Lulu Initiate Wedbush

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Wedbush Securities does and seeks to do business with companies covered in its research reports. Thus, investorsshould be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investorsshould consider this report as only a single factor in making their investment decision. Please see page 23 of thisreport for analyst certification and important disclosure information.

S

ecialt

Retail:Softlines

YMay 29, 2012

Price

$74.46

Rating

OUTPERFORM

12-Month Price Target

$90

Betty Chen(415) [email protected]

Alex Pham(415) [email protected]

Company Information

Shares Outst (M) 145.3

Market Cap (M) $10822.3

52-Wk Range $41.18 - $81.09

Book Value/sh $4.14

Cash/sh $1.89

Enterprise Value (M) $10,547.1

LT Debt/Cap % 0.0%

Company Description

lululemon athletica is a yoga-inspired

athletic apparel company for womenmen, and female youth primarily inCanada, the United States, and AustraliaThe company was founded in 1998 andis based in Vancouver, Canada.

Source:Thomson Reuters

lululemon athletica (LULU)Initiating with OUTPERFORM Rating & $90 PT: CompellingStore Growth and Ability to Drive Solid Comp Momentum

Warrants Premium Multiple We are initiating coverage of LULU with an OUTPERFORM rating and price

target of $90 as we believe the companys compelling store growth potential,combined with the ability to drive solid same-store sales momentum warrantsa premium multiple. LULU offers additional legs of growth via new concept ivvivaathletica, the DTC business, and international expansion. With its highly specializedtechnical fabrication and consistent innovations, we believe LULU will continue tooutpace its competitors.

One of the most attractive growth stories in the softlines universe. We projectdouble-digit unit and square footage growth for the foreseeable future, given thesmall store base of 174 stores and LT potential for up to ~350 locations in NorthAmerica. In addition, introduction of the new concept ivviva for the younger femalecustomer (6-14 years old), may provide additional sq. ft. growth opportunities.

DTC and international businesses provide additional opportunities. DTC sales

penetration of 11% (at end-F11) is still below the softlines average of ~15%. Also,the company continues to use e-commerce and showrooms to gauge the appetitefor international expansion, with success in Australia, New Zealand and theaddition of showrooms in Hong Kong and London this year.

Strong technical performance and apparel functionality should remain adifferentiating factor. Based on the proprietary luon fabrication, we believeLULUs technical features are unrivaled by its competitors; enabling a ~20-40%pricing premium. The companys focus on product innovation has led to itsentrance into new categories, including swim, fitness, run and cycling.

Well-differentiated advertising and grassroots expansion strategycompounds authenticity, while enlarging addressable market. Unlike otherretailers, LULU invests in a market by establishing showrooms and ambassadors topromote the virtues of yoga as a lifestyle and the unique aspects of LULUmerchandise.A retail store may follow a year later.

Anticipate above-consensus Q1 results of $0.32 on +25% comps to reaffirm

LULUs ability to deliver consistent top-line growth on industry-leadingmargins for +DD EPS expansion. With the potential to nearly double the storecount in North America and the untapped international market, we believe thecompany can deliver +DD store unit growth for the foreseeable future, coupled with+DD e-commerce sales growth.

We derive our $90 price target by applying 42x our F13 EPS estimate of $2.12.

FYE Jan 2011A 2012E 2013E

REV (M) ACTUAL CURR. PREV. CONS. CURR. PREV. CONS.

Q1 Apr $186.8A $280.6E $270.6E $334.0E $334.3E

Q2 Jul 212.3A 300.3E 289.7E 369.9E 359.5EQ3 Oct 230.2A 313.4E 304.9E 375.5E 376.9EQ4 Jan 371.5A 482.1E 483.5E 623.0E 591.6E

Year* $1000.8A $1376.4E $1352.0E $1702.4E $1676.6E

Change 40.6% 37.5% 23.7%2011A 2012E 2013E

EPS ACTUAL CURR. PREV. CONS. CURR. PREV. CONS.

Q1 Apr $0.23A $0.32E $0.30E $0.39E $0.38E

Q2 Jul 0.26A 0.34E 0.33E 0.43E 0.43EQ3 Oct 0.27A 0.36E 0.34E 0.44E 0.44EQ4 Jan 0.51A 0.65E 0.66E 0.87E 0.82E

Year* $1.27A $1.66E $1.63E $2.12E $2.08EP/E 58.7x 44.9x 35.2xChange 49.0% 30.8% 27.6%


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Betty Chen (415) 273-7328 lululemon athletica | 2

TABLE OF CONTENTS

List of Figures . 2

Investment Conclusion 3

Investment Positives 4

Investment Issues . 12

Financial Outlook .. 14

Company Overview .. 15

Management and Ownership . 18

Financial Models .. 20

LIST OF FIGURES

Figure 1: Summary of LULU Investment Positives and Negatives...3

Figure 2: Softlines Industry Concept Maturation ........4

Figure 3: LULU Branded Store Locations . . 5Figure 4: Anticipate Comp Momentum to Continue... .. 5

Figure 5: LULU Sales/ Selling Sq. Ft. F11 Comparison.....6

Figure 6: Number of Yoga Items Offered ...... ..6

Figure 7: Impressive Technical Design and Performance ........7

Figure 8: Opportunities for Product Expansion Rooted in Core Yoga .7

Figure 9: DTC Penetration and Store Count ....8

Figure 10: Community Based Marketing ....9

Figure 11: A Highly Fragmented Market for Dance-Inspired Apparel for Young Females ....... 10

Figure 12: LT Growth of lululemon .....10

Figure 13: Consolidated LT Growth with lululemon and ivivva .....10

Figure 14: luluemons Competitors .....11

Figure 15: LULU F11 Gross and Operating Margin vs. Coverage ....12

Figure 16: Comparable Store Sales ..12

Figure 17: Earnings Guidance Issued 3/22/12 .13

Figure 18: LULU F2012E Earnings Sensitivity Analysis...13

Figure 19: F2011 LULU Revenue Distribution by Channel and Geography ....14

Figure 20: Different Store Designs in Different Locations .......15

Figure 21: Different Window Displays in Different Locations ......15

Figure 22: Health Information and Classes Provided in Stores ...16

Figure 23: LULU Major Shareholders....... 17

Figure 24: LULU Historical 5-Year Average Forward P/E .. 18Figure 25: LULU Income Statement... 19

Figure 26: LULU Balance Sheet.. 20

Figure 27: LULU Cash Flow Analysis. 21

Figure 28: Specialty Retail Softlines Comparables...22


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Investment Positives

We believe LULU is well positioned to benefit from the growing trend in yoga and the wellness industry. According to statisticsprovided to Yoga Journalby market research company GfK MRI, ~16 million people in the United States practiced yoga in 2010, upfrom 4.3 million in 2001, with Americans spending approximately $6 billion a year on yoga classes and related equipment and apparelIn 2004, the Wall Street Journal estimated the yoga industry to be worth $42 billion worldwide.

Moreover, with 68% of U.S. yoga practitioners with a household income of $75-100K (according to YIAS), we believe LULU has amplemarket opportunity to take advantage of the burgeoning interest within the fitness industry, particularly addressing a more resilienconsumer base with a higher disposable income.

In addition, as the company branches into cycling, fitness, running, swimming, etc., the company estimates the overall athletic apparelmarket for men and women approaches roughly $25 billion each or $50 billion on a combined basis, suggesting significant expansionopportunity relative to LULUs total revenues of ~$1.4 billion this year.

Figure 2: Softlines Industry Concept Maturation

47% 48% 50%

63% 63% 66%67%

76% 79%84% 87%

89% 91%

102%

122%

132%

31% 32%

0%

20%

40%

60%

80%

100%

120%

140%

Francesca's

aerie

AnnTaylor

H

ollister

lululemon

AnnTaylorLOFT

Zumiez

Gby

Guess

Anthro

pologie

E

xpress

UrbanO

utfitters

Abercrombie

&Fitch

TheChildren'sPlace

Aero

postale

AmericanEagleO

utfitters

O

ldNavy

PacSun

Gap

Source: Company data, Wedbush Securities, Inc.

Significant square footage growth opportunities. As of January 29, 2012, lululemon operated a total of 174 total stores (108corporate-owned located in the U.S.) and has identified a long-term store potential of ~300-350 in North America. The companyopened 37 stores in F2011 with the expectation for a total of ~30-35 additional lululemon stores in F2012, including ivivva stores andadditional lululemon stores in Australia and New Zealand. With an estimated square footage growth in the +Hteens to ~20%

significantly higher than the softlines average of 3-4%, we believe the company presents one of the most compelling square footagegrowth opportunities in our universe.

In the map below, we detail the companys current store locations in the U.S., which shows the lack of presence in many states. Webelieve the company continues to see whitespace in the United States. And, given the companys approach of establishing locademand before opening a store, we note store performance across all regions have been strong.


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Figure 3: LULU Branded Store Locations (174 Total Stores)

* Data as of January 29, 2012Bolded = corporate-owned stores (Total: 174)


In addition to expanding its corporate-owned store base, LULU is also evaluating potential international opportunities through lower-risklower-capital franchisee stores in which the company may form partnerships with more experienced locals, while testing and increasinggeneral brand awareness. The company is opening Hong Kong and London showrooms this year to lay the foundation for the yogamarket in those respective markets and to establish footholds in Asia and Europe. Similar to the methodology employed in NorthAmerica, we expect the ambassadors to connect with the local yoga aficionados, while promoting the virtues of yoga to a wider networkof consumers.

