- "A lawsuit accusing Lululemon Athletica Inc of defrauding shareholders by hiding defects in its yoga pants should be dismissed, a U.S. judge has concluded…"
- "In a draft decision released on Friday, U.S. District Judge Katharine Forrest in Manhattan rejected claims the Canadian company cost investors roughly $2 billion by having concealed problems in manufacturing and marketing its yoga pants."
- "Forrest on Friday also issued a draft decision that dismissed a separate lawsuit seeking to hold 13 current and former Lululemon executives and directors liable for mismanagement. The judge is expected to hold a hearing to review whether she should make the decisions final."
Takeaway From Hedgeye’s Brian McGough:
Lululemon just hurdled a major potential negative. Sure, lawsuits around product happen all the time, but the magnitude of this one was particularly huge. There's an important difference between having a poor process and weak internal controls versus deliberately burying information around product defects to defraud investors. If the decision had gone the other way, this would have been a massive headache for Lululemon. Score one for LULU.
Editor's Note: This is a complimentary research excerpt from Hedgeye Retail Sector Head Brian McGough. Follow Brian on Twitter @HedgeyeRetail.