Vancouver, BC-based Lululemon Athetlica Inc. has long been a favorite for traders who enjoy earnings catalysts —and for good reason— the stock has moved an average of 8.4% over the past eight quarters.
Directionally speaking, LULU has been less consistent: shares have fallen three of the past four quarters, but only four of the past eight (data courtesy of Trade Alert).
The Numbers
Lululemon is scheduled to report pre-market Thursday, with analysts calling for EPS of $0.72 on revenue of $516.8 million. Remember, Nike (NKE) reported good earnings numbers, but revised guidance downward last week citing global economic headwinds (but not the type necessitating a sporty windbreaker).
The Technicals
LULU looks awful on the chart – although we saw precipitous declines in early December and January, the latter of which followed a warning meant to temper investor expectations. LULU shares are off nearly 16% in 2014.
The company also appears to be stretching (for lack of a better term) to incentivize its audience to purchase more high-end apparel, this time with a new line titled “&go.” This cleverly titled line is designed to get you from the gym to cocktail hour without missing a beat. Now I’m not judging, but the idea of a friend appearing for a martini or hors d’oeuvres in workout apparel (assuming, as the name implies, they are coming directly from some physically exerting activity) is about as appealing as the &go line itself.
In Monday’s session we saw LULU move up, with shares continuing to rise pre-market Tuesday (currently trading $49.90). The LULU Mar Weekly 50 Straddle is price at $4.30, implying a $4.30 move prior to Friday expiration. As you may guess, I am NOT bullish this stock going into the earnings announcement.
My Trade
Buy the LULU Mar Weekly 47-46 Put Spread for about $0.35
Risk: $35 per 1 Lot
Reward: $65 Per 1 Lot
Break-even: $46.65
