Lululemon Athletica inc. (LULU): The Company’s Product Goof Results in Resignation

Since last month’s announced recall of its overly sheer yoga pants, Lululemon Athletica inc. (NASDAQ:LULU)‘s stock has fallen 6%. That’s not bad for a company that’s anticipating a $12 million to $17 million decline in revenue and a 3- to 6-percentage-point hit on comparable-store sales growth. Yesterday, the company took a further step to put the problem behind it, announcing the departure of its chief product officer, Sheree Waterson, and releasing an update on the future production of the luon fabric that makes Lululemon Athletica inc. (NASDAQ:LULU) pants what they are.

Lululemon Athletica inc. (LULU)

Changes at the top
Waterson’s departure shouldn’t come as a huge surprise. While the company hasn’t acknowledged that she is leaving due to the pants problem, it’s all but certain that’s the case. The company’s statement on the future of luon production was released literally moments before the announcement of her departure.

Waterson’s tenure at Lululemon Athletica inc. (NASDAQ:LULU) was only five years, but during that time, the company grew substantially on the back of work that she oversaw. Prior to her time at Lululemon Athletica inc. (NASDAQ:LULU), Waterson was president at Speedo. While the recent misstep caused significant damage to the brand and to the company, her departure will be a loss for investors and customers.

What to do with all these pants
The company’s product news should meet a better reception than its organizational change announcement. Lululemon Athletica inc. (NASDAQ:LULU) claims that the fabric being produced was at the low end of the quality tolerance scale, and that the company had failed to account for certain variables when it designed the tests for the fabric. As a result of the findings, Lululemon is bringing in a new management team and is going to add observers to factories where the fabric is produced.

All of that is welcome news to investors and consumers. But the changes may not be enough to offset the momentum swing that could draw customers away from Lululemon and to its competitors.

Taking the business?
Both NIKE, Inc. (NYSE:NKE) and Under Armour Inc (NYSE:UA) have made moves in the past few weeks to highlight their yoga products. The promotions range from giving the products space on the homepage to promoting them on Facebook. The business would be especially useful for Under Armour, which has been trying to increase its women’s business for years.

Lululemon Athletica inc. (NASDAQ:LULU) investors would do well to watch the news out of Under Armour Inc (NYSE:UA) and NIKE, Inc. (NYSE:NKE) to see if those companies gain any measurable business due to the product recall. If they do, then it could mean bad news for Lululemon down the line. Both companies produce similar products at a lower price point, and if Lululemon loses its reputation for high quality, customers might jump ship.

The article Lululemon Product Goof Results in Resignation originally appeared on Fool.com.

Fool contributor Andrew Marder has no position in any stocks mentioned. The Motley Fool recommends lululemon athletica, Nike, and Under Armour. The Motley Fool owns shares of Nike and Under Armour.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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