Lululemon Shares Plunge on CEO’s Resignation

In Industry News, Reports, What's New by Jeff PrineLeave a Comment

CEO Christine Day

CEO Christine Day

Vancouver—Although Lululemon Athletica posted Monday first quarter results that beat analysts’ estimates, the sporting-wear specialty retailer saw its has plummet about 17% after it was announced Christine Day, chief executive, would step down.

Day, who joined the company in 2008 after more than 20 years at Starbucks, helped steer the company through its biggest sales gains and expansion. But speculation arose that Day is the latest victim of “pantsgate” a merchandising debacle discovered in March the company’s popular black Luon pants were found to be too transparent when yoga fans and others wearing them bent over.

The negative publicity and repercussions forced Lululemon to withdraw all the pants and replace them. According to the first quarter report, that blunder costs $17.5 million in write up costs. Recently, too, Sheree Waterson, chief product officer, also resigned.

However, Day, 51, told investors on a conference call: “This was a personal decision of mine. And, look, it’s never a perfect time to leave a company you love. I’ve had a great run.” Day will remain on until a successor is found.

The company responded with its own statement: “After 5 1/2 years at the company building a first class team and achieving significant personal and business goals, Christine feels the timing is right for a new CEO to lead Lululemon through its next phase of growth.”

Q1 Results Beat Analysts’ Forecast

The Wall Street Journal reported that “she told the [company’s] board she had become exhausted working 18 to 20 hours a day and didn’t want to commit to the three to four years of heavy business travel needed to implement international expansion plans, according to a person familiar with the matter.”

For its quarter ended May 5, Lulelemon posted a 1.4% increase in net income to $47.3 million, or 32 cents a share, compared to $46.4 million, or 32 cents a share, a year ago.

Net revenue increased 21% to $345.8 million with comparable store sales up 7%.

That was better than the 30 cents a share in earnings and $341.1 million in sales that analysts’ estimate expected.

As mentioned, gross margin narrowed to 49.4% compared with 55% in first quarter 2012 primarily due to the write-off on the cost of the black Luon pants “offset by improved product margin.”

Selling, general and administrative expenses increased 24.5% to $104.8 million, while as a percentage of sales it expanded 90 basis points to 30.3%. The increase was mainly due to higher compensation and operating costs related to new store openings, increased labor expenses at existing stores due to higher sales volumes, increased operating costs related to the e-commerce business and higher expenses at the store support center.

“I am confident that we will find the right person to lead this strong team and continue to build on this excellent foundation,” Lululemon chairman Chip Wilson said in a statement.