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lululemon Issues luon Production Update, Says Chief Product Officer to Leave

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lululemon athletica inc. (NASDAQ: LULU) today provided an update on its black luon production issues.

After an evaluation of lululemon's previously disclosed black luon production issues, the company concluded that the current specification and testing protocols for the signature fabric luon that were developed in 2006 have not materially changed. However, production of luon is a complex process with a number of different inputs, and fabric is the key factor. While the fabric involved may have met testing standards, it was on the low end of lululemon's tolerance scale and we have found that our testing protocols were incomplete for some of the variables in fabric characteristics. When combined with subtle style changes in pattern, the resulting end product had an unacceptable level of sheerness.

lululemon had taken steps prior to the black luon issue to bolster its internal product expertise, including the addition of senior level capabilities in quality, raw materials and production. This new team was instrumental in determining the root cause of the issue and has initiated three work streams to address what we believe are the contributing causes.

Work streams and actions include:

1. Testing & processes: lululemon's quality team is assessing all luon products in the production pipeline according to newly implemented rigorous testing and quality processes that includes revised specifications for modulus (stretch), weight and tolerances.

2. Factory oversight: lululemon employees have been stationed in factories to monitor and test products and will educate internal teams and manufacturing partners on new testing standards and methodologies.

3. Leadership and structure: lululemon is building a stronger internal structure with new leadership and cross-functional team capability that we believe will create a more robust organization to support our long-term growth strategy.

“Our stand for differentiation is the quality of our product. We have been building capacity in the product organization, and we recognize that continued investment in this segment of the business is required to support our future,” said lululemon CEO Christine Day. “We are committed to continually developing best in class fabrics, and are committed to only putting product in our stores that meets our stringent standards.”

Based on our evaluation to date, there is no change to the company's first quarter and fiscal 2013 earnings guidance that was provided on March 21^st, 2013.

Separately, the company said:

In conjunction with a reorganization of our product organization, Chief Product Officer Sheree Waterson will be leaving lululemon effective April 15, 2013. “We appreciate the many contributions that Sheree made during her time with lululemon, particularly in the area of design,” said lululemon's CEO Christine Day.

Posted-In: News Guidance Management

 

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