Lululemon Athletica lowered its sales guidance for the first quarter after announcing a massive recall of a large portion of its yoga pants. The recall of the black yoga pants, which were unintentionally see-through, amounts to 17 percent of all women’s pants sold in its stores.
“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 last week.
Lululemon said in a statement it expects the issue will have a significant impact on our financial results. Up to March 17, comparable-store sales in the first quarter were tracking to an increase of 11 percent on a constant dollar basis with expected revenue guidance heading to a range of $350 million to $355 million. Lululemon said it now expects a comp increase in the range of 5 percent to 8 percent for the quarter, resulting in an expected revenue range of $333 million to $343 million. Lululemons statement added, We are working to determine the impact on our earnings in the first quarter as well as expected impact for the balance of 2013.
Investors bid down LULU shares after the announcement after analysts noted that the recall marked the fourth quality control problem at the company in the last year. Several questioned whether the rapidly growing company has outgrown its capacity to monitor its offshore factories. Lululemon said in its statement, We have used the same manufacturing partner on key fabrics since 2004. This event is not the result of changing manufacturers or quality of ingredients. We are working closely with them to understand what happened during the period this fabric was made.
Lululemon attributed the latest problem to Eclat Textile Co., the exclusive supplier of its Luon fabric. When contacted Tuesday by The Wall Street Journal, however, the CFO for the Taiwanese company insisted it had followed Lululemon’s specifications and certification process prior to shipping the fabric.
Lululemon is now offering affected customers full refunds or exchanges while also warning of an impending shortage of black yoga pants.
“We regret any inconvenience this has caused for our guests. It is always our first priority to protect the quality of our fabrics that keep our guest so loyal to our products. We will accept nothing less than the very highest quality we are known for,” said Lululemon CEO Christine Day, in a statement.