Short sellers have been betting for years that Lululemon Athletica stock price would decline, but many closed out their positions just ahead of Wednesday’s earnings.
That means they failed to capture much of the gains from the stock’s 23% drop on Thursday after the maker of yoga clothing issued a weak outlook for the current quarter. The company said late Wednesday that it forecasts sales of $510 million to $515 million in the first three months of this year, and a low-single-digit drop in same-store sales. Analysts had expected 5% growth.
Short sellers usually borrow shares from a securities lender and sell them. They then buy back the stock and return it to the lender, hoping the stock has fallen and they can take the difference as proft.
The shorts have targeted other retailers recently, making out well on Under Armour after the athletic-gear company reported results. But they appeared to throw in the towel with Lululemon.
Short interest averaged $1.4 billion in the first six months of 2016, but a jump in the company’s stock during that period left those investors with a paper loss of $447 million, according to S3 Partners, a financial analytics firm.
Those investors began covering their positions, with short interest dropping to an average of $1.1 billion in the final six months of the year, and $665.4 million in the year through Wednesday. By Thursday, total short interest had been whittled down to $651.2 million.
The fall in the company’s stock left shorts with a $151.1 million paper gain on the day, after financing costs. It’s no small sum, but it could have been much larger.
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March 31, 2017 at 03:17AM
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from Ben Eisen
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