected to grow just over 9%. Given that Lululemon is now trading about 19 times earnings, a discount to the S & P 500 and the lowest multiple since the 2008-09 bear market, one wonders if the sentiment has become pessimistic enough to make a bullish bet. Traders often refer to going long stocks in a recent and fairly prolonged downtrend as "catching the falling knife.
" Momentum is not your ally. Nevertheless, positive results and comments from management on next week's earnings call could catalyze a sentiment shift. The trade The options market implies a roughly 9% move when the company reports earnings next week, and making a bullish bet here is speculative.
However, one could limit the risk by using a call spread. The Aug. 30 270/300 call spread costs slightly over $8, or just over 3% of the current stock price (remember options represent 100 shares, so the total premium would be between $800 and $900 at current prices).
If one is willing to stretch and bet that next week's earnings may provide a turnaround, a call spread is likely a safer choice than trying to time the turnaround perfectly. DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium.
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