March 18, 2013
With fewer than 72 hours remaining before lululemon athletica (NASDAQ: LULU ) is due to report Q4 earnings, the yogawear maker bent over backwards to bend investors' ears with some bad news this evening.
Turns out, some faulty material made its way into the production line, resulting in a big batch of the company's stretchy "black Luon pants and crops" being a bit too sheer, a bit too revealing, and, worst of all, a bit too low-quality to keep on store shelves. As management described the problem: "The ingredients, weight and longevity qualities of the pants remain the same but the coverage does not, resulting in a level of sheerness in some of our women's black Luon bottoms that falls short of our very high standards."
Result: Lululemon's announced a doozy of a product recall, pulling "certain shipments" of the garments in question from its stores.
Unfortunately, the phrase "certain shipments" doesn't do justice to the size of this recall. As the company clarified, this recall represents "approximately 17% of all women's bottoms in our stores." It warned that this "will have a significant impact on our financial results" due out Thursday. Comps could be cut in half, from the expected 11% same-store sales growth to the 5% to 8% growth expected. Revenues are certain to fall short of estimates, with the company projecting somewhere between $333 million and $343 million.
Lululemon shares, down 3.8% at $65.90 after Monday trading, tumbled a further 5.9% after hours.
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