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Lululemon Product Goof Results in Resignation

By Andrew Marder - Apr 4, 2013 at 9:59AM

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Chief Product Officer Sheree Waterson leaves Lululemon in the wake of sheer pants recall.

Since last month's announced recall of its overly sheer yoga pants, lululemon athletica's (LULU 5.20%) 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 (NKE 4.74%) and Under Armour (UAA 3.76%) 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.

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Stocks Mentioned

Lululemon Athletica Inc. Stock Quote
Lululemon Athletica Inc.
LULU
$309.29 (5.20%) $15.29
Under Armour, Inc. Stock Quote
Under Armour, Inc.
UAA
$11.04 (3.76%) $0.40
NIKE, Inc. Stock Quote
NIKE, Inc.
NKE
$113.01 (4.74%) $5.11

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