Lululemon: What's Founder Chip Wilson Up To?

U.S. stocks ended the day essentially unchanged on Monday, with the benchmark S&P 500 closing just 0.01% below Friday's record high close. The narrower Dow Jones Industrial Average (DJINDICES: ^DJI  ) fell 0.06%, while the technology-heavy Nasdaq Composite Index (NASDAQINDEX: ^IXIC  ) rose 0.1%.

Shares of lululemon athletica (NASDAQ: LULU  ) soundly outperformed the market with a gain of 2.5% (they were up 4.3% intraday), lifted by a Wall Street Journal article published on Sunday according to which Chip Wilson, the yoga apparel's founder, is working with bankers at Goldman Sachs to regain influence. Wilson, who says he owns 27% of the company, stepped down as Lululemon's non-executive chairman in December, roughly a month after making some controversial remarks.

What exactly is Wilson plotting? We know he's unhappy with Lululemon's current direction and leadership. Earlier this month, just before Lululemon's board meeting, he exhorted shareholders to remove two of the company's directors, including Chairman Michael Casey, on the basis that the current board representation "is heavily weighted toward short-term results at the expense of product, culture, and brand and longer-term corporate goals."

Lululemon's board responded to Wilson's criticism with a statement of their own, saying they are "overseeing Lululemon's strategy to strengthen the company's foundation, focus its product engine on innovation, and accelerate sustainable and controlled global expansion." This is just the sort of corporate-speak that would drive a bluntly spoken entrepreneur up the wall.

The attempt to remove the two directors failed.

Wilson isn't the only shareholder upset with the company's performance. Shares of Lululemon have fallen by 30% this year and are now at roughly half the all-time high they achieved last year in the wake of widely publicized problems with the sheerness of some of its yoga pants. Note, however, that investors are partially to blame for the magnitude of that decline -- the shares were clearly overvalued at their peak.

Wilson himself is not blameless, either; last November, he tied himself (and the company) in an awkward pose when he told Bloomberg Television that "[the pants] don't work for some women's bodies. ... It's really about the rubbing through the thighs, how much pressure is there over a period of time, how much they use it." When you're trying to reassure your customers regarding the quality of your product, insulting some of them is probably the first thing you want to avoid.

Taking Lululemon private might enable Wilson to focus on longer-term corporate goals rather than short-term results. However, last November's gaffe would give most, if not all, private-equity investors serious pause about the notion of teaming up with him. Furthermore, the nature of the business, which is subject to the whims of fashion, is not well suited to producing the ample, steady cash flows necessary to servicing the debt in a leveraged deal. As such, I see the odds of a buyout as being very low.

Where does that leave Wilson and Lululemon? Activism is all the rage right now, so he could perhaps team up with an activist investor, although one might ask why no activist has stepped into the fray already. Finally, he could sell to a strategic investor such as VF or Adidas, but that wouldn't satisfy a founder's desire for influence at the company he gave life to.

For now, Chip Wilson and Lululemon look as if they've reached a stalemate, but it's the sort of distraction that the company doesn't need at a time when it needs to keep a laser focus on executing properly.

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