Ability to maintain +DD same-store sales. While we acknowledge the company will be lapping extremely difficult comparisons thisyear, we believe the company should be able to maintain the current comp momentum, given the pace of new store openings alongwith their performance. In the U.S. and Australia, comp stores have been delivering comps of 30%+. Even in the more matureCanadian market, stores have been able to deliver +MSD comps (which actually accelerated to +MTeens in Q4:F11 on healthierinventory levels). Our analyst suggests that the mix of store openings in the U.S. and Australia should enable the company to delivecomps in the 20%+ range.

Figure 4: Anticipate Comp Momentum to Continue

F12 # Stores

Total

Comp

Stores % of Store Base Comps Wtd Comps

US 108 174 62% 30.0% 18.6%

Canada 47 174 27% 5.0% 1.4%

Australia 19 174 11% 30.0% 3.3%Consolidated 23.2%

F13 Stores

Total

Comp

Stores % of Stores Comps Wtd Comps

US 134 214 63% 30.0% 18.8%

Canada 61 214 29% 5.0% 1.4%

Australia 19 214 9% 30.0% 2.7%

Consolidated 22.9%


U.S. 108Canada: 47Australia: 18New Zealand: 1


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Compelling store economics. With stores opened at least one year averaging sales per selling square foot of $2,384, surpassing thesoftlines average of $539, the company enjoys industry-leading sales productivity metrics. The retailer, committed to staying in boxesof less than 3,000 square feet, should be able to continue to improve store productivity with additional product categories and thegrowth of the mens business, in our view.

Figure 5: LULU Sales/ Selling Sq. Ft. F11 Comparison

Company Ticker Sales/ Selling Sq. Ft.American Eagle Outfitters AEO 628

Abercrombie & Fitch ANF 682

AnnTaylor Stores ANN 409

bebe stores BEBE 549

Chico's FAS CHS 756

Express EXPR 460

Francesca's FRAN 713

Guess? GES 557

Gap GPS 454

Limited Brands LTD 648

Men's Wearhouse MW 425

The Children's Place PLCE 376

Pacific Sunwear PSUN 360

The Talbots TLB 308

Urban Outfitters URBN 793Zumiez ZUMZ 508

Average 539

lululemon athletica LULU 2,384


Extensive, distinct, high-quality products. One of the keys to LULUs stellar sales performance lies in the companys innovativeproduct designs and fabrications (with the brand synonymous with its luon fabric) which draws in customers for a broad range offunctional and highly attractive active wear. Currently LULUs website, in comparison to its competition, offers the broadest variety oyoga-inspired apparel, providing a true one-stop-shop for athletes of all fitness levels.

Figure 6: Number of Different Yoga Items FeaturedCompetitors Tanks Shirts Pants Capris / Shorts Yoga Mats & Accessories

Adidas 2 3 2 0 1Athleta 3 10 21 11 28J.Crew 0 0 1 1 0Lucy 11 12 20 11 6Nike 11 6 9 11 2

lululemon 22 14 21 37 12

Womens wear only.


The retailers design team emphasizes the importance of technical performance and apparel functionality, while simultaneouslyensuring the merchandise remains flattering for the target customers. Figure 7 below provides a compelling example of how fanaticaattention to detail and design has allowed LULU to remain at the forefront of innovation and thus maintain a loyal customer base andhigher price points. On the featured Swiftly Tech Long Sleeve, the retailer uses its signature performance luon fabric, which allows fowicking away of moisture, quick-drying, and yet remains comfortable in feel and fit. Furthermore, the versatile mesh material optimizesbreathability and is part of the popular silverescent family of products, providing anti-stink protection and inhibiting bacteria growthFinally, the design team has included flat seams to reduce chafing as well as thumbholes to keep sleeves in place and wrists andhands warm. In another example, the retailer will be introducing an exciting towel mat that serves dual purposes. Where applicablethe team has also placed reflective strips for runners. We believe they continue to include considerate elements to meet the needs othe athletes in each respective sport, which further deepens their authenticity, in our view.


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We believe LULUs unique merchandise combined with trend-right design allows the retailer to build brand loyalty, drive solid compgains even against difficult compares as the company continues to gain market share, and differentiates itself as a dominant playewithin high-end athletic apparel. Importantly, the company is able to leverage innovative fabrics across multiple categories.

Figure 7: Impressive Technical Design and Performance


Potential for product expansion to fuel market share gains and comp growth. We see potential for LULU to continue itsimpressive sales momentum via expansion into new complementary categories, including bags, intimate athletic apparel, andouterwear. Aside from cyclical replenishment, more advanced technical improvements to current products and refined styles may alsobe able to drive sales. In addition, we highlight LULUs product offering, although rooted in core yoga, has recently been able toexpand its category focus to effectively capture a niche market in running, cycling, and swimming (rollout this summer) that may fue

further top-line growth. In fact, our checks show that the favorable Spring weather has led to strong demand for LULUs runningassortments. Over time, management also sees the potential for some crossover between their yoga-inspired apparel to branch intotechnical street wear, which would address an even broader market.

Figure 8: Opportunities for Product Expansion Rooted in Core Yoga

Source: LULU Analyst Day Presentation 4/11/12, Wedbush Securities, Inc.
http://shop.lululemon.com/shop/gadgets/prdImg-popup.jsp?url=http%3a%2f%2fimages.lululemon.com%2fis%2fimage%2flululemon%2fLW3037S_0001_4%3f%24pdp_zoom%24&prdId=prod120045&category=category%3acat150005&cc=0001&prdImgIndex=3http://shop.lululemon.com/shop/gadgets/prdImg-popup.jsp?url=http%3a%2f%2fimages.lululemon.com%2fis%2fimage%2flululemon%2fLW3037S_0001_1%3f%24pdp_zoom%24&prdId=prod120045&category=category%3acat150005&cc=0001&prdImgIndex=0


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According to the Yoga Journal, women represent 79% of the rapidly growing ~16 million U.S. yoga participants. Although women wilikely remain the companys core customer, we believe efforts to capture additional market share within the mens category providesfurther support for LULUs growth prospects. Although the company expects the womens business to continue growing, managemenenvisions the mens business gradually becoming ~20% of total sales from ~14% today. The company is actively tapping into themens customer base via outreach and as it expands into new sports.

At the infant stage of international rollout. Given the companys significant domestic square footage growth opportunitymanagements main focus has been on expansion within North America, growing from 124 stores at the end of 2009 to 174 at 2011

end, relative to a long-term potential for ~350 doors. We note the broad appeal of the assortment, combined with universal appeal fothe yoga lifestyle. In the past, LULU has encountered road blocks from lackluster international efforts, discontinuing its joint venturewith Descente, Ltd in Japan in 2008 after just two years of operations. Since then, the company has taken a more conservativeapproach, utilizing e-commerce and showrooms to gauge the appetite for LULU products in a new market and preferring to be handson in its rollout strategy that mimics the U.S. Demonstrated by the 18 successful Australian stores, 1 in New Zealand, and a showroomin Hong Kong (with plans for another showroom in Hong Kong and London by May time-frame, given the high level of brandawareness), we believe overseas expansion remains a key long-term growth driver as the company looks to enter new territories.Management has already indentified top 10 international markets ready for initial foundation building, including in the UK, Germany,Switzerland, Belgium, and Singapore. We believe the constraint remains building the right team and having the appropriate bandwidthto properly support international expansion without distracting from efforts in North America.

Solid growth of e-commerce propels brand awareness and provides a product testing ground. In addition to solid brick andmortar growth potential, expansion of the companys direct-to-consumer business provides potential for top-line and margin expansionThe online business has grown 214% from $18.3 million (~4% of sales) in 2009 to $106.3 million in 2011 (~11% of sales). Along withan impressive margin profile, the online business provides LULU a means by which the retailer builds brand awareness, while

simultaneously testing products and assessing demand in new markets. More importantly, the company also leverages the onlinechannel to complement its real estate strategy in terms of determining additional new openings or fill-ins in order to profitably addresseach specific markets demand.

Figure 9: DTC Penetration and Store Count

DTC as % of Sales in F2011 Trend in Store Count

2%

10% 10%11% 11%

12%

22%

0%

5%

10%

15%

20%

25%

FRAN EXPR GPS LULU ANN ANF URBN

511

19

3648

81

113124

137

174

207

0

50

100

150

200

250

F2002 F2003 F2004 F2005 F2006 F2007 F2008 F2009 F2010 F2011 F2012E


Unique community-based marketing tactics that proselytize the benefits of yoga and thereby expands market opportunity.Critical to LULUs success has been solid product demand and cult-like customer loyalty built through the companys grass-rootscommunity-based marketing approach. The retailer engages both consumers and employees by promoting an active lifestyle, includingfree yoga classes, by which LULU can help provide the components of a happier, healthier life, elevating the world from mediocrity togreatness. Established programs include lululemons ambassador program and the R&D team, which allow the community to engage

in providing honest feedback on the existing items and potentially new styles/trends, aiding innovation while building upon the corporategoals of developing highly technical and functional clothing. We believe this innovative ground-up marketing approach has allowedLULU to gain strong mindshare and foster the growth of yoga within local communities, enlarging the addressable market. Foexample, before LULU first entered Milwaukee, the city only had two yoga studios. However, by building awareness of yoga with thehelp of LULU ambassadors, the number of studios grew to a handful a year later, organically increasing the companys markeopportunity.


