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Bear of the Day: lululemon (LULU)

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lululemon athletica inc. (LULU - Free Report) was once the darling of Wall Street investors and soccer mom's everywhere but a customer service fiasco surrounding its most popular yoga pants, a change in CEO and a warning about fourth quarter earnings have left shares reeling. This Zacks Rank #5 (Strong Sell) is expected to see just 2.4% earnings growth in fiscal 2013.

lululemon operates retail stores which sell yoga-inspired clothes and accessories in Canada, the U.S. and Europe. It sells one of the most popular women's yoga pants on the market.

Warned on the Fourth Quarter

On Jan 13, lululemon surprised Wall Street by warning on its fourth quarter which doesn't end until Feb 2.

Comparable-store sales are expected to be in the negative low-to-mid single digit range. Previously, the company had guided comparable-store sales are likely being flat.

Earnings guidance was also lowered to a range of $0.71 to $0.73 from $0.78 to $0.80.

The company blamed a significant decline in traffic and sales trends in the beginning of January. That was just as the first Polar Vortex was hitting the middle and east coasts of both the U.S. and Canada, where a significant number of lululemon stores are located.

Since then, a second polar vortex has hit the same region.

It seems unlikely that lululemon will see better-than-expected sales this quarter.

Earnings Estimates Cut

Given the warning, it's not surprising that analysts moved to cut their estimates for the quarter as well as the full year. But analysts also cut 2014 estimates as well.

The fiscal 2013 Zacks Consensus has fallen to $1.89 from $1.95 just 30 days ago. That is earnings growth of just 2.4% compared to 2012.

While analysts are cutting their fiscal 2014 estimates as well, they do see a rebound in earnings growth. They expect EPS growth of 17.3%.

Shares Sink

lululemon shares were trading with a forward P/E as high as 40x in early 2013. But shares have taken a beating since the recall of defective yoga pants last fall, the change in the CEO, and the PR fiascos around the yoga pants that have plagued the company, including the founder and former Chairman blaming some women's body types for the problems with the pants.

Shares are at 2-year lows and now trade with a forward P/E of just 24.

But lululemon isn't expected to report earnings until March. So it could still be a while until investors have a good update on the company.

Retail is in a world of pain right now. The industry ranks in the bottom 10% of the Zacks Rank Industries. But if you MUST buy a retailer right now, consider Finish Line Inc. . It is a Zacks Rank #2 (Buy) and is expected to see double digit earnings growth this year and next.

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Tracey Ryniec is the Value Stock Strategist for She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec.

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