Lululemon Athletica Inc. (LULU), engaged in the designing, manufacturing, and distribution of athletic apparel and accessories, recently indicated that its board has approved a stock split in the ratio of 2-for-1 and an increase in its authorized common stock from 200,000,000 shares to 400,000,000 shares.
The company also intends to do a two-for-one split of its Special Voting Stock and increase the company’s authorized Special Voting Stock from 30,000,000 shares to 60,000,000 shares.
According to the stock split strategy, Lululemon will be able to increase its shares outstanding by offering two shares for one share. This is expected to be effective following approval from stockholders at the annual meeting scheduled for June 8, 2011.
Lululemon’s decision to implement the stock split sprung from the belief that investors were overvaluing the stock. A higher stock price was thus preventing new investors from buying the shares. Since a split reduces a stock’s per-share price by increasing a percentage of outstanding shares, it consequently makes shares seem more affordable for small investors.
Recently, Lululemon reported robust fourth-quarter 2010 earnings of 64 cents a share, up 60.0% from the year-ago figure of 40 cents and ahead of the Zacks Consensus Estimate of 57 cents. The upbeat earnings were primarily driven by strong top-line growth and improved margins achieved through disciplined management and operational efficiencies.
We believe that Lululemon’s strategic initiatives coupled with better inventory management and e-commerce business will enhance both the top and bottom lines. However, the company faces intense competition from national and regional competitors such as Nike Inc. (NKE) and Under Armour Inc. (UA), which may dent its future performance.
Currently, Lululemon maintains a Zacks #1 Rank, which translates into a short-term ‘Strong Buy’ rating. Moreover, we retain a long-term ‘Neutral’ recommendation on the stock.
LULULEMON ATHLT (LULU): Free Stock Analysis Report
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