Lululemon Still Safe, Despite Weak Canadian Dollar - Credit Suisse Analyst

Yoga retailer Lululemon Athletica Inc. (LULU) is still a safe retail investment despite the macroeconomic downturn, says analyst Paul Lejuez at Credit Suisse.

He maintained his "outperform" rating on the shares but reduced his fiscal 2008 earnings estimate to C$0.69 from C$0.72 and his fiscal 2009 estimate to C$0.90 per share from C$0.98 based on his slightly lowered comparable store sales forecast and a weaker Canadian dollar.

He wrote in a note to clients:

Although two thirds of the company’s revenues are derived from Canadian dollars and therefore are negatively impacted when the Canadian dollar weakens, we estimate that at least two-thirds of the company’s SG&A, including all of corporate, is paid in Canadian dollars. Therefore, although the weaker exchange rate reduces revenues, it also reduces expenses, making the overall impact less dramatic.

Lululemon is attractively valued and continues to be one of the best (and one of the few remaining) growth stories in specialty retail. While it is difficult to imagine the company is not being impacted somewhat by the credit or macroeconomic crisis, we believe business fundamentals remain generally intact. Although the exchange rate has the potential to dampen the company’s profits, it has little bearing on the concept’s success with customers nor does it change our long-term view of the company.