Winnipeg Free Press - PRINT EDITION

Yoga pants are lemons

Lululemon stock drops after company recalls garments

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VANCOUVER -- Shares in Lululemon Athletic Inc. fell more than three per cent Tuesday, a day after the yoga-clothing maker said it recalled some its black pants because they were too see-through.

By mid-afternoon, Lululemon shares were down $2.12 to $65.38 on the Toronto Stock Exchange.

The Vancouver company announced it was pulling its popular black Luon yoga pants from store shelves because the material used to make them was too sheer, showing off too much of their customers' assets. The pants have also been yanked from showrooms and the company website.

The retailer, which has a devoted following, said it is working with its supplier and other manufacturers to replace the fabric and replenish the inventory.

"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," the company said in a statement.

Howard Tubin, an analyst with Equity Research, says the recall will "likely weigh" on Lululemon's shares because of its size, and the fact this is the second product-related issue the company has had this year.

"Combine this with the problems they had with red and pink garments earlier this year and bears could start to weave a narrative that Lulu is consistently encountering execution issues while growing," Tubin wrote in a note to investors, referring to problems with bleeding in some of Lululemon's coloured clothing.

"Bulls could easily counter that this is a company that is literally doing everything right to ensure the customer gets the best quality goods to protect its premium positioning."

The affected merchandise represent approximately 17 per cent of all women's long and cropped bottoms available in Lululemon stores, and Lululemon warns the recall will result in a shortage of certain tighter styles.

Lululemon insists it hasn't changed the specifications for the clothing and says the problem was with a manufacturer and supplier it has had since 2004.

But in an interview with the Wall Street Journal Tuesday, the chief financial officer of Eclat Textile Co. of Taiwan denied responsibility.

"All shipments to Lululemon went through a certification process, which Lululemon had approved," Roger Lo told the newspaper.

"All the pants were manufactured according to the requirements set out in the contract with Lululemon."

The company says the pants being recalled were in stores as of March 1.

It says customers who think they may have bought the defective pants, either online or in stores, are welcome to return them for a refund.

Up to March 17, Lululemon says it was on track for a comparable-store sales increase of 11 per cent on a constant-dollar basis and revenue in a range of $350 million to $355 million for the first quarter of the year.

Lululemon now expects comparable-store sales to be up five to eight per cent and revenue in a range of $333 million to $343 million.

The company is expected to release its fourth-quarter results Thursday.

Keeping store shelves filled has been a problem for Lululemon in the past. In 2011, the company launched an initiative to boost its inventory to meet the growing demand of shoppers.

-- The Canadian Press

Republished from the Winnipeg Free Press print edition March 20, 2013 B4

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