LULU faces major headwinds; stock likely bottoms in next few months with cycle reaching lowest point by 2027.

we take a look at Lululemon's one-day chart following its earnings report late yesterday. The stock experienced a sharp decline following disappointing comparative sales results across the board.

This earnings report and today's reaction are the focus of morning trading, and now Marley Cayden joins us for a closer look . Marley, we discussed these numbers as soon as they were released yesterday, and they were disappointing from the start.

Things have gotten worse in many ways, but when you look at the report , it is hard to find a positive side.

I usually try to point out some bright spots. But it is very difficult to find any of them in this report. Frankly, this was not the quarter everyone was expecting from Lululemon, given what could be called the company's transformation or strategic restructuring.

It has decreased by 18%. Major failures here. Disappointing results with expectations lowered again this quarter. Earnings per share amounted to $2.06. This is better than the expected $1.79, but revenue fell by 4% and also came in below expectations.

However, the real big picture here is comparative sales. Their comparable sales fell by 9% overall, and by 10% on a constant dollar basis. It was n't a great performance at all.

Comparative sales fell by about 12% in North America.

China recorded a 4% increase in revenue, but a 2% decrease, with comparable sales declining by 8%. So, there is a failure in China as well. In the rest of the world, comparable sales fell by 3%.

They were really looking forward to a recovery there, specifically in China. So, this is where things really became problematic for the company.

Gross profit also decreased by 1%. Gross profit margin grew by 5.6%, but this was mainly supported by a tax refund of $134.5 million . Megan Frank, the interim CEO, indicated that negative comments on social media had affected performance.

It's pretty much the same story as in the first quarter, where they got into some sort of row with founder Chip Wilson. The company said it also saw a greater-than-expected slowdown in some of its core categories, including leggings, and that product launch responses remained "inconsistent," which is the term they used.

Guidance has been lowered for the entire year and for the current quarter.

They said they were having difficulty regaining their strength. They are facing difficulties in regaining their relevance as the scope of competition widens. This has led to a series of reductions in the stock's price target.

Trust lowered its target to $82 from $94 while maintaining its "sell" rating. They said the current headwinds would prove to be more structural. The transition process remains long and uncertain in light of the change in leadership.

Deutsche Bank lowers its target price from 127 to 98 while maintaining its rating at "hold". BNP Paribas reduces the price from $88 to $44. They made a 50% discount there. They maintain a "underperforming the market" rating.

At Barclays , they reduced it from 113 to 95 . Bank of America lowered the price from 140 to 122. For your information, we are currently trading at exactly $100 .

Bank of America says disappointing second-quarter results in China and a lack of progress in North America are pushing the recovery timeline further . But they indicated that CEO Heidi O'Neill would join next week.

Therefore, there is a possibility of a change in strategy in the next quarter with the new management.

But in general, J.P. Morgan, Bernstein, Baird, Stifel, Piper Sandler, Morgan Stanley, and the list goes on. Wells Fargo, UBS, all lower their target prices, and all cite similar comments about disappointing results.

Bank of America had a somewhat more optimistic observation, saying that there was a possibility that a change in management would lead to a fundamental change in their current situation.

But no one is looking at it as a positive thing at the moment .

Yes, and in this quarter, where earnings were complicated in terms of reactions, this story writes itself. Okay, Marlow, we appreciate that. Let's move on to trading now. Dan Deming, managing partner at KKM Financials, is with us this Friday morning.

And you know, Dan, I'm very eager to hear your opinion here because we just put it on screen. The stock has fallen by about 80% from its highest levels. So, at some point, it may have reached peak selling, but how do you view it?

Yes, maybe, Alex. Maybe at some point, but not yet. I don't think so . So, I think there are some major headwinds here. As I mentioned, some analysts continue to downgrade the stock's rating.

Ultimately, this report looks as bad as it can be, and there is a possibility that in the next few months the stock will bottom out, with the cycle continuing to reach its lowest point for Lululemon by 2027.

So, today's trading model, Alex, is to catch the possibility of further declines, but also to have an opportunity to buy the stock if we see heavy selling over the next month at the $90 level or lower.

Therefore, today’s trading model is to buy a “put” option with an execution price of 190 at a ratio of 1 to 2 in October. I think this was 42 days ago. It provides a good area for picking up the dip, where the cost is currently around 100. I think it's between $ 1.90 and $2.

The price has risen slightly from its previous level of trading at 102 . However, the idea here is to capture a downward range , with the potential to get a buying opportunity below 90.

And I think again, if this collapse continues as it is, we may reach a point where there is a mindset for potential participation in a price rebound.

The break-even point for this position, Alex, for the downside is $82. I wanted to point that out as well. So, there's plenty of room to land here before it gets problematic.