Is Lululemon In for More Quality Issues?

When lululemon athletica (NASDAQ: LULU  ) pulled its signature Luon black yoga pants in March, it got a lot of credit for acting swiftly to keep bad products out of customers' hands. A see-through yoga pant is, after all, bad for business.

So it was a relief to the yoga world when Luon and Lululemon's Groove pant returned to store shelves earlier this month. But is the problem solved?

Not so fast, Lululemon
A friend of mine purchased a pair of Luon Groove Pants, and a seam came undone while the recall was in effect. When the replacement arrived last week, they were… see through!

How could this be? Where is the quality control? What happened to product improvements? Oh, the outrage! The fit educators in-store were baffled and confused. She must be the only person in the world to see how thin the new product is, or that you can see straight through it with a slight stretch. 

She checked the website to see if the problem is prevalent. After all, maybe she got some pants from a bad batch. The new Groove Pant now has a surprisingly low 2.8 stars (out of five), and there are even more complaints that the pants are see-through (see here for reviews). A further look reveals that the Wunder Under Pant, a tight pant also made of Luon, has even more see-through complaints (which can be seen here and here). 

At the very least, the new Luon fabric is thinner than the old one, and it's getting less than inspiring reviews online. At worst, Lululemon has some serious quality-control issues. 

There's no word from Lululemon about another recall, but the company's CEO announced she was stepping down, so there are multiple voices creating the message at the top. That could be contributing to quality issues companywide.

Why this matters to investors
Maybe my experience is different from others, but if it isn't (as online reviews indicate), Lululemon has some serious problems. Management has already said it expects to lose $57 million to $67 million in revenue from the Luon recall in March, and growth has been slowing over the past three years.  

LULU Revenue Quarterly YoY Growth Chart

LULU Revenue Quarterly YoY Growth data by YCharts

Lululemon's success has also given Nike (NYSE: NKE  ) and Under Armour (NYSE: UA  ) incentive to step up their yoga game. Under Armour has introduced its Studiolux Quattro collection, aimed directly at Lululemon's market, and Nike offers innovative mats and foot wraps along with a full selection of yoga products. Even without Lululemon's problems, these would be the two companies I expect to grow more quickly into yoga. After all, they're dominant players in sporting goods and they have a much wider distribution network. 

If Lululemon's new Luon fabric is questioned by die-hard yoga fans, Nike and Under Armour will pick up the slack quickly, which isn't good for Lululemon. When you charge $95 for a pair of yoga pants, they'd better be perfect, or the backlash will be fast and swift. 

The price of a high stock price
Even after falling 25% from its 52-week high, Lululemon's stock still trades at 34 times trailing earnings, which prices in a lot of growth for the company. Even the mere thought that the company may have quality issues going forward is cause for concern and poses a risk for the company's stock.

I have reason to question the quality of Lululemon's new Luon pants, and online reviews show that I'm not the only one. Keep an eye on this going forward, because a company with a rabid following like Lululemon can be in disbelief about a problem that new consumers see as clear as day. With perfect performance already priced into the stock, more bad reviews could send the stock south quickly.

A deep look at Lululemon's stock
Lululemon has the potential to grow its sales by 10 times if it can penetrate its other markets like it has in Canada, but the competitive landscape is starting to increase. Can Lululemon fight off larger retailers and ultimately deliver huge profits for savvy investors? The Motley Fool answers these questions and more in its most in-depth Lululemon research available. Thousands have already claimed their own premium ticker coverage; gain instant access to your own by clicking here now.

 


Read/Post Comments (8) | Recommend This Article (4)

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.

  • Report this Comment On June 26, 2013, at 1:15 AM, OceanJackson wrote:

    Wow - I read some of the recent reviews and I couldn't believe it...you are right, people are still complaining about the pants being too 'sheer' and see-through.

    ...As an investor in LULU, I think I'm headed to my local Lulu store to check this out for myself.

