First, as a long time investor of LULU and a big fan of LULU management, I strongly believe this recall is a ruse to "mask" the slower than expected sales growth ahead. There's something fishy about this story that does not pass my smell test.
I've done some channel checking with members at my local gyms. I don't want to go into details but to make the long story short, these die hard LULU fans LIKE these yoga pants just they way they are. In fact, they thought the slightly see through material was meant to make the fabric more "breathable". The quality of the material has been consistent. I had asked how long they have owned the yoga pants. Most said anywhere from 1-5 months ago.
My conclusion is that it isn't the material that require recall. I think Ms Day is really trying to mask the slow growth. Using a recall notice is a smart way to divert the attention away from slower growth. I'm not buying into this shenanigans. It's amazing that some ANAL-ysts aren't catching this....
So, when there is smoke, there is fire somewhere. We'll know more 4-6 months down the road if I"m correct.
Every company has up's and down's but LULU is definitely stronger than regular company.
I believe that this stock will recover very quick and go back to $70-75 level soon.
Sentiment: Strong Buy
While it's true that every company has its ups and down, but what "catalysts" will propel LULU beyond previous high of $80s? I don't see it! The risks outweigh the benefits. Typically, companies that hit $10-11B in market valuation tend to hit a brick wall...
The past 2 years have been hyper growth for LULU. If Ms Day follows the growth path of SBUX by opening too many stores, LULU will see the same fate as SBUX. Too much growth = poor customer service and poor quality. Remember what happened to SBUX 5 years ago? Remember how MacDonalds was eating into SBUX turf?
Assuming that this product recall is for "real" (I still think it's a ruse), LULU will have bigger problems on their hands if the growth stalls to single digit.
I do agree that something strange is going on. For one thing, I can tell you from personal experience that Nike has the same "see-through" problem...only that hasn't been pointed out as a problem. But I found Nike pants to be quite unwearable, even tried a size or two up to see if there was a fit problem. I think your theory is quite interesting since this has been deemed such a big problem for LULU but not for NKE.
Have you noticed in their website under the section, "We Made Too Much"? There are 30 items for women and 17 items for men in the We Made Too Much". I don't think I have seen this many before. Will Ms Day be writing off the bloated inventory and disguise it as quality problem with their yoga pants? No one will ever know....
My gut feeling is that this recall is a ruse. Not only is LULU mgmt using this recall to cleverly disguise the slower sales growth, but Ms Day probably is using the "write-offs" as an excuse to "expensed" the bloated inventory currently in stock as of Q4 2012.
One strategic supplier had adamantly denied there was any quality issue with their material. Now, I am reading that there are "several" suppliers that are making the lulu yoga pants. By adding "several" suppliers wording into their latest press release, it makes it much harder for the anyone to do channel checking to verify the claim. My suspicion is that there is really only ONE supplier. That ONE supplier has already denied quality issue.
IN conclusion, most of the inventory was build up in Q3 in anticipation of Q4 seasonal sales increase. Why wasn't this recall notice go out in Q4? Why did Ms Day waited nearly 2 months going into Q1 (quarter starts in Feb) to make the recall notice then? I'll tell you why.....sales was definitely SLOW in Q1. I noticed something was unusual due to the fact that LULU waited this long to release Q4 report.
My homework has paid off. Something is definitely fishy! If the truth is exposed, someone's head should roll.... When there is smoke, there is FIRE!
Patience is the key. Once it breaks the $60 support, you can kiss LULU good bye. This stock is only held up because of triple witching. MM want to print $65 before tanking the stock later.
U R spot on! Stretch pants issue is real, it's just not the big deal they are making it to be. And as you said it is one really convenient way of masking slowing growth while they try to figure out a way to get their mojo back.
Recall makes it sound worst. However, with clever marketing, they can spin it to make it sound positive (as if they are pro consumer and looking for our best interests). It's like using reverse psychology.
The underlining principles of the company's growth still remains "sketchy"....however way they spin it. Two years of hyper growth have finally caught up to them. Either poor quality or they can't maintain this growth projections going forward. Pick your poison!