Inventory, Stock repurchases, Consumer Spending
First, I have to give credit when it's due. I went long on LULU's Q4 2018, that was fun!
Great 2018, definitely their best year, $3,288,319 of revenues.
If you have been long, nothing wrong taking profits off the table from here.
But hey look at this trend,
Repurchase of common stock for FY ended on:
2017: (29,327)
2018: (100,261)
2019: (598,340)
Now how do you go from 29 to 598 in a span of 2yrs? Fiscal stimulus aka TCJA beneficiary
Inventory:
2017: (5,403)
2018: (21,178)
2019: (85,942)
5 to 85 in a span of 2yrs. Inventory is growing. 285 stores in the U.S. only 22 in China, 64 in Canada
Currently trading at 183 near it's ATHs when rate cuts (if any) are being priced in. Also, because of buybacks while inventory grew rapidly, what would happen when the selling begins? Even LULU themselves warned on the risk factors:
From Current 10-K, Risk Factors:
Factors affecting the level of consumer spending for such discretionary items include general economic conditions, particularly those in North America, and other factors such as consumer confidence in future economic conditions, fears of recession, the availability and cost of consumer credit, levels of unemployment, and tax rates. As global economic conditions continue to be volatile or economic uncertainty remains, trends in consumer discretionary spending also remain unpredictable and subject to reductions due to credit constraints and uncertainties about the future. Unfavorable economic conditions may lead consumers to delay or reduce purchases of our products. Consumer demand for our products may not reach our targets, or may decline, when there is an economic downturn or economic uncertainty in our key markets, particularly in North America. Our sensitivity to economic cycles and any related fluctuation in consumer demand may have a material adverse effect on our financial condition.
More pressing concerns:
Our sales and profitability may decline as a result of increasing product costs and decreasing selling prices.
These factors may cause us to experience increased costs, reduce our prices to consumers or experience reduced sales in response to increased prices, any of which could cause our operating margin to decline if we are unable to offset these factors with reductions in operating costs and could have a material adverse effect on our financial condition, operating results, and cash flows.
Our ability to accurately forecast demand for our products could be affected by many factors, including an increase or decrease in guest demand for our products or for products of our competitors, our failure to accurately forecast guest acceptance of new products, product introductions by competitors, unanticipated changes in general market conditions, and weakening of economic conditions or consumer confidence in future economic conditions. If we fail to accurately forecast guest demand, we may experience excess inventory levels or a shortage of products available for sale in our stores or for delivery to guests.
Our fabrics and manufacturing technology generally are not patented and can be imitated by our competitors.
Increasing labor costs and other factors associated with the production of our products in South and South East Asia could increase the costs to produce our products.
Among all the other factors.
Great 2018, definitely their best year, $3,288,319 of revenues.
If you have been long, nothing wrong taking profits off the table from here.
But hey look at this trend,
Repurchase of common stock for FY ended on:
2017: (29,327)
2018: (100,261)
2019: (598,340)
Now how do you go from 29 to 598 in a span of 2yrs? Fiscal stimulus aka TCJA beneficiary
Inventory:
2017: (5,403)
2018: (21,178)
2019: (85,942)
5 to 85 in a span of 2yrs. Inventory is growing. 285 stores in the U.S. only 22 in China, 64 in Canada
Currently trading at 183 near it's ATHs when rate cuts (if any) are being priced in. Also, because of buybacks while inventory grew rapidly, what would happen when the selling begins? Even LULU themselves warned on the risk factors:
From Current 10-K, Risk Factors:
Factors affecting the level of consumer spending for such discretionary items include general economic conditions, particularly those in North America, and other factors such as consumer confidence in future economic conditions, fears of recession, the availability and cost of consumer credit, levels of unemployment, and tax rates. As global economic conditions continue to be volatile or economic uncertainty remains, trends in consumer discretionary spending also remain unpredictable and subject to reductions due to credit constraints and uncertainties about the future. Unfavorable economic conditions may lead consumers to delay or reduce purchases of our products. Consumer demand for our products may not reach our targets, or may decline, when there is an economic downturn or economic uncertainty in our key markets, particularly in North America. Our sensitivity to economic cycles and any related fluctuation in consumer demand may have a material adverse effect on our financial condition.
More pressing concerns:
Our sales and profitability may decline as a result of increasing product costs and decreasing selling prices.
These factors may cause us to experience increased costs, reduce our prices to consumers or experience reduced sales in response to increased prices, any of which could cause our operating margin to decline if we are unable to offset these factors with reductions in operating costs and could have a material adverse effect on our financial condition, operating results, and cash flows.
Our ability to accurately forecast demand for our products could be affected by many factors, including an increase or decrease in guest demand for our products or for products of our competitors, our failure to accurately forecast guest acceptance of new products, product introductions by competitors, unanticipated changes in general market conditions, and weakening of economic conditions or consumer confidence in future economic conditions. If we fail to accurately forecast guest demand, we may experience excess inventory levels or a shortage of products available for sale in our stores or for delivery to guests.
Our fabrics and manufacturing technology generally are not patented and can be imitated by our competitors.
Increasing labor costs and other factors associated with the production of our products in South and South East Asia could increase the costs to produce our products.
Among all the other factors.