Turning Lululemon into Lemonade

4/2 - "On March 28, department store giant JC Penney Corp. (JCP) issued a material 1Q`08 earnings warning...The news was equally worrisome for Polo Ralph Lauren Corp. (RL) as it supplied JC Penney with the initial round of goods under the new American Living brand in February...we observed significant discounts of the American Living brand almost immediately following the launch, a sign that price conscious consumers failed to respond to the higher priced wares."

"In our view, this issue in tandem with ongoing investment spending on new growth vehicles and softening demand at Polo’s retail stores elevates the risk of a reduction to management’s current FY`09 earnings per share guidance ($3.95-$4.05). As a result, we have reduced our FY`09 earnings per share estimate to $3.85 from $4.00. We are reiterating our underweight recommendation and issuing a price target of $53.00."

4/1 - "The company pleased investors last month, when it reported Q4 EPS of 41 cents (ex-items). That topped the average Street estimate by two cents...Management guided FY09 EPS to $1.85-$1.87, versus consensus of $1.83."

"The news kept JCG shares cycling through a positive five-week trading channel. The price is currently consolidating near the base of that channel, suggesting the potential for a rise back toward the top. Correspondence of the stock's 30-day and 50-day moving averages to the base of the channel backs the rebound notion...A stop-loss of $38.35 looks good here."

4/2 - "We are reducing our FY2008 estimate by $0.03 to $0.72 to account for weaker back half comps (same-store sales) as we expect the majority of the beneficial impact of currency on comps to begin to anniversary in 3Q. Management laid out a very strong strategic plan and an achievable outlook, in our view. We remain neutral, as we think the 2009 P/E of 33x is justified by the significant growth potential of the company and nearly mimics our current expected 2009 growth rate of 35%."

"The majority of new stores will be opened in markets where the company already has at least one store. This should lead to faster returns on the new stores as there will already be brand awareness in those markets."

"lululemon also announced the departure of CEO Bob Meers. He will be replaced by Christine Day, the current president of retail operations...We do not expect the move to have a significant impact on the company’s operation or direction...lululemon continues to focus on product innovation. The company is testing new fabrics and we expect new lines in swim and cycling in 2008."