Lululemon's Yoga Pants Shortage is No Laughing Matter on Wall Street

Michael Teague |

The history of Lululemon Aethletica Inc.'s (LULU) share price is an impressive one. Over a stretch of just over three years, the athletic apparel's stock price went from a low of $2.24 on March 9, 2009, to a high of $80.30 on May 3, 2012.

Monday’s announcement that the company would be pulling its extremely popular Yoga pants from store shelves due to quality issues, however, has taken as much as a 6 percent bite out of shares in intraday trading to as low as $62.00.

Constituting about 17 percent of Lulu’s overall sales, the company has warned of a shortage of the popular garment while quality issues are worked out, and it has lowered its first quarter revenue expectations from 11 percent to 5-8 percent in anticipation of the fallout, with price-target cuts coming from Sterne, Agee and Leach, Wedbush Securities, UBS, KeyBanc and others, and an additional downgrade to neutral from buy coming from Sterne.



An event that has made for some amusing headlines so far, the most recent batch of black stretch-pants, made from the company’s proprietary Luon sheer material, is apparently too revealing for customers. In a statement late Monday, Lululemon said that, “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.”

Admittedly, it is difficult to imagine how the “coverage” has changed if absolutely nothing else has. Eclat Textile Co., the owner of the Taiwanese textile factory that makes the pants, has cited a discrepancy between the company’s expectations and the needs of its customers, saying that it had followed the design specifications given it by the company. On this point, Lululemon has yet to comment.

But this is not the first quality issue the company has had. There have been a handful of them over the past year, most recently with a set of its brightly colored stretch pants, and this has raised concerns about factory oversight.  The company claims to use factories in locations as disparate as Israel, Bangladesh, Peru, South Korea, China, the United States, Indonesia, Sri Lanka, and Switzerland.

[Image via Flickr]

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
RE:CA Rock Energy Inc. n/a n/a n/a 0
LULU lululemon athletica inc. 67.32 0.33 0.49 1,252,199

Comments

Emerging Growth

Winston Gold Mining Corp.

Winston Gold Mining Corp is a mineral exploration and development company. The Company is engaged in acquiring, exploring, developing, and operating mining properties.

Private Markets

XY Find It

Founded by serial entrepreneur Arie Trouw, XY Findables follows a single guiding principle: customers should never lose anything important again. With over 50,000 users around the world, more than 100,000…

Cross Campus

With over 500 members and operating 80,000 square feet by summer 2016, Cross Campus is one of the country’s top ten shared, collaborative office or "coworking" operators in the US.…