Canada

Photo: The Canadian Press. All rights reserved.

A woman leaves a Lululemon store in Vancouver Thursday, October 18, 2007. THE CANADIAN PRESS/Richard Lam

Lululemon Athletica Inc. (TSX:LLL), the Vancouver-based retailer of trendy workout gear, admits the recent recall of its black Luon pants will put the pinch on earnings this year, but says keeping customer loyalty is paramount.

"Delivering the top quality our guests expect is a critical factor in our differentiation in the market place," CEO Christine Day said in delivering an upbeat fourth-quarter earnings report Thursday that slightly exceeded expectations but produced a conference call dominated by questions from analysts over the recall.

The company, which operates 211 stores in North America and Australia, said earlier this week it was pulling some of its stretchy black pants from shelves because of manufacturing problems that made them too sheer.

Analysts wanted to know what went wrong and how the pants even made it to stores before the problem was detected?

Day said the manufacturing was a complicated, multi-stage process, adding that the pants had passed all of its standard and long-standing quality control tests before shipping.

"The only way that you can actually test for the issue is to put the pants on and bend over," she told analysts.

Day said it wasn't known whether it was the ingredients, specific manufacturers or problems with the manufacturing process that caused the black Luon pants to be too sheer.

Lululemon said a team has been working with suppliers to identify and correct the issue.