Short-seller tips NYT on yoga firm’s dubious duds

THE NEW YORK TIMES reports that laboratory tests on clothing sold by Lululemon Athletica (NASDAQ: LULU) have failed to substantiate the company’s claims that they contain a special seaweed fiber. In fact, one test found the fabric was remarkably similar to that of a plain cotton t-shirt.Canada-based Lululemon, which went public in July, makes popular (and expensive) yoga clothing that it claims includes unusual materials like bamboo, charcoal and, of course, seaweed.

According to the company’s prospectus with the SEC, one of its “advanced fabrics” is “derived from a seaweed compound” and “releases amino acids, minerals and vitamins directly into the skin.”

But when the Times tested the material it found that it contained no seaweed — a fact the company says it cannot dispute because it has never done its own tests.

Company chairman Dennis Wilson tells the newspaper his company didn’t do its own tests because it probably didn’t have enough money when it started selling the goods 18-months ago.

No mention is made of whether anyone thought of testing the claims during the due diligence that surely was carried out prior to the IPO.

But the most interesting line in the article for me is this one:

“The Times commissioned its test after an investor who is shorting Lululemon’s stock — betting that its price will fall — provided [laboratory] Chemir’s test results to The Times.”

Now, it remains to be seen if the bad publicity will help our unnamed short-seller to profit from his or her efforts at revealing the truth.

The Times ends its story with this quote from a Lulu devotee outside one of the firm’s stores:

“I couldn’t care less, because it is so comfortable.”

And judging from the fact that there is no information on Lululemon’s website addressing this issue, management doesn’t think it’s a big deal either.

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