Shares of beleaguered yoga-inspired apparel maker Lululemon Athletica Inc. (NASDAQ: LULU) got a boost Tuesday morning on new speculation it may be a takeover target. VF Corp. (NYSE: VFC) is the potential buyer.
VF is also an apparel company, which sports brands such as North Face, Wrangler and Vans. Its aggressive growth strategy seems to be paying off, judging by its first-quarter results. Revenue was up 6.5% year-over-year, and per-share earnings were 12% higher. Other rumored takeover candidates for VF include Puma and Lands’ End Inc. (NASDAQ: LE), which was recently spun off from Sears Holdings Corp. (NASDAQ: SHLD)
Lululemon has faced increased competition from the likes of much larger Nike Inc. (NYSE: NKE) and faster growing Under Armour Inc. (NYSE: UA). When Lululemon posted its results for the most recent fiscal quarter, earnings per share (EPS) were flat relative to the year-ago period. Same-store sales for the quarter fell 2% year-over-year, and operating income as a percentage of net income slipped from 31.4% a year ago to 29.6%.
Lululemon next reports its results in June, and the analysts’ consensus EPS estimate has dropped in the past 60 days from $0.40 to $0.32, which is in line with the guidance previously offered by Lululemon.
ISI Group analysts suggest a takeover would benefit VF, which has strong capabilities in brand building and product innovation, as well as a robust supply chain, but it lacks a significant presence in the growing performance athletic apparel segment.
Lululemon shares were up more than 4% to $46.77 in early trading, before settling back to $45.96 later on. The stock has traded in a range of $42.28 to $82.50 in the past year. Analysts have a mean price target of $57.57.
VF shares hit a new 52-week high of $64.00 in morning trading.
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