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Lululemon CEO Christine Day Is Stepping Down; Stock Tumbles

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Lululemon.061013.mas
Kevork Djansezian, Getty Images
Lululemon Athletica (LULU) announced today in its quarterly earnings release that longtime CEO Christine Day will be stepping down once the company finds a new chief executive.

"Plans have been laid for the next five years and a vision set for the next ten," said Day in a statement. "Now is the right time to bring in a CEO who will drive the next phase of lululemon's development and growth."

Day has presided over a period of growth for the Canadian yoga apparel company, and this quarter it saw net revenue increase by 21% and same-store sales rise by 7%. Net income for the quarter rose slightly, from $46.6 million to $47.3 million.

That's a solid quarter, but still off the company's usual sales and profit growth results.

The reason, of course, is that the quarter was marred by a voluntary recall of black yoga pants after they were found to be too sheer. That has generated some embarrassing headlines, but the company has won praise for taking responsibility for the fiasco and responding promptly to customer complaints. The company also touted the fact that it replaced the offending pants in stores within 90 days.

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Day's departure will undoubtedly be linked to the see-through pants scandal, though investors don't seem to be holding her responsible. Shares plunged more than 10% in after-hours trading, and given the quarter's financial results were about in line with what the company projected when the recall was announced in March, it's hard to see the dip as anything but a response to Day's departure.

The good news is that Day says she'll remain on as CEO until the search committee finds her replacement, so Lululemon fans and investors can be assured of a steady hand at the top for the time being.

 

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Some Numbers at Anixter International that Make Your Stock Look Good

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There's no foolproof way to know the future for Anixter International (NYS: AXE) or any other company. However, certain clues may help you see potential stumbles before they happen -- and before your stock craters as a result.

A cloudy crystal ball
In this series, we use accounts receivable and days sales outstanding to judge a company's current health and future prospects. It's an important step in separating the pretenders from the market's best stocks. Alone, AR -- the amount of money owed the company -- and DSO -- the number of days' worth of sales owed to the company -- don't tell you much. However, by considering the trends in AR and DSO, you can sometimes get a window onto the future.

Sometimes, problems with AR or DSO simply indicate a change in the business (like an acquisition), or lax collections. However, AR that grows more quickly than revenue, or ballooning DSO, can, at times, suggest a desperate company that's trying to boost sales by giving its customers overly generous payment terms. Alternately, it can indicate that the company sprinted to book a load of sales at the end of the quarter, like used-car dealers on the 29th of the month. (Sometimes, companies do both.)


Why might an upstanding firm like Anixter International do this? For the same reason any other company might: to make the numbers. Investors don't like revenue shortfalls, and employees don't like reporting them to their superiors.

Is Anixter International sending any potential warning signs? Take a look at the chart below, which plots revenue growth against AR growth, and DSO:

AXE ARDSOChart Q 2013 03 29

Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. FQ = fiscal quarter.

The standard way to calculate DSO uses average accounts receivable. I prefer to look at end-of-quarter receivables, but I've plotted both above.

Watching the trends
When that red line (AR growth) crosses above the green line (revenue growth), I know I need to consult the filings. Similarly, a spike in the blue bars indicates a trend worth worrying about. Anixter International's latest average DSO stands at 73.8 days, and the end-of-quarter figure is 72.9 days. Differences in business models can generate variations in DSO, and business needs can require occasional fluctuations, but all things being equal, I like to see this figure stay steady. So, let's get back to our original question: Based on DSO and sales, does Anixter International look like it might miss its numbers in the next quarter or two?

I don't think so. AR and DSO look healthy. For the last fully reported fiscal quarter, Anixter International's year-over-year revenue shrank 2.1%, and its AR dropped 0.0%. That looks OK. End-of-quarter DSO increased 2.1% over the prior-year quarter. It was about the same as the prior quarter. Still, I'm no fortuneteller, and these are just numbers. Investors putting their money on the line always need to dig into the filings for the root causes and draw their own conclusions.

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The article Some Numbers at Anixter International that Make Your Stock Look Good originally appeared on Fool.com.

Seth Jayson had no position in any company mentioned here at the time of publication. You can view his stock holdings here. He is co-advisor of Motley Fool Hidden Gems, which provides new small-cap ideas every month, backed by a real-money portfolio. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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