The debacle marks the fourth quality problem in the last year for Lululemon, according to Credit Suisse analyst Christian Buss — and not the first see-through issue.
First, the Vancouver-based company had sheerness problems with certain swimsuits for spring 2012. And some light-colored pants currently on sale carry this disclaimer: “You may experience sheerness with some of our bright-colored bottoms because of the lightweight nature of the fabric. We recommend you do a couple of Down Dogs in your brightly colored bottoms to ensure you’re happy with the fit and coverage.” ”Down Dogs” refers to a yoga position. The company also has had problems with bright dyes bleeding.
Until now, Lululemon has been as much a star for investors as it has for yoga devotees. Its shares rocketed from less than $3 in 2009, to more than $81 last May. Analysts expect to get more details when Lululemon posts earnings for the final quarter and full fiscal year on Thursday. But already some Wall Street analysts have downgraded the stock.
“We see some potential that (Lululemon) risks alienating its core customer bases should quality control issues persist,” Buss wrote in her note. Based on her own research, Buss said the Luon fabric is sourced from a Taiwanese manufacturer.
Lululemon confirmed through an outside publicist that its sourcing manager for raw materials is at the facilities of the supplier, Taiwan-based Eclat Textile Co.
Still, some marketing experts dismissed the debacle as a temporary glitch and said Lululemon’s loyal customers won’t switch to rivals like Nike Inc. or Champion anytime soon.
“It’s a late-night TV joke, and it’s going to pass,” said Robert Passikoff, president of Brand Keys Inc., a New York customer research firm. “The issue is closure, contrition and care. Clearly, they’re doing everything they need to do.”
Lululemon cut its first-quarter revenue forecast as a result of its decision to withdraw the pants. The company now anticipates first-quarter revenue between $333 million and $343 million, down from an earlier estimate of $350 million to $355 million. Analysts polled by FactSet had previously forecast revenue of $352.1 million.
The company also slashed its outlook for first-quarter revenue growth at stores open at least a year to between 5 percent and 8 percent, from 11 percent previously.