Lululemon stock drops as yoga pants expose problems

Tue Mar 19, 2013 3:19pm EDT
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Allison Martell and Yimou Lee

TORONTO/HONG KONG (Reuters) - Shares of Lululemon Athletica Inc slid on Tuesday after the trendy retailer said it was recalling batches of pants it called too transparent, an embarrassment that raised fresh questions about whether it could sustain its stellar growth.

Late on Monday, Lululemon said it was pulling from its store shelves about 17 percent of the women's black pants made with its signature stretchy "Luon" fabric because the products fell short of technical specifications.

It warned that the recall of the see-through pants would have a significant impact on financial results.

The episode, the second quality issue disclosed in less than a year, could undermine Lululemon's reputation, said analysts who noted that competition from lower-priced brands is heating up. Last July, the company acknowledged problems with dye-bleeding in some of its apparel.

"Those are two black eyes for a brand that is supposed to stand for quality in the marketplace," said Brian Sozzi, chief equities analyst at NBG Productions. "It's a window of opportunity for Lululemon competitors."

Sales growth in established stores is now expected to come in at 5 percent to 8 percent for the current quarter, sharply off the 11 percent growth it had expected up to March 17 and a far cry from the 25 percent growth it posted a year earlier.

The supplier, Taiwan's Eclat Textile Co Ltd, said it had followed Lulu's specifications for the pants, and that the retailer had apparently misjudged customer tastes.

Lululemon, due to report earnings for its fiscal fourth quarter to February 3 on Thursday, had no immediate comment beyond its statement late Monday.   Continued...

A sign is seen at retail clothing store Lululemon Athletica in San Francisco, California, in this January 18, 2013 file photo. REUTERS/Robert Galbraith/Files