Lululemon’s Disappointing Outlook Adds Urgency to CEO Search

Struggling retailer Lululemon Athletica Inc. 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 earnings report did little to assuage investor concerns that Lululemon can recapture the growth it was once known for, says Bloomberg's Poonam Goyal. The company didn’t announce a new CEO, as some had expected, even though it did name a long-time apparel executive to its board.

Struggling retailer Lululemon Athletica Inc. 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 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.

Lululemon reported net revenue in the Americas fell 4% 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.  ‘Must Improve’

“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.

Despite the risks inherent in Wilson’s “skirmish with the board” the company should “attract a solid leader” due in part to the value of the Lululemon brand, William Blair’s Zackfia wrote. Efforts to satiate the founder and improve inventory and merchandising should also give any new leader more room to maneuver, she said.

New Director

On Tuesday, Lululemon named former Levi Strauss & Co. 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’ll replace David Mussafer, a long-time director who doesn’t plan to stand for reelection after his current term. Wilson, the founder, has raised questions about Mussafer’s objectivity.

In a letter Wednesday, Wilson called Mussafer’s departure “welcome” though his presumed replacement Bergh is “underwhelming.” The founder’s battle with the board looks set to continue.

“I want to be clear that while yesterday’s announcement is a step in the right direction, glaring governance deficiencies remain,” Wilson said in the latest letter.

Wilson’s Campaign

Wilson, who no longer has a role with the company, began his campaign for changes at Lululemon last fall, criticizing 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. 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 $1 billion stake in Lululemon. Jane Nielsen, a former chief financial officer and chief operating officer at Ralph Lauren Corp., has worked with Elliott as it built up its stake.

McDonald, who led Lululemon since 2018, left his post in January and was recently named CEO of the Wella Company, a haircare business.

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