Lululemon sinks after new CEO hire from Nike fails to impress investors

A Lululemon store is pictured in Toronto. THE CANADIAN PRESS/Laura Proctor

Lululemon Athletica shares shares tumbled about 12 per cent in early trading on Thursday, as the struggling athletic apparel maker’s decision to tap a CEO from turnaround-embattled Nike failed to reassure investors.

The appointment of Heidi O’Neill, who most recently was the president of consumer, product, and brand at Nike, ends a months-long search marked by pressure from an activist investor and Lululemon’s founder Chip Wilson.

Parallels with Nike

“We do not expect the market to receive this appointment positively given O’Neill’s longstanding tenure at Nike, which overlaps with the brand developing many challenges that parallel the ones LULU is currently facing,” BTIG analyst Janine Stichter said.

O’Neill, who left Nike last year after more than 25 years amid a management reshuffle, will join in September and will be tasked with stalling Lululemon’s market share losses and refreshing its image.

Nike’s stock hit a more than decade-low earlier this month after CEO Elliott Hill warned of a sharp sales drop and continued weakness in China, frustrating analysts and investors keen on a revival in the storied sportswear giant’s fortunes.

Lululemon has also dealt with product recalls for some of its pricey leggings in the recent past and has tried to balance inventory levels as it deals with intensifying competition from upstart brands such as Alo Yoga and Vuori in the U.S.

Chip Wilson, who owns about 4.3 per cent of the company, continues to believe that a board overhaul should have come before the CEO’s election, a source familiar with the founder’s thinking told Reuters.

Wilson has been waging a proxy fight to install his three director-candidates and had said earlier this year that any CEO candidate picked by the current board would have his support.

Elliott did not respond to Reuters request for comment.

Not the right fit?

Meanwhile, analysts at Needham and Evercore ISI attributed the stock decline to the appointment of O’Neill instead of Elliott Investment Management‘s choice of veteran retail executive Jane Nielsen.

Nielsen was the finance chief at Ralph Lauren for eight years until 2024 and for five years at Tabby handbag-parent Coach when the brands were undergoing a turnaround to move into a higher-margin business model.

“At this juncture, Lululemon needs a turnaround CEO and not a growth CEO,” said BNP Paribas analyst Gaston Dimant in a note, adding that Nielsen would have been the right pick to guide the yogawear maker through a change.

Elliott, which has a roughly US$1 billion stake in Lululemon, has been pushing ‌for Nielsen’s appointment, compounding scrutiny from its founder Wilson.

Both Elliott and Wilson did not respond to Reuters requests for comment on O’Neill’s appointment.

Lululemon’s shares have tumbled 38 per cent in the last 12 months, trimming its market value to $18.8 billion. They were trading at $144.01 in morning trading on Thursday.

With O’Neill not taking charge until September, analysts caution that Lululemon’s stock would get little respite this year.

“O’Neill may bring much-needed product experience to drive a brand reset. But for now, the core issues remain: an ongoing proxy fight that adds uncertainty and sky-high productivity that remains far from bottoming,” Jefferies analysts said.

(Reporting by Joel Jose, Aishwarya Venugopal and Juveria Tabassum in Bengaluru; Editing by Janane Venkatraman and Sriraj Kalluvila)