Finally, shareholders sue Lululemon over pants recall
The lawsuit alleges that the yoga apparel manufacturer covered up just how sheer the pants were in an attempt to cut costs.
Even former Lululemon chief executive Christine Day managed to bolt out the door a full three weeks before a Lululemon shareholder filed suit in U.S. district court in Manhattan on Tuesday.
As a result, the suit accuses the company of defrauding shareholders by hiding defects in yoga pants whose sheerness led to a costly recall, and concealing talks that led to the Day's sudden departure after a nearly six-year tenure.
It's the second lawsuit filed against Lululemon in the nearly four months after the athletic wear retailer recalled women's yoga pants containing its proprietary Luon fabric after determining the pants were a bit too revealing. The most recent suit, however, was filed by Houssam Alkhoury, a Natick, Mass., resident who had bought 7,500 Lululemon shares.
The suit contends that Lululemon, Day, and company founder and chairman Dennis "Chip" Wilson hid defects in the yoga pants. It also accuses them of making the pants that sheer to cut costs and to sell them at a discount to preserve market share. Finally, it claims that before announcing Day's departure on June 10, Lululemon concealed "serious discussions" about her job status and her potential replacement.
Lululemon shares fell 17.5% on June 11 and wiped out about $1.62 billion of market value, according to Reuters and a regulatory filing. That loss wouldn't be nearly as tough to swallow if Lululemon didn't, as the lawsuit alleges, selectively make disclosures that caused its share price to be artificially inflated. That crushed share value once the truth came out.
This is only going to get worse for Lululemon, as the suit seeks class-action status for shareholders between March 21, when full-year results were announced, and June 10.
The Vancouver, British Columbia, company already stated that recalling the pants may reduce profits this year by up to $40 million, especially since those pants just returned to shelves last month.
Prior to that, Lululemon had built a reputation for making clothes that could withstand many years of wear and washes. If that hasn't been washed away by the recent recall, losing either lawsuit may scour away a bit of that trust.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
[BRIEFING.COM] The major averages finished the Tuesday session near their lows with the Russell 2000 (-1.0%) leading the slide. The S&P 500 lost 0.5% with nine sectors ending in the red.
Equities indices started the day with modest gains and spent the first two hours of action in the neighborhood of their flat lines. Although the early trade lacked clear sector leadership, that could have been overlooked due to the strength among heavily-weighted sectors like health care (-0.3%), ... More
More Market News
The apparel chain takes a hard hit after blaming the weather for its quarterly sales decline. But cold temperatures don't explain the drop in full-year sales as well.
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'