lululemon's IPO looks like an easy pose

Initial public offerings of specialty retailers have been hot for a while now, perhaps starting with Crocs (Symbol: CROX). The not-plastic (as I used to think) shoe maker went public in February, 2006, at $$21 a share and jumped 35% the first day of trading. As I look around our household, I see three pairs owned by my three-year-old, a pair for my seven-year-old and two pairs for his big sister who’s almost nine. Today, Crocs shares stand at $48, more than double the IPO price. Since then, there’s been a string of successes including J. Crew (JCG), getting ready to triple in price from its IPO in June, 2006, and Bare Escentuals (BARE), up 35% since last September. From 2005, shoe warehouse DSW (DSW) has risen 84%.

This week’s specialty play, pricing tomorrow with lead underwriters Goldman Sachs and Merrill Lynch, is a bit more new age than some. I’m not sure of the pronunciation and they’re doing that no capital letter thing at the beginning of their name that’s so annoying but there’s no denying that yoga clothing maker lululemon athletica has been on a torrid growth pace. The most recent full year’s revenue (12 months through January 31, 2007) of $149 million was up 77% from the previous fiscal year. And profits of $8 million lapped fiscal 2006’s $1 million many times over. The chain finished fiscal 2007 with 41 stores, mostly in Canada, but by the beginning of July lululemon had 59 in operation. Same store sales rose 25% last year. Based in Vancouver, the Canadian apparel maker might be best compared to the super 2005 IPO of Under Armour (UA), which has had a bit of a rocky ride but still at $53 a share today, it’s double the famous first day close of $25.30 and quadruple the IPO price of $13 lucky direct buyers paid.

If you’re looking for warts, almost all of the shares being sold are from private equity firms that bought the company in 2005. Only about 2.3 million shares, expected at a range of $10 to $12 each, will go into lululemon’s coffers to fuel expansion. The proceeds of the sale of the other 16 million go to exit the owners. The good folks at Renaissance Capital’s also make the point that the drop in the value of the U.S. dollar against Canada’s looney makes lululemon’s results look a little better than they otherwise would appear. But the managers of the IPO Plus Fund still expect a red hot offering, which should start trading on Friday under the symbol “LULU” (what else?).

“Weighing lululemon’s growth trajectory, successful financial track record and appealing valuation against the above mentioned risks, it seems likely that investors on the offering will have cause to strike a Svastikasana (Sanskrit for yoga’s ‘Prosperous Pose’) to celebrate a nice return from the first brand-name retailer of 2007,” Renaissance wrote.

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