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This time, Lululemon's 'naked pants' are by design

Lululemon Athletica is at a turning point.

It's been two years since the active-wear company brought in Laurent Potdevin as chief executive officer. His task: cut the waste and expense of designing, making and distributing its garments, and rebuild customer trust after the 2013 recall of $98 yoga pants that became sheer when the wearer bent over.

Now Potdevin is staking the company's future on innovation, including pants that make women feel naked when they wear them.

The CEO is looking to improve profit margins while beating back growing competition in a niche market where clothing trends may be turning against Lululemon. Potdevin's goal is to cement the retailer's...