lululemon Shares rose more than 9% on Friday after the company announced that CEO Calvin McDonald would step down.
McDonald’s will leave the company on January 31st after suffering poor business performance for more than a year.
Lululemon’s board of directors is working with a “major executive search firm” to identify its next CEO, the company said in a news release. Mr. MacDonald will remain a senior advisor until March 31.
“It’s the right time for a change,” McDonald said on a conference call with analysts. “I’ve always described being CEO of Lululemon as my dream job, and it has truly lived up to every expectation and given me the opportunity of a lifetime.”
Lululemon Chief Financial Officer Meghan Frank and Chief Commercial Officer Andre Mastrini will serve as interim co-CEOs during the search process. Marty Morfitt, Chairman of the Company’s Board of Directors, will also take on an expanded role as Executive Chairman. He said in a statement that while the company has a strong foundation in place, it needs new leadership to guide it through a period of transition.
“Looking to the future, the board is focused on identifying leaders with a track record of leading companies through periods of growth and transformation and guiding them to the next chapter of success,” Morfit said.
The leadership change comes after more than a year of poor performance at Lululemon and calls for change from Chip Wilson, the company’s founder and largest independent shareholder. Two months ago, he took out a full-page ad in the Wall Street Journal saying the company was in “plunging decline” and needed to “stop chasing Wall Street at the expense of our customers.”
Lululemon announced McDonald’s departure on the same day it released third-quarter results and once again issued a weak outlook.
Here’s how the company’s performance compares to Wall Street expectations, based on a survey of analysts by LSEG.
Earnings per share: $2.59 vs. $2.25 expected Revenue: $2.57 billion vs. $2.48 billion expected
The company reported net income of $306.84 million, or $2.59 per share, for the three months ended Nov. 2, compared with $351.87 million, or $2.87 per share, in the same period last year.
Sales were $2.57 billion, up from $2.4 billion in the same period last year.
Regarding Lululemon’s current quarter, McDonald said the company is “encouraged” by its early performance so far this holiday season, although guidance was below Wall Street’s expectations. LSEG said it expects sales to be between $3.5 billion and $3.59 billion, significantly lower than the $3.6 billion forecast.
LSEG said it expects earnings per share to be between $4.66 and $4.76, well below expectations of $5.03.
Lululemon lowered its full-year outlook in the past two quarters. On Thursday, more than a month into the final quarter, the company raised its full-year forecast.
According to LSEG, the company now expects revenue to be between $10.96 billion and $11.05 billion, in line with its lower-end forecast. LSEG said it expects earnings per share to be between $12.92 and $13.02, roughly in line with expectations of about $13.
MacDonald said the company was able to get rid of outdated inventory at a discount because of strong demand over the Thanksgiving weekend.
“I would also like to acknowledge that the trend has slowed a little since Thanksgiving, and we are taking that into account in our fourth quarter guidance,” McDonald said. “But despite this, we still expect U.S. and fourth-quarter revenue trends to improve slightly compared to the third quarter.”
Lululemon’s business has been under pressure over the last year as it weathered tariffs, uncertain U.S. consumers and a product lineup that hasn’t been able to wow shoppers as much as it once did. The athleisure space also faces intense competition from startups such as Vuori and Alo Yoga, as well as changing consumer preferences. These days, many shoppers are reaching for denim instead of yoga pants.
To fuel growth and reach more customers, Lululemon has worked to expand its operations internationally and offer shoppers a broader selection of products. Lululemon goes beyond just training supplies to include shoes, outerwear such as coats and jackets, and casual pants that can be worn to work.
The company’s overall business is growing, but the expansion is primarily due to international operations and new store openings. Its largest market, the Americas, is in decline.
During the quarter, sales in the Americas decreased 2% and like-for-like sales decreased 5%, while international sales increased 33%. Like-for-like sales overseas rose 18%.
Lululemon has also been hit a little harder than its peers by the end of the MiniMiss exemption, which allows low-value packages to enter the U.S. duty-free.
The company said in September that it expected the tariffs to have a $240 million impact on full-year profits, with most of the cost coming from the end of the mini-miss exemption. Following progress in vendor negotiations and other mitigation measures, the company now expects the tariffs to reduce its profits by $210 million.
