Lululemon Athletica‘s shares surged 10% in premarket trading on Friday as a CEO shake-up sparked hopes of a turnaround at the yogawear maker looking to revive its sluggish U.S. business and win back younger, affluent shoppers.
The company’s shares have halved in value this year as it lost ground to newer rivals including Alo Yoga and Vuori in the U.S., as well as to lower-priced styles from established players such as Nike and Gap.
“I think investors are hopeful that Lululemon will hire a CEO with a more aggressive growth mindset,” said Morningstar Research analyst David Swartz.
At an earnings call late on Thursday, company executives said the board is “focused on a leader with experience and growth and transformation”.
Calvin McDonald, who will step down on January 31 after about seven years in the role, had spearheaded the company’s entry into markets such as China.
However, the Vancouver-based company has recently ceded market share as slow updates to core styles left it unable to keep pace with shifting trends, forcing heavy discounting to clear aged inventory.
“Lululemon finds itself in a very challenging position because it’s lost some interest among the key audience of U.S. Gen Z consumers who have been moving on from its defining styles such as fitted leggings,” said Sky Canaves, analyst at Emarketer.
McDonald is the latest CEO change at global consumer companies as they navigate an increasingly divergent spending pattern amid macroeconomic uncertainty.
In the meantime, the company’s finance chief Meghan Frank and chief commercial officer Andre Maestrini will serve as interim co-CEOs, while board chair Marti Morfitt assumes the role of executive chair.
TRANSITION UNDER SCRUTINY
Lululemon is making efforts to speed up product development, launch fresh styles and drive company-wide efficiencies to offset cost inflation and protect margins.
The company beat third-quarter results, lifted by strong China sales, but issued a weaker-than-expected holiday forecast as higher promotions and increased marketing spend weigh on margins.
Chip Wilson, Lululemon’s founder and largest independent shareholder, in a statement on Friday slammed the board for “poor succession planning” and value erosion. He called for an urgent CEO search led by new, independent directors with deep company knowledge to restore a product-first focus.
Lululemon did not immediately respond to a Reuters request for comment on Wilson’s statement.
Wilson had weighed launching a proxy fight to push for board changes, the Wall Street Journal reported on Thursday.
“The timing of a CEO appointment is unknown, and even when that occurs, it’ll take time for that person to ramp up and implement their strategic vision,” Raymond James analyst Rick Patel said.
Lululemon’s forward price-to-earnings multiple, a common benchmark for valuing stocks, is 14.66, compared to 31.26 for Nike and Abercrombie & Fitch’s ratio of 10.8, according to LSEG data.
