After an evaluation of lululemon's previously disclosed black luon production issues, the company concluded that the current specification and testing protocols for the signature fabric luon that were developed in 2006 have not materially changed. However, production of luon is a complex process with a number of different inputs, and fabric is the key factor. 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. When combined with subtle style changes in pattern, the resulting end product had an unacceptable level of sheerness.
lululemon had taken steps prior to the black luon issue to bolster its internal product expertise, including the addition of senior level capabilities in quality, raw materials and production. This new team was instrumental in determining the root cause of the issue and has initiated three work streams to address what we believe are the contributing causes.
Work streams and actions include:
1. Testing & processes: lululemon's quality team is assessing all luon products in the production pipeline according to newly implemented rigorous testing and quality processes that includes revised specifications for modulus (stretch), weight and tolerances.
2. Factory oversight: lululemon employees have been stationed in factories to monitor and test products and will educate internal teams and manufacturing partners on new testing standards and methodologies.
3. Leadership and structure: lululemon is building a stronger internal structure with new leadership and cross-functional team capability that we believe will create a more robust organization to support our long-term growth strategy.
"Our stand for differentiation is the quality of our product. We have
been building capacity in the product organization, and we recognize
that continued investment in this segment of the business is required to
support our future," said lululemon CEO
Based on our evaluation to date, there is no change to the company's
first quarter and fiscal 2013 earnings guidance that was provided on
About lululemon athletica inc.
This press release contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934 that involve risks, uncertainties
and assumptions, such as statements regarding the effect of shipments of
products that fail to comply with our technical specifications or that
fail to conform to our quality control standards, the duration of any
shortage of products available for sale in our stores or for delivery to
guests or our ability to obtain replacement products in a timely manner,
any expected loss of net revenue resulting from the inability to sell
those products and related increased administrative and shipping costs,
and our future financial condition or results of operations. In many
cases, you can identify forward-looking statements by terms such as
"may," "will," "should," "expects," "plans," "anticipates," "outlook,"
"believes," "intends," "estimates," "predicts," "potential" or the
negative of these terms or other comparable terminology. These
forward-looking statements are based on management's current
expectations but they involve a number of risks and uncertainties.
Actual results and the timing of events could differ materially from
those anticipated in the forward-looking statements as a result of risks
and uncertainties, some of which are described below. You should be
aware that our success depends on the value and reputation of the
lululemon athletica brand. Negative publicity regarding any of our
products or our the production methods of any of our suppliers or
manufacturers, including the shipments of defective product discussed
above, could adversely affect our reputation and sales and force us to
locate alternative suppliers or manufacturing sources. Our expectation
regarding the impact of these shipments of products that fail to comply
with our technical specifications may not be correct and the impact on
our revenue and results of operations may be much greater. Furthermore,
our results of operation could be materially harmed if we experience or
become aware of additional shipments of products that fail to comply
with our technical specifications or that fail to conform to our quality
standards, or if we experience a shortage of products available for sale
in our stores or for delivery to guests unless we are able to obtain
replacement products in a timely manner. We also risk the loss of net
revenue resulting from the inability to sell those products and related
increased administrative and shipping costs. Additionally, if defects in
the manufacture of our products are not discovered until after such
products are purchased by our guests, our guests could lose confidence
in the technical attributes of our products and our results of
operations could suffer and our business could be harmed. If we need to
replace an existing supplier or manufacturer, we may be unable to locate
additional supplies of fabrics or raw materials or additional
manufacturing capacity on terms that are acceptable to us, or at all, or
we may be unable to locate any supplier or manufacturer with sufficient
capacity to meet our requirements or to fill our orders in a timely
manner. Any delays, interruption or increased costs in the supply of
fabric or manufacture of our products caused by shipments of defective
products could have an adverse effect on our ability to meet customer
demand for our products and our results in lower net revenue and income
from operations both in the short and long term. Additional risk factors
are detailed in our Quarterly Report on Form 10-Q for the fiscal quarter
Source: lululemon athletica inc.
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