EVENTS TO WATCH
KATE - To see our full note KATE – Happy Mother’s Day CLICK HERE
LULU - Kit&Ace Conflict of Interest, Chip Exit More Likely
Takeaway: When we added LULU to our Best Idea's List in June of 2014 (we removed LULU from our Best Idea's List on 3/24/15) we outlined the probable outcomes resulting from Chip's activist push. Where we shook out after weighing the puts and takes was a) Chip would not get his way and b) eventually sell his stock. Chip is a brand builder, not a brand leader and he was vocal in an interview with PwC in 2014 about his displeasure his non-compete imposed restraint. The writing appears to be on the wall for his complete exit from the company now that Kit and Ace is nearing critical mass.
In our LULU Black Book in March 2015 we said that there’s $4.00 in earnings power hidden in this company, but we need the conviction that management could find it. We are still far from convinced, though the leadership on the board has proven over the past 12mnths that it is willing to separate itself from Chip. In order to justify a 30x p/e and give anyone hope of something in the $70s or $80s (presumably what you’re playing for in buying it today) we think that the company needs to completely reset its business model.
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