Lululemon Athletica (Nasdaq:LULU) held a public crucifixion and whacked the boss. Christine M Day. Ms. Day joined Lululemon in 2008 and quickly became the President.
Lululemon has had its history of controversy. An original guiding started as a scout in the oil business which is a very nice way of describing a corporate spy. They had the Where is John Galt controversy. There were the trans-dermal claims that certain yoga wear was nutritious. Busted by New York Times is an unusual and brilliant collaboration between the fashion editor and the science and technology editor. They recently had the incredibly sheer yoga pant controversy. Manufacturer insists that they did not make substitutions. Product sold out after what everyone thought was a negative event.
Despite the rough edges the stock trades at a 36 PE ratio. The chairman Dennis Wilson, who also is synergistically involved in a surf board company, upon firing Christine M Day also sells at lot of stock under a pre-established program and makes out like a bandit. Lululemon insists nothing untoward. But the timing of the termination could have been reverse engineered to fit the timing of the plan which I’m sure was known to all involved.
The company has no debt and is growing. I am not a fashion guru but how large a moat can they have around them. Women look good in Lululemon wear but the design is easily copied. The company could use some good management and that means replacing the board as well as a new president.
But who wants to come on board. Stock options are big but when you look at a 36 PE where is the stock going to go. A sale might be in order after they decide all the possible presidents are not that interested. But who will want to trump a 36 PE and why would you do that.
So out swims the Black Swan. The Black Swan swims because it can. The company has been accidentally dropping hand grenade after hand grenade. The law of unintended consequences will eventually kick in and market value will drop. It’s like playing Russian Roulette eventually the bullet fires.
So why buy a stock at 36 PE. absolutely no reason. the chairman is selling big time. The next train stop on calamity railways will burn shareholder value as the stock drops. Black Swan reigns. Then it makes sense to make an offer. In the meantime lighten the load a lot.
George Gutowski writes from a caveat emptor perspective. Lululemon makes women look good. No question.