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Figure 10: Community-Based Marketing

Source: Company website

Ambassador Program: The program is focused on individuals who embody the lululemon lifestyle and are highlyknowledgeable of company products and services. Additionally, ambassadors participate in the community activities and arefamiliar with yoga as a means of mental and physical fitness. Each ambassador is provided with an allowance of lululemonproducts for a year in exchange for their involvement and input on clothing designs and ambassadors are occasionally used asposter models.

R&D team: Certified yoga, Pilates, dance and other fitness instructors are eligible for a 15% discount on all manufacturedmerchandise in exchange for feedback on designs. In addition to building deep rooted brand-awareness and loyalty withinlocal communities (instructors are examples for students), the R&D team allows the company to retain its crucial technicaedge as expert opinion and feedback result in improvement to overall product functionally and styling.

Team Wear Program: lululemon provides discounts for a limited number of athletic teams dedicated to their community and

to promoting a healthy lifestyle. By involving local communities, LULU is able to generate sales, while simultaneouslyengraining the brand in the minds of participants.

Charitable Giving Program: Each year LULU builds upon its involvement within local communities as stores choose locacharities to support, building brand equity.

Local Community Events: Every weekend before opening, local lululemon stores provide free yoga or other physical fitnessclasses for one hour. Product racks are rolled to the back of the store and the entire front of the store is cleared for thesession, filling in as many as 35 attendees. Free breakfast is also served after the session and provides a cohesive sociaenvironment for the community while simultaneously allowing shoppers to browse and test new products and styles. Inaddition, there are also lectures and seminars that are held after the store closes that further establish LULU stores aknowledge base for yoga and athletics.

Branded Bags: Instead of the usual branded paper bags supplied by the retailer, lululemon provides customers with brandedcloth bags with their manifesto statements in white, displayed prominently against the red background. Theseenvironmentally-friendly bags are stylish enough for everyday use (i.e. as workout bags) and provide a low-cost technique fomarketing the lululemon brand.

New growth vehicle from ivivva athletica

In Q4 2009, LULU launched the ivivva athletica brand, focusing on dance-inspired athletic apparel for the younger female customer.Similar to lululemon, ivivva strives to provide fashionable, highly technical, and functional product for its core active, 6-14 year-oldfemale customer. While the concept currently only has five brick and mortar locations (as of 1/29/2012), we believe ivivva provides anew growth vehicle for the company which addresses another underserved market of dance, gymnastics, and skating. Although werecognize ivivva does face competition from various specialized dancewear retailers and boutique shops, we believe the bulk of themarket is fragmented and does not specifically address the complete lifestyle needs of a young, active female shopper. Furthermore


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as LULU has been able to dominate the yoga market, the companys solid brand equity may aid in building a loyal customer base withparents shopping for children at the sister concept, which leverages select technical features and designs from the lululemonassortments. For example, the brand invented gymbasics for gymnastics. LULU has also launched the U.S. version of the ivivvaDTC website in November 2011, which management has indicated exceeded internal expectations, an encouraging sign for furtheNorth American expansion (five showrooms in the U.S. this year), in our view. Finally, we highlight ivivvas recent partnership withDisneys Shake it Up may build upon recent success and capture additional mindshare for the infant brand.

Figure 11: A Highly Fragmented Market for Dance-Inspired Apparel for Young Females

Alpha Factor Aerials Dance Only Inc Freed of London International Dance Supplies Melissa and Doug Reflectionz Sugar and Bruno

AMB Designs Dance Paws Frontline Jibbitz Midwest Russ Berrie Thank You Very Much

Angelina Ballerina Danshuz Funky Diva KOS USA Mirella Dancewear Sansha Theatricals Dance Footwear

Basic Moves Danskin Gund Kurt Adler Mondor Sassi Designs Three Cheers

Bloch Dasha Harmonie Knitwear Leo's Dancewear MotionWear Schylling Tia's

Body Wrappers Dover Books Heart and Soul Lexi Luu Nite Nite Products Scunci Top Trenz

Braza Duck Crossing Herdoos Lucy Locket Peaceable Kingdom Smitten Trendy Trends

Bunheads EDC Publishing High Intencity Lulu Princess Pecoware Snowflake Designs Wear Moi

Burton & Burton Enchantmints Horizon Dance Maddragz Persnickety Baby Sports Katz Well Made Toys

Capezio Dance Eurotard Hot Focus Mag-Tagz Designs Posh Stephanie Dance Shoes Zootie B Little

Collectibles America INC Ferreira I'm Yours Mele and Company Puppet Workshop Steps


Significant long-term growth opportunity

We believe one of the biggest questions on valuing the stock is the companys long-term revenue and earnings power. We attempt toprovide a framework on what LULU may look like as a company in two scenarios. The first is by looking the company on lululemonathletica alone, without factoring in the benefit of ivivva. In the second, we have estimated ivivvas long-term global opportunity in theconsolidated revenues and earnings.

In scenario 1, by assuming ~700 location on a global basis (relative to ~174 at Q4-end) and a likely conservative productivity figure of$2,000 (Canada currently generates ~$2,500 sales per square foot), we reach a conservative long-term top-line forecast of $4.2 billionand potential EPS of $3.65 on ~20% operating margin, representing 172% upside relative to our F13 forecasts.

Figure 12: LT Growth of lululemon

Stores Sales/SF SF/Store Sales/Store ($M) Total Sales ($M)

North America 350 $2,000 3,000 $6.0 $2,100.0ROW 350 $2,000 3,000 $6.0 $2,100.0 EBIT Mgn Net Income ($M) EPS

$4,200.0 20.0% $533.1 $3.65


Second, while maintaining our assumptions for lululemon athletica, we evaluated the long-term growth for the consolidated company byassuming ivivva can reach ~150 chain in North America and warrant a similar market size in the rest of the world. Our estimatesassume ivivva can generate ~$1,000 sales per square foot in an average store size of 1,800 square feet (relative to current salesproductivity of ~$700-800). In this case, our forecast suggests potential consolidated revenues of ~$4.5 billion and EPS of ~$3.90relative to our current F13 projections of $1.7 billion and $2.12, respectively.

Figure 13: Consolidated LT Growth with lululemon and ivivva

Stores Sales/SF SF/Store Sales/Store ($M) Total Sales ($M)North America 500 $1,700 2,640 $4.5 $2,244.0ROW 500 $1,700 2,640 $4.5 $2,244.0 EBIT Mgn Net Income EPS

$4,488.0 20.0% $569.7 $3.90



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Investment Issues

Rising competition in the active-wear space. Although we recognize LULUs key point of differentiation lies within regular innovationand refreshed, highly technical product, we highlight major competition within the active-wear space. In addition to smaller specializedboutique retailers, the company faces challenges from massive footwear and apparel companies with strong brand recognition such asNike and adidas AG with formidable international scale and broad appeal, particularly as LULU enters into its peers traditiona

strongholds (mens, biking, swim, and run). Furthermore, there has been an increase in the number of companies who directlyencroach upon LULUs core female customer base with a similar product offering within yoga and general athletic apparel. NotablyGaps Athleta brand (9 stores at F11-end and expectation for 25 stores per year for the foreseeable future), VFCs Lucy ActivewearInc., and bebe stores SPORT collection, title nine, among others.

High price points may deter customers. When compared to its peers, LULU products average a ~20-40% premium, depending onthe item. While the product may be highly functional with superior quality and fabric and therefore justify higher price points, we believethe company must stay on the forefront of innovations to justify the premium price points while attracting current and new customersParticularly with intensifying competition, LULU may find it difficult to win on price as consumers may opt to trade down to acomparable, more affordable pair of yoga pants or workout tops. Moreover, while yoga may carry a more niche market, as LULUbegins to broaden its assortment into crowded categories where a high degree of product specialization already exists (run and swim,etc.), it may becomes increasingly difficult for the company to maintain a pricing differential.

Figure 14: lululemons Competitors

Company Ticker Tanks / Camis Crops / Capris Bottoms Jackets Sports Bras Yoga Mats

adidas ADDYY.PK $42 $40 $90 $125 $30 $75Under Armour UA $35 $45 $60 $65 $45 ---nike NKE $45 $50 $55 $65 $35 $40bebe SPORT BEBE $49 $60 $70 $79 $42 ---lucy VFC $49 $69 $79 $89 $48 $49Roots $44 $30 $60 $72 --- ---

La Senza Spirit LTD $40 $50 $59 $70 $35 ---Fit Couture $34 $44 $50 $79 $30 ---J.Crew JCG --- --- $78 $80 --- ---Athleta GPS $59 $64 $79 $95 $46 $70

$44 $50 $68 $82 $39 $59

lululemon athletica LULU $52 $78 $98 $108 $48 $68

AVERAGE:

* Comparison made on women's wear onlySource: Company websites, Wedbush Securities, Inc.

Peak Operating Margins?

As LULU currently leads the softlines group in both gross and operating margins, it may be diff icult for the company to maintain peaklevels witnessed in 2011 or plan for further expansion. We believe merchandise margins have likely peaked as the companyexperienced unusually lean inventories last year and therefore higher-than-normal levels of full-price selling (i.e. eliminated warehousesales LY). Importantly, management has noted the expectation for gross margin to come down from its F11 peak due to a morenormalized cycle of markdowns. In addition, we highlight additional leverage of SG&A may also prove difficult given management plansfor new store openings (~30 expected 2012), IT to enhance e-commerce infrastructure and platform, as well as additional investment insupply chain systems and planning and allocation. Longer-term, management aims to maintain ~20% operating margin with 50%gross margin and ~30% SG&A.


