Lululemon Athletica Inc., whose shares have taken a beating since the departure of chief executive officer Christine Day was revealed Monday, is trying to drive home the message that it is business as usual at the clothing retail chain.
Ms. Day herself emphasized that point at an investor conference in Chicago on Thursday, telling the audience that the company will prosper long after she leaves because the culture in the organization extends far deeper than her position.
Lululemon is “in great shape,” she said.
“It will more than survive my departure, it will thrive.”
She offered no further insight into the reasons for her leaving, or who will replace her, but said the leadership she leaves behind will keep the company’s momentum moving