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Why Lululemon Founder Chip Wilson’s Departure Is Good For The Company

Summary Lululemon Athletica founder Chip Wilson has recently announced his departure from the yoga apparel company he founded and built. Lululemon stock declined over 1% on the news. While Wilson has been a good corporate executive for Lululemon for most of its history, his presence has been more of a liability in recent years. Lululemon is now better able to attempt putting the past behind them, which will be a positive catalyst for the stock. Earnings trends and a reasonable valuation are likely to push the stock upward in the future. Canadian yoga-apparel maker Lululemon Athletica (NASDAQ: LULU ) founder Chip Wilson has recently announced his departure from the company he founded and built. In response to the news, Lululemon stock declined over 1%. Is this decline indicative of a harder future for Lululemon, or should investors view this development as a positive for the company and for shareholders? Wilson’s Accomplishments Chip Wilson’s tenure at Lululemon has been marked with a series of notable achievements. After all, he is the man who started off the whole company from a small location in Vancouver, Canada, in 1998, and has since then expanded the company into a global brand with a loyal customer base, with 250 stores across the world. Wilson’s entrepreneurial spirit and long-term focus are commendable in an era where many are only concerned about the short-term. Lululemon broadened its reach and its customer base under Wilson at impressive rates. Wilson left as executive in 2012 to take some time off from daily management of the firm, but returned in 2013 to help bring back Lululemon from a downturn in sales and a controversy over the quality of its clothes. Unfortunately for Lululemon, this controversy proved to be a devastating event for the company’s PR image and its financial standing, as well as the reputation of the company’s CEO. Wilson’s Stumblings In Recent Years While Wilson did help Lululemon recover from a crisis after he came back, he has had his share of mishaps in recent years that have infuriated customers and had significant negative effects on the company’s financial performance. The most noteworthy of these mishaps is the aforementioned scandal regarding Lululemon’s pants. Wilson has been a lightning rod of controversy after insinuating that quality problems with Lululemon pants were related to customers’ body types, seemingly blaming consumers for the problems with see-through pants. This led to an incredibly awkward and, what many consider a misguided, 50-second apology video that he posted on YouTube – not to the consumers he offended, but to Lululemon workers. So, Why Is Lululemon Better Off Overall? While Lululemon is indeed losing a key figure in its development into a global brand, I believe the team replacing him is more than capable of managing the company without him, as seen in the past couple years when Wilson has taken smaller and smaller roles. After rescuing the company from crisis, Wilson is leaving the company in the competent hands of Lululemon’s core team. This core team has been operating well under a less influential Wilson. The company is being left in pretty good shape, as seen from IAEResearch: Lululemon has revised its fourth quarter earnings guidance upwards – the company now expects its net revenues to be in the range of $595 -600 million as compared to previous range of $570-585 million for the quarter. This increased top line growth is based on the comparable sales increase of around 6-7% on a constant dollar basis as compared to the previous total comparable sales increase of low single digits on a constant dollar basis. The company also expects a rise in its bottom line growth and increased its diluted earnings per share range to 71 – 73 cents for the fourth quarter as compared to previous EPS guidance range of 65 – 69 cents. Wilson’s departure and the subsequent drop in Lululemon’s stock price may be a good entry point for a stock with a niche yoga pants market, increased earnings guidance, high margins, high net operating cash flow that has increased by 79.50% since the same quarter last year, and a reasonable valuation. The stock’s P/E ratio TTM of 40 is a good benchmark for future growth and is right at Lululemon’s historically average P/E ratio TTM. Also, Lululemon’s valuation is less ambitious than Under Armour’s (NYSE: UA ) 86 P/E ratio, meaning that the stock has more room to run without hitting a ceiling of stagnating growth. Lululemon’s operating cash flow is also substantially higher than the industry average growth rate of 56.32%. To be frank, Wilson’s departure can only be good for Lululemon, as his continued presence would have been a continual source of irritation for consumers and shareholders alike. Wilson’s continued presence at the company is only bound to be a sore point with customers who were riled with Wilson’s supposedly insensitive comments. After helping the company get back on its feet, Wilson feels now is the best time for him to leave, and there probably isn’t a better time to do so. Despite Wilson’s accomplishments, the sour taste of the pants scandal remains in some customers’ mouths, and it’s in Lululemon’s best interests for Wilson to leave at this time, as he essentially has done all he can do for the firm. Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Gilead, Amgen Q4 Earnings And Weak Outlook Affect Biotech ETFs