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Figure 15: LULU F11 Gross and Operating Margins vs. Coverage

34.8%36.2% 36.4%

39.6%

43.0% 43.3%

52.3%

54.6%

56.9%

30.0%

35.0%

40.0%

45.0%

50.0%

55.0%

60.0%

URBN GPS EXPR BEBE ANF GES FRAN ANN LULU

3.2%

6.8%7.6%

9.9%

11.5%

13.1%

15.5%

22.7%

28.7%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

BEBE ANN ANF GPS URBN EXPR GES FRAN LULU

Source: Company website, Wedbush Securities, Inc.

ToughComparisons

Since F10, the company has consistently delivered +DD same-store sales on a quarterly basis. While our checks suggest momentumremains solid, we believe investors are wary of extremely challenging comparisons, particularly should the macro environment softenas witnessed in F08 and F09. That said, our analysis shows relatively low correlation between consumer confidence and LULUs abilityto deliver solid same store sales.

Figure 16: Comparable Store Sales

F2004 F2005 F2006 F2007 F2008 F2009 F2010 F2011 F2012E

Q1 40% 22% 15% 20% 28% -8% 35% 16% 22%Q2 -1% 9% 32% 30% 13% -2% 31% 20% 15%Q3 10% 21% 29% 36% 4% 10% 29% 16% 20%Q4 26% 22% 23% 41% -8% 29% 28% 26% 10%

Year 18% 19% 25% 34% 3% 9% 30% 21% 16%



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Financial Outlook

Anticipate above-consensus Q1 results. We anticipate LULU will report Q1 OpEPS of $0.32 vs. $0.23 LY on comps of +25% vs+16% LY. We look for gross margin growth decline of (370) bp to 55% as the company faces higher input costs, tests products with alower margin rate, and see more normalized markdown rates. Our estimates assume SG&A leverage of (180) bp to 29.3% as the

company achieves an operating margin of 25.7% vs. 27.7% LY. Consensus Q1 EPS estimate is $0.30 on ~+22% comps. Thecompany is expected to report full Q1 results BMO on 6/7/12 with a call scheduled for 6am PT/9am ET. The dial in number is (408427-3896.

Figure 17: Earnings Guidance Issued 3/22/12

Q1 F12

Comps +L20s

Sales $265-270M $1.3-1.325B

EPS $0.28-0.29 $1.50-1.57

SHO 145.4M 145.6M

Tax Rate 36.5% 36.5%

Source: Company reports

F12 results will likely beat managements conservative guidance. Our F12 OpEPS estimate of $1.66 vs. $1.27 LY is based on a+17.5% increase in same-store sales on top of a +20.6% increase in F11. F12 annual estimates assume +19% growth in sellingsquare footage leading to a ~+38% increase in overall sales to $1.38 billion as we expect the company to have ~33 openings TY. Welook for gross margin dip of (140) bp to 55.6% and flattish year-over-year SG&A of 28.0%, even with for new store openings, IT toenhance e-commerce infrastructure and platform, as well as additional investment in supply chain systems and planning and allocationWe look for operating margin to decline (110) bp to 27.6%.

In our earnings sensitivity analysis below, our chart indicates that every additional 2 comp points increase can lead to about ~$0.03 ofincremental OpEPS while each additional +50 basis points of operating margin gain can result in an additional ~$0.03 of incrementaEPS.

Figure 18: LULU F2012E Earnings Sensitivity Analysis

Comp Performance$1.66 14.0% 16.0% 18.0% 20.0% 22.0%

25.5% $1.49 $1.52 $1.54 $1.56 $1.58

26.0% $1.52 $1.55 $1.57 $1.59 $1.61

Operating 26.5% $1.55 $1.57 $1.60 $1.62 $1.64

Margins 27.0% $1.58 $1.60 $1.63 $1.65 $1.68

27.5% $1.61 $1.63 $1.66 $1.68 $1.71

28.0% $1.64 $1.66 $1.69 $1.71 $1.74

28.5% $1.67 $1.69 $1.72 $1.74 $1.77

29.0% $1.70 $1.72 $1.75 $1.77 $1.80


For F13, we forecast OpEPS of $2.12 on an annual comp of +11.5%. With our ~+16% selling square footage growth assumptionwe look for sales of $1.7 billion with roughly ~40 store openings for a store count of 247. With increasing penetration of the DTCbusiness and leverage of fixed costs we anticipate modest gross margin expansion of +50 bp to 56.1% and SG&A leverage of +50 bpto 27.5% as operating margin increases +100 bp to 28.6%.

Balance Sheet. At F11-end, LULU had $409.4 million in cash and equivalents with total inventory of $104.4 million, which will likelysupport new store openings (~30-35 TY) and help the company to end the cycle of chasing, which previously constrained comps. Asthe company currently as no long-term debt and with our projected free cash flow of approximately ~$376million for F12E and $382million F13E and a CND$20 million revolving credit facility (no outstanding borrowing at F11-end), we believe the company will be ableto adequately fund its growth and strategic initiatives.


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Company Overview

Founded in 1998 by Dennis Chip Wilson and based in Vancouver, Canada, lululemon athletica is a retailer of yoga-inspired athleticapparel and accessories primarily located in Canada and the United States. lululemon not only targets ~32-year-old male and femaleathletes, but also consumers seeking comfortable casual wear. While the majority of the products are branded lululemon athletica

lululemon also offers an ivivva athletica brand, a dance-inspired apparel for female youths. Products are sold through corporate-ownedand operated retail stores and wholesale accounts (select yoga studios and fitness centers) primarily in Canada, the United States andAustralia and via e-commerce website (launched in April 2009). In F2011, wholesale/outlet/warehouse and direct-to-consumerepresented 8% and 11% of total sales, respectively. In F2011, 43% of net revenue was derived from sales of products in Canada, 53%from U.S. and 4% from products outside of North America. As of January 29, 2012, lululemon operated a total of 174 stores: 47 storesin Canada, 108 stores in the United States, 18 stores in Australia, and 1 in New Zealand.

lululemon athletica provides a line of quality yoga-inspired apparel and accessories.Although the line primarily targets women, lululemon focuses on expanding the mensapparel. The products, approximately 25% purchased specifically for yoga, includefitness pants, shorts, tops and jackets for activities such as yoga, dance, running andgeneral fitness, as well as for general casual wear. Their technically advancedproducts contain fabrics such as luon and vitasea which allow for stretch and theability to wick away moisture. lululemon stores on average between 2,500 3,000square feet and the company focuses on opening ~30-35 new stores in 2012.

lululemon athletica introduced ivivva athletica in September 2009 as a new brandconcept for female youth 6-14 years old. It is designed for sports such as gymnastics,dance, figure skating, field hockey, track and field and soccer and uses the samesignature fabrics and technical design features as lululemon. Similar to lululemon,free hemming is offered. LULU launched the US version of the ivivva DTC website inNovember 2011. As of January 29, 2012, the company has opened 5 ivivva stores inCanada.

Figure 19: F2011 LULU Revenue Distribution by Channel and Geography

Other4%

Canada43%

U.S.53%

Wholesale/

Warehouse/

Outlet

8%

DTC

11%

Corporate-

Owned Stores

81%



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THE LULU STORE

LULUs first store opened Canada in 1999 with the first U.S. store opened in 2003. As of January 29, 2012, lululemon has 174 storesand is planning on adding a total of ~35 new stores this year, with a potential for 300-350+ total store footprint. Unlike other specialtyretailers, the majority of stores are on streets and lifestyle centers, predominately in neighborhoods that are surrounded by yogastudios, athletic clubs, fitness centers, or have a very high activity level in exercise and fitness. The balances of store locations (~30%total stores) are located in traditional malls.

Against the usual cookie-cutter look displayed at the different branches of a typical retailer, LULU creates a highly differentiatedexperience with each of its storefronts by forming its own design. At different locations, the store windows focus on different themes(i.e. Earth Day) or inspirational mottos. Store educators, within certain guidelines, create windows that express a unique point of viewabout what may be important to them. The window displays, changed once a month, engage the passersby and are considered awindow to LULUs world, an important part of managing the companys unique culture.

Figure 20: Different Store Designs in Different Locations


Figure 21: Different Window Displays in Different Locations



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Within the stores, customers are welcomed with a unique, inviting experience. The stores (which closely resemble a clubhouse or acollege dormitory hall) often times have flyers, advertisements and other scrapbook-like products posted against bulletin boards whichprovide the communities schedule of events and information regarding yoga/pilates studios, trainers, and classes in the area. In theone-stop-shop approach, individual LULU stores provide the yogi and other related sports enthusiasts with not only expert advice onthe specific lululemon apparel, but also any other information related to the sport.

Figure 22: Health Information and Classes Provided in Stores


Key to the building of the retailers community-centric philosophy, before opening and after closing, stores provide space foryoga/pilates classes and/or health and fitness lectures rolling back displays and apparel. We believe such functions allow the stores tobe a gathering place for the community in which customers feel they are receiving information from local, knowledgeable personnel.

LULUs average sales per selling square feet (of the stores in their comp base) is currently ~$2384. LULU looks for a minimum of $750of sales per sq. ft. in the first year against an average footprint of 2,750 feet, which calculates to just over $2 million in salesCommitted to staying in the smaller box and under the 3,000 sq. ft. mark, LULUs ideal space is 2,500 to 3,000 sq. ft.


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Management and Ownership

Name Position ExperienceDennis J. Wilson Chairman of the

Board of DirectorsMr. Wilson has served as the Chairman of the Board of Directors since 1998. Priorto serving as the Chairman and Chief Product Designer, Mr. Wilson served as theCEO from 1998 to 2005. As the founder of Westbeach Snowboard Ltd., Mr.Wilson served as the CEO from 1980 to 1995 and served as its Head of Designand Production from 1995 to 1997. Mr. Wilson received a B.A. in Economics fromthe University of Calgary.

