I used to write earnings DD back in 2019-2020, Gonna start again.

TLDR - Long at 380$, probably will beat earnings, god know if they'll raise guidance. I expect 450

Ticker - Lulu Lemon (LULU)

Price - 426.00

Earnings - 12/09/2021 AH

Category - New Retail

Macro - Mixed, Logistics vs Sentiments

Macro + Fundamental

Lululemon is an athleisure brand that focuses on high quality sports and lifewear for both men and women. LULU as a brand has grown considerably throughout the pandemic and beyond, currently repping a very high 58x sales ratio. Expensive as it may be, LULU has beaten cleanly the last 5 quarters, all the more impressive due to the pandemic. With plans to expand internationally, LULU’s potential as a leading global retailer is another growth driver. Currently, only 35% of LULU’s total revenue comes from outside of the US and Canada, with less than 100 stores in China. The addressable market for LULU is huge. However, the main concern with earnings is the guidance moving forward due to supply chain bottlenecks and additional covid concerns. Fundamentally speaking, LULU is firing on all cylinders and is a favorite of the retail sector. It is also one of the most expensive.

Technical

PC ratio volume is at 1.37 and PC ratio OI is about 1.26 both of which are bearish. RSI is about 39, nearing oversold. Implied movement about 8% or about 33$. Short interest is 1.5% of float, with 2 days to cover, not a lot. Support at 200 day EMA on the daily, with 3 separate bounces at around the 390 range. and resistance is at about 458, which is the quarterly lvl2 fib extension (1.618). Options markets say bearings, though the past few days were red, as we went below the 450 near term support and bounced off the 414 bottom, which is a negative lvl 3 fib (2.618).

Sentimental

LULU is a favorite of both institutional investors and insiders with massive buying happening in October. In addition, retail investors love LULU due to the proliferation of the product and investor base - LULU investors typically wear LULU. Analyst price target ranges between 570 and 410, with the average being 488$. LULU has had a shift towards digital commerce integrated with their stores due to the pandemic and web traffic is hitting a season upside. Given LULU’s product price points, I believe demand has not lessened and in-fact grown due to the popularity and shift in stay-at-home lifewear. However, if LULU misses either on the earnings results, with revenue being the major concern, or provides weak guidance, we may see a significant return to realistic valuations. You can draw Peleton comparisons, but I don't think they even in the same ballpark given LULU's product quality and growing international strength. The lawsuit recently is probably going to be nothing.

Personally, I'd rather long LULU than short it.

I’d sell the 390 12/10 puts (3.95), and buy a call debit spread 12/17 440/450 for 3.35$ net 0.60$. Unlimited loss on downside though, if LULU just craters, but I don’t see it under 380$ unless something really bad happens.

Not financial advice. Burn your money at your own risk.