Lululemon Athletica’s problem isn’t just that a batch of its black yoga pants were made too sheer and had to be recalled — the popular retailer is now downgrading its financial predictions and watching its stock do a downward dog.
The Vancouver, B.C., company said late Monday that it pulled the women’s pants from its stores and e-commerce sites over the weekend after learning that the material was too revealing. The Luon fabric is produced in Vietnam and Taiwan and made with a mix of nylon and Lycra spandex fibers.
In a lengthy FAQ posted on its website, the chain said it was still investigating how a batch of too-skimpy pants was allowed to reach stores earlier this month. Lululemon hasn’t changed its manufacturers or ingredient quality since 2004, it said.
The see-through yoga garb is the latest in a series of quality glitches that threatens to alienate the retailer’s hard-core fan base, which has so far been more than willing to shell out $100 for pants and other athletic garments. These legions of followers have helped Lululemon, founded in 1998, become a billion-dollar business.
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Eva Glettner, 33, of Los Angeles, is a case in point. Glettner, who has been a devoted fan of Lululemon, said she’ll now shop only at Target to buy her yoga outfits.
“You expect a certain quality, and they definitely let me down,” Glettner said. “For that price point, it’s unacceptable.”
Glettner says Target has similar pants for $30. “It’s hard enough making a commitment to working out without worrying about whether you are baring your behind.”
Lululemon said on its website that it first began to understand the extent of the problem March 11 as part of its weekly call with store managers, who voiced worries about sheerness. Lululemon declined to respond to queries about whether the problem was discovered when customers started to return the Luon pants, the latest batch of which went on sale at the beginning of the month.
But Faye Landes, an analyst at Cowen & Co., thinks customers reported the problem to store managers, who in turn reported back to management.
“If this is indeed the case, we suspect a serious lapse in (the company’s) supply chain, quality control and vendor management and specifically in its quality-assurance program,” she said.
Investors usually like transparency. But not in this case. Lululemon’s stock price slid $3.90, or 6 percent, to $62, before recovering and closing Tuesday at $64.08, lobbing more than $250 million off its market value in one day. The stock is down 16 percent so far this year, while the broader markets have been hitting multiyear highs.
Lululemon is now offering affected customers full refunds or exchanges while also warning of an impending shortage of black yoga pants. The recalled apparel makes up 17 percent of the women’s pants and crop pants Lululemon sells in stores.
But it’s more than practitioners’ poses being affected — Lululemon said the “issue will have a significant impact” on its financials.
The company lowered its initial expectations, which had been an 11 percent increase in same-store sales and revenue between $350 million and $355 million for its first fiscal quarter. Now Lululemon is projecting a 5 to 8 percent same-store sales range and revenue between $333 million and $343 million.
The company will unveil its fourth quarter and full-year earnings Thursday. But analyst Sam Poser, of Sterne Agee, downgraded Lululemon’s shares to a neutral rating from buy, telling investors to back off until quality-control concerns are alleviated.
Lululemon had been riding a recent surge in demand for women’s athletic wear, along with competitors such as Gap’s Athleta, Under Armour and even mass-market retailers such as Forever 21 and Victoria’s Secret.
Material from The Associated Press is included in this report.