Lululemon Sued Over Bonuses Before Pants Recall

Lululemon Athletica Inc. was sued by a shareholder demanding records about the yoga-wear maker’s decision to increase executive bonuses just before it recalled shipments of women’s pants for being too sheer.

Even though the recall may cost the company $60 million, Vancouver-based Lululemon’s directors boosted the potential payout under an executive bonus program by a third, according to a complaint filed by Hallandale Beach Police Officers and Firefighters’ Personnel Retirement Fund.

The actions of the board “appear to have violated its fiduciary obligations and damaged the company and its stockholders,” the fund said in the complaint filed today in Delaware Chancery Court in Wilmington.

Lululemon has been probing how the flawed pants, which become too sheer when wearers bend over, got past its testing procedures. The recall of the black Luon garment, which accounted for about 17 percent of all the women’s pants the company sells, caused Lululemon to forecast profit this year that was less than analysts estimated, sending the shares to their biggest drop in two months.

The retirement fund demanded any records related to the bonus plan so it can determine whether the board of directors acted in good faith.

A phone message requesting comment on the lawsuit wasn’t immediately returned by ICR Inc., the company’s public-relations representative.

The case is Hallandale Beach Police Officers and Firefighters’ Personnel Retirement Fund v. Lululemon Athletica Inc. CA8522, Delaware Chancery Court (Wilmington).

-- With assistance from Renee Dudley in New York. Editors: Andrew Dunn, Michael Hytha

(Updates with excerpt from filing in third paragraph.)
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