By Sabrina Escobar
Lululemon Athletica stock had its best day in months on Friday as investors cheered the news that CEO Calvin McDonald was stepping down. They believe the move paves the way for Lululemon to regain its mojo after two years of underperformance.
The board of directors didn't immediately identify a permanent successor. And when it does, it will take time for a new CEO to "put their fingerprints" on a strategy and enact it, Rick Patel, an analyst at Raymond James, wrote. That suggests the timeline for a durable turnaround is unclear, he wrote.
Lululemon's chief financial officer, Meghan Frank, and chief commercial officer, André Maestrini, will serve as interim co-CEOs until the board has identified a final candidate.
Lululemon shares gained 9.6% Friday to $204.97, marking its largest percent increase since April. The S&P 500 closed down 1.1%.
Under McDonald, who joined the activewear company in 2018, Lululemon stock notched new highs as the Covid-19 pandemic bolstered demand for "athleisure" apparel. But the shares peaked in December 2023, and have since relinquished their earlier gains. The stock was trading Friday around prepandemic levels.
In many ways Lululemon fell victim to its own success. Its strong performance during the Covid pandemic -- when same-store sales gained more than 20% at one point on an annual basis -- created a high bar for future comparisons. New competitors began to siphon off market share, and fashion trends underwent a gradual shift to favor denim and workwear. As a result, sales growth slowed.
Lululemon also struggled to hit the mark on its product assortment, failing to innovate quickly enough or have the right sizes and colors in stock.
"The reality is that under Calvin's leadership, LULU lost its way," wrote Randal Konik, an analyst at Jefferies.
The brand's identity has been diluted by inconsistent design and expansion into non-core categories, such as shoes and professional attire, he added. "The result: alienation of loyal customers, mounting competitive pressures, and a biz in clear decline," he wrote.
Konik has long been bearish on Lululemon stock. On Friday, however, he raised his rating to Hold from Underperform, saying that while the shares will continue to be "dead money" in 2026, the board's decision to move on is "overdue" and may be the "most constructive development" for shareholders in years.
Lululemon stock is down more than 45% this year, on track for its worst year since 2008, when shares plummeted 83%, according to Dow Jones Market Data. The company's underperformance recently drew criticism from founder Chip Wilson, who, despite having stepped down from the board over a decade ago, still owns about 9% of the stock. In October Wilson said he was considering an activist campaign against the company to potentially replace board members.
In a press release issued Friday, Wilson said the company's transition announcement was a "tremendous failure by the Board to competently plan for the future and manage an effective succession process." He added that the search for the new CEO should be led by "new independent directors."
A spokeswoman for Lululemon didn't immediately respond to Barron's request for comment. Following Wilson's comments in October, however, the company told Barron's that it communicates regularly with shareholders and that its board and leadership team are acting to drive long-term growth and create value.
"Wilson had not been involved with the company for a decade, and he continues to make inaccurate and misleading statements about Lululemon, our history, and our Board and leadership team," a spokeswoman said in an email in October.
The search for a new CEO could give the stock a grace period as investors ponder the path that Lululemon's reset could take, wrote Simeon Siegel, an analyst at Guggenheim.
Management said on Thursday that the company is looking for an executive with "experience in growth and transformation."
Reinvigorating growth for a brand like Lululemon is easier said than done, Siegel wrote, adding that the company has a lot of work to do, specially in the Americas, its largest market.
Although Lululemon's third-quarter comparable-store sales increased 1% from a year ago, in line with projections, same-store sales in the Americas fell 5% in the period.
Fourth quarter revenue will range from $3.500 billion to $3.585 billion, the company said, representing a decline of between 1% and 3% from a year ago. The drop largely reflects calendar shifts that gave an extra retailing week to the third quarter.
Interim co-CEO Frank outlined a series of actions Lululemon is taking, including increasing the frequency and breadth of new styles. It is also updating several of its existing franchises and fast-tracking product design to better respond to trends. Analysts expect to see those efforts start to pan out in the spring of 2026.
William Blair analyst Sharon Zackfia noted that early reads on Lululemon's new products have been encouraging. The company's enhanced marketing initiatives and franchise refreshes should help things improve, as well.
But things could get worse before they get better, warned Konik. Margins, especially, could be at risk, compressed by a combination of new store openings, tariffs, and elevated markdowns, he said.
For now, investors are cheering the end of a difficult era. Additional gains will depend on Lulu's success in engineering a genuine turnaround.
Write to Sabrina Escobar at sabrina.escobar@barrons.com
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(END) Dow Jones Newswires
December 13, 2025 01:00 ET (06:00 GMT)
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