Lululemon’s disappointing outlook adds urgency to CEO search
The company is focused on improving full-priced sales in the Americas
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[NEW YORK] Struggling retailer Lululemon Athletica forecast a second-straight year of profit declines, further pressuring a brand that’s dealing with product mishaps while searching for a new chief executive officer.
The midpoint of the athleisure company’s sales forecast also missed the average of estimates compiled by Bloomberg.
Tuesday’s (Mar 17) earnings report did little to assuage investor concerns that Lululemon can recapture the growth it was once known for. The company did not announce a new CEO, as some had expected, even though it did name a long-time apparel executive to its board.
The next CEO “will be instrumental in determining whether a turnaround can take hold,” Bloomberg Intelligence analyst Poonam Goyal wrote in a research note.
Shares of Lululemon fell as much as 2.2 per cent in premarket trading on Wednesday. The stock has declined 23 per cent this year through Tuesday’s close, much steeper than the drop of the S&P 500 Index over the same period.
The performance gives founder Chip Wilson added fuel as he calls for strategic changes and an overhaul of the company’s board. Lululemon has also recently found itself back in an uncomfortably familiar position: facing backlash for poor-quality clothing that is too sheer for comfort. And sales have been hit by increasing competition from newer brands like Alo Yoga and Vuori.
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Lululemon reported net revenue in the Americas fell 4 per cent in the fourth quarter. While Goyal said the international business remains strong, “that isn’t enough to counter US weakness.”
The company is focused on improving full-priced sales in the Americas after seeing more demand for markdown items last year, executives said on Tuesday. Lululemon is also increasing new product launches and enhancing the in-store experience.
“We know we must improve our performance in North America,” chief financial officer Meghan Frank, who’s also serving as interim co-CEO, said during the company’s call with analysts.
The company is looking for a permanent chief executive officer after Calvin McDonald exited the role earlier this year. In addition to Frank, chief operating officer André Maestrini is serving as interim co-CEO.
New director
On Tuesday, Lululemon named former Levi Strauss . CEO Chip Bergh to its board. He led Levi from 2011 through 2024, and oversaw the denim’s company initial public offering in 2019. If elected by shareholders, he will replace David Mussafer, a long-time director who doesn’t plan to stand for re-election after his current term. Wilson, the founder, has raised questions about Mussafer’s objectivity.
Wilson, who no longer has a role with the company, began his campaign for changes at Lululemon last fall, criticising management in a full-page ad in the Wall Street Journal. Since then, he has continued to speak out while nominating three other director candidates for the board. He has called for changes to the board before a new CEO is hired.
Lululemon sought to deflect criticism with the appointment.
“With this addition, Lululemon has added five new independent directors to the board in the last five years, reflecting the board’s commitment to ongoing refreshment,” the company said in a statement.
Activist investor Elliott Investment Management has also taken a more than US$1 billion stake in Lululemon. Jane Nielsen, a former chief financial officer and chief operating officer at Ralph Lauren, has worked with Elliott as it built up its stake.
McDonald departure
McDonald, who led Lululemon since 2018, left his post in January and was recently named CEO of the Wella Company, a haircare business. During his time at Lululemon, he oversaw massive sales growth, but the expansion stagnated last year.
He tried to expand Lululemon’s product offerings, buying Mirror, an at-home exercise equipment company and launching a personal care line. Only three years after buying Mirror, Lululemon discontinued its sale and personal care products are no longer available on its website. BLOOMBERG
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