Lululemon's CEO Search Just Got More Complicated
Key Points
Lululemon is searching for a new CEO following a slump in U.S. sales.
An activist investor is already involved, and now the company's founder wants to replace multiple board members.
These developments could prolong the CEO search.
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Activewear retailer Lululemon (NASDAQ: LULU) has been struggling to remain relevant in its core U.S. market. The company is facing more competition than ever before, and management has been slow to recognize that its core products have become stale in the eyes of consumers. Comparable sales in the Americas tumbled by 5% in the third quarter, continuing a years-long trend.
Earlier this month, Lululemon announced that CEO Calvin McDonald would step down at the end of January after leading the company since 2018. McDonald will depart without a clear succession plan in place. Instead, the board of directors is currently searching for a permanent replacement.
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Image source: Getty Images.
An activist investor and the founder enter the fray
About a week after Lululemon announced that McDonald would step down, activist investor Elliot Investment Management disclosed that it had built a stake worth more than $1 billion in the company. Elliot is pushing former Ralph Lauren executive Jane Nielsen as the next CEO, looking to use its stake as leverage to influence the board of directors.
The job of the board became more complicated on Monday when Chip Wilson, the founder of Lululemon and a major shareholder, launched a battle to replace members of the existing board of directors. Wilson views the lack of a succession plan as a failure, stating that shareholders lack confidence in the current board's ability to select the right CEO to replace McDonald.
Wilson has nominated three independent directors, including former On Holding co-CEO Marc Maurer, former ESPN CMO Laura Gentile, and former Activision CEO Eric Hirshberg. The picks would bring substantial product experience to the board, with Maurer a particularly strong choice given On Holding's blockbuster growth in the global footwear market.
Wilson's efforts are independent of Elliot's, but it's possible the two could team up to force change at Lululemon.
What does this mean for Lululemon stock?
Shares of Lululemon have been struggling for the past two years. The stock is down about 58% from its all-time high, and that's after a rally driven by the news of McDonald's upcoming resignation.
While Wilson's involvement in the CEO search process complicates everything and could delay the process, Lululemon needs a CEO who is able and willing to shake up the company and its culture. Product development needs to be faster, and the company must once again create trends rather than follow them.
Ultimately, the pressure on the board from Wilson's push for new directors and Elliot's push to influence the CEO choice seems likely to result in a better choice, even if the process takes longer. For long-term investors who view Lululemon as a strong brand that's lost its way, these are positive developments that raise the odds of a stock price recovery.
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Timothy Green has positions in Lululemon Athletica Inc. The Motley Fool has positions in and recommends Lululemon Athletica Inc. and On Holding. The Motley Fool has a disclosure policy.
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