Christine Day CEO Ms. Day joined the company in January 2008 as Executive Vice President ofRetail Operations and was appointed as President, COO and CEO Designate onJune 30, 2008 as a result of the retirement of Robert Meers. Ms. Day has 20years of experience at Starbucks Corp. serving most recently, from 2004 to 2007,as President of Asia Pacific Group of Starbucks International.

John Currie CFO Mr. Currie has served as the CFO since January 2007. Prior to this position, Mr.Currie was employed by Intrawest Corporation from 1989 to 2006 and heldpositions which included CFO and Senior V.P., Financing & Taxation. Prior to

Intrawest Corporation, Mr. Currie held various senior financial positions at BCEGroup. Mr. Currie received a Bachelor of Commerce degree from the University ofBritish Columbia.

Sheree Waterson Executive VicePresident, ChiefProduct Officer

Ms. Waterson has served as Exec. VP, General Merchandise Management andSourcing since June 2008. Prior to joining LULU, she served as President ofSpeedo North America from January 2005 to June 2007. Prior to this, Ms.Waterson served as Vice President of Merchandising, Womens for Levi Strauss &Co. from January 2002 to August 2004.

Delaney Schweitzer Executive VicePresident, RetailOperations NorthAmerica

Ms. Schweitzer joined the company in 2002 serving in various roles includingDirector of Training and Culture and Director of Original Intent and also contributedto the growth of the company from one store in Canada to 125 stores in N.America. Prior to joining LULU, she spent 10 years in the hospitality industry as ageneral manager. She is a graduate of the Executive Advanced ManagementProgram at Harvard Business School.

Figure 23: LULU Major Shareholders

Top Ten Institutional Holders Executive Officers and Directors

Name Shares * % Owned Name Shares ** % OwnedFidelity Management & Research Company 16,546,525 11.4% Dennis J. Wilson 10,328,858 7.1%Capital World Investors 13,213,200 9.1% Rhoda Pitcher 41,616 0.0%

Jennison Associates LLC 9,683,378 6.7% Christine Day 35,232 0.0%Columbia Wanger Asset Management, LLC 7,165,200 4.9% RoAnn Costin 28,693 0.0%Columbia Management Investment Advisers, LLC 5,373,983 3.7% Martha Morfitt 27,896 0.0%

Lone Pine Capital LLC 3,808,895 2.6% Thomas Stemberg 15,986 0.0%Vanguard Group, Inc. 3,451,230 2.4% R. Brad Martin 13,722 0.0%

Wells Capital Management Inc. 2,686,932 1.8% John Currie 20,000 0.0%Gilder Gagnon Howe & Co. LLC 2,271,215 1.6% Michael Casey 2,616 0.0%

JP Morgan Asset Management 2,142,208 1.5% Jacques Levy 1,002 0.0%Top 10 Institutional Holders 66,342,766 45.6% Emily White 601 0.0%

All executive officers and directors 10,516,222 7.2%

* As of 3/30/12

Source: SEC Filings, Thomson, Wedbush Securities, Inc.


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Risks to attainment of our share price target includeheightened competitive environment, consumer receptivity to merchandisingchanges, poor inventory management, deterioration in macroeconomic conditions, volatility of energy costs, and changes to importtariffs/quotas.

Figure 24: LULU Historical 5-Year Average Forward P/E Multiple

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

May-07 Nov-07 May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11


Average: 39.3x


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Figure 25: LULU Income Statement

F2011A F2012E F2013E

FY January F2008A F2009A F2010A 4/11A5

7/11A 10/11A 1 /12A F2011A 4 /12E 7 /12E 10/ 12E 1 /13E F2012E 4 /13E 7 /13E 10/ 13E 1 /14E F2013E

($ Millions, except per share data)

Net Sales $354 .6 $452 .9 $ 711.7 $ 186.8 $ 212.3 $230.2 $371.5 $1,0 00.8 $ 280.6 $ 300.3 $313.4 $482.1 $ 1,3 76.4 $3 34.0 $3 69.9 $3 75.5 $6 23.0 $1,70 2.4

Cost of Goods Sold (excl stock options)

Co st of Goods Sold (inc l s tock op tion s) 17 5.2 22 9.9 316.8 77.1 90.3 101.7 162.5 431 .6 126.3 136.6 141.0 207.3 611.2 148.9 1 66.5 1 67.9 264.3 74 7.5Gross Profit (excl stock options)

Gros s Profi t (i nc l s to ck op ti on s) 179 .5 22 3.0 394.9 109.7 122.1 128.5 209.0 569 .3 154.3 1 63.6 1 72.4 2 74.8 7 65.1 1 85.1 2 03.5 2 07.7 3 58.7 95 4.9

SG&A (excl stock options)

SG&A (incl stock options) 118.7 136.3 213.9 58.0 62.6 68.8 93.0 282.3 82.2 86.5 90.9 125.8 385.4 96.7 105.1 107.6 159.2 468.5

Operating Income (excl stock options)

Operating Income (incl stock options) 60.8 86.7 181.1 51.7 59.5 59.7 116.1 287.0 72.1 77.2 81.5 149.0 379.7 88.4 98.4 100.1 199.5 486.4

Other Expenses (Income), Net (1.0) (0.2) (2.9) (0.9) (0.6) (0.6) (0.4) (2.5) (0.1) (0.1) (0.1) (0.1) (0.4) (0.1) (0.1) (0.1) (0.1) (0.4)

Pretax Income 61.8 86.9 184.0 52.6 60.1 60.4 116.4 289.5 72.2 77.3 81.6 149.1 380.1 88.5 98.5 100.2 199.6 486.8

Taxes 18.3 28.5 61.2 19.1 21.5 21.4 42.6 104.5 26.4 28.2 29.8 54.4 138.7 32.3 36.0 36.6 72.9 177.7

Non-Controlling Interest (0.1) 0.0 0.4 0.1 0.2 0.1 0.4 0.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net Income 43.6 58.4 122.4 33.4 38.4 38.8 73.5 184.1 45.9 49.1 51.8 94.7 241.4 56.2 62.5 63.6 126.7 309.1

Op EPS (excl stock options)

Op EPS (incl stock options) $0.31 $0.41 $0.85 $0.23 $0.26 $0.27 $0.51 $1.27 $0.32 $0.34 $0.36 $0.65 $1.66 $0.39 $0.43 $0.44 $0.87 $2.12

Shares Outstanding 135.1 140.5 141.7 142.8 143.2 143.4 143.5 143.2 143.6 143.7 143.8 143.9 143.8 144.1 144.2 144.4 144.5 144.3

Shares Outstanding (Diluted) 141.3 141.9 143.9 144.9 145.2 145.3 145.3 145.2 145.4 145.5 145.6 145.7 145.6 145.9 146.0 146.2 146.3 146.1

Other Operating Expenses

GAAP Net Income 37.8 58.3 121.8 33.4 38.4 38.8 73.5 184.1 45.9 49.1 51.8 94.7 241.4 56.2 62.5 63.6 126.7 309.1

GAAP EPS $0.27 $0.41 $0.85 $0.23 $0.26 $0.27 $0.51 $1.27 $0.32 $0.34 $0.36 $0.65 $1.66 $0.39 $0.43 $ 0.44 $ 0.87 $2.12

COMPANY INFOComps 11.2% 10.9% 30.2% 16.0% 20.0% 16.0% 26.0% 20.6% 25.0% 2 0.0% 20.0% 10.0% 17.5% 5.0% 1 0.0% 8.0% 18.0% 11.5%

Stores 113 124 137 142 151 165 174 174 177 185 200 207 207 217 225 240 247 247

Store Growth 40% 10% 10% 11% 16% 24% 27% 27% 25% 23% 21% 19% 19% 23% 22% 20% 19% 19%

Corp-owned stores Sq. Ftg. Growth 47% 7% 21% 20% 17% 29% 32% 32% 30% 26% 21% 19% 19% 19% 18% 17% 16% 16%

MARGIN ANALYSIS

COGS/Sales 49.4% 50.8% 44.5% 41.3% 42.5% 44.2% 43.7% 43.1% 45.0% 45.5% 45.0% 43.0% 44.4% 44.6% 45.0% 44.7% 42.4% 43.9%

Gross Margin 50.6% 49.2% 55.5% 58.7% 57.5% 55.8% 56.3% 56.9% 55.0% 54.5% 55.0% 57.0% 55.6% 55.4% 55.0% 55.3% 57.6% 56.1%

SG&A/Sales (excl stock options)

SG&A/Sal es (i ncl stoc k opti ons) 33.5% 30.1% 30.1% 31.1% 29.5% 29.9% 25.0% 28.2 % 29.3% 2 8.8% 2 9.0% 2 6.1% 2 8.0 % 2 9.0 % 2 8.4% 2 8.7% 2 5.6% 27 .5%

Operating Margin (excl stock options) 0.0%

Opera ti ng Margi n ( incl s tock opt ions ) 17. 1% 19. 2% 25. 4% 27. 7% 28. 0% 25. 9% 31. 2% 28. 7% 25. 7% 25. 7% 26. 0% 30. 9% 27.6% 26. 5% 26. 6% 26. 7% 32. 0% 28.6%

Pretax Margin 17.4% 19.2% 25.8% 28.2% 28.3% 26.2% 31.3% 28.9% 25.7% 25.7% 26.0% 30.9% 27.6% 26.5% 26.6% 26.7% 32.0% 28.6%

