Lululemon exec out: ‘New level of uncertainty’ after pants fiasco

RBC Capital Markets downgraded Lululemon's stock after the athletic clothing maker said its chief product officer was leaving the company. Above, Lululemon apparel at a store in Pasadena last month.
(Kevork Djansezian / Getty Images)
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Lululemon Athletica Inc., reeling from last month’s recall of yoga pants that were too sheer, said its chief product officer will leave her post April 15.

The move prompted RBC Capital Markets to downgrade the Vancouver company’s stock Thursday to “sector perform” from “outperform.” The departure of the executive, Sheree Waterson, “brings a new level of uncertainty,” RBC analyst Howard Tubin wrote in a note to investors.

Waterson, who has been with Lululemon since 2008, “has been a strong creative asset” and “a strong creative leader,” Tubin wrote. Without her, “visibility on future product direction” is less clear and is likely to remain opaque until 2014 as Lululemon looks for a replacement, he wrote.


The announcement late Wednesday of Waterson’s departure initially seemed to perk up Lululemon’s stock, which jumped as much as 2.8% in early trading Thursday. But that gain soon evaporated: The shares were recently trading at $64.56, up 32 cents, or 0.5%.

Waterson has spent the last few months addressing consumer complaints about Lululemon products – that the clothing was too thin, that fabric colors were bleeding, that certain styles were disappearing.

But customers really became inflamed in March, when the company pulled back its popular yoga pants – a move projected to cost Lululemon $57 million to $67 million in lost revenue.

Lululemon said Waterson is leaving the company “in conjunction with a reorganization of our product organization.”

“We appreciate the many contributions that Sheree made during her time with Lululemon, particularly in the area of design,” said Chief Executive Christine Day in a statement.

Waterson has been with the company since 2008.

Also this week, Lululemon offered an update on its investigation into its signature luon fabric, which was used in the recalled pants.


The Vancouver company said it concluded that the current specifications and testing protocols for the fabric, first developed in 2006, “have not materially changed.”

Although the fabric involved met testing standards, the batch “was on the low end of Lululemon’s tolerance scale,” the company said.

The testing protocols used were “incomplete for some of the variables in fabric characteristics,” the company said. Lululemon said it now has new quality checks in place and is assessing all luon products in its pipeline, with employees stationed in factories.

The company has said it expects the recall to tamp down sales in its current fiscal quarter.


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