It's no secret that Lululemon Athletica (NASDAQ:LULU) has struggled recently. Investors pushed the stock down more than 25% during the second half of the year amid increased competition and weaker-than-expected margins. However, shareholders hope that the company's latest management shuffle, which includes the promotion of an ex Nike (NYSE:NKE) executive, will reinvigorate sales at Lululemon after what has been a tough year for the stock.
If you can't beat 'em...
Okay, Lululemon isn't joining rival athletic brand Nike, but it is promoting one of its ex-employees. The luxury athletic apparel company recently appointed Lee Holman as its first-ever Creative Director. Mr. Holman previously held senior positions at Nike, including Creative Director of Nike Sportswear and Vice President of Global Apparel, Innovation, and Equipment.
With more than 20 years of industry experience, Holman should have no problem thriving in his new role as Creative Director for Lululemon. Having left Nike last year to join Lulu as the company's Senior VP of Women's apparel, Holman brings valuable insight about product design and innovation to the table.
Moreover, this organizational shift couldn't have come at a better time for Lulu. The retailer's margins have weakened recently amid higher costs and investments in international expansion. Lululemon was also forced to mark down more of its merchandise in the latest quarter. This could be a sign that seasonal products are failing to resonate with shoppers. Mr. Holman will get to tackle this problem head-on in his new role as Creative Director -- not only will he report directly to Lululemon chief executive Laurent Potdevin, he will also have creative control over product design.
This could give Lululemon's upcoming apparel lines a fresh look, and possibly revive consumer interest in the brand.
There will be a lot of pressure on Mr. Holman and his team to bring back the quality that customers expect from Lululemon. The brand has only recently recovered from a 2013 recall of its signature luon pants, which cost Lulu tens of millions of dollars and deeply damaged the brand's reputation for quality athletic gear. If Lulu wants to continue charging premium prices for its products it needs to be offering high quality garments in the eyes of consumers.
By adding the role of Creative Director, the company hopes to streamline its men's and women's businesses into a more coherent brand. This is a smart move, particularly as Lulu aims to grow its men's segment. Lulu posted strong comparable sales growth of 31% in its men's wear business during the second quarter, and said products across all of its men's categories continued to sell well during the period.
The retailer is in the process of rolling out new technical fabrics for its men's business, including Intersec and PrimaTech. Lululemon is developing these proprietary brands under its men's metal vent franchise. Moreover, management believes its men's business could generate $1 billion globally in annual revenue for the retailer in the coming years.
At the end of the day, Holman's experience working behind enemy lines at Nike could greatly benefit Lulu. There is a reason that Nike's stock is up more than 27% so far this year compared to a 19% decline in Lululemon's stock over the same period. Product innovation has been the key to Nike's success in recent years: innovations in performance athletic gear, shoe design, and apparel enable the sportswear giant to charge premium prices for its products, thus boosting margins.
Lululemon is a fraction of the size of Nike today. However, with an ex-Nike creative director now in control, perhaps Lulu can spark its innovative juices once again. Ultimately, this management shuffle was the correct move for Lululemon because it puts a fresh face at the forefront of its creative efforts. While it may take time to see these changes affect sales, it is a step in the right direction for the struggling retailer.
Shares of Lululemon are now trading near the bottom of the stock's 52-week range. This, together with the stock's price-to-earnings-growth ratio of just 1.35, suggests Lululemon's stock is cheap at current levels. I believe this creates an opportunity for long-term investors to own Lululemon Athletica ahead of what appears to be a promising comeback story.
Tamara Rutter owns shares of Lululemon Athletica. The Motley Fool owns shares of and recommends Lululemon Athletica and Nike. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.