Tax Rate 29.6% 32.8% 33.3% 36.3% 35.7% 35.5% 36.5% 36.1% 36.5% 36.5% 36.5% 36.5% 36.5% 36.5% 36.5% 36.5% 36.5% 36.5%

Net Income/Sales 12.3% 12.9% 17.2% 17.9% 18.1% 16.9% 19.8% 18.4% 16.3% 16.3% 16.5% 19.6% 17.5% 16.8% 16.9% 16.9% 20.3% 18.2%

YEAR-OVER-YEAR CHANGE:

Sales 29.1% 27.7% 57.1% 35.1% 39.5% 31.0% 51.4% 40.6% 50.2% 41.4% 36.1% 29.8% 37.5% 19.0% 23.2% 19.8% 29.2% 23.7%

COGS 36.7% 31.2% 37.8% 20.6% 25.5% 28.8% 59.4% 36.2% 63.8% 51.4% 38.7% 27.6% 41.6% 17.9% 21.8% 19.0% 27.5% 22.3%

Gross Profit 22.4% 24.3% 77.1% 47.5% 52.0% 32.7% 45.7% 44.1% 40.7% 34.1% 34.2% 31.5% 34.4% 19.9% 24.3% 20.5% 30.5% 24.8%

SG&A (exc l s to ck options ) 23 .1% 14 .8% 57.0% 38.5% 35.9% 26.3% 30.0% 32.0 % 41.8% 38.2% 32.2% 35.4% 3 6.5 % 1 7.6 % 2 1.5 % 1 8.4% 26.5% 21 .6%

SG&A (in cl stock optio ns) 23 .1% 14 .8% 57.0% 38.5% 35.9% 26.3% 30.0% 32.0 % 41.8% 38.2% 32.2% 35.4% 3 6.5 % 1 7.6 % 2 1.5 % 1 8.4% 26.5% 21 .6%

Opera ti ng I ncome (excl s tock opt ions ) 21. 2% 42. 7% 108.7% 59. 2% 73. 7% 41. 0% 61. 3% 58. 5% 39. 5% 29. 7% 36. 4% 28. 3% 32.3% 22. 6% 27. 5% 22. 8% 33. 9% 28.1%Opera ti ng I ncome ( incl s tock opt ions ) 21. 2% 42. 7% 108.7% 59. 2% 73. 7% 41. 0% 61. 3% 58. 5% 39. 5% 29. 7% 36. 4% 28. 3% 32.3% 22. 6% 27. 5% 22. 8% 33. 9% 28.1%

In te rest Ex pens e 19 .3% -83 .2% 1 587.7% 4 61.5% - 71.5% 5 80.2% -29.9% -13.4 % - 88.9% -83.2% -83.8% -73.7% -8 4.0 % 0.0 % 0.0 % 0.0% 0.0% 0 .0%

Pretax Earnings 21.2% 40.7% 111.7% 61.1% 65.4% 42.1% 60.6% 57.4% 37.3% 28.6% 35.2% 28.0% 31.3% 22.6% 27.5% 22.8% 33.9% 28.1%

Taxes -10.6% 55.6% 115.1% 46.2% 46.7% 29.4% 149.7% 70.6% 38.2% 31.4% 39.2% 27.8% 32.8% 22.6% 27.5% 22.8% 33.9% 28.1%

Net Income 41.3% 34.1% 1 09.4% 70.4% 76.1% 51.0% 33.0% 50.4% 37.4% 27.8% 33.5% 28.7% 31.1% 22.6% 27.5% 22.8% 33.9% 28.1%

Op EPS (in cl stock o pti ons) 38 .7% 33 .5% 106.5% 68.3% 74.0% 49.3% 32.1% 49.0 % 36.9% 27.6% 33.2% 28.4% 3 0.8 % 2 2.2 % 2 7.0 % 22.3% 33.4% 27 .6%

Diluted Shares Outstanding 1.9% 0.5% 1.4% 1.2% 1.2% 1.2% 0.7% 0.9% 0.4% 0.2% 0.2% 0.3% 0.3% 0.3% 0.3% 0.4% 0.4% 0.4%

Notes:

* Other operating expenses are principal stockholder bonus (discontinued in Dec 2005)1Q4:F06 OpEPS excludes lawsuit settlement of $7.2M.

2 Q2:F08 OpEPS excludes $0.02 per share for discontinued ops from closure of stores in Japan.

3 Q4:F08 OpEPS excludes $4.405M for impairment and lease exit costs.

4 Q4:F09 OpEPS excludes $0.196M for impairment and lease exit costs.5

Q1:F11 gross margin includes 140 bp of benefit from certain input tax credits.

IPO Date: August 2007



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Figure 26: LULU Balance Sheet

F2011A F2012E F2013E

FY January F2008A F2009A F2010A 4/11A 7/11A 10/11A 1 /12A F 2011A 4/12E 7/12E 1 0/12E 1/13E F 2012E 4/13E 7/13E 10/13E 1/14E F 2013E

($ Millions, except per share data)

ASSETS

Cash & Cash Equivalents 56.8 159.6 316.3 260.9 264.7 276.9 409.4 409.4 560.3 620.2 719.8 893.4 893.4 848.6 932.1 1,055.8 1,301.5 1,301.5

Accounts Receivable 4.0 8.2 9.1 12.1 9.7 10.8 5.2 5.2 5.7 6.3 6.9 7.6 7.6 8.4 9.2 10.1 11.2 11.2

Inventories 52.1 44.1 57.5 64.4 88.9 129.2 104.1 104.1 1 88.5 118.8 231.2 168.5 168.5 2 22.3 144.8 2 75.2 214.9 2 14.9Prepaid Expenses, Current Deferred Taxes, and Ot 4.1 4.5 6.4 12.5 20.6 10.9 8.4 8.4 75.4 116.8 59.3 50.4 50.4 89.7 143.8 71.0 65.1 65.1

T otal Current Assets 117 .0 21 6.4 3 89.3 350.0 384.0 427.8 527.1 52 7.1 829.9 86 2.0 1,017.2 1,11 9.9 1,11 9.9 1,169.0 1,22 9.9 1,41 2.2 1,592.6 1,59 2.6

Property and Equipment, net 61.7 61.6 71.0 144.9 151.1 153.1 162.9 162.9 163.9 162.6 161.6 157.6 157.6 154.0 147.0 140.6 129.5 129.5

Goodwill, net 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Intangible Assets, net 8.2 8.1 27.1 28.8 28.4 32.4 31.9 31.9 31.9 31.9 31.9 31.9 31.9 31.9 31.9 31.9 31.9 31.9

Deferred Income Taxes 19.4 15.1 7.9 8.2 18.4 18.4 8.6 8.6 8.6 8.6 8.6 8.6 8.6 8.6 8.6 8.6 8.6 8.6

Other Assets 5.5 6.1 4.1 4.6 4.6 4.4 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1

Total Ass ets 211 .6 30 7.3 4 99.3 536.5 586.5 636.1 73 4.6 73 4.6 1 ,038.4 1,06 9.2 1 ,223.4 1,32 2.0 1,32 2.0 1 ,367.6 1,421 .6 1,597.3 1,766.6 1,76 6.6

LIABILITIES & EQUITY

Accounts Payable 5.3 11.0 6.7 3.4 4.4 6.0 14.5 14.5 20.8 25.5 33.2 53.4 53.4 25.1 31.8 40.2 69.7 69.7

Accrued Liabilities 22.1 17.2 25.3 30.0 28.8 45.1 34.5 34.5 180.2 163.0 245.6 198.5 198.5 214.5 200.8 294.2 256.6 256.6

Income Taxes Payable 2.1 7.7 18.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Other Current Liabilities 15.8 22.7 35.0 25.6 31.7 31.4 54.4 54.4 54.4 54.4 54.4 54.4 54.4 54.4 54.4 54.4 54.4 54.4

Total Current Liabilities 45.3 58.7 85.4 59.0 65.0 82.5 103.4 103.4 255.4 242.8 333.2 306.3 306.3 294.0 286.9 388.8 380.6 380.6

Deferred Income Taxes 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Other Liabilities 11.3 15.5 19.6 21.6 21.8 24.5 25.0 25.0 129.9 123.5 133.2 154.4 154.4 154.6 152.1 159.6 199.5 199.5

Total Liabilities 56.8 74.2 1 05.0 80.6 86.8 1 07.0 128.5 128.5 385.2 366.3 466.4 460.7 460.7 448.6 439.0 548.5 580.1 580.1

Non-controlling Interest 0.0 0.0 3.9 4.0 4.2 4.4 4.8 4.8 4.8 4.8 4.8 4.8 4.8 4.8 4.8 4.8 4.8 4.8

Tota l Shareholders' Equity 154 .8 23 3.1 390.4 451.8 495.4 524.7 601.4 60 1.4 648.3 69 8.1 752.2 85 6.6 85 6.6 914.2 97 7.7 1,04 4.0 1,181.7 1,18 1.7

Total Liabilities & Shareholders' Equity 211.6 307.3 499.3 536.5 586.5 636.1 734.6 734.6 1,038.4 1,069.2 1,223.4 1,322.0 1,322.0 1,367.6 1,421.6 1,597.3 1,766.6 1,766.6



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Figure 27: LULU Cash Flow Analysis

F2011 F2012 F2013

FY January F2008A F 2009A F 2010A 4/11A 7/11A 10/11A 1/12A F2011A 4/12E 7/12E 10/12E 1/13E F2012E 4/13E 7/13E 10/13E 1/14E F2013E

