New York-- Lululemon, one of the world's most successful retailers, has pulled its popular Luon black yoga pants from stores after it found that the sheer material used was revealing too much of its loyal customers.
Lululemon is offering full refunds or exchanges.
The company insists it had not changed specifications for the clothing, but is warning of a shortage of the extraordinarily popular items.
Shares plunged more than 5% before the opening bell Tuesday, but was off only 3.75% to $63.43 after trading opened. At least one analyst that follows the company stripped it of its "buy" rating.
Sam Poser of Sterne, Agee & Leach advised clients to take a wait-and-see approach until the problem is resolved, downgrading the company's shares to "neutral."
There appears to be a "major quality control problem" in Asia where the "Luon" pants are made, Poser said. While Lululemon has used the same factories to make its fabrics since 2004, he said it doesn't seem as though the company has the proper oversight in place.
The Luon pants are one of the retailer's product staples and Cowen analyst Faye Landes said if there is any comfort to be found, it is that Lululemon is not facing a demand problem. Lululemon has been a star for investors, as well as yoga devotees, with shares rocketing from less than $3 in 2009 to around $65 this year.
But the announcement comes just before the company posts earnings for the final quarter and full year on Thursday.
Lululemon Athletica, based in Vancouver, British Columbia, cut its first-quarter revenue forecast as a result of the recall. The company now expects first-quarter revenue between $333 million and $343 million. Its prior guidance was for $350 million to $355 million. Analysts polled by FactSet expect revenue of $352.1 million.
It also lowered its first-quarter outlook for comparable store revenue, from 11%, to 5% and 8%.