Lululemon warns of weaker outlook after recall, gaffes

Thu Dec 12, 2013 5:52pm EST
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By Solarina Ho

TORONTO (Reuters) - Lululemon Athletica Inc (LULU.O: Quote) warned on Thursday that fewer customers visiting its stores will hit its sales in the crucial fourth quarter, acknowledging that negative press surrounding a product recall and comments by its founder had hurt sales of its trendy yogawear.

Lululemon, which was hit by an embarrassing recall in March when some of its signature black pants proved too see-through, said sales at established stores would be flat and lowered its full-year outlook, raising concerns that momentum at the once-hot retailer is fading.

The company also indicated that supply chain issues will last much longer than expected.

Shares of the Vancouver-based company, which has had public relations headaches all year, closed down 11.6 percent at $60.39.

Chief Financial Officer John Currie said the drop in the number of customers was responsible for about two-thirds of the flat same-store sales forecast, with supply also a factor.

"The traffic appeared to have fallen out of bed since the end of the third quarter," said Sterne Agee brokerage analyst Sam Poser.

"For me, that means this is about the PR and the brand. I think traffic is a reflection of these brand issues. That is a much more delicate situation (than the supply chain)."

The sales forecast is a big reversal for Lululemon, which not long ago was posting sales growth at mature stores well into double digits.   Continued...

Lululemon merchandise is pictured in this photo illustration Toronto December 12, 2013. REUTERS/Chris Helgren