Lululemon reveals reasons behind sheer yoga pants

Lululemon pants (Facebook)

VANCOUVER -- Lululemon Athletica Inc. (TSX:LLL) says its chief product officer is leaving the retailer, just weeks after it pulled its black Luon pants from store shelves because they were too sheer.

In a statement Wednesday, Lululemon said Sheree Waterson, who joined the company in 2008, will be gone as of April 15.

"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 release.

Specific reasons for Waterson's departure were not disclosed.

Meanwhile, the company said an investigation into the production issues with the popular Luon pants has revealed that a combination of the fabric with a new pattern led to an "unacceptable level of sheerness."

"Production of Luon is a complex process with a number of different inputs, and fabric is the key factor," Lululemon said in a statement.

"While the fabric involved may have met testing standards, it was on the low end of Lululemon's tolerance scale and we have found that our testing protocols were incomplete for some of the variables in fabric characteristics."

As a result, the company said it is testing and assessing all Luon products to ensure they meet "revised specifications for modulus (stretch), weight and tolerances."

It has also stationed employees at factories to ensure that the new tests and standards are being met.

In an analyst call last month, Day said the only way customers can tell if they bought the defective pants was to "put the pants on and bend over." She also warned that customers should be prepared for a shortage of the Luon pants.

On Wednesday, Lululemon reaffirmed that the problems are expected to reduce its revenue by between US$12 million and US$17 million in the first quarter and drive down estimated earnings per share by 11 to 12 cents.

The company had slightly beat analysts' expectations in its latest earnings report. On a per-share basis it earned 75 cents in the fourth quarter -- a penny above the consensus estimate of 74 cents per share.

Revenue during the key holiday shopping period was also up, rising by 31 per cent year-to-year to US$485.5 million -- in line with expectations.

For fiscal 2013, Lululemon expects net revenue to be in the range of US$1.61 billion to US$1.64 billion and diluted earnings per share to be in the range of $1.95 to $1.99.