A class action lawsuit was filed against Lululemon Athletica Inc. (LULU) by Levi & Korsinsky on August 8, 2024. The plaintiffs (shareholders) alleged that they bought LULU stock at artificially inflated prices between December 7, 2023 and July 24, 2024 (Class Period) and are now seeking compensation for their financial losses. Investors who bought Lululemon Athletica stock during that period can click here to learn about joining the lawsuit.
Canada-based Lululemon Athletica designs and manufactures premium athletic apparel, footwear, and accessories for yoga, running, training, and other activities.
Lululemon Athletica’s Misleading Claims
According to the lawsuit, LULU and two of its senior officers (Individual Defendants) repeatedly made false and misleading public statements throughout the Class Period. Particularly, they are accused of omitting truthful information about the company’s ability to address inventory allocation issues, color palette execution issues, and ancillary matters from SEC filings and related material.
For instance, during the Class Period, the company constantly highlighted its innovative offerings and customer loyalty for its products. The company also maintained that its inventory purchases were dependent on sales growth, freight costs and duty, as well as production capacity and speed.
Interestingly, during a press release dated January 8, 2024, Lululemon surprisingly raised its Q4 FY23 revenues, earnings per share (EPS), and gross margin outlook ahead of the actual results announcement. In the same release, the CFO noted that the company’s sales remained solid across all channels, categories, and geographies in Q4, which enabled the company to lift its guidance.
However, subsequent events (discussed below) revealed that the defendants made misleading statements about the company’s sales prospects and inventory management mechanism, leading to disappointment among investors.
Plaintiffs’ Arguments
The plaintiffs maintain that the Defendants deceived investors by lying and withholding critical information about the company’s business practices and prospects during the Class Period. Importantly, the Defendants are accused of misleading investors about the company’s sales and inventory management tactics.
The information became clear in a series of events that occurred between March 21, 2024 and July 25, 2024. First, the company announced better-than-expected results for Q4 FY23, which also beat its own revised guidance. However, the company warned of stagnating demand in the Americas segment. The news sent LULU stock down 15.8%.
Additionally, on July 24, 2024, Bloomberg reported that several analysts were questioning Lululemon’s inventory allocation mechanism. The report mentioned inconsistencies, especially in the newly launched Breezethrough leggings, both in physical stores and online. LULU stock fell 9.1% on the news.
The following day, Bloomberg reported that Lululemon had decided to pause the sales of Breezethrough yoga wear, citing a company spokesperson. The company was making necessary adjustments to deliver “best possible product experience.”
To conclude, Lululemon Athletica misled investors about the company’s sales and inventory management challenges. Year-to-date, LULU stock has lost 50.1%, causing massive damage to shareholder returns.