The biotech sector stood out last year and the NASDAQ Biotechnology Index delivered a stellar 34% return for 2014. Despite some temporary glitches and rough trading in between, encouraging industry trends, increasing merger and acquisition activities, several important product approvals and label expansions, ever-increasing healthcare spending and an aging population led the sector to easily outperform the broader U.S. equity markets (read: 3 Biotech ETF Winners from 2014’s Best Performing Sector ). The strong performance continued into the New Year with most of the biotech ETFs trading in the green in the year-to-date frame. However, the industry has started to show some weakness lately. Unlike the third quarter wherein most of the well-known industry players easily managed to beat our estimates on both earnings and revenues, the fourth quarter saw some of them reporting mixed financial results. Though the top players like Gilead (NASDAQ: GILD ) and Amgen (NASDAQ: AMGN ) have reported strong results, a not-so-inspiring outlook by Gilead continued to hammer the company’s stock prices post earnings. Pricing war in the hepatitis C virus (HCV) market has led the company to guide revenues for 2015 lower than Street estimates (read: Gilead Falls on AbbVie and Express Scripts Deal: 3 Biotech ETFs to Watch ). Biotech Earnings in Focus GILD Earnings in Focus The company reported solid fourth quarter numbers as net income more than quadrupled to an adjusted $3.88 billion from $930 million in the year ago quarter. Adjusted earnings per share came in at $2.43, easily surpassing the Zacks Consensus Estimate of $2.27. Revenues rose 134.3% to $7.31 billion topping our estimates of $6.69 billion. Strong sales of the HCV drugs, Harvoni and Sovaldi, helped boost net profits, beating Wall Street forecasts. Sales of Sovaldi came in at $1.73 billion for the reported quarter, while sales of the improved combination drug – Harvoni – totaled $2.11 billion. Gilead declared its first quarterly dividend of 43 cents, or $1.72 annually, which will be paid from the second quarter of 2015, pending approval. The company will also begin a $15 billion share repurchasing program to be completed within five years. However, the company said it plans to offer steeper-than-expected discounts on its HCV drugs to health insurers and other group payers, which made investors jittery. The high costs of Sovaldi and Harvoni have intensified competition with AbbVie Inc. (NYSE: ABBV ) and its much cheaper HCV treatment Viekira Pak in the market. The discounts Gilead plans to offer this year will hurt its top line, leading to a sales estimate of $26 billion to $27 billion from the company for 2015, below the average Wall Street estimate of $28.6 billion. AMGN Earnings in Focus The company reported earnings of $2.16 per share, well above the Zacks Consensus Estimate of $2.05, driven by higher revenues. Moreover, total revenues increased 6.4% to $5,331 million in the reported quarter, beating the Zacks Consensus Estimate of $5,192 million. Amgen maintained its previously issued guidance for 2015. The company expects to earn $9.05-$9.40 per share on total revenues of $20.8 billion to $21.3 billion. The Zacks Consensus Estimate for earnings and revenues are $9.35 per share and $20.9 billion, respectively. BIIB Earnings in Focus Biogen (NASDAQ: BIIB ) reported mixed fourth quarter results, beating the bottom line estimates, but marginally missing on the top line. However, the company provided a strong outlook for 2015 and expects earnings in the range of $16.60-$17.00 per share on revenue growth of 14-16%. Alexion Earnings Alexion (NASDAQ: ALXN ) also reported mixed fourth quarter results, beating on revenues, but missing the earnings estimates. The company provided a disappointing outlook for 2015 and expects net product sales in the range of $2.55-$2.6 billion, below the Zacks Consensus Estimate of $2.72 billion. Market Impact Given the disappointing revenue guidance due to steeper than expected discounts on anti-viral drugs, Gilead’s shares plunged 4.5% in after-market trading on the day of the earnings release. Also, the stock closed 8% lower on Feb 4. Weakness in Gilead has fueled concerns about pricing pressure on the overall biotech sector, dragging down other players. Amgen shares are trading more than 1.5% lower post its results, while Alexion shares have plunged more than 5% post earnings. The dull performance of these companies has put biotech ETFs in focus. Investors should carefully watch the movement of these funds and take advantage of any opportunity that arises. iShares Nasdaq Biotechnology ETF (NASDAQ: IBB ) This fund provides exposure to 151 firms by tracking the Nasdaq Biotechnology Index. IBB is one of the most popular funds in the biotech space with an AUM of $7.2 billion and an average trading volume of 1.4 million shares (see: all the Healthcare ETFs here ). Biogen, Gilead, Celgene and Amgen are the top four holdings with 9.8%, 8.3%, 7.9% and 7.1% allocations, respectively. The ETF has lost 2.5% in the past one week but is up 33.5% in the past one year. IBB currently has a Zacks ETF Rank #2 or Buy rating. Market Vectors Biotech ETF (NYSEARCA: BBH ) This fund tracks the Market Vectors US Listed Biotech 25 Index, holding 26 securities in the basket. The product has so far amassed $722.8 million in its asset base and sees moderate trading volumes of roughly 148,000 shares a day. Gilead, Amgen, Celgene and Biogen occupy the top four spots in the fund, with a combined exposure of more than 40%. The fund has lost 2.4% in the past five trading sessions but is up 24.5% in the past one year. BBH currently has a Zacks ETF Rank #1 or Strong Buy rating. Dynamic Biotech & Genome (NYSEARCA: PBE ) This fund provides exposure to 30 firms by tracking the Dynamic Biotech & Genome Intellidex Index. Biogen, Gilead and Amgen are among the top 10 holdings with a combined exposure of 16%. The product has amassed $1492.3 million in its asset base while it trades in lower volumes of 71,000 shares per day. PBE has lost 2.8% in the past one week and currently has a Zacks ETF Rank #2 or Buy rating (read: The Complete Guide to Biotech ETFs).

