Lululemon Stock Nosedives Following CEO Resignation

Image via Flickr/ Elvert Barnes

After bouncing back from an embarrassing wardrobe malfunction earlier this year, yoga and athletic clothing maker Lululemon couldn’t hold onto shareholders after CEO Christine Day announced her resignation in the company’s first-quarter earnings report June 10. In spite of a 21-percent increase in year-over-year net revenue and 40-percent hike in direct-to-consumer revenue, shares fell 13 percent in after-market trading following the announcement, leading into a 17 percent drop on June 11.

Lululemon investors were already nervous following the controversy earlier this year when it fielded complaints that the company’s most popular black yoga pants, Luon, stretched too thin when wearers bent over, revealing more than was meant to be seen. The discovery led to a recall encompassing 17 percent of  the line and eventual resignation of the company’s chief product officer, Sheree Waterson, in April.

Day led the company through the crisis, however, and saw the black Luon line restocked—complete with extra material across the bum—by the end of May. Her resignation is reportedly unrelated to the issue.

In fact, Day said her choice to leave the company she’s helmed for more than five years was a “personal decision.” She called now “the right time” for a transition, and plans to stay on for the next six months while a successor is chosen and the transition is made.

Plans have been laid for the next five years and a vision set for the next 10,” Day said on a conference call with shareholders. “Now is the right time to bring in a CEO who will drive the next phase of lululemon’s development and growth. I will continue to actively lead the organization while the Board searches for a new CEO, and will work to ensure a smooth transition.”

Day joined Canadian-based lululemon in 2008, following a 20-year tenure at Starbucks. Under her leadership, the company’s annual revenue quintupled to $1.37 billion. And although the hit from this year’s snafu was less than expected—earnings per share of 32 cents beat expectations of 30 cents—first-quarter earnings increased just 1.5 percent. However, Day, 51, is simply worn out.

According to the Wall Street Journal,

She told the (company’s) board she had become exhausted working 18 to 20 hours a day and didn’t want to commit to the three to four years of heavy business travel needed to implement international expansion plans, according to a person familiar with the matter.”

Several analysts cut their price targets on Luluemon stock following Day’s announcement, and some even downgraded its equity. Belus Capital Advisors chief equities strategist Brian Sozzi told Reuters the company will have a difficult time finding a replacement for Day from a field of mostly older, male executives.

Here’s a lady that’s been the face of this company for five years,” he said. “If (the new CEO) is a 60-year-old guy, or a 40-year-old guy, I don’t know if he could share that same affinity, that personal attachment with Lululemon.”

Some have suggested company founder and chairman Dennis “Chip” Wilson, but according to a Luluemon statement, “Chip is focused on his responsibilities as the chairman of the board, and particularly on leading the selection process for the next CEO.”

Can Lululemon stock recover from the past 24 damaging hours? The next few months will be telling.