Instead of basking in the fact that Lululemon posted a 48.8 percent jump in fourth-quarter profits on a 30.7 percent gain in revenues, a “disappointed” Day told analysts and investors that she expected the recall would cut first-quarter revenues by $12 million to $17 million. The firm’s lost revenues are projected at $45 million and $50 million for the balance of the year. Day said the Vancouver-based firm anticipates writing off yoga pants that have yet to be delivered for the summer.
The March 1 recall of black pants made from Lululemon’s proprietary technical Luon fabric impacted about 17 percent of its women’s bottoms.
“I think our first step is to see what is correct or what we can use….Meanwhile, we are working with our suppliers to do some additional testing of any old stock that we have,” said Day, who noted that the second quarter would be the “most impacted,” with same-store gains in the low-single digits or “close to flat.”
For the fourth quarter ended Feb. 3, Lululemon posted net income of $109.4 million, or 75 cents a diluted share, compared with year-ago income of $73.5 million, or 51 cents. Revenues rose to $485.5 million from $371.5 million a year earlier. The brand beat Wall Street’s estimates of 74 cents a share on sales of $482.1 million.
The retailer now expects first-quarter earnings per share of between 28 cents and 30 cents. Wall Street was looking for 40 cents.
On the earnings call, analysts wondered if the issue could have been avoided by stricter quality-control guidelines set by Lululemon’s network of factories. For nearly a decade, the yoga-inspired brand has used Taiwanese supplier Eclat Textile Co., which, according to news reports, defended its manufacturing process earlier this week.
The shipments went through a “certification process which Lululemon had approved,” Eclat’s chief financial officer Roger Lo told The Wall Street Journal, adding the pants were manufactured “according to the requirements” in its contract with the brand.
Day, who didn’t cast any direct blame, said: “The truth of the matter is that the only way that you can actually test for the issue is to put the pants on and bend over. So, just putting the pants on themselves doesn’t solve the problem. Because it passed all of the basic metric tests and the hand feel is relatively the same. It was very difficult for the factories to isolate the issue and it wasn’t until we got into the store and started putting it on people that we could actually see the issue.”
She offered that the Canadian brand is “holding” all the impacted products because there may be “some treatment solutions” that could solve of the problems.
Lululemon said it has made “significant investments” in regulating dye issues, a problem that Mark Sunderland, a professor of textile engineering and resident expert at Philadelphia University called “common” among activewear brands.
According to Sunderland, it may be difficult for Lululemon to pinpoint whether the problem is caused by dye, fit, finishing or knitting errors, among others.
Either way, the professor said the sheerness problem isn’t an isolated incident, as countless consumers have been complaining on the Lululemon’s Web site for nearly six months about the subpar quality of the black Luon bottoms.
“This has been happening for a while,” he said, dubbing Lululemon’s call to action “surreptitious” as it coincides with financial reporting.
Sunderland said he’s noticed a decline in Lululemon’s quality over the last two years, and said the company probably believed “by changing something” it could keep “profit margins high” without the consumer detecting anything. The problem is that the Lululemon customer is “extremely savvy,” and notices when changes have been made, Sunderland noted.
“They are really looking at the quality of the product versus the money they are spending,” he said of the typical Lululemon customer, who is willing to fork over $100 for a pair of exercise pants.
“Lululemon is a very active company and their customers are very loyal and very outspoken,” Sunderland said. “Lululemon tells its story very well on social media.”
It’s on social media sites where Lululemon’s cult-like following has grown, and it’s also where they converse about their favorite brand. Perhaps an outpouring of negative comments on those sites pushed the firm to finally react, wondered the professor.
“I do still think Lululemon has a lot of brand loyalty,” Sunderland offered. “Their client base may help lift them out of this if they play their cards right.”
@kering_official is spinning off its stake in puma in an effort to focus on its luxury brands, the brand operator announced yesterday. “We are proud to have supported the turnaround of Puma, which now has unrivaled capabilities to take full advantage of the specific dynamics of its global markets and is poised to achieve substantial growth,” said François-Henri Pinault, Kering’s chief executive officer and chairman. Artémis will become a “long-term strategic shareholder” of Puma with a 29 percent stake. #wwdnews #wwdfashion (📷: @jilliansollazzo)
The fashion world mourns for celebrated street style photographer, Nabile Quenum, who died at age 32 in Paris.
Quenum, creator of the fashion blog “J’ai Perdu Ma Veste,” was a fashion week fixture, and regularly shot for New York magazine’s The Cut, among other outlets, and brands such as Louis Vuitton, Moncler and Adidas. He was also actively involved in the #NoFreePhotos initiative, which kicked off in the fall. Read more about Quenum in @kbsmoke's story on WWD.com. #wwdnews
@verwanggang and @maisonladuree have teamed up on a dessert collab called Vera Wang Pour Ladurée. The collection, which launched this week, features a specialty macaroon, as well as a wedding cake inspired by one of the designer’s gowns. “I could not imagine a more delicate or sophisticated creation to grace any couple’s celebration,” said Wang. #wwdfashion
“I’m Russian and I love to use all these little tricks that I got from my grandma or my mom. We didn’t have a lot of money for creams or anything like that so we would use a garden as a beauty treatment regime. We’d put cucumber in the fridge and do a cucumber mask,” says model @irinashayk on one of her beauty hacks. WWD asked celebs what their go-to self-care rituals are. See what Naomie Harris, Freida Pinto and more said on WWD.com. #wwdeye #wwdbeauty (📷: @zefashioninsider)
Exclusive: @viktorandrolf are teaming up with @Zalando on a collection made from leftover clothing. The lineup, which lands at the retailer February 1, includes 17 pieces adorned with sliced up and repurposed overstock from the retailer’s private label collection. Pictured here is a look from the collection –– see more on WWD.com. #wwdfashion #wwdnews
@duewestnyc is the newest bar joining the collection of intimate neighborhood-focused spaces in the West Village. The cocktail menu, which includes bitters and syrups made in-house, offers a “Build Your Own Old-Fashioned” – like the one pictured here – where guests can choose from a list of spirits and unexpected sugars and bitters. #wwdeye
Spotted at last night’s National Board of Review gala in NYC: Angelina Jolie. Jolie – along with Meryl Streep, @lupitanyongo and more – continued the all-black dress code from Sunday’s Golden Globes. #wwdeye (📷: @lexieblacklock)