Lululemon's shares fall after CEO announces exit

AP News
Posted: Jun 11, 2013 6:14 PM

NEW YORK (AP) — Lululemon Athletica's CEO Christine Day may not be a household name to the athletic wear company's legions of loyal shoppers. But for investors, she's the face of the chain.

Lululemon's shares plunged 17 percent and several Wall Street analysts downgraded their ratings on the stock on Tuesday, a day after the company announced that Day, 51, planned to step down. Under Day's leadership over the past five years, Lululemon has achieved meteoric growth by attracting yogis and others willing to shell out $100 for yoga pants.

In a call to investors late Monday, Day didn't elaborate on why she was leaving, but said she would stick around until a successor is named. The company, meanwhile, said it has formed a search committee for a new CEO.

"It was a personal decision of mine," she said. "It's never a perfect time to leave a company that you love."

The news shocked many analysts who say that Day's departure creates a hole in leadership at a time when Lululemon can least afford it. The company, which operates stores in Australia, and New Zealand, among other countries outside North America, is facing growing pains as it expands further internationally into markets such as London.

It also is encountering challenges at home. The announcement comes three months after the Vancouver-based company pulled some of its popular yoga pants off the shelves for being too sheer. And it follows another high-profile leadership change: Lululemon's founder Chip Wilson, who started the company in 1998, stepped down as chief innovation and branding officer last year. He remains as chairman.

"This is just throwing more uncertainty on the complexities of the challenges of growth they're facing," said John Morris, a retail analyst at BMO Capital Markets, who closely follows Lululemon.

Analysts say Day will be difficult to replace. After spending more than 20 years at Starbucks, where she helped spearhead its expansion in Asia. Day joined Lululemon in January 2008 as an executive vice president of retail operations and became CEO in June of that year.

Day is credited with taking the brand with a little over 70 stores with $274 million in revenue right before she took the helm to a business that now operates 218 locations with revenue of $1.4 billion in the latest year.

Lululemon earned $47.3 million, or 32 cents per share, for the quarter that ended May 5. That's compared with $46.6 million, or 32 cents per share, in the first quarter last year. Revenue increased 21 percent to $345.8 million.

That beat Wall Street's expectations for the quarter. Analysts, on average, were anticipating earnings of 30 cents per share on revenue of $341.4 million, according to research firm FactSet

During Day's tenure, Lululemon's share price also has increased by more than fivefold. Lululemon's shares fell $14.25 to close at $68.03 on Tuesday, the day after the announcement of Day's departure. But the company's shares have traded as high as $82.50 in the past 52 weeks.

"What she has accomplished has been breathtaking," said Faye Landes, an analyst at Cowen and Co. "She has grown the company while maintaining a non-mass feel of the brand."

Landes also noted that Day, who wears Lululemon clothes and is an avid hiker and yoga enthusiastic, often visits the stores much that the managers know her. "She is charismatic," Landes said.

But the snafu with the yoga pants that were too sheer has been difficult for Lululemon. The company blamed the issue on a style change and production problems. The company, which hired a new team to oversee the making of the pants, previously said that it anticipated losing $57 million to $67 million because of the pants issue.

Day said on the Monday call that the company was able to get the product back into stores within 90 days of having pulled it. But the problem followed three other quality control issues in the past 12 months.

Lululemon also is encountering other challenges. The company acknowledged during Monday's call that some of its new spring styles didn't sell as planned. As a result, it has had to discount more than expected. Lululemon also said it had too many short jackets and not enough long ones and was working to fix that issue.