Lululemon in a Tight Squeeze

Lululemon's gear may be embraced by yoga lovers everywhere, yet tranquility is proving elusive for the athletic apparel-maker's stock today, following a disappointing forecast.We offer you the top quality plasticmoulds design

Before Thursday's opening bell, Lululemon Athletica (ticker: LULU) reported first-quarter profit that grew a better-than-expected 40%, to $46.6 million, or 32 cents a share, up from 23 cents in the year-ago period. Revenue soared 52.Trade organization for suppliers and distributors in the promotional products industry.9% to $285.7 million from $186.8 million. Analysts were expecting earnings of 30 cents a share on sales of $270.9 million.

However, the company's current quarter projections missed expectations: Lululemon is forecasting revenue of $273 million to $278 million and earnings of 28 cents to 30 cents a share. Analysts were looking for revenue at $290 million and earnings at 33 cents a share.

The stock was recently down 9.5% to $63.40 on the news. Yet we think it's still a stretch to consider Lululemon as offering value.

Brain Sozzi, head equities analyst with NBG Productions, noted that while many analysts may brush aside the disappointing guidance, it speaks to fundamental issues at Lululemon. "Lululemon is facing an uphill battle expanding beyond core yoga gear (think running), entering the competitive waters dominated by Nike (NKE) and Under Armour (UA), both of which have stronger brand equity and better prices," he wrote in a note this morning. "There is only so much a company could raise prices before the consumer is turned off, and I think that is happening at Lululemon."

The guidance comes at a difficult time, as investors are wary of luxury brands and Lululemon may finally find itself settling into slower, more mature growth. The company's forecast for same-store-sales growth in the low double digits on a constant dollar basis is certainly a departure from the more heady growth of the past.

"As the store base becomes larger, we would expect this type of slowdown," notes Morningstar analyst Jaime Katz of the expected same-store-sales deceleration.Full color plasticcard printing and manufacturing services. She notes that the stock "still looks expensive even in the low $60s."

Lululemon, which doesn't have any intellectual property rights related to the techniques and materials it uses for its clothes,Silicone moldmaking Rubber, could find growth difficult to maintain amid concerns about commodity prices, intensifying competition and consumer spending.

This column warned investors to steer clear of Lululemon a few months ago, following the stock's big bounce on its fiscal fourth-quarter earnings report. The shares have tumbled more than 14% since that call.

Yet Lululemon, which is no stranger to sky-high valuations, is still changing hands at nearly 31 times forward earnings. Of course, some premium is warranted, given the stock's above-average, 25% long-term growth rate, but the shares don't pay a dividend and have already shot up more than 60% in the past year.

Given that the stock's consistent, high-level growth was the main justification for its pricey premium, the company's more modest forecast suggests Lululemon is finally falling behind the Street's exuberant expectations.

Janney Montgomery Scott analyst Adrienne Tennant maintained a Buy rating on the stock, but still cautioned that "the earnings growth versus valuation disparity that has existed is likely to converge,Choose from our large selection of cableties, and we expect that stock appreciation from today's corrected levels may be more measured and more in line with actual earnings-growth prospects from the company."

Therefore, we think the stock will have a tough time regaining its former highs, and that investors are right to sour on Lululemon today.