  • Report this Comment On June 26, 2013, at 1:57 AM, Bryand1972 wrote:

    Boy, you shorts just never quit do you? Nice try. I checked out the "reviews" on their website as you suggested. Interesting. No more complaints about sheerness since March and then all of a sudden 3 more negative reviews pop up, starting the day after they reported earnings??? Hmmmmm....sounds like a plant to me. Anybody can go on their website and post negative reviews. Also, having your buddy post the first fabricated comment on here is a nice touch. You should have made it sound less generic.

  • Report this Comment On June 26, 2013, at 1:59 AM, Bryand1972 wrote:

    Also, it's interesting that the first comment showed up at the exact same minute you posted this article. Long LULU

  • Report this Comment On June 26, 2013, at 1:49 PM, sbuxlady4lyfe wrote:

    @Bryand1972

    Complain all you want with your "conspiracies" of the author's adequately timed article regarding the quality at Lululemon, but the fact is the brand had quality issues (a recall, for that matter) months before he wrote this article. Travis is simply pointing out that Lululemon did not fix anything during the recall - what does that say about their product? That it's improving? That it corrects its mistakes? Absolutely not.

    The reviews on the pant support the claim. So the next time you go to the store and try a pair of these pants on yourself, I would suggest you start looking at the facts instead of thinking writers at Fool.com are letting their "buddies" run around the internet to boost their shorts. Fool, and its authors for that matter, are better than that.

  • Report this Comment On June 26, 2013, at 3:27 PM, Bryand1972 wrote:

    Sbux: First off, shortsellers are not a "conspiracty theory", they are real. Second, of course the reviews support his claim....they are falsified reviews!! Classic strawman. Don't act like a sheep. If you're so smart, tell me why there were NO negative reviews based on Luon transparency in April, May.....not until after earnings on June 11. Seems to me if this were a major issue we would a lot more than 3 negative reviews. If you can't see that obvious fact with the timing of the reviews, then I am wasting my keystrokes. I'm not disputing they had issues in March. Maybe you need to reread my post. Third, writers at Motley Fool are not unbiased or saints anymore than the rest of us. They've published at least 8 articles on LULU since earnings and the majority have suggested selling LULU.....that indicates short positions. Maybe YOU need to take off your rose colored glasses and look at the facts. This isn't Disneyland here..everybody's trying to make money. They have a right to publish articles and I have a right to call them on it.

  • Report this Comment On June 26, 2013, at 5:02 PM, RickRickert4MVP wrote:

    I'll take the bait.

    1) it clearly states above that the author doesn't have a position in LULU. Sure it could be a lie, but i don't think a short position by him and this article is going to drive the stock down.

    2) the lack of reviews online might be due to that the new and improved wpants ere recently released post-recall. I could be wrong though.

  • Report this Comment On June 26, 2013, at 5:24 PM, sbuxlady4lyfe wrote:

    @Bryand1972

    Completely understand your point of view, and I apologize for the way my "conspiracy" line came off in writing. What I meant to say, is there is a reason these articles seem to be published conveniently around the negative reviews and earnings. Case-in-point, the product was unavailable on the website and in stores until the second week in June (holla @RickRickert4MVP). The Groove Pant the author is referring to in the article was apart of the recall in March, as you stated in your comment, too. The product was pulled from the website and in all stores at this time; therefore, no one was able to buy the pant, and subsequently, write negative reviews. After the product was redistributed in June, after much reassurance of the new and improved fabric (luon) from the recall, negative reviews popped up. How else would consumers be able to write a review on the post-recall pant, if it wasn't available for purchase from April - end of May?

    Lululemon presents itself to the market as a top-quality brand (have you seen their "our quality stand" section of their website?). It's concerning a product LULU had to pull from their shelves for three months, to revisit/redesign a sturdier material, is receiving similar complaints (about the sheerness) before the recall. Just something to think about.

  • Report this Comment On June 27, 2013, at 6:59 AM, Mmancari wrote:

    I looked at the site. Yes, they do have new products listed with fabric concerns. Secondly, lulu is aware of the negative concerns and comments regarding those garments. They responded personally to each negative remark.

    There are concerns with quality. I believe lululemon is taking on this concern. It might be a few more months and then you will see a consistent quality garment.

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