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Lululemon's Transparency Issues Just Got Worse

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Lululemon athletica  (NASDAQ: LULU  )  reported first-quarter earnings after the bell on Monday. However, the company's impressive results were overshadowed by a surprising announcement from CEO Christine Day that she's leaving. Shares plummeted on the news. So what's next for the yoga apparel company?

Things just got personal
The former Starbucks executive said her decision to step down after more than five years at Lululemon was a "personal" one. Unfortunately, investors took the news personally as well, sending the stock lower by nearly 15% ahead of the bell on Tuesday. Perhaps most frustrating is the fact that this news caught investors off guard during what was otherwise an upbeat earnings announcement.

Of course, this isn't Lululemon's first transparency setback. Just three months ago, the retailer was forced to pull more than 17% of its signature luon pants from store shelves because the bottoms were sheer to the point of being see-through. The company also ran into quality-control issues a year earlier when colors on certain garments would bleed when washed.

I mention this because it would be easy to assume that Day's exit was somehow related to the recent bout of recalls. However, Lululemon's chief product officer, Sheree Waterson, already fell on that sword. 

Whatever the truth may be, the reality is that finding a replacement for Christine Day won't be easy. At $1.37 billion, Lululemon's annual revenue is now five times what it was before she took the helm. Not to mention, during her tenure Lululemon stock has grown in value from about $30 to where the stock trades today at around $82 a share.

Here to-Day, gone tomorrow
Lululemon's board has enlisted an executive search committee to hunt for Day's replacement. While Day said she would remain with the company until a successor is found, those are big shoes to fill and finding a new CEO isn't something that happens overnight.

The sooner the board is able to name a new CEO, the better -- particularly as the company prepares to expand into new markets overseas. In addition to new retail locations in London, Berlin, and Singapore, Lululemon plans to open at least three stores in China by the end of 2013. For now, Lululemon's international growth plans are on track. However, new leadership at the company puts a lot of uncertainty going forward.

Lululemon has the potential to grow its sales by 10 times if it can penetrate its other markets like it has in Canada, but the competitive landscape is starting to increase. Can Lululemon fight off larger retailers and ultimately deliver huge profits for savvy investors? The Motley Fool answers these questions and more in its most in-depth Lululemon research available. Thousands have already claimed their own premium ticker coverage; gain instant access to your own by clicking here now.


Read/Post Comments (2) | Recommend This Article (5)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 12, 2013, at 10:14 PM, jeree10 wrote:

    LULU stock investors and traders are completely underestimating the growth potential of this company. Christine is great but it's the company and products that matter. My wife can't wait to spend my next paycheck on more Lululemon clothing.

  • Report this Comment On June 12, 2013, at 11:23 PM, PuddinHead42 wrote:

    Whoa, this article was supposedly published on 6/12, yet you state this "Not to mention, during her tenure Lululemon stock has grown in value from about $30 to where the stock trades today at around $82 a share" The stock price on 6/12 closed at $64.30. Sure, two days ago it was at $82 before her announcement.

    This is very bad. No CEO quits like this. No warning and no successor. Mark my words, another shoe will fall and a skeleton will come out of the closet. Wait for it before buying.

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