Lululemon Supplier Defends Shipment

Lululemon said it was pulling its popular black yoga pants from stores after some of them were found to be overly sheer. Shares tumbled. Andria Cheng reports. Photo: Reuters.

A Taiwanese supplier to Lululemon Athletica Inc. was bent out of shape on Tuesday after the yoga-clothes retailer blamed it for producing a shipment of pants that were unacceptably see-through.

The supplier, Eclat Textile Co. of Taiwan, hit back at Lululemon, saying the clothes it shipped weren't "problematic."

"All shipments to Lululemon went through a certification process which Lululemon had approved," Eclat Chief Financial Officer Roger Lo said in an interview. "All the pants were manufactured according to the requirements set out in the contract with Lululemon."

The Canadian company has built a billion-dollar business selling premium yoga gear at high prices, but the glitch with the recalled pants marks yet another recent stumble with products on its store shelves. The disclosure late Monday about the black Luon pants�one of its core items�followed a string of complaints last year that the colors were bleeding on some of its tops.

With the black Luon pant recall, Lululemon has now had its fourth quality-control issue in the past year, Credit Suisse analyst Christian Buss said. In addition to the problem with bright colors bleeding, the company had transparency problems with some colors of swimwear shipped for last spring as well as a subset of light colored pants, Mr. Buss said.

The string of glitches is a setback for a company that has attracted a devoted following for its high-end yoga wear, which faces growing competition.

Last July, Chief Product Officer Sheree Waterson posted an apology on Facebook for the colorfastness problem, long after complaints started cropping up. Two months later, CEO Christine Day mentioned the issue during an earnings call, acknowledging bleeding issues with colors including "Paris Pink" in "a couple of small, isolated issues."

This time, the company moved more aggressively, pulling all of the pants from stores and offering refunds, leading it to cut its sales first quarter forecast by around $20 million.

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• Lululemon Pulls Yoga Pants for 'Sheerness'

Some analysts expressed concern about the company's quality control.

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A Lululemon Athletic shop in San Francisco.

Analysts at Sterne Agee said the company doesn't appear to be exercising enough supervision of its supply chain.

"We are concerned that LULU does not have the appropriate presence in and around its factories," the analysts said. "It appears that there is not appropriate oversight in place."

Lululemon wouldn't comment on its supervision of suppliers.

Linda Goldstein, vice president of sourcing, quality and production at Lululemon, said in an interview that the company's sourcing manager for raw materials is currently at Eclat's facilities in Taiwan. Lululemon has yet to determine the cause of the problem, she said.

Lululemon relies heavily on a limited number of suppliers, a risk it called out in its annual report in March 2012. The Luon fabric at issue in the see-through pants comes from that one supplier.

Ms. Day has intentionally kept supplies of hot sellers low in order to create scarcity and buzz�and to ensure customers pay full price as often as possible.

Lululemon's shares were down almost 5% in early trading Tuesday, although they rebounded to finish at $64.08, down 2.3%, on the Nasdaq.

The company's shares, after rising by about two-thirds last year, are down nearly 18% so far in 2013.

Write to Aries Poon at aries.poon@dowjones.com and Karen Talley at karen.talley@dowjones.com