Short sellers continue to hover over Lululemon Atletic Inc. (TSX: T.LLL, Stock Forum) (NASDAQ: LULU, Stock Forum), the Vancouver-based Yoga apparel maker.
When Short Report last wrote about Lululemon in February, the company was being described as a gambit on female Vanity. In his Bronte Capital blog, Australian short seller John Hempton explained that he could think of no better explanation as to why the stock had jumped to around $65 from $47.50 in December 2011. The 52-week range is $80.08 and $42.50.
Now that the stock has slipped to $57.78 from $75.84 at the end of May, leaving the apparel maker with a market cap of $5.87 billion, based on 106.6 million shares outstanding, Lululemon is once again under pressure amid reports that a quarter of the floating shares have been borrowed short.
Nasdaq says short interest has jumped to 17.9 million from 10.7 million at the end of May.
According to recent Investor’s Daily Report, well-known short seller David Einhorn has gone short on Lululemon, a move that sent the stock tumbling 7% on June 28.
Green Light Capital Inc., Einhorn’s New York hedge fund has so far declined to comment on those rumours. So we can only speculate on his motivations.
But as noted by IDB and others, Einhorn is someone who cannot easily be ignored. According to published reports, he has profited in the past by shorting companies such as Allied Capital Corp. (NYSE: AFC, Stock Forum), Lehman Brothers, and more recently Green Mountain Coffee Roasters Inc. (NASDAQ: GMCR, Stock Forum).
Trading at $17.98 this week, Green Mountain has seen its stock price plunge all the way from a 52-week high of $115.98 in July 2011.
That fact that Lululemon is attracting more short sellers appears to be driven by the company’s recent profit warning.
In the first quarter ended April 29, 2012, Lululemon reported net income of $46.6 million or 32 cents a share, up from $33.4 million or 23 cents in the year earlier period. Revenue in the first quarter jumped 53% to $285.7 million from $168.8 million.
However, Lululemon has guided investors and analysts to anticipate diluted per-share earnings of $0.28 to $0.30 in the second quarter, well below analyst expectations of 31 cents a share.
Many retailers especially consumer discretionary chains, have come under pressure amid concerns about slowing economic and job growth. According to a U.S. Federal Reserve Survey released earlier this week, consumers spent less at retail businesses in June for the third month in a row.
It is why observers like Einhorn may be anticipating a correction in the stock price.
That may also be the view of company founder Chip Wilson, who sold almost $50 million worth of Stock in January at prices ranging from $51.18 to $63.67. According to published reports, he is currently using part of the proceeds to build a sprawling concrete mansion in Vancouver’s tony Point Grey Road district. The mansion was recently valued by B.C. Assessment as Metro Vancouver’s most expensive home at $37.2 million.