($ Millions)Operating Sources:

Net earnings 40.5 58.3 121.8 33.4 38.8 38.4 73.5 184.1 45.9 49.1 51.8 94.7 241.4 56.2 62.5 63.6 126.7 309.1

Depreciation and amortization 15.8 20.8 24.6 6.0 7.5 7.3 9.4 30.3 9.1 11.3 11.0 14.1 45.4 13.6 16.9 16.5 21.1 68.1

Stock based compensation (5.5) 9.5 (0.6) 0.5 0.1 1.5 8.2 10.3 0.6 0.2 1.6 9.0 11.4 0.6 0.2 1.8 9.9 12.5Deferred Income Taxes (6.4) 0.4 11.2 (0.3) (10.2) 0.0 9.8 (0.7) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Accounts Receivable 0.0 0.0 0.0 (2.6) 2.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Non-Controlling Interest 0.0 0.0 0.4 0.1 (0.1) 0.5 0.4 0.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total Sources 44.4 89.0 157.5 37.2 38.6 47.8 101.2 224.9 55.5 60.5 64.4 117.7 298.1 70.4 79.6 81.9 157.8 389.7

Operating Uses:

Cap-Ex (40.5) (15.5) (30.4) (74.8) (12.5) (13.4) (16.0) (116.7) (10.0) (10.0) (10.0) (10.0) (40.0) (10.0) (10.0) (10.0) (10.0) (40.0

Prepaid expenses 0.0 0.0 0.0 (4.3) (6.0) 11.0 (0.7) 0.0 (67.0) (41.4) 57.5 8.9 (42.0) (39.4) (54.1) 72.8 6.0 (14.7

Inventories 0.0 0.0 0.0 (5.6) (24.6) (40.8) 71.0 0.0 (84.4) 69.7 (112.4) 62.7 (64.4) (53.7) 77.5 (130.4) 60.3 (46.3

Accounts payable 0.0 0.0 0.0 (3.1) 1.0 1.5 0.6 0.0 6.3 4.7 7.8 20.2 38.9 (28.3) 6.7 8.4 29.5 16.3

Accrued liabilities 0.0 0.0 0.0 5.7 (1.1) 15.8 (20.4) 0.0 145.7 (17.2) 82.6 (47.1) 164.0 16.0 (13.8) 93.5 (37.7) 58.0

Other, including net changes in other non 2.0 29.0 22.5 (24.4) 5.9 (1.1) (1.6) (21.3) 104.8 (6.4) 9.8 21.1 129.4 0.2 (2.5) 7.5 39.9 45.1

Total Uses (38.5) 13.5 (7.8) (106.4) (37.3) (27.1) 32.9 (137.9) 95.4 (0.7) 35.2 55.9 185.8 (115.2) 3.8 41.8 87.9 18.4

Owners' Cash Flow 5.9 102.5 149.6 (69.2) 1.4 20.6 134.1 87.0 150.9 59.8 99.6 173.6 483.9 (44.7) 83.5 123.7 245.7 408.1

Non-Operating Cash Flow:

Acquisition of franchises (6.3) (0.8) (12.5) 0.0 0.0 (5.7) 0.0 (5.7) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Change in other assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Change in other liabilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Proceeds from credit facility 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Repayment of credit facility 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Amounts received from related party 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Capital stock issued for cash, net of issuan 12.0 (3.9) 7.9 2.2 5.5 (2.1) 0.1 5.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Payment of IPO costs 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Distribution to principal stockholder 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Repayment of long-term debt 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Cash received on exercise of stock options 1.4 1.2 5.8 6.0 (1.6) 4.5 0.8 9.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Funds rec'd from principal stockholder loan 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Funds repaid on principal stockholder loan 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Change in bank indebtedness 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Non-Operating Cash Flow 7.2 (3.5) 1.2 8.2 3.9 (3.3) 0.9 9.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Effect of exchange rate changes on cash (8.9) 3.8 5.9 5.6 (1.5) (5.1) (2.5) (3.5) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net change in cash position 4.3 102.8 156.7 (55.4) 3.9 12.2 132.5 93.2 150.9 59.8 99.6 173.6 483.9 (44.7) 83.5 123.7 245.7 408.1

BOP 53.3 56.8 159.6 316.3 260.9 264.7 277.0 316.3 409.4 560.3 620.2 719.8 409.4 893.4 848.6 932.1 1055.8 893.4EOP 56.8 159.6 316.3 260.9 264.7 277.0 409.4 409.4 560.3 620.2 719.8 893.4 893.4 848.6 932.1 1055.8 1301.5 1 301.5

Average cash 55.1 108.2 237.9 288.6 262.8 270.8 343.2 362.9 484.9 590.2 670.0 806.6 651.4 871.0 890.4 994.0 1178.6 1097.4



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Figure 28: Specialty Retail Softlines Comparables

Ma rket E nt erp ri se S ho rt

Price Cap Value Float Int. EPS P/E EV/SALES EV/EBITDA 5 Yr. Absolute P/E CurrentCompany T ic ke r Ra ti ng 5 /2 9/ 20 12 (U SD M M) (US D M M) (MM ) (MM ) CY 20 11 A CY 20 12 E C Y2 01 3E C Y2 01 1A CY 20 12 E C Y2 01 3E C Y2 01 1A C Y2 01 2E CY 20 13 E CY 20 11 A C Y2 01 2E CY 20 13 E Low H igh A vg. R el . P /E

Teen/Young Adult

Abercrombie & Fitch Co. ANF NEUTRAL $35.61 3,069 $3,074 83.6 5.4 $2.30 $3.30 $4.00 15.5x 10.8x 8.9x 0.7x 0.7x 0.6x 4.7x 3.6x 3.8x 3.7x 45.3x 20.8x 131%

Aeropostale, Inc. ARO OUTPERFORM 19.23 1,570 1,497 80.5 7.1 $0.90 $1.26 $1.52 21.4x 15.3x 12.7x 0.6x 0.6x 0.6x 8.7x 6.3x 5.2x 4.2x 24.5x 13.8x 169%

American Apparel, Inc. APP NR 0.85 90 90 55.5 5.3 N/A N/A N/A NM NM NM - - - NM NM NM N/A N/A N/A N/A

American Eagle Outfi tters, Inc. AEO OUTPERFORM 19.92 3,904 3,917 166.3 8.3 $0.97 $1.22 $1.40 20.5x 16.4x 14.3x 1.3x 1.2x 1.2x 9.8x 7.5x 6.6x 5.2x 24.4x 14.5x 159%

The Buckle, Inc. BKE NR 43.18 2,069 2,069 28.3 8.2 $3.20 $3.45 $3.64 13.5x 12.5x 11.9x 1.9x 1.8x 1.7x 7.7x 7.1x 6.7x 8.8x 23.2x 15.0x 98%

Delia*S, Inc. DLIA NR 1.55 49 47 29.5 0 .1 ( $0.71) ($0.31) $0.01 NM NM NM 0.2x 0.7x 0.2x NM NM NM N/A N/A N/A N/A

Hot Topic, Inc. HOTT NR 9.91 418 422 41.3 4.3 $0.19 $0.38 $0.47 52.2x 26.1x 21.0x 0.6x 0.6x 0.5x 8.8x 8.1x 7.3x N/A N/A N/A 258%

Pacific Sunwear Of California, Inc PSUN UNDERPERFORM 1.49 99 114 48.5 7.5 ($0.78) ($0.45) ($0.25) NM NM NM 0.1x 0.1x 0.1x NM NM 10.1x N/A N/A N/A N/A

Urban Outfitters, Inc. URBN NEUTRAL 28.43 4,699 4,389 109.1 10.2 $1.19 $1.42 $1.72 24.0x 20.0x 16.5x 1.8x 1.6x 1.4x 10.9x 11.6x 9.3x 12.8x 38.5x 25.1x 180%

The Wet Seal, Inc. WTSLA NR 2.82 255 258 86.6 13.6 $0.19 $0.07 $0.14 14.9x 39.8x 20.2x 0.4x 0.4x 0.4x 5.3x 7.6x 4.3x 7.1x 28.0x 16.4x 164%

Zumiez Inc. ZUMZ NEUTRAL 34.78 1,076 947 22.4 3.3 $1.20 $1.55 $1.75 29.0x 22.5x 19.8x 1.7x 1.5x 1.3x 11.8x 9.7x 8.3x 9.9x 86.0x 31.6x 210%average 22.1x 17.0x 14.4x 1.0x 0.9x 0.9x 9.2x 7.8x 7.2x 7.2x 43.7x 21.2x 170%

average incl NR 23.9x 20.4x 15.7x 0.9x 0.9x 0.8x 8.5x 7.7x 6.8x 7.4x 38.5x 19.6x 171%

Women's

Ann Inc. ANN OUTPERFORM $28.29 $1,476 $1,331 47.9 4.3 $1.70 $2.05 $2.35 16.6x 13.8x 12.0x 0.6x 0.6x 0.5x 5.4x 5.0x 4.3x N/A N/A N/A 121%

Ascena Retail Group, Inc. ASNA NR 18.71 2,877 2,906 123.4 7.9 $1.30 $1.55 $1.59 14.4x 12.0x 11.8x 0.9x 0.9x 0.9x 7.1x 6.0x 5.8x 6.4x 20.8x 13.7x 106%

Bebe Stores, Inc. BEBE OUTPERFORM 6.37 536 345 37.0 1.4 $0.12 $0.18 $0.29 51.5x 35.0x 21.8x 0.7x 0.6x 0.6x 9.3x 13.9x 8.6x N/A N/A N /A 279%

