Okay  – before I get flamed from all the Lululemon fanatics out there, I want to say my comments are limited strictly to the Lulelemon the stock.   I love the stores, the brand, the product and the employees. 

Heck, Katy bought 2 pairs of lulu-pants for me which I *occasionally* wear.  Though, truth be told the reason most guys love lululemon is because it girls look *hot* in them.  (There’s even a Facebook group dedicated to this fact.)

(FYI – for those unfamilar with the company, Lululemon is a sport apparel manufacturer and vendor that sells mainly in Canada that specializes in clothing for Yoga.  They sell mostly to women but have been trying to develop compentent men’s offerings  – branding and perception issues here more than anything else – and have been trying to expand beyond Canada where it has been phenomenally successful.)  

Anyways, having said all that, after hearing from friends that Lululemon recently IPO’d on NasDaq and TSX (NAS:LULU) I decided to look at LULU’s financials to see if it was worth plopping down some of my tuition $$ for shares.  As I said, I’ve always been a fan of the company and following Buffet’s ‘buy what you know mantra’ it made sense…

Good thing I did my due diligence.  From my limited pre-B-school financial analysis skills, this was the picture I painted from spending a couple of hours with their prospectus:

  • At USD$31.01 a share and ~67.5m shares outstanding LULU sports a heft market cap of $2.1B. 
  • Of course this is all relative, but LULU currently only has a $149M in revenues and for it’s last fiscal year registered $7.6M in earnings – giving it a nosebleed trailing PE of 273.
  • To put this into perspective, Tim Horton’s (NAS:THI),  another beloved Canadian icon sports a market cap of $5.9B but has 10x the revenue at $1.6B and a PE of 24.
  • Or a more reasonable comparable – Oakley (NYSE:OO) has a lower market cap of $1.9B but sports $870M in revenues and a PE of 38.
  • Most of the proceeds of the $164M IPO goes to existing shareholders cashing out with only $20M going to the company’s coffers to fund expansion
  • 73% of the common shares in the common are shares still locked up but will be shortly available including 42% of the company to come available on Jan 22, 2008 and another 31% to come online next year.  In effect – probably much of the high price of the stock is the result of limited supply of the stock – expect the price to come done significantly in late Jan and early Februrary as more shares come available on the market.

So here’s where I’m thinking with this – assuming this whole IPO thing doesn’t screw up the company (it sometimes happens), check the stock again in 5-6 months and if the stock is more reasonable, say $10-$12, which BTW, was the originally suggested IPO price, pick up some.

The fact of the matter is that while I like Lululemon the company, based on their stated, ‘community-based’ grassroots marketing strategy, their revenues are not going to explode over night like a dot-com would.  It will take time to build up the customer loyalty and goodwill, but it will pay long term dividends.  Hopefully the mad dash to cash out with an IPO has not blown-up the company’s successful DNA which has made LULU all the rage of  20-40-something women in Canada and – to LULU’s ambitions – the world.