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Lululemon Responds But Can They Go Beyond A Press Release?

Two days after the initial scandal that caused shares to plummet,lululemon just sent out its response via press release at 9 pm ET on Thursday. According to inside sources, board members felt that lulu "should not have let this happen" (the scandal and NY Times quotes from company executives) and said that LULU will "learn from this experience."

Regardless of what should have happened, here's proof of what a rumor can do to a stock. One source said that the Vitasea represents less than 3% of lulu's product line yet the scandal caused the stock to lose (at point point) 8% of value in a day.

For what it is worth, here's the press release below:

VANCOUVER, Canada ­ November 15, 2007 - lululemon athletica inc. (NASDAQ: LULU; TSX: LLL) today announced that independent tests have confirmed the content of the VitaSea product line to be consistent with the garment care and content labels.

Robert Meers, CEO of lululemon, stated: “Product quality and authenticity are of the utmost importance to lululemon. Integrity goes to the core of everything we do and is at the heart of our relationship with our guests. For this reason, we test our products for content using a leading testing facility. We absolutely stand behind our products, our processes and refute any claims in recent press reports to the contrary.”

lululemon has a comprehensive product testing process and partners with SGS Group, a leading independent inspection, verification, testing and certification company. The Switzerland-based firm conducts a battery of tests before each season on all of lululemon’s fabrics across all product lines, testing for a variety of attributes including content, pilling, shrinkage, and colorfastness.

In December 2006, Smartfiber AG, the developer and innovator of SeaCell® Pure used in lululemon’s VitaSea products, conducted independent tests that confirmed the presence of vitamins, minerals, and amino acids in the fabric that was provided to lululemon’s manufacturers. To create the fiber, SeaCell®, a seaweed derivative, is combined with a cellulose material, and spun into lyocell special SeaCell® fiber. Specialized testing is required to measure SeaCell® on the lyocell fiber.

Recent tests on the VitaSea fabrics were performed in June 2007 in the SGS Laboratory in Hong Kong as well as confirmatory retesting conducted last night in the SGS Hong Kong lab. Findings from SGS confirmed that the fabric contains the lyocell fibers consistent with the care and content labels on the product. Smartfiber AG further confirmed these findings to contain lyocell special SeaCell® fiber.

Gerhard Neudorfer, Sales and Marketing Director SeaCell® Fibers, said, “We pride ourselves on our quality control and oversight in all of our manufacturing processes. SeaCell® is permanently incorporated in the spun fiber we provide to lululemon and is of the highest quality. In addition, we conduct our own quality assurance procedures, including regular visits to production facilities, to ensure the manufacturer is producing products in strict compliance with our specifications as well as lululemon’s.”

Mr. Meers concluded: “Innovation and integrity are at the heart of lululemon. We pride ourselves on innovative and technical design. We are committed to continually bringing new and cutting edge products to the marketplace.”

We'll see if lulu's press release can undo the headline risk posed by news reports. Saying something is the first step but coming forward to directly take control of the image, marketing, message of the brand woulf be the strongest response.

Unfortunately, execs often view responding as honoring the value of the accusation. Wrong. When you're given a national platform (for free--not paid adverts) to talk about the strength of you business, take it. We'll see if lulu takes CNBC up on our offer to come on air. I'm told it looks unlikely.

Questions? Comments? retaildetail@cnbc.com

Retail

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