Lululemon Product Goof Results in Resignation

Since last month's announced recall of its overly sheer yoga pants, lululemon athletica's (NASDAQ: LULU  ) stock has fallen 6%. That's not bad for a company that's anticipating a $12 million to $17 million decline in revenue and a 3- to 6-percentage-point hit on comparable-store sales growth. Yesterday, the company took a further step to put the problem behind it, announcing the departure of its chief product officer, Sheree Waterson, and releasing an update on the future production of the luon fabric that makes Lululemon pants what they are.

Changes at the top
Waterson's departure shouldn't come as a huge surprise. While the company hasn't acknowledged that she is leaving due to the pants problem, it's all but certain that's the case. The company's statement on the future of luon production was released literally moments before the announcement of her departure.

Waterson's tenure at Lululemon was only five years, but during that time, the company grew substantially on the back of work that she oversaw. Prior to her time at Lululemon, Waterson was president at Speedo. While the recent misstep caused significant damage to the brand and to the company, her departure will be a loss for investors and customers.

What to do with all these pants
The company's product news should meet a better reception than its organizational change announcement. Lululemon claims that the fabric being produced was at the low end of the quality tolerance scale, and that the company had failed to account for certain variables when it designed the tests for the fabric. As a result of the findings, Lululemon is bringing in a new management team and is going to add observers to factories where the fabric is produced.

All of that is welcome news to investors and consumers. But the changes may not be enough to offset the momentum swing that could draw customers away from Lululemon and to its competitors.

Taking the business?
Both Nike (NYSE: NKE  ) and Under Armour (NYSE: UA  ) have made moves in the past few weeks to highlight their yoga products. The promotions range from giving the products space on the homepage to promoting them on Facebook. The business would be especially useful for Under Armour, which has been trying to increase its women's business for years.

Lululemon investors would do well to watch the news out of Under Armour and Nike to see if those companies gain any measurable business due to the product recall. If they do, then it could mean bad news for Lululemon down the line. Both companies produce similar products at a lower price point, and if Lululemon loses its reputation for high quality, customers might jump ship.

Can Lululemon fight off larger retailers and ultimately deliver huge profits for savvy investors like yourself? The Motley Fool answers this question and more in our most in-depth Lululemon research available for smart investors like you. Thousands have already claimed their own premium ticker coverage, and you can gain instant access to your own by clicking here now.


Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2346275, ~/Articles/ArticleHandler.aspx, 4/18/2014 10:57:30 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement