Under pressure from a rich, ousted former CEO and founder (and still shareholder), Chip Wilson, Lululemon (LULU) made one of the stupidest decisions seen at a struggling public company in some time.
And shareholders are paying dearly for the boardroom debacle, as seen in the disastrous earnings report and guidance cut late Thursday that has sent the stock reeling 20% (adding to the 42% drop in the stock this year) in early trading on Friday.
The company announced a new CEO on April 22 with an effective start date on Sept. 8! While incoming CEO and former top Nike (NKE) executive Heidi O’Neill is highly experienced, people who know her tell me the long delay in her official start date has destroyed the execution even further at the company.
Lululemon is still being led on an interim basis by co-CEOs Meghan Frank and André Maestrini. These two — who helped lead the failing strategies under former CEO Calvin McDonald — are essentially placeholders until O’Neill arrives and probably cleans house after some form of typical new CEO listening tour. Their goal is to simply keep the lights on at Lululemon, work through inventory no one wants, and try to keep nervous employees doing their jobs.
But ultimately, this is turning into a disaster story at Lululemon. It could have been somewhat avoided by hiring a CEO from the many, many talented leaders out there in the retail industry on April 22. Doing so would have given the company a decent start to the first quarter of 2027, with momentum possibly building from there.
The brand’s once-formidable market share in sportswear continues to be eroded by product missteps from McDonald’s team that are still showing up in stores. The lack of consistent execution has led to the growing popularity of newer sportswear brands like Alo and Vuori.
Lululemon’s second quarter results were absolutely abysmal across the board as a result, and underscore how it could take more than a year for O’Neill to right the ship.
Total comparable sales crashed 10%. North America comparable store sales fell 12%. Sales in the women’s category dropped 4%. A real kicker: Sales of Lulu’s iconic leggings nosedived 20%. Talk about stinking up the joint!
“But more importantly, we see even greater pressure, particularly on the top line, looking into next year and fear tonight’s move and guidance is yet another along a stretch of a ‘thousand cuts,’ rather than ‘kitchen sink,” Guggenheim analyst Simeon Siegel said.
The company’s third quarter revenue guidance implies a 10% to 11% year over year decline, with North America down a mid-teens percentage.
