David Tsao

Lululemon Reduces Guidance; Could Present Buying Opportunity

I wish LULU good luck in proving/proving these lofty valuations going into 2008/2009. Christine Day's experience at Starbucks may not translate over well into women's apparel. I wasn't impressed much with the earnings call as Bob Meers and Christine Day both fielded questions back and forth. If you're going to pass the reigns over, hand it over to the new CEO.

One of the analysts asked an interesting question regarding why the management/personnel changes now, and what LULU was missing prior. Part of the argument put forth by Christine Day, was the hire of Sheree Waterson who has prior e-commerce experience. She does, with enfashion.com during the dotcom days, but those online properties are now defunct. Starting up an online sales channel based on the company's growth strategy and free cash flow position will not be easy and eat into margins. Depreciation of IT systems was estimated at $1.2mm. Pay attention to CapEx and SGA in the coming quarters. Maybe they will outsource this operation... to "try" and keep growth costs down.

time will tell.