Support for the trade:
- Stock is down 50% from recent historical highs
- The scuffle with founder Chip Wilson has calmed after the deal with Advent International
- Advent knows this business very well and their involvement is a positive signal
- No debt, strong cash position
- A profitable business with loyal customer base
- I don't believe the core customer will migrate to cheaper alternatives--do you really want to show up at mommy&me yoga wearing the discount brand?
Potential catalysts:
- M&A, inversion transaction?
- Share buybacks
- Continue to 'beat' quarterly analyst expectations
- Positive signals from international expansion
Risks:
- Less appealing acquisition target from use of cash for buybacks and the U.S. crackdown on the tax inversion trade
- Continued downward trend on comparable store sales
- Poor execution in the direct to consumer channel
- Poor results from international foray
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