3 Questions Ahead Of Lululemon's Q1 Earnings Call

As Lululemon Athletica Inc.

is set to have its first quarter earnings call on June 8, Deutsche Bank analysts, Dave Weiner, and Sindhu Chitturi, posed three questions. The brokerage has a Hold rating with a price target of $60 on the company's shares. The first question is in respect of the second quarter gross margin expansion, i.e. whether expansion still in the plan? The question arises as the guidance for the first quarter fell short of expectations as the management expected -160 basis points of gross margin contraction apart from significant S,G&A de-leverage. According to Deutsche Bank, plan calls for gross margin to inflict positive in the second quarter though as the inventory overhang fades as the company realized efficiencies in lower air freight, logistics, and duty costs. The two analysts said, "We will listen for whether expansion is still on the table, as full-year plan for operating margin leverage likely hinges on it. Have inventories rationalized? lulu's inventory position improved substantially in 4Q, but the company still ended the quarter with a sizeable -1960bp spread between sales and inventory growth." The second question is whether inventories rationalized in Lululemon? The brokerage believes that inventory position enhanced substantially in fourth quarter, but the company still ended the quarter with a sizeable -1960bp spread between sales and inventory growth. The third is what is management's response to Chip Wilson's June 1 letter to shareholders as he still owns over 14% of shares? He called for the Board to be declassified, so shareholders could vote for all directors concurrently & more readily affect change. Shares of the company traded 1.59 percent higher on Monday.