Cache, Inc. CACH NR 4.80 62 61 10.5 0.0 $0.09 $0.22 $0.42 53.3x 21.5x 11.5x 0.3x 0.3x 0.3x 5.7x 5.6x 4.2x N/A N /A N/A 3 21%

Charming Shoppes, Inc. CHRS NR 7.32 856 857 115.7 11.2 $0.03 $0.26 $0.42 NM NM NM 0.4x 0.4x 0.4x 10.5x 8.2x 6.9x N/A N/A N/A 1662%

Chico'S Fas, Inc. CHS OUTPERFORM 15.25 2,557 2,074 165.9 4.8 $0.85 $1.05 $1.22 18.0x 14.5x 12.6x 0.9x 0.8x 0.7x 6.3x 5.4x 4.8x N/A N/A N /A 126%

Christopher & Banks Corporation CBK NR 1.31 48 48 36.1 1.7 N/A ($0.48) $0.41 NM NM NM 0.1x 0.2x 0.1x NM NM NM N/A N/A N/A N/A

Coldwater Creek Inc. CWTR NR 0.87 106 102 80.0 7.4 ($1.09) ($0.59) ($0.37) NM NM NM 0.1x 0.1x 0.1x NM NM NM N/A N/A N/A N/AExpress, Inc. EXPR OUTPERFORM 18.98 1,697 1,674 85.9 4.9 $1.66 $1.82 $1.95 11.5x 10.4x 9.8x 0.8x 0.8x 0.7x 4.9x 4.8x 4.5x N/A N/A N/A 82%

Francesca'S Holdings CorporationFRAN OUTPERFORM 22.06 963 973 41.7 4.3 $0.59 $0.86 $1.05 37.6x 25.6x 21.1x 4.8x 3.5x 2.7x 18.9x 13.9x 10.9x N/A N/A N/A 250%

The Gap, Inc. GPS NEUTRAL 27.33 13,396 13,313 311.5 14.1 $1.56 $1.95 $2.10 17.5x 14.0x 13.0x 0.9x 0.9x 0.9x 6.8x 6.3x 6.1x 8.0x 21.9x 13.9x 124%

Guess ?, Inc. GES NEUTRAL 27.19 2,511 2,093 62.4 5.3 $3.07 $2.50 $2.95 8.8x 10.9x 9.2x 0.8x 0.8x 0.7x 4.2x 4.9x 4.0x N/A N/A N/A 70%

Limited Brands, Inc. LTD NR 46.85 13,742 13,613 241.5 8.0 $2.60 $2.82 $3.20 18.0x 16.6x 14.6x 1.3x 1.3x 1.3x 7.0x 6.4x 6.3x 7.2x 27.4x 15.7x 132%

Lululemon Athletica Inc. LULU OUTPERFORM 74.46 10,797 7,430 98.1 10.9 $1.27 $1.66 $2.12 58.7x 44.9x 35.2x 7.4x 5.4x 4.4x 23.4x 17.5x 13.4x N/A N/A N/A 403%

New York & Company, Inc. NWY NR 3.51 219 213 59.9 1.2 ($0.64) ($0.13) $0.11 NM NM NM 0.2x 0.2x 0.2x 74.7x 7.7x 5.0x N/A N/A N/A N/A

TALBOTS TLB NEUTRAL 1.33 93 160 68.9 15.6 ($1.19) ($0.73) ($0.30) NM NM NM 0.1x 0.1x 0.1x NM 6.4x 3.0x N/A N/A N/A N/Aaverage 22.5x 17.7x 13.7x 0.7x 0.6x 0.6x 6.4x 7.0x 5.1x 8.0x 21.9x 13.9x 144%


Children's

Carter'S, Inc. CRI NR $54.26 $3,198 3,220 57.9 3.6 $2.09 $2.68 $3.38 26.0x 20.3x 16.1x 1.5x 1.4x 1.2x 13.9x 11.2x 8.8x 9.8x 26.1x 14.7x 196%The Children'S Place Retail Stores PLCE NEUT RAL 46.79 1,235 1,084 23.9 4.9 $3.05 $3.10 $3.85 15.3x 15.1x 12.1x 0.6x 0.6x 0.5x 5.8x 5.6x 4.6x 7.8x 72.3x 21.7x 122%

average 15.3x 15.1x 12.1x 0.6x 0.6x 0.5x 5.8x 5.6x 4.6x 7.8x 72.3x 21.7x 122%


Men's

Casual Male Retail Group, Inc. CMRG NR $3.10 $128 $136 42.9 1.7 $0.30 $0.24 $0.33 10.3x 12.8x 9.4x 0.3x 0.3x 0.3x 4.7x 3.6x 3.1x N/A N/A N/A 90%

Jos. A. Bank Clothiers, Inc JOSB NR 47.49 1,322 1,340 27.5 3.5 $3.49 $3.97 $4.33 13.6x 12.0x 11.0x 1.4x 1.2x 1.1x 7.2x 6.5x 6.2x 7.1x 18.6x 13.0x 104%

The Men'S Wearhouse, Inc. MW NEUTRAL 36.48 1,890 1,650 47.7 3.8 $2.38 $2.75 $3.05 15.3x 13.3x 12.0x 0.7x 0.7x 0.6x 6.2x 5.6x 5.1x 3.9x 26.7x 16.2x 114%

average 15.3x 13.3x 12.0x 0.7x 0.7x 0.6x 6.2x 5.6x 5.1x 3.9x 26.7x 16.2x 114%


S&P 500 .SPX-UT 1,326 $97.82 $102.42 $109.43 13.6x 12.9x 12.1x 10.6x 19.1x 15.7x

Dow Jones .INDU-DI 12,535

Nasdaq COMP-O 2,854



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Covered Public Companies Mentioned in this Report (priced intraday as 5/29/12):

COMPANY TICKER RATING PRICEPRICE

TARGET

Bebe Stores BEBE OUTPERFORM $6.44 $10Gap Inc. GPS NEUTRAL $27.59 $28

Analyst CertificationI, Betty Chen, Alex Pham, certify that the views expressed in this report accurately reflect my personal opinion and that I have not and will notdirectly or indirectly, receive compensation or other payments in connection with my specific recommendations or views contained in this report

Disclosure information regarding historical ratings and price targets is available at http://www.wedbush.com/ResearchDisclosure/DisclosureQ112.pdf

Investment Rating System:Outperform: Expect the total return of the stock to outperform relative to the median total return of the analysts (or the analysts team) coverageuniverse over the next 6-12 months.Neutral: Expect the total return of the stock to perform in-line with the median total return of the analysts (or the analysts team) coverageuniverse over the next 6-12 months.Underperform: Expect the total return of the stock to underperform relative to the median total return of the analysts (or the analysts team)coverage universe over the next 6-12 months.

The Investment Ratings are based on the expected performance of a stock (based on anticipated total return to price target) relative to theother stocks in the analysts coverage universe (or the analysts team coverage).*

Rating Distribution(as of March 31, 2012)

Investment Banking Relationships(as of March 31, 2012)

Outperform:59%Neutral: 35%Underperform: 6%

Outperform:13%Neutral: 2%Underperform: 6%

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Company Disclosure

lululemon athletica 1

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RETAIL AND CONSUMER TECHNOLOGY, MEDIA AND TELECOM LIFE SCIENCES

Consumer Products Communications Equipment Biotechnology/Biopharmaceuticals/BioDefenseRommel T. Dionisio (212) 938-9934 Rohit Chopra (212) 668-9871 Gregory R. Wade, Ph.D. (415) 274-6863Kurt M. Frederick, CFA CPA (415) 274-6822 Sanjit Singh (212) 938-9922 David M. Nierengarten, Ph.D. (415) 274-6862

Ryan Flanagan (212) 938-9942 Christopher N. Marai, Ph.D. (415) 274-6861Footwear, Apparel and AccessoriesCorinna Freedman (212) 668-9876 Computer Services: Financial Technology Cardiac, Hepatic and Devices

Gil B. Luria (213) 688-4501 Akiva Felt (415) 263-6648Healthy Lifestyles Jonathan Jin (213) 688-4505Kurt M. Frederick, CFA CPA (415) 274-6822 Emerging Pharmaceuticals

Entertainment: Retail Liana Moussatos, Ph.D. (415) 263-6626Restaurants Michael Pachter (213) 688-4474 Richard Lau (415) 274-6851Nick Setyan (213) 688-4519 Nick McKay (213) 688-4343 Christopher N. Marai, Ph.D. (415) 274-6861

Alicia Jenks (212) 938-9927Specialty Retail: Hardlines Healthcare Services - Managed CareJoan L. Storms, CFA (213) 688-4537 Entertainment: Software Sarah James (213) 688-4503John Garrett, CFA (213) 688-4523 Michael Pachter (213) 688-4474 Daniel Patt (212) 938-9937

Nick McKay (213) 688-4343Specialty Retail: Softlines Medical Diagnostics and Life Sciences ToolsBetty Chen (415) 273-7328 Internet and E-Commerce Zarak Khurshid (415) 274-6823Alex Pham (415) 273-7315 Michael Pachter (213) 688-4474

Nick McKay (213) 688-4343RETAIL/CONSUMER MARKET RESEARCH Alicia Jenks (212) 938-9927

Gabriella Santaniello (213) 688-4557 MediaJames Dix, CFA (213) 688-4315

CLEAN TECHNOLOGY AND INDUSTRIAL GROWTHMovies and Entertainment

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Lulu Initiate Wedbush