lululemon advances after update on product testing probe

theflyonthewall.com

Shares of athletic apparel retailer lululemon (LULU) are advancing after the company issued an update on the testing of its recalled yoga pants and disclosed that its chief product officer was leaving the company. WHAT'S NEW: luluemon disclosed that the testing protocols utilized to evaluate the fabric used in its black luon pants were incomplete. The fabric "may have met testing standards," but it was "at the low end" of the company's tolerance, the apparel maker stated. Also yesterday, lululemon disclosed that its chief product officer, Sheree Waterson, was leaving the company. The problems with the black luon pants were first disclosed on March 18, when lululemon announced that it was recalling some of these pants because they were too sheer. At that time the company stated that the recall would result in a shortage of the bottoms, and as a result, it reduced its first quarter revenue guidance to $333M-$343M from $350M-$355M. Yesterday the company reiterated that guidance. ANALYST REACTION: In a note to clients earlier today, RBC Capital analyst Howard Tubin downgraded lululemon to Sector Perform from Outperform. Tubin lowered his rating because he believes that Waterson's departure deprives the company of "creative leadership," and makes its outlook more uncertain. The analyst conceded that Waterson is accountable for the Luon issue, but Tubin said he was moving to the sidelines until the company assembles a new product leadership team. Tubin reduced his price target on the stock to $70 from $80. TODAY'S PRICE ACTION: In early trading, lululemon gained $1.30, or 2%, to $65.50.

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