Some recalls are worse than others.

Shares of Lululemon Athletica fell $3.75 to $65.29, or 5.4 percent, on Thursday after the company delivered a disappointing outlook for the rest of the year. The yoga-inspired retailer said the current third quarter had gotten off to a weak start as deliveries of its fall products were delayed due to a “hangover” stemming from an embarrassing recall of its yoga pants earlier this year.

LULU also reported second-quarter earnings that were lower than the prior year due to a higher tax rate and to a lesser degree the recall issues, although they were ahead of a forecast given in June.

The company took a hit earlier in March when it was forced to recall its most popular black Luon yoga pants because they became see-through when customers would bend over.

In the wake of the recall, the company's top product executive left the company, and in June, the company announced that CEO Christine Day would also be leaving the company when a replacement was found. No announcement has yet been made on her successor.

On a conference call with analysts, CFO John Currie said over the past several months it has focused on “quality” and getting Luon back into stores.

“While this is clearly what was important for our future is it resulted in some short-term pain,” said Currie. “We've experienced a weak start to this quarter driven primarily by late deliveries of fall products leaving us with a summer product on the floor through August. These rates deliveries are hangover from the disruption caused earlier in the year with the Luon issue.”

With fall deliveries coming in late by three to 3½ weeks, summer products remained prevalent on its floors through August and the stores are now carrying an abundance of fall products against a shortened selling season.

“We anticipate that the knock-on effect will continue to affect the timing of product deliveries into the third quarter and through the rest of the year,” Currie added

For the third quarter, Lululemon now expects earnings of 39 cents to 41 cents a share – against 39 cents a year ago – on revenue of $370 million to $375 million. Comps are expected to increase in the mid-single digits on a constant-dollar basis. Wall Street’s consensus estimate had been 44 cents a share on revenue of $389 million.

In the second quarter, earnings dipped 1.8 percent to $56.5 million, or 39 cents a share, largely due to a higher tax rate. Officials said the year-ago net would have been 34 cents a share, excluding the favorable impact of the retroactive tax adjustments last year. Operating earnings improved 12.5 percent to $79.0 million.

Revenue for the quarter increased 21.9 percent to $344.5 million. Comparable stores sales increased 8 percent on a constant dollar basis. Traffic and conversion were up but average basket was down due to fewer of the higher-priced Luon items.

Earnings exceeded a forecast given in June, when it reported Q1 results, calling for earnings in the range of 33 to 35 cents a share. Revenue was expected to come in the range of $340 million to $345 million based on a comp increase of 5 percent to 7 percent.

Direct to consumer revenue in the latest quarter jumped 39 percent to $49.4 million, or 14.3 percent of total company revenues. Combining both store and online segments, comps grew 13 percent.

Gross margins in the quarter decreased to 54.0 percent of sales from 55.1 percent a year ago. Product margin declined 220 basis point due primarily to a lower mix of higher-margin Luon bottoms and increases in its inventory reserves. SG&A expenses increased slightly to 31.1 percent of revenues, up from 30.3 percent.

Tax expense for the quarter was $23.8 million or a tax rate of 29.7 percent compared to $13.7 million, 19.1 percent, in the second quarter of 2012. The lower tax expense a year ago reflected the catch-up in ongoing benefit of revised intercompany pricing arrangements.

On the call, Day said Lululemon’s board had formed a search committee and began executing its CEO succession plan to replace her.

“The search committee is in discussion with several high-caliber candidates and in the coming months expects to narrow the list to the final candidates,” she said. The new CEO's start date would depend on the schedule of the candidate who is picked.

“With a very strong senior management team in place to execute the strategy and run the business, we have plans in place for an orderly transition,” Day added.

To strengthen its product operations function, she said the retailer has grouped sourcing, quality and commercialization under one function to streamline reporting, enhance working relationships internally and with factories, and improve its quality process.

New hires include Jennifer Battersby, its new SVP of sourcing, quality and commercialization who was formerly SVP, Victoria's Secret production Asia.

Other key members of the sourcing team include Joan Mudget, its VP of global product quality since September of 2012; Linda Goldstein, VP, global sourcing and production since January 2011; and Christa Schrider, its director of product commercialization since January 2013. “Significant progress” has also been made in its search for a new EVP of product. Stephen Berube, formerly from Cole Haan, was recently hired as SVP, distribution and logistics.

In addition, Lululemon in August signed a contract for a new distribution facility in Columbus, OH set to open in June 2014 and designed to enable faster replenishment of stores and e-commerce delivery.

Finally, Lululemon announced an alliance with Noble Biomaterials, a Lululemon partner since 2005, that gives Lululemon exclusivity to use Noble's X-STATIC antimicrobial technology in its performance apparel. Day said the alliance allows Lululemon “to continue to innovate our technical product and secure our leadership position in anti-stink.”

Around product in the second quarter, Day said strong sellers included the sweat proof pocket and its bags and backpacks. Back wraps have also been bought back. Customers are also responding well to the colors, textures and prints of its fall products. Said Day, “We're excited about the innovation you will be seeing in functional outerwear and textured softshell fabrics puffy jackets and vests and versatile silhouettes.”

On men’s, Day said Felix Del Pearl Toro, its SVP of men’s who has been with the company for six months, is making progress creating a men’s collection “that builds on the same philosophy as our women's product with fit, form and function at the core.” Men's penetration in Q2 grew to 13.2 percent of the business, and its first men’s-only store is expected to open in 2016.

Internationally, its first international lease was just signed in London in Covent Gardens, and the company plans to have 16 international showrooms open by year-end.

Asked about competitive pressures, Day said that while “reading press headlines everyday you would say that there's a vast variety and growing variety of competitors in the marketplace,” the company still feels “really good about our positioning for the long-term.”

She noted that the new line of products made using a new iteration of its Luon fabric, “Full-On Luon,” which was launched in July, “has been flying off the shelves” and Lululemon has increased orders of these products for the back half of the year.

She said the company was “very excited” about what Full-On Luon “will bring us from a competitive set” as well how its new X-STATIC exclusive partnership will help the chain’s differentiation.

“We are well on our way to finishing 2013 as a much stronger company as when the year began,” Day concluded in her prepared comments. “I'm confident that the leadership currently in place coupled with the new CEO will have tremendous success leveraging the platform for growth.”

For the full fiscal 2013, Lululemon now expects revenue to be in the range of $1.625 billion to $1.635 billion and EPS in the range of $1.94 to $1.97.

In the June forecast, the company said it expects revenue for the year to be in the range of $1.645 billion to $1.665 billion and diluted earnings per share are expected to be in the range of $1.96 to $2.01 for the full year.