Fresh off the news that Lululemon (LULU 2.02%) CEO Calvin McDonald would step down in January, the apparel retailer isn't waiting for new leadership to lean into the part of its strategy that's working. On Thursday, Lululemon announced plans to enter six new international markets in 2026, an annual record for the company.
Greece, Austria, Poland, Hungary, Romania, and India will be added to the list of more than 30 markets where Lululemon has a presence. The company will use a franchise partnership model in these markets, teaming up with Arion Retail Group in Europe and Tata CLiQ in India. Consumers in the expansion countries will also be able to shop for Lululemon's products online.
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International growth has been a bright spot
Lululemon has been stumbling in the Americas over the past two years. Competition has been eroding the company's market share, as Lululemon has failed to innovate quickly enough to keep pace. Comparable sales in the Americas dropped by 5% in the third quarter.
To be fair, Lululemon's issues aren't entirely of its own making. U.S. tariffs are also playing a role, with the end of the de minimus exemption wrecking the company's online fulfillment model. Lululemon had been shipping U.S.-bound online orders through Canada, a strategy that no longer delivers the cost benefits it once did.
While Lululemon's sales in its core market have been weak, the company's international business has been a different story. International revenue soared 33% in the third quarter, with comparable sales jumping by 18%. China played an outsize role in producing those impressive figures, but even excluding China, comparable sales in the rest of the world rose by 9% in the third quarter. Lululemon's products are seeing strong demand outside of the U.S.
Lululemon's next CEO will need to address the company's problems in the Americas, but they will inherit a thriving international business with ample room for further expansion. Using a franchise model has the benefit of reducing the initial costs required to build a presence in new markets and accelerating the process. It will take time for the U.S. business to be turned around, so keeping up the international growth rate is critical.
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An activist investor enters the mix
On the same day Lululemon announced its international expansion plans, The Wall Street Journal reported that activist investor Elliot Investment Management had built a stake valued at more than $1 billion in the company. Elliot is reportedly pushing for Jane Nielsen, former CFO and COO at Ralph Lauren, to be named the new CEO.
Lululemon certainly needs a refreshed strategy in the U.S. The company has already shifted course to a degree, ramping up new product development and working to reduce product development times. At the very least, management now recognizes that change is necessary as competition in the activewear business intensifies. However, the company was slow to act, and it could likely benefit from being more aggressive as it seeks to win back lost customers.
Regardless of how the CEO search process plays out, Lululemon's international efforts are paying off. With an activist investor now involved, the company may move faster to right the ship in the Americas. That's good news for investors, who have suffered a steep drop in the stock price since the start of 2024. Far from a lost cause, with the right strategy and the right leadership, Lululemon can once again deliver solid returns for investors.
