Is Lululemon a bargain after blood-letting?

Shares fall more than 16% Monday. The stock's guidance, not actual earnings, has rattled investors.

By InvestorPlace Jan 13, 2014 12:06PM

Credit: © Andy Clark/Reuters

Caption: A customer enters the Lululemon store in downtown Vancouver, British Columbia November 8, 2013By Jeff Reeves

Lululemon Athletica (LULU) announced Monday morning that it has updated its earnings guidance for the fourth quarter, and not for the better.

As a result, shares of the stock sold off by double digits at the opening bell.

According to reports, chief financial officer John Currie stated that, "Since the beginning of January, we have seen traffic and sales trends decelerate meaningfully."

This comes after a similar double-digit selloff after a weak fourth-quarter earnings outlook from December when third-quarter Lululemon earnings hit Wall Street.

No wonder LULU stock is in a tailspin.

Lululemon was once a momentum darling, going from under $3 a share in early 2009 to a peak of almost $80 in early 2012. Its revenue almost tripled in the same period.

However, since then it has been a volatile ride, with the stock struggling to stay above $75 for more than a few trading sessions. . . all because the rate of revenue growth has been slowing and year-over-year earnings gains are becoming less and less impressive. Even if the company has been managing to beat expectations on Wall Street, investors looking ahead instead of back at the past quarter have had serious concerns about slowing momentum.

Seems like those fears regarding LULU stock have been justified. Monday's decline puts Lululemon stock in the low $50s.

Of course, Lululemon isn't alone in the beating its taking today. Fellow momentum stock Sodastream (SODA) is being battered on guidance issues, too.

Investors should pay close attention to these trends. Because it seems like waning momentum for earnings and disappointing guidance could be a trend. FactSet reports that warnings on profitability hit a record for the fourth quarter.

In other words, get used to fast-moving stocks starting to move fast to the downside if they can't put up earnings.

Of course, some might see this as a buying opportunity. After all, double-digit sales and earnings growth are very difficult to come by. Take this trader's tweet, for instance:

$LULU kind of reminds me of $DECK last year, soon there is going to be a great buying opportunity but probably not yet, it's not going away

— JFinDallas (@JFinDallas) January 13, 2014

More From InvestorPlace

Jeff Reeves is the editor of and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities.

Jan 13, 2014 2:45PM
Oh come on MSN Money.  The real reason that LuluLemon is swirling the drain right now is due to their big mouth CEO who made horrible remarks about women last year.  I don't know of anyone LuluLemon size in this country who doesn't have a plus sized relative that they love dearly AND who would be so offended by his remarks that they stop buying the product.  The backlash of that can be seen in earnings and their stock value.  Plus his apology wasn't genuine.  People can see through it to the person he is and likely the type of company LuLuLemon is.  That's likely why earnings are down, not so much leadership.  Sometimes you open your mouth one time and it's the end of life as you know it.  I think LuLuLemon is experiencing this first hand.
Jan 13, 2014 2:24PM
I find it awfully hard to care about sh*t like this.
Jan 13, 2014 2:58PM

These "scandals" that are tainting name brands only serve as a way to flip the  control switch on those who  mindlessly buy the higher priced items because they assume they must be better.  Kind of like the "Emperor's New Clothes,"  in a way.   If this truly was an amazingly high quality product and not just overpriced spandex, they may have taken a small hit, but they wouldn't be bleeding out.

Jan 13, 2014 4:25PM
I don't have a problem with what the guy said because it is true.

Like trying to shove a basketball through a garden hose - sometimes things just don't fit.  Stop grossing people out by parading around in your spandex and two-sizes-too-small clothing.  Nobody wants to see that - especially in the grocery store.  Show a little dignity whether you're PLUS or otherwise.

Jan 13, 2014 3:12PM
Who the heck would have invested in soda stream?  Thats like investing in shamwow or any other infomercial product.  I guess just people gambling on an eventual buyout.
Jan 13, 2014 5:35PM
LuluLEMON.  What an ironic name.  Their clothes are a rip off, way too overpriced and the quality has been widely reported to be poor.  Women have started buying elsewhere.  It was a "fad", but by definition those only last so long.  Add to that the dimwit remarks their CEO made and you have a company that deserves to see it's business decline, which is the real reason behind all this. 
Jan 13, 2014 4:25PM
Don't close lulu...we need more 'kooch-view' stretchables in our yoga classes...weeee doggieees!
Jan 13, 2014 6:12PM
Why does everybody on the Street care so obsessively about this stock and company.  They make yoga pants, for crying out loud (and apparently of questionable quality).
Jan 13, 2014 5:17PM
No wonder, when you think a woman who wears a size 10 is plus sized.
SodaStream is all about paying for the right to poison yourself...instead of paying Coke/Pepsi to do it for you....Wait till you have to replace the CO2 cylinders...Its financial RAPE!
Jan 13, 2014 8:36PM
Republicans just go Lulu over Lululemon!

Poor taste you can believe in!

Jan 13, 2014 8:13PM
All I see in this article is a tight butt....Sorry.
Jan 13, 2014 6:45PM

Earnings are down because all the limousine liberal women who buy their products are realising that they're overpriced and lacking in quality, and that it's not worth spending $90 on workout clothes for no reason other than to buy the latest brand fad and show off to their limousine liberal friends how rich and trendy they are. 

And it's only a matter of time before Lululemon suffers the ultimate publicity fiasco when some poor woman is raped in an alley behind her Pilates studio and the rapist testifies in court that it was the see-through Lululemon pants that gave him the urge to do it in the first place.

Jan 13, 2014 3:54PM
A CEO who doesn't put shareholders first is a lousy leader.  As a LuluLemon buyer, I do notice that the fabric in some pieces tend to stretch and not have as good of quality as their other products, but I still like LuluLemon despite it's issues and I hope the shareholders rebound.  Comparatively, other brands such as Victoria's Secret have quality issues and use cheap materials that are far more flimsy than anything I have ever purchased from LuluLemon.
Jan 13, 2014 6:30PM

Seems they were doing better when they were keeping their mouths shut and sold them yoga pants any stripper would be proud to wear. Seems one has to be delicate when one sells garments that look good only on a certain size demographic.Oh the perils and pitfalls when marketing to "Healthy Females only".


Jan 13, 2014 4:01PM
Lululemon has terrible customer service but i continue to shop there because they absolutely have a superior product.  Most stores that treat me the way Lululemon does i kiss  them goodbye but I am addicted to their stuff. it is one of the best brands i have ever purchased. Im sure the company will be fine and i will continue to shop there.

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