Christmas Comes Early for Lululemon Shareholders

Lululemon athletica (NASDAQ: LULU  )  gave shareholders a reason to rejoice on Tuesday. First, the yoga-apparel maker said Laurent Potdevin would take over for Christine Day as CEO in January 2014. That's big news considering that it's been nearly six months since Day surprised investors with her seemingly sudden decision to step down after five years at the company.

On top of this, lululemon Founder Chip Wilson will resign from his position as chairman of the board of directors ahead of the company's annual meeting in June 2014.

With deep-pocketed competitors such as Nike and Under Armour (NYSE: UA  ) breathing down its neck, lululemon needs this change of leadership to go off without a hitch. Fortunately, Day will stick around until the end of Lululemon's fiscal 2013 to help transition Potdevin into his new role

Let's take a closer look at how important these developments are to lululemon's future, and what they mean for the retailer's shareholders.

Lessons in leadership
Filling Day's shoes won't be easy. At $1.49 billion, the retailer's annual revenue is more than five times higher than when she took the helm in 2008. During her tenure lululemon's stock has grown in value from about $30 a share to roughly $70 a share in trading today.

Unlike Day, Potdevin doesn't have a strong background in retail. However, if there's one thing he understands it's the importance of brand appeal. After all, Potdevin comes to lulu from Toms shoes, a brand that's grown from a one-man operation to a company that donated its 10-millionth pair of shoes, all without the help of investors and with an advertising budget of zero.

Potdevin's entrance is also a welcome distraction from the chaos caused by founder Wilson. As women everywhere know, the departing chairman made headlines recently when he said some women's bodies simply don't work in yoga pants. While Wilson's resignation is long overdue, he is still a majority shareholder and will retain a seat on lululemon's board.

These leadership changes are necessary to lululemon's future success. Having led global expansion efforts at Toms, Potdevin's prior experience is particularly encouraging as lululemon looks to grow its footprint abroad. Additionally, his impressive operational background will be a refreshing change of pace, following the string of quality-control issues that have plagued his new employer in the past year.

In fact, lululemon continues to suffer from inventory problems related to its luon pants recall in March. The retailer lost as much as $67 million in revenue this year after being forced to recall 17% of its signature yoga pants from stores shelves for being "too sheer." Aside from the financial implications of this setback, the incident also left the brand vulnerable to competition.

Let the brand rebuilding begin
Competitors such as Nike and Under Armour didn't waste any time taking advantage of lululemon's transparency issues. Under Armour even ran advertisements for its line of yoga pants that included the slogan, "We've Got You Covered." Looking ahead, the hope is that lululemon's recent leadership changes will help the retailer avoid similar missteps.

Stockholders will get another glimpse into the health of lululemon's business on Thursday when the retailer reports third-quarter earnings before the bell.

An even better stock for your Christmas stocking
While lululemon is certainly headed in the right direction, there's still plenty of uncertainty around the stock. As a result, investors can find better deals elsewhere this holiday season without waiting on the sidelines for a turnaround in shares of lululemon.

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