UBS Analyst: Expect Significant Growth in Lululemon 4Q Earnings

Current woes in the U.S. economy have been taking a toll on some retailers but the mood at Lululemon Athletica Inc. (LULU) is still upbeat.

Analyst Tal Woolley at RBC Capital Markets sees no ill effects from current market turmoil on the Vancouver-based yoga retailer, which is expanding rapidly in the U.S. He is maintaining his outperform rating on the stock with a target price of C$47.

In a note to clients he wrote:

In tougher economic climates, it is our belief that the apparel shopper will continue to respond to unique and differentiated product offerings. We believe this will be seen clearly in Lululemon’s upcoming results.

The retailer is due to report fourth quarter earnings on Wednesday. Mr. Woolley is anticipating per share earnings growth of 117% over the prior year’s quarter, or C$0.18 per share.

Lululemon shares are down approximately 35% year-to-date for reasons unrelated to the company’s fundamentals, in our opinion. While the multiple remains high we continue to believe the shares offer a unique opportunity to participate in an early stage growth story with currently strong sales performance despite the difficult environment.

Comments

[Mr. Peanuts]

This stock is driven by a massive hoard of speculative traders - not by fundamentals. Analysts have gotten their price targets all wrong this year, and I doubt that their current opinions will be on the money.

The price swings we will witness with LULU before and after earnings will be market manipulation at its best... Might as well roll the dice and get in on the trade.

[FormerRetailerSays...]

In 1988 I sold a 25 store specialty retail chain for 27 mil. This chain was doing about 27 mil in total revenue, that is an average of just over 1 mil per store, with a gross profit above 50%. How is LULU going to justify the market cap of almost 1.5 Billion? Let's say LULU gets to the point of having 300 stores, and each store does 2 mil. That is total revenue of 600 mil. So, perhaps the company will be worth 600 to 900 mil. That is a far cry from 1.5 Billion!! In addition, other manufactures, like GIII (all you have to do is listen to their last conference call of 3/31/08) are starting to manufacture yoga clothing for woman, which they sell to the major retailers. I also understand that Victoria's Secrets are selling yoga clothing for woman as well. There is nothing special that I can see about LULU, and for sure no barriers of entry. So, why is this stock selling at such a high multiple? In addition, when this company went public, a large percentage of the money went to the selling shareholders, therefore the company did not receive much of the cash.

WHAT AM I MISSING???

[Bohman]

I think you are missing alot. You are like one of those people that didnt understand what Starbucks was. How could you make money selling coffee? Well Starbucks sells an experience, not just the coffee. The same goes with Lulu. Its a new unique clothing experience, and the clothing looks 100 times better than the "yoga" gear that any other store may sell. I see Lulu being as big as Nike in terms of athletic clothing and comfort gear. Remember, too many people think Lulu is solely Yoga gear. It isnt. Its comfortable clothing that looks good with an Athletic/Yoga appeal to it.

Check out the numbers for the 4th quarter. keeps beating forecasts, and why is that?

I went to the Seattle store at Xmas, the guy there said they did 4 times the expected sales, and they cant seem to keep jackets or certain gear in even. Lulu sells shirts ($65 each), pants ($100 each), jackets (both athletic and dressier $150 each), bags (150 each), and much much more. People go there and pay 100 for clothing just to get one of their cool bags!

Thats why it is easily worth more than a market cap of 1.8 billion!!!!

[punksgt]

I'm really glad the previous person had great experience in the store! Congratulations. It has always been my experience to swing by an athletic store to relax.

It's important to remember there is nothing proprietary about LULU product. It's nike / Underarmor with their logo on it. If Nike / Adidas / Underarm they can start making new products tomorrow. There are no barriers to entry. What is there sustainable competitive advantage? Can anybody really answer that question?

In addition, I might not be the hippest person in the room, since when did Yoga become a 2 billion dollar industry? Has Yoga become the next big fitness craze? Not really... Unlike Starbucks, anybody can learn to drink coffee. Does this mean that all out of shape Americans are going to put down there Carls Jr. chili cheese burgers and start doing yoga?

Obviously I’m short on this stock. I have seen new trends come and go. (KKD, CROX, UA) If your long and you keep acting like it will return $50. Hey good luck. In this economy that old t-shirt and sweat pants will do just fine.