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Lululemon announced the end of a seven-year-long tenure Thursday with the exit of CEO Calvin McDonald. Going forward, the company is looking for a CEO with experience in growth and transformation, CFO Meghan Frank, who will take on an interim co-CEO role in January, said on an earnings call that day.<\/p>\n
The company, which reported earnings on Thursday, saw revenue grow 7% to $2.6 billion, but sales in the Americas declined 2% in the period. Comps increased 1% overall but were down 5% in the Americas.<\/p>\n
Founder Chip Wilson, who has been vocal in recent months about his criticism of Lululemon, weighed in on the executive shift on Friday, saying he was \u201cdeeply concerned\u201d that the board appeared not to have a planned out succession process.<\/p>\n
“As I have communicated to members of the company publicly and privately, Lululemon needs revitalization and an infusion of new skills to get back to being a product-first company that creates real, long-term shareholder value,\u201d Wilson said in a statement, alleging that the board and McDonald have overseen years of deterioration at the athletics brand.<\/p>\n
He added that there are \u201cseveral qualified CEO candidates\u201d who could build on the brand\u2019s legacy and urged the board to consult with those with deep knowledge of the company as its CEO search commences.<\/p>\n
\u201cIn my view, the Board has failed to properly hold management accountable to deliver product innovation and instead has led with complacency,\u201d Wilson said. \u201cThe erosion of premium brand value in the company’s core markets demonstrates that the Board does not understand its target customers anymore or what will drive shareholder value at Lululemon over the long term.\u201d<\/p>\n
Lululemon did not immediately respond to questions regarding Wilson\u2019s comments.\u00a0<\/p>\n
Some of Wilson\u2019s criticisms are valid \u2014 Lululemon\u2019s management in September announced it would overhaul its product design and development processes to combat a series of product missteps. McDonald at the time acknowledged that Lululemon had become \u201ctoo predictable\u201d and failed to create new trends, and that discussion continued in the current quarter.<\/p>\n
On his last call as CEO, McDonald said the brand was focused on product creation and that he had been working with Creative Director Jonathan Cheung on a more compelling product pipeline. The first results of that work will hit in the spring, McDonald said, and the brand is on track to have 35% new style penetration by then as well.<\/p>\n
\u201cOur teams have been in the work to reenergize our product engine, bring a new energy into our assortment and increase our speed and agility,\u201d Frank said. \u201cLooking forward and under the direction of our design team, we will be updating several of our key franchises while also maintaining a strong pipeline of new innovations across our performance offering.\u201d\u00a0<\/p>\n
Innovation will hit categories including run, train, yoga, golf and tennis, beginning with train. The company has a new fabric designed for weight training, McDonald said, and plans to innovate in its leggings business and across tops.<\/p>\n
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“Lululemon is now a brand without a captain at the very time when it needs a strong sense of direction.\u201d<\/p>\n
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Neil Saunders<\/p>\n
GlobalData Managing Director<\/p>\n<\/div>\n<\/div>\n\n<\/div>\n
Overall, analysts seem to agree it\u2019s time for a leadership change, though some of the brand\u2019s problems are larger than an executive. Guggenheim analysts led by Simeon Siegel noted that the CEO shift gives Lululemon some breathing room for a reset, but noted concern over \u201cpotential domestic brand saturation.\u201d<\/p>\n
\u201cReinvigorating growth for a strong but large brand is easier said than done,\u201d the analysts wrote.<\/p>\n
A leadership change right now also muddies the waters on the brand\u2019s turnaround, some analysts noted. Needham analyst Tom Nikic said the company\u2019s outlook has \u201clikely become cloudier\u201d due to McDonald\u2019s departure, a sentiment echoed by GlobalData Managing Director Neil Saunders, who called the CEO shift \u201csudden and hasty.\u201d<\/p>\n\n\u201cWhile the results themselves do not warrant a resignation, the somewhat muddled strategy has caused a lot of noise as Lululemon\u2019s founder has become an outspoken critic of the brand\u2019s direction. This made the position of Calvin McDonald difficult and is one of the reasons for his exit,\u201d Saunders said. \u201cThat said, Lululemon is now a brand without a captain at the very time when it needs a strong sense of direction.\u201d\u00a0<\/p>\n
The retailer\u2019s path forward also comes after a decade of largely enormous success. Wells Fargo analysts noted Lululemon\u2019s performance in North America has been \u201cone of the strongest and most consistent\u201d in the softlines space over the past 10 years. Those analysts also said McDonald was \u201cvery successful for many years\u201d and helped create the strong U.S. athleisure <\/strong>market.\u00a0The competitive environment has gotten more intense, though, and a fresh perspective is a positive for the brand.<\/p>\n\u201cThe brand is in unchartered waters today, unable to comp positive in 12+ months with the US market negative and struggling due to a lack of innovation on core product and increasing competition from new entrants (namely Alo Yoga and Vuori, as well as others),\u201d Wells Fargo wrote.<\/p>\n
While Lululemon had a successful Thanksgiving period, McDonald said Thursday that trends have slowed since then. The retailer is projecting a net sales decline of 1% to 3% in Q4, though sales would be up 2% to 4% excluding the extra week last year. For the full year, Lululemon expects net revenue will grow 4% to roughly $11 billion.<\/p>\n\nJefferies analysts warned in emailed comments that the brand\u2019s fundamentals will continue to deteriorate, with Lululemon losing more share and margin erosion continuing to make a mark on the business.<\/p>\n
\u201cThe reality is that under Calvin\u2019s leadership, [Lululemon] lost its way,\u201d Jefferies analysts led by Randal Konik said. \u201cThe brand\u2019s core identity has been diluted by inconsistent design + expansion into non-core categories. The result: alienation of loyal customers, mounting competitive pressures, and a biz in clear decline. The board\u2019s decision to move on is overdue and, in our view, the most constructive development for shareholders in years.\u201d<\/p>\n<\/p><\/div>\n
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