Is Lululemon In for More Quality Issues?
When lululemon athletica pulled its signature Luon black yoga pants in March, it got a lot of credit for acting swiftly to keep bad products out of customers' hands. A see-through yoga pant is, after all, bad for business.
So it was a relief to the yoga world when Luon and Lululemon's Groove pant returned to store shelves earlier this month. But is the problem solved?
Not so fast, Lululemon
A friend of mine purchased a pair of Luon Groove Pants, and a seam came undone while the recall was in effect. When the replacement arrived last week, they were... see through!
How could this be? Where is the quality control? What happened to product improvements? Oh, the outrage! The fit educators in-store were baffled and confused. She must be the only person in the world to see how thin the new product is, or that you can see straight through it with a slight stretch.
She checked the website to see if the problem is prevalent. After all, maybe she got some pants from a bad batch. The new Groove Pant now has a surprisingly low 2.8 stars (out of five), and there are even more complaints that the pants are see-through (see here for reviews). A further look reveals that the Wunder Under Pant, a tight pant also made of Luon, has even more see-through complaints (which can be seen here and here).
At the very least, the new Luon fabric is thinner than the old one, and it's getting less than inspiring reviews online. At worst, Lululemon has some serious quality-control issues.
There's no word from Lululemon about another recall, but the company's CEO announced she was stepping down, so there are multiple voices creating the message at the top. That could be contributing to quality issues companywide.
Why this matters to investors
Maybe my experience is different from others, but if it isn't (as online reviews indicate), Lululemon has some serious problems. Management has already said it expects to lose $57 million to $67 million in revenue from the Luon recall in March, and growth has been slowing over the past three years.
LULU Revenue Quarterly YoY Growth data by YCharts
Lululemon's success has also given Nike and Under Armour incentive to step up their yoga game. Under Armour has introduced its Studiolux Quattro collection, aimed directly at Lululemon's market, and Nike offers innovative mats and foot wraps along with a full selection of yoga products. Even without Lululemon's problems, these would be the two companies I expect to grow more quickly into yoga. After all, they're dominant players in sporting goods and they have a much wider distribution network.
If Lululemon's new Luon fabric is questioned by die-hard yoga fans, Nike and Under Armour will pick up the slack quickly, which isn't good for Lululemon. When you charge $95 for a pair of yoga pants, they'd better be perfect, or the backlash will be fast and swift.
The price of a high stock price
Even after falling 25% from its 52-week high, Lululemon's stock still trades at 34 times trailing earnings, which prices in a lot of growth for the company. Even the mere thought that the company may have quality issues going forward is cause for concern and poses a risk for the company's stock.
I have reason to question the quality of Lululemon's new Luon pants, and online reviews show that I'm not the only one. Keep an eye on this going forward, because a company with a rabid following like Lululemon can be in disbelief about a problem that new consumers see as clear as day. With perfect performance already priced into the stock, more bad reviews could send the stock south quickly.
A deep look at Lululemon's stock
Lululemon has the potential to grow its sales by 10 times if it can penetrate its other markets like it has in Canada, but the competitive landscape is starting to increase. Can Lululemon fight off larger retailers and ultimately deliver huge profits for savvy investors? The Motley Fool answers these questions and more in its most in-depth Lululemon research available. Thousands have already claimed their own premium ticker coverage; gain instant access to your own by clicking here now.
The article Is Lululemon In for More Quality Issues? originally appeared on Fool.com.
Fool contributor Travis Hoium has no position in any stocks mentioned. The Motley Fool recommends lululemon athletica, Nike, and Under Armour and owns shares of Nike and Under Armour. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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