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Takeaway: LULU has managed to avoid a major potential negative.

Score One for $LULU on See-Through Yoga Pants Flap - lululemon breathe

 

Lululemon prevails in two lawsuits over yoga pants recall

  • "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

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