Correction Prep With These Inverse ETFs

U.S. equities have been on a multi-year bull streak. We are now seeing some weakness in the markets. Bearish, short ETFs to hedge against potential turns. With U.S. markets showing some chinks in the armor, investors can utilize inverse or short exchange-traded funds to hedge against a bearish turn. Some market observers point out that it has been over 1,200 days since the S&P 500 experienced a 10% or greater correction, reports John Melloy for CNBC . For those who are wary of a potential pullback in the S&P 500 index, there are a number of bearish or inverse ETF options with varying levels of leveraged exposure to capitalize off a weakening S&P 500. The ProShares Short S&P 500 ETF (NYSEARCA: SH ) takes a simple inverse or -100% daily performance of the S&P 500 index. Alternatively, for the more aggressive trader, leveraged options include the ProShares UltraShort S&P 500 ETF (NYSEARCA: SDS ) , which tries to reflect the -2x or -200% daily performance of the S&P 500, the Direxion Daily S&P 500 Bear 3x Shares ETF (NYSEARCA: SPXS ) , which takes the -3x or -300% daily performance of the S&P 500, and the ProShares UltraPro Short S&P 500 ETF (NYSEARCA: SPXU ) , which also takes the -300% daily performance of the S&P 500. Market participants are growing wary after a lackluster start to 2015, with poor earnings growth and a significant rally in 2014. According to a recent Investors Intelligence survey, 34.7% of polled strategists see a correction ahead, compared to 31% a week ago. “I believe that the end of Fed QE (cannot be replaced by ECB QE in its influence) and growing possibility in my mind of a June rate hike, at the same time earnings growth is slowing, dramatically raises the risk of a stock market correction,” Peter Boockvar, strategist for The Lindsey Group, said in the article. “After six years into a bull market where valuations are very stretched, investors should be watching their back and not swinging for any fences anymore.” Furthermore, looking at the fixed-income market, Bob Walters, who oversees the capital markets business for Quicken Loans, argues than an inverting yield curve could indicate a slowdown or recession could occur this year, reports Ron Insana for CNBC . Specifically, the flattening yield curve usually occurs during a slowdown and inverts during a recession where long-term rates are lower than short-term rates. The central bank typically hikes short-term rates to cool an overheating economy. Meanwhile, long-term bonds will see greater demand and yields fall as higher short-term rates help depress inflation expectations. Alternatively, investors can also capitalize off the fall in the widely viewed Dow Jones Industrial Average through the ProShares Short Dow 30 ETF (NYSEARCA: DOG ) , which tries to reflect the -100% daily performance of the Dow Jones Industrial Average. For the more aggressive traders, the ProShares UltraShort Dow 30 ETF (NYSEARCA: DXD ) takes the -200% of the Dow Jones and the ProShares UltraPro Short Dow 30 ETF (NYSEARCA: SDOW ) reflects the -300% of the Dow. Lastly, the ProShares Short QQQ ETF (NYSEARCA: PSQ ) takes the inverse or -100% daily performance of the NASDAQ-100 Index. For the aggressive trader, the ProShares UltraShort QQQ ETF (NYSEARCA: QID ) tracks the double inverse or -200% performance of the NASDAQ-100, and the ProShares UltraPro Short QQQ ETF (NASDAQ: SQQQ ) reflects the triple inverse or -300% of the NASDAQ-100. Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.