Is it too late to short seaweed-free clothing vendor Lululemon Athletica?

Posted Nov 14th 2007 9:30AM by Peter Cohan
Filed under: Bad News, Products and Services, Marketing and Advertising, Short Stories, Stocks to Sell

The New York Times reports that a short-seller of Lululemon Athletica (NASDAQ: LULU) shares suggested that it test its clothes for seaweed content. The result -- 0% -- proved profitable for the short-seller. Lululemon Athletica shares have lost 10% of their value in premarket trading.

Why would the seaweed content of Lululemon Athletica's products affect the value of its stock? Because Lululemon claims that its clothes are 24% seaweed fiber. On being found out, Lululemon CEO Dennis -- call me Chip -- Wilson's comment was priceless: "If you actually put it on and wear it, it is different from cotton. That's my only test of it."

I am not sure whether this news will wipe out the company, but it could be in trouble for false advertising. One customer outside a Lululemon store in Chicago said he would not stop buying VitaSea clothing, even if tests disproved Lululemon's claims. "I couldn't care less, because it is so comfortable."

If you bought the shares at its July 2007 $28 IPO, you can still lock in a profit if you get out at the open.

I am impressed by the cleverness of that short-seller who surely will be walking around with a smile on his or her face today.

Meanwhile, when you hear a sales pitch based on organic ingredients, hold onto your wallet.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Lululemon Athletica securities.

Tags: featured, lulu, lululemon, lululemon athletica, LululemonAthletica

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Reader Comments (Page 1 of 1)

11-14-2007 @ 3:13PM

Lulu no lemon said...

Honestly, this is the first I have heard of the Seaweed in their clothes and ditto for my wife who insists I buy her some Lulu for gift giving occasions. I doubt many customers will care or buy the product because of the seaweed. Women love these clothes because they look good in them and that is all there is to it.