By Susan Taylor and Solarina Ho
TORONTO, June 10 Lululemon Athletica Inc
, its fortunes dented by an embarrassing and
costly recall of excessively see-through pants, said on Monday
that Chief Executive Christine Day will step down once it finds
Lululemon shares slumped as much as 15 percent after the
news of Day's surprise departure, which came just three months
after the company's second major quality issue in less than a
year. Lululemon's chief product officer left in April.
"This was a personal decision of mine and, look, it's never
perfect time to leave a company that you love. I've had a great
run at Lululemon over the past five and-a-half years and I'm
really proud of what the team and I have accomplished," Day said
during a conference call with analysts.
Vancouver-based Lululemon carved out a lucrative niche with
its high-end, fashionable yogawear, building a reputation for
clothes that can withstand years of sweaty yoga classes and
hundreds of washes.
It has said the recall of the stretchy black pants could
cost up to $40 million profit this year, with most of the impact
coming in the second quarter. But it reported a slightly
better-than-expected first-quarter profit, as it brought its
top-selling pants back onto store shelves.
Lululemon said it was announcing Day's departure now so that
its board has time to conduct a thorough hunt for a replacement.
Day said in March that her team was "devastated" by the
recall. The company's Taiwanese supplier said it had followed
Lulu's specifications, and the retailer had apparently misjudged
The pants recall came eight months after Lulu admitted
problems with dye bleeding from some bright garments, raising
fresh questions about whether it could sustain a fast-track
growth record while maintaining high quality standards.
BUILDING THE MARKET
Lululemon made form-fitting yoga pants a wardrobe staple,
effectively creating the market for premium women's athletic
wear. Targeting young professional women, it built a reputation
for quality in Canada before tackling the tough U.S. market.
But a cluster of rivals have since rolled out more yoga and
running wear, typically at lower prices, heating up competition.
They include brands from Under Armour, Nike Inc,
and Gap Inc's Athleta banner.
Lululemon said net income for the quarter to May 5 edged
just slightly higher to $47.3 million, or 32 cents a share, from
$46.6 million, or 32 cents, a year earlier. Analysts had, on
average, expected a profit of 30 cents a share.
Revenue rose 21 percent to $345.8 million.
Same-store sales rose 7 percent in the first quarter, a
sharp slowdown from a year earlier, when sales were up 25
That growth will remain sluggish into the current quarter,
when Lululemon expects sales at established stores to rise
between 5 and 7 percent, down from a 15 percent gain in the same
period last year.
It sees second-quarter revenue of $340 million to $345
million and earnings per share between 33 and 35 cents.
Lululemon will voluntarily delist its shares from the
Toronto Stock Exchange at the close of trading on June 24
because the "minimal trading volume" does not justify the cost
of a dual listing.