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Lululemon Athletica: Take Weakness As Short-Term Buying Opportunity

 January 15, 2013 10:13 AM

(By Mani) Lululemon Athletica, Inc. (NASDAQ: LULU) (TSE:LLL) shares dropped as much as 8 percent after it guided its fourth quarter revenues below Street view. However, investors should take this weakness as a short-term buying opportunity.

For the fourth quarter, the yoga-inspired athletic apparel company now anticipates that net revenue will be at the high end of its original guidance range of $475 million to $480 million based on a comparable-store sales percentage increase in the high single digits on a constant-dollar basis. Wall Street expects fourth-quarter revenue of $489.02 million, according to analysts polled by Thomson Reuters.

[Related -Lululemon Athletica inc. (LULU): Near-Term Risks Could Further Derail Investor Confidence]

The company sees earnings per share will be 74 cents for the fourth quarter, which is in line with Street. Earlier, it expected earnings of 71 to 73 cents a share.

"The upside versus company expectations is based on the better than expected top-line and GM results," Oppenheimer analyst Pamela Quintiliano wrote in a note to clients.

The company's gross margin is running slightly ahead of plans and are entering 2013 in a clean inventory position. Along with its new back to gym product, we are beginning to flow a beautiful new spring assortment into its stores this week.

LULU continues to build a differentiated innovation-based platform that should pave the path for future North America success despite competitors nipping at its heels while international opportunity should yield significant longer term growth potential.

[Related -Lululemon Athletica Inc. (NASDAQ:LULU): Sourcing Issues Will Be An Overhang In FY14]

"Our channel checks indicated strong sell-through of full-priced product throughout the holiday shopping season. We expect customers to respond well to the back to gym collection as well as new assortments arriving this week," Quintiliano said.

Moreover, new product should encompass a continuation of elevated fashion while delivering a strong function component.

In addition, the company's fundamentals are intact as LULU is executing well in this environment and that its differentiated product, new verticals, store/DTC/international growth opportunity, and disciplined approach to entering new markets should enable it to continue to expand both its top and bottom lines.


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