Schaeffer's Trading Floor Blog

Earnings on Deck: Lululemon Athletica inc. (LULU)

Previewing LULU ahead of its upcoming earnings report

by 6/11/2014 11:59 AM
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Earnings season has died down, but a handful of notable reports are still trickling in. Among the companies scheduled to report this week is yoga apparel maker Lululemon Athletica inc. (NASDAQ:LULU), which is hosting its annual shareholder meeting today, and will step up to the earnings plate before the open tomorrow. LULU has exceeded the Street's bottom-line earnings estimates in each of the past seven quarters, averaging a one-week post-earnings gain of 0.7%.

Ahead of tomorrow's report, short sellers have been upping the bearish ante. Short interest jumped 7.3% during the past two reporting periods, and now accounts for 18.3% of LULU's total float. In fact, at the security's average daily trading volume, it would take more than two weeks to repurchase all of these pessimistic positions.

Elsewhere, option players are paying up to bet on LULU's short-term post-earnings trajectory. The stock's Schaeffer's Volatility Index (SVI) of 75% stands just 4 percentage points from a 52-week high, implying that front-month options are expensive right now, from a historical standpoint.

Echoing that, the equity's 30-day at-the-money implied volatility is edging higher, reflecting a growing demand for short-term contracts. In fact, overall options volume is running at four times the usual pace today, and the 10 most active options expire within the next five weeks.

Broadening our sentiment scope, puts have grown increasingly popular ahead of tomorrow's earnings report. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security's 10-day put/call volume ratio of 0.93 stands higher than 82% of all comparable readings from the past year. In other words, option buyers have picked up LULU puts over calls at a faster-than-usual clip during the past two weeks.

Technically speaking, Lululemon Athletica inc. (NASDAQ:LULU) has surrendered 1.8% to trade at $44.68 today, after founder and majority shareholder Chip Wilson voted against the re-election of two board members, citing a "palpable imbalance in board representation, which is heavily weighted towards short-term results at the expense of product, culture and brand and longer-term corporate goals." However, if the company once again reports stronger-than-expected earnings tomorrow, a mass exodus of short sellers and/or option bears could help the shares pare their year-to-date deficit.

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