NEW YORK (Reuters) — Lululemon
Athletica Inc <LULU.O> says its nearly year-long struggle with bad
publicity linked to slowing growth and a messy product recall did
not reflect any corporate intent to defraud shareholders, and that
an expanded lawsuit suggesting otherwise should be thrown out of
court.
In a filing on Tuesday night in the U.S. District Court in
Manhattan, the Canadian yoga wear retailer said it promptly
addressed quality control problems as they became apparent, and
updated investors in real time about the impact.
It acknowledged that comments in November by founder and Chairman
Dennis "Chip" Wilson that some women's body shapes "just actually
don't work" with Lululemon yoga pants prompted much negative press.
But it said none of this meant it owes shareholders money.
"While all of this makes for interesting reading," the company said,
"it does not constitute securities fraud."
Lululemon is seeking to dismiss an amended lawsuit accusing it of
misleading and defrauding shareholders between September 7, 2012 and
January 10, 2014, just before shares of the company fell to a
two-year low after the company issued its second lowered earnings
forecast in a month.
Hannah Ross, a partner at Bernstein Litowitz Berger & Grossmann,
which represents investors led by the Louisiana Sheriffs' Pension &
Relief Fund, declined to comment on the filing. The fund is based in
Baton Rouge, Louisiana.
Shareholders accused Lululemon of hiding defects in its black luon
pants, which were recalled; concealing its inability to address
quality shortfalls; using deep discounting to boost market share,
and concealing plans to replace Christine Day as chief executive.
Last month, Day stepped aside and was replaced as chief executive by
former TOMS Shoes president Laurent Potdevin. Wilson is stepping
down this year as non-executive chairman. Day and Wilson are
defendants in the shareholder lawsuit.
Wilson, in a separate filing on Tuesday, said he had last held a
management role at Lululemon in January 2012, and that allegations
that he "dipped in and out of daily affairs" did not show he knew
about, or was complicit in, any fraud.
He also said his alleged sales of $184 million of Lululemon stock
during the class period was not fraudulent, as the lawsuit
contended, because they were made under a prearranged trading plan
and not suspicious in timing or quantity.
Last month, after Lululemon issued the second reduced earnings
forecast, Chief Financial Officer John Currie called the quality
issues "a real wake-up call" and admitted that 2013 was a tough
year.
"You always hear the phrase that any PR is good PR. What we learned
is that's not always the case," he said. "We're taking it seriously.
Like, we get it."
The case is In re: Lululemon Securities Litigation, U.S. District
Court, Southern District of New York, No. 13-04596.
(Reporting by Jonathan Stempel in New
York; editing by Peter Galloway)
