Thoughts on LULU?

My recent musings about not doing well with “fashion” got me thinking about another holding of mine, Lululemon (LULU).

I don’t mentally place it in the “fashion” bucket, but view it more as a lifestyle brand, kind of like Under Armour.

This is a company where I’m very pleased with my entry point - I got in just a shade above $40 in Oct 2014. I’ll take some credit here, but I know I had my doubts because I sized the position very conservatively at the time.

I recognize that sometimes my history with a stock can color my perception of the future (e.g., this company’s done great for me - why would I sell it?). So I want to solicit unbiased opinion from others on this board.

LULU is growth-y enough that its profile fits this board’s purposes as snugly as… well… you get the picture. So I’m hopeful my fellow Saul followers will have solid thoughts to share. Thanks in advance for any thoughtful sharings.

Thanks and best wishes,
TMFDatabaseBob (long: LULU, UA, UAA)
Coverage Fool
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Peace on Earth

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sometimes my history with a stock can color my perception of the future

Truer words have never been spoken…IMO.

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Bob FWIW - although I don’t own any and haven’t ever, I did follow it and I know that I also made a mental note around that time that lulu had become investible to me. I don’t regret not buying but I completely concur with having opened a position at that point of the LULU evolution. I think they are worth holding and have a decent runway but I would be ruthless in looking at SSS as well as the impact of any recession on discretionary spend.

Ant

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All I can say is that for me it completely fails on valuation so very rosy assumptions about the future are being made.

I took an instant dislike to the CEO on the box the other day who kept using ridiculous buzzspeak words like ‘mindfulness’, the latest empty sophisticate idea incomprehensible to anyone happy or sensible like a Norwegian trawlerman or even a Cretan lobster-potter. Give me strength. They’ll be telling me acupuncture works next.

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I was invested in LULU from August 2011 trough September 2015 and made good money. I don’t know if things have changed but back then lululemon had lost its way, the founder, Chip Wilson, had left and he said some stupid things about women that turned customers off. The replacement CEO also left. In a difficult investment environment, specially in retail, I can’t see investing in a company with issues. Just too many uncertainties one on top of the other. Amazon is really turning the industry on its head.

Denny Schlesinger

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Did you ever catch on the Rhoda Pitcher story - it was IMO the weirdest stock-related story of the year.

http://fortune.com/2016/08/09/lululemon-rhoda-pitcher-resign…

When a news outlet was unable to contact the longest serving board member on LULU, they found that she had no employment history, a bogus graduate degree and zero media/internet presence. All attempts to contact her or get a statement from her, anything at all, failed. She “resigned” from the board a couple of weeks later without any explanation.

Did you ever catch on the Rhoda Pitcher story - it was IMO the weirdest stock-related story of the year.

Here is part of the story:

“Pitcher is a managing partner of her own management consulting firm and her bio says that she holds a master’s degree from University Associates, which isn’t a standard, well-established college name you’d expect a board member to have.”

I was a managing partner of my own management consulting firm for ten years with no formal university degree. I don’t think that makes me stupid or useless. :wink:

Trusting “accreditation” is not always a good thing, street smarts count – a lot.

Denny Schlesinger

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You skipped the part where University Associates doesn’t seem to offer a master’s degree…

And it’s not about accreditation only, that’s just a part of it. Where it gets really weird is the communication.

Alrigh, you don’t have a degree, but if journalists were openly questioning your very existence, implicitly accusing your company of fraud, making impact on your stock price, what would be your first reaction? Probably issuing a statement saying you exist but don’t care to talk to media, right? Not so with Rhoda Pitcher - she quietly quit the company instead.

I think by now it’s clear that she does exist, because otherwise the SEC would step on LULU’s toes, so it’s not quite damning. Just… Weird…

As far as what potential investors should think about this - I truly don’t know. I haven’t seen such a thing in my life…

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Let me preface by saying that I don’t follow LULU so I don’t know about sales and earnings, etc, but I have to ask why one would invest in a company where two CEO’s have quit recently, and a board member has turned out to be semi-fraudulent. There are plenty of good companies that don’t have this kind of issue. Not to mention that the retail clothing industry is having issues of its own.
Saul

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Hi Denny,

I took a quick look at LULU since I have absolutely no knowledge of the company. As I was looking at the chart, I wondered how you made good money from Aug '11 to Sept '15? My broker’s chart shows the price was essentially the same for those two months. Is there a missing stock split or something? No big deal, just curious.

