Lululemon founder Chip Wilson is “challenging” the Lululemon board according to the story below and is pushing for new members to replace them in the middle of the CEO search.
Wilson believes the company has drifted into an identity crisis; for instance, he feels innovation has stalled, and in his view, the current board does not enjoy the confidence of investors.
The valuation is starting to reach an interesting level if you believe that the company can reinvent itself along with the latest trends. This is very difficult to assess. There is a lot of potential, but the market is more challenging compared to iconic brands like Nike and Adidas, which always have their buyers. Whether baggy pants or tight gym leggings are in fashion…
Lululemon’s year-end was somewhat two-sided; revenue and EPS exceeded expectations, and international growth remained strong, but development in the important North American market was sluggish. Profitability clearly weakened, as tariffs, sales, and similar factors weighed on the result.
Management emphasized satisfaction with the quarter’s performance, but the short-term outlook was cautious. The company reportedly plans to seek a turnaround through product innovations and strengthening sales, especially in the United States.
https://x.com/earnings_guy/status/2033998373028597975
Lululemon’s stock fell slightly after Texas Attorney General Ken Paxton launched an investigation into the company’s alleged misleading safety and health claims.
The suspicion is that the company may have presented too positive a picture of its products’ safety. The investigation will examine, for example, whether the clothing contains harmful PFAS chemicals and whether the marketing matches what is actually said about the products.
Lululemon has appointed Heidi O’Neill as CEO, effective September 8.
She brings over 30 years of experience to the company, including a quarter-century at Nike. Interim leaders Meghan Frank and André Maestrini will return to their previous roles following the transition.
“Heidi is an inspiring leader and proven, consumer-driven brand strategist, with a rare ability to both imagine a new future for a brand and to create the structure and processes to deliver on that vision,” said Marti Morfitt, Executive Chair of lululemon’s Board of Directors.
Lululemon’s start to the year was perhaps a bit mixed. Revenue and earnings were roughly in line with expectations, but growth remained modest nonetheless. Sales weakened particularly in North America, which naturally weighed on the overall development of the company. However, growth remained strong in international markets, and the company thus continued expanding its store network.
Investors were primarily concerned by the lowered outlook; the company cut its full-year revenue and earnings forecasts and provided guidance for the next quarter that was significantly weaker than expected. Profitability also declined clearly, but the cash position supposedly remains quite strong and share buybacks were continued.
Management admitted that growth has slowed and stated they are now focusing on re-accelerating growth.
https://x.com/earnings_guy/status/2062626781799084260
Now the stiff man’s yoga pants have officially ripped. Unfortunately, this is starting to smell a bit like a value trap… Luckily, Lululemon isn’t a huge part of my portfolio. It certainly doesn’t look expensive, but when profitability drops at the same rate as the share price, it’s not a good sign at all. This might be a good spot to jump to the sidelines to lick my wounds and swap back into jeans, but I should probably listen to the gathered excuses a bit more closely before making a decision.
Lululemon didn’t have a great time; revenue dropped and comparable sales weakened significantly.
Customs refunds improved the gross margin and also supported earnings, but without them, the overall picture would have been weaker. Operating profit and the operating profit margin also declined, and the company lowered its guidance for the full year and the next quarter.
The cash position remained strong and inventories under control, and a new CEO is also starting soon.
https://x.com/earnings_guy/status/2095604113794875873
Sharp decline in aftermarket trading, and you haven’t been able to pick up shares at this price since 2018. Personally, I see this as a potential buying opportunity if you believe the brand isn’t going to die out completely… which I think is unlikely, even though the golden age of yoga pants is probably behind us.
The new CEO Heidi O’Neill is stepping up to the helm (with a very impressive track record at Nike!) and now she has been handed a clean slate to build from. The worst partnerships have been wrapped up, guidance has been lowered, share buybacks have been made to support EPS (earnings per share), and the preceding quarters showed historically poor growth. It can only get better from here, right? 
There’s cash on the balance sheet and positive cash flow… forward P/E based on the new guidance is around 10–11. Historically cheap. Admittedly, there’s no real moat and we are at the mercy of consumer trends. On the other hand, there is international growth, and the worst competitors, aside from Nike, are still lagging behind in internationalization.
It will be interesting to see whether Heidi focuses on the core business or looks for a new angle somewhere else. Can acquisitions be ruled out at this valuation?
