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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.

Sapa JV Achieves 9% Growth In North America For Norsk Hydro

Summary Today’s earnings from Orkla act as a partial pre-announcement for Hydro’s earnings next week, due to the 50/50 joint venture. The Norwegian government invests NOK 1.5 billion in Norsk Hydro’s new plant, with the European Trade Commission’s blessing. Hydro reports on February 10th – are there more surprises? In my most recent article about Norsk Hydro ( OTCQX:NHYDY ), I focused on some key drivers for EPS that I felt made the company a better value play than Alcoa, Inc. (NYSE: AA ). Today’s earnings announcement by Orkla ASA ( OTCPK:ORKLY ) gives us a sneak peek into Hydro’s earnings next week. Sapa is an extruded aluminum company, and is run as a 50/50 joint venture between, Orkla ASA ADR and Hydro: September 12, 2013 press release . Sapa is the global leader in extruded aluminum, and has a market share of 30% in North America and 26% in Europe. It offers a variety of solutions to its customers through five business segments, and is a leader in energy-efficient buildings. Sapa also has a strong presence in Asia and South America. “Orkla’s share of Sapa’s result was NOK -360 million in the quarter. Sapa’s results were negatively impacted by extraordinary costs related to the accounting write-down of fixed assets in China. Demand for extruded aluminium products in North America rose by 9%, primarily driven by growth in the automotive and building industry. In Europe, demand was on a par with 2013.” – Earnings release Sapa makes up only a part of Hydro’s earnings, but level demand in Europe is encouraging, as it has been recognized that the European economy may be contracting. Growth in North America appears robust at 9%, and bodes well given the current high aluminum price. It will be necessary to wait for Hydro’s results to get a full picture of the accounting write-down, but I anticipate that it will be similar to write-downs made by Alcoa this quarter, which had a negligible effect on share price. The write-down should not be taken out of context from the rest of Hydro’s earnings. The strong demand is evident, and should translate across all of Hydro’s primary aluminum business. A further NOK 1 billion in synergy savings is anticipated over the next 2 years. This fact will only enhance the value of Sapa for both of its parent companies. It is all cash that falls straight to their bottom lines at each earnings announcement. Norwegian Government Invests in Eco-Friendly Norsk Hydro Central to my thesis about Hydro is the idea that the company can continue to make more money by being as environmentally friendly as possible. In other news yesterday: “The EFTA (European Free Trade Association) Surveillance Authority has approved funding of NOK 1.5 billion from Enova for Hydro to test the world’s most energy- and climate-efficient aluminum production in a full-scale pilot plant at Karmøy, Norway.” – Hydro press release. Enova is a Norwegian state-supported agency for promoting efficient-energy consumption and renewable energy. The same day, and sticking with the eco-friendly theme, Hydro announced a new research partnership with SGL Group ( OTCPK:SGLFF ). The project will take place over the next three years, and is being funded by the Research Council of Norway. The goal is to develop new, energy-saving, carbon cathode technology for use in the primary aluminum production process. Any reduction in energy costs is a big saving for Hydro, but it also provides extra income, because Hydro sells any excess energy it produces into the national grid. Exactly how well Hydro performed over all in the fourth quarter is still somewhat of a mystery. If results from Alcoa are anything to go by, the company should surprise to the upside next week. The two press releases yesterday continue to confirm that the future looks bright for Hydro. I look forward to seeing the increased earnings created by the synergies at Sapa over the rest of the year. The stock has performed well over the last year or so since my first article about it . It would appear there is more to come. NHYDY data by YCharts Editor’s Note: This article discusses one or more securities that do not trade on a major exchange. Please be aware of the risks associated with these stocks. Disclosure: The author is long NHYDY. (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. Additional disclosure: This article is not intended as investment advice. It is for informational purposes only and expresses the authors opinion. The reader should conduct their own research and form their own opinion prior to initiating any position. Actual outcomes may vary from those discussed in the article.This article may contain certain forward-looking statements. I have tried, whenever possible, to identify these forward-looking statements using words such as “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” “potential” and similar expressions. These statements reflect my current beliefs and are based on information currently available. Accordingly, such forward-looking statements involve known and unknown risks, uncertainties and other factors which could cause actual results, performance or achievements to differ materially from those expressed in or implied by such statements. I undertake no obligation to update or provide advice in the event of any change, addition or alteration to the information contained in this article including such forward-looking statements.

A Return To Emerging Market ETFs

More investors are turning to the emerging markets. Emerging markets look relatively cheap compared to U.S. equities. What’s supporting the emerging market investment theme. While developed markets languished, investors turned to emerging markets and related exchange-traded funds for a cheaper play on global markets. Emerging equities are outperforming developed markets. Year-to-date, the iShares MSCI Emerging Markets ETF (NYSEARCA: EEM ) rose 1.1% and the Vanguard FTSE Emerging Markets ETF (NYSEARCA: VWO ) increased 1.6%, whereas the SPDR S&P 500 ETF (NYSEARCA: SPY ) dipped 1.8%. According to the Institute of International Finance, investors funneled $18 billion into emerging market stocks and bonds over January, reports Carolyn Cui for the Wall Street Journal . While EEM and VWO experienced heavy outflows , some areas drew heavy inflows. For instance, the iShares MSCI India ETF (BATS: INDA ) added $617.2 million in assets, iShares MSCI Taiwan ETF (NYSEARCA: EWT ) saw $172.0 million in inflows and the Market Vectors Emerging Markets Local Currency Bond ETF (NYSEARCA: EMLC ) experienced $148.4 million in inflows, according to ETF.com data. As the developed markets stumbled at the start of the new year, investors turned to other global opportunities that could generate improved returns, following the rally in developed-market equities and fixed-income assets last year. “Emerging markets are one of the few bargains out there in an increasingly expensive world,” Jeffrey Kleintop, chief global investment strategist at Charles Schwab Corp., said in the article, arguing that the low valuations could provide “some sort of buffer” when volatility spikes. For instance, EEM shows a price-to-earnings ratio of 12.1 and a price-to-book of 1.5, VWO has a 12.3 P/E and a 1.6 P/B. In contrast, SPY shows a 17.3 P/E and a 2.5 P/B. The cheap raw materials and commodities prices will help fuel emerging market growth at a faster pace than developed economies. For example, India is well positioned to benefit from cheap oil prices as the country is a prominent energy importer. Meanwhile, countries like Taiwan can benefit from the U.S. recovery as the island country is the 12th largest goods trading partner with the U.S. as of 2013 data . Moreover, the added global liquidity, with the European Central Bank adopting a €1 trillion, or $1.3 trillion, quantitative easing program , could push investors toward emerging markets to chase after higher returns. Investors who are concerned about the continued strength in the U.S. dollar and its effect on emerging market exposure can also consider the recently launched iShares Currency Hedged MSCI Emerging Markets ETF (NYSEARCA: HEEM ) and the Deutsche X-trackers MSCI Emerging Markets Hedged Equity Fund (NYSEARCA: DBEM ) , which is three years old, to track developing markets while hedging against forex risks. Max Chen contributed to this article . Tom Lydon’s clients own shares of EEM and SPY. Disclosure: The author is long EEM, SPY. (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.