DT

from Aug '11 to Sept '15

That is four years and not just two back to back months.

A.J.

Is there a missing stock split or something? No big deal, just curious.

Yes, crazy volatility

http://softwaretimes.com/pics/lulu-01-12-2017.gif

I did a total of 16 trades buying the stock and shorting calls and puts. IRR 21.11%

Volatility increases the option premiums making them specially attractive to sell. 25% of the profits came from share capital gains and 75% from option trades.

Denny Schlesinger

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Spot on Saul.

More than once I’ve commented that financial analysis is not my long suit. I’m good with math and all that, I just get lost in the details of ratios and so forth. I have trouble knowing what’s important.

Since being on this board, I’ve improved, but that’s not my point. Before I even begin to look at numbers I look at the business. What do they do? How do they do it? Who are their customers? Why are they unique (moat). etc. I think anyone can do this kind of review. If nothing else, it will quickly help eliminate companies so you won’t waste too much time.

The I look at the management (though I must admit, I’ve not looked closely at the boards - my bad, I’ll start paying more attention).

If there’s problems with the management, I’m done. No numbers are going to fix bad management. The company may be doing great in a certain niche, but if the management is incompetent, or just somewhat flaky, I’m confident they can’t last long, at least not as an outstanding performer.

I only want to invest in companies that at least have a shot at being long-lasting outstanding performers.

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Since being on this board, I’ve improved, but that’s not my point. Before I even begin to look at numbers I look at the business. What do they do? How do they do it? Who are their customers? Why are they unique (moat). etc. I think anyone can do this kind of review. If nothing else, it will quickly help eliminate companies so you won’t waste too much time.

Excellent point! Back in 2011 LULU’s story was phenomenal but it unravelled which was one of the reasons I got out.

Denny Schlesinger

Thanks to everyone who responded to this thread, offering advice or even just kind words.

strelna, I wasn’t sure whether your comments were tongue-in-cheek or not. “Mindfulness” is a word that resonates quite well with yoga enthusiasts, so I would suggest that CEO Potdevin is not engaging in “ridiculous buzzspeak” but instead talking to his customers in their language.

To those who alluded to CEO changes, I was aware of those. It seems the founder is “a piece of work”. His (relatively) short-tenured replacement seemed a good fit, as does the current CEO.

To those who referenced the “phantom director”, I thank you because I was not aware of that. Yes, that’s weird. I can understand (and appreciate) being publicity-shy, but this woman’s reactions seem phobic. Resume-padding is inexcusable. So is a lack of fact-checking when bringing on directors, but we’ve already established that the founder was “a piece of work”.

I’m happy that some of you have done well with LULU. I’ll give my position some thought (where do I think LULU will likely go as a long-term investment?). Perhaps it’s a good candidate for helping me reduce the number of my holdings. At its current size in my portfolio, it wouldn’t benefit me that much if it doubled. I’m not inclined to add to the holding, but I’m also not convinced that it can’t grow from here. Investor sentiment regarding the retail sector isn’t exactly hitting new highs at present. So I have a bit to think about. Yes Ant, I think your points about same store sales and consumer sentiment regarding discretionary spending are extremely well-taken. Frankly, I’m in the market for a new pair of pants to wear to my Pilates classes, and it is possible that LULU will capture that incremental spend. Or it could be Under Armour. We’ll see.

Thanks again and best wishes,
TMFDatabaseBob (long: LULU, UA, UAA)
See my holdings here: http://my.fool.com/profile/TMFDatabasebob/info.aspx
Peace on Earth

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I am exactly the opposite! I only look at the numbers and the history of those numbers.

Well, that is not quite true: I do glance at what the business actually does, and the macro scene and whether the directors are committed stock-wise at some point.

It is often said that visiting a company and meeting management is a Good Thing. I disagree. Or at least it isn’t for me.

Most people want to like people, especially if they reciprocate, while looking at a busy workshop or factory floor can be exciting and generate enthusiasm. Both distract and dilute what really matters.

Only the numbers please! And don’t forget the history of those numbers. They’ll tell me everything I need to know about the viability of the business and management’s success in achieving it.

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You need the numbers to look back and the business model to look forward.

Denny Schlesinger

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