By Savyata Mishra Dec 12 (Reuters) – Lululemon Athletica’s CEO shake-up has put the spotlight on the once-dominant yoga pants maker’s race to wrest back younger and affluent shoppers from rivals and revive its sagging U.S. business. Its shares, which have halved in value this year, rose 10% on Friday following the departure of CEO […]
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Lululemon CEO exit sparks hopes of reset at athleisure pioneer
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By Savyata Mishra
Dec 12 (Reuters) – Lululemon Athletica’s CEO shake-up has put the spotlight on the once-dominant yoga pants maker’s race to wrest back younger and affluent shoppers from rivals and revive its sagging U.S. business.
Its shares, which have halved in value this year, rose 10% on Friday following the departure of CEO Calvin McDonald after about seven years in the role.
An athleisure pioneer known for its premium yoga apparel, Lululemon lost ground as newer rivals such as Alo Yoga and Vuori weaned away its core younger shoppers with trendier styles, marketing campaigns and celebrity partnerships.
Meanwhile, established players like Nike and Gap also entered the market with lower-priced styles.
Lululemon “caught the perfect wave in fashion, becoming the trend for the last five years,” said Brian Mulberry, senior client portfolio manager at Zacks Investment Management.
“But as its core customers graduate college and face tighter budgets, affordability is a challenge and a new outfit at Lulu can cost as much as a month’s groceries.”
Lululemon sells a range of yoga, running and training apparel such as Align yoga pants priced at $108 and men’s joggers at $128.
The slow refresh to core styles and product missteps, such as its decision to pull its $98 “Breezethrough” leggings from shelves last year, have led to heavy discounting to clear aged inventory.
At an earnings call late on Thursday, company executives said the board is “focused on a leader with experience and growth and transformation”.
“It’s understandable to think that a strategic overhaul with a new leader at the helm will be a positive, but this opens the door to more questions as to what direction the board will go with a replacement,” said Jay Woods, chief market strategist at Freedom Capital Markets.
Lululemon is the latest global consumer company facing leadership churn as macroeconomic uncertainty fuels increasingly divergent spending patterns.
TRANSITION UNDER SCRUTINY
Lululemon is making efforts to speed up product development, launch fresh styles and drive company-wide efficiencies to offset cost inflation and protect margins.
The company beat third-quarter results, lifted by strong China sales, but issued a weaker-than-expected holiday forecast as higher promotions and increased spending on marketing weigh on margins.
Founder Chip Wilson, who is also Lululemon’s largest independent shareholder, in a statement on Friday slammed the board for “poor succession planning” and value erosion.
He called for an urgent CEO search led by new, independent directors with deep company knowledge to restore a product-first focus.
Lululemon did not immediately respond to a Reuters request for comment on Wilson’s statement.
The company’s forward price-to-earnings multiple, a common benchmark for valuing stocks, is 14.66, compared to 31.26 for Nike and Abercrombie & Fitch’s ratio of 10.8, according to LSEG data.
“The main challenge I foresee for the new leadership is not how consumers see Lulu, but how does it see itself?” said Mulberry.
(Reporting by Savyata Mishra, Juveria Tabassum and Sanskriti Shekhar in Bengaluru; Editing by Sriraj Kalluvila)