The Dr always says “Be long or short, man, one or the other.” I had been long LULU, then I sold, shorted, covered, and bought because of this seasonality:

They usually crush earnings in March, after the holiday season, thus delivering this amazing seasonality. Like a dumbass, I neglected that my short thesis was dependent on a changing landscape in the sector. That landscape has been changing by multiple new entrants in the sector see this post. Then today, LULU was hit with supply problems when they had to recall 17% of their ladies yoga pants, because the fabric was “to sheer” for their standards. Please read this article:

Lululemon Athletica (LULU) fell 4% in late trading Monday after the yoga apparel maker said it will miss first-quarter sales targets due to a shortage of black Luon pants and crops.

The black stretch pants have an unwanted see-through quality, a level of sheerness “that falls short of our very high standards,” the company said in a statement.

Lulu’s wardrobe malfunction comes as it prepares to announce Q4 earnings Thursday before the market opens. Prior to the sheer-pants problem, Wall Street expected Lulu to report a 45% jump in earnings per share to 74 cents, and a 30% hike in sales to $482.7 million.

Lulu pulled all of the product from store shelves. Customers who bought the pants and crops after they began shipping on March 1 are welcome to return them for refund or exchange.

The items represented 17% of all women’s clothing on its store shelves.

The clothier said the event wasn’t the result of any defects in clothing design or materials. It’s working with an unnamed supplier it’s had since 2004 to determine why the pants were see-through.

As a result, Lulu sees Q1 comparable store sales rising 5% to 8%, down from the 11% increase it was looking for. The company said it’s working to determine the exact per-share hit it will take from the product recall.

It revised its Q1 sales guidance to $333 million to $343 million, down from $350 million to $355 million.

They trade at a ridiculous multiple of 40x earnings, and their growth just kicked down the stairs, I’m selling times three in the morning. I’m going back to my original thesis, SHORT, and staying there. Trust me, there will be far more downside after Friday.

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