Pat McKeough responds to many personal questions on specific stocks and other investment topics from the members of his Inner Circle. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions.
This past week, an Inner Circle member wondered about one of Canada’s most successful growth stocks. The shares for this athletic wear firm have done very well for this investor, but he asks Pat if he should be cautious about the high share price.
Q: Pat: I’ve done well with my lululemon shares, but they are getting really high. What is your recommendation from here on out? Thank you.
A: lululemon athletica Inc., ( symbol LLL on Toronto; www.lululemon.com) is a Vancouver-based designer and seller of yoga-inspired athletic wear and accessories.
lululemon first sold shares to the public at $9 each, and began trading on Toronto in July 2007. (Note: All per-share figures adjusted for a 2-for-1 stock split in July 2011.)
Dennis “Chip” Wilson founded lululemon in 1998, after noticing that more women were taking up yoga and other physical activities. Wilson had 20 years of experience making surfing and snowboard clothing. He believed that the all-cotton fabrics then used for yoga were inappropriate.
When Wilson opened the first lululemon store in the Kitsilano Beach area of Vancouver in 2000, he positioned its staff not just as salespeople, but as “lifestyle educators.” Wilson invited yoga, Pilates, fitness and dance instructors to join lululemon’s “R&D team,” and give feedback on its apparel, in return for a 15% discount. He also recruited some of them to appear on lululemon’s posters, website and postcards.
Growth stocks: lululemon sees revenue rise 40% and earnings up 51%
lululemon has also developed its own stretch fabrics, such as Luon, its signature fabric, and Silverescent, which uses silver yarn that has anti-bacterial qualities (which lululemon calls “anti-stink”). As well, all of lululemon’s athletic wear has premium features, such as flat seams, which reduce chafing.
The company has 174 stores: 47 in Canada, 108 in the U.S., 18 in Australia and one in New Zealand. lululemon plans to open around 30 more stores within the next year. The company is particularly interested in smaller cities in the U.S., as well as international markets such as Western Europe and China.
lululemon recently repurchased the remaining four stores operated by franchisees. It now owns all of its stores.
Most of the company’s stores operate under the lululemon athletica banner. However, five of its outlets sell dance-related apparel for girls under the ivivva athletica banner. The company also sells ivivva merchandise online through www.ivivva.com.
In the fiscal year ended January 29, 2012, lululemon’s revenue rose 40.6% to $1.0 billion from $711.7 million in fiscal 2011. Same-store sales rose 20%. Earnings jumped 51.1% to $184.1 million from $121.8 million. Earnings per share rose 49.4%, to $1.27 from $0.85, on more shares outstanding.
The company holds cash of $409.4 million, or $2.85 a share. It has no long-term debt.
lululemon’s shares continue to hit record highs. They are now up 63% from the start of this year. The company will probably earn $1.64 a share this year. The shares trade at a high 46.8 times that forecast.
In the most recent Inner Circle Q&A, Pat looks at whether lululemon’s popular and high-quality brand can maintain its growth in a fickle and competitive market. He also examines how the company’s decision to raise the prices of its products might affect its long-term growth. He concludes with his clear buy-hold-sell advice on the stock.
Inner Circle members see Pat’s analysis and recommendations on the stocks that other members have asked about in each week’s Inner Circle Q&A. You can view it immediately when you become a member of this unique investment group. You will get Pat McKeough’s answers to your personal investment questions, full access to our members-only Inner Circle website, and many other membership privileges. Click here to get started right away.
When an aggressive stock you own shoots up in price, how do you generally react? Sell quick to nail down the gain? Or consider buying more? Do you have a standard plan that you follow, such as selling half of your holding when a stock doubles, so you get back your initial outlay? Or do you try to react rationally to circumstances as they occur? Let us know what you think in the comments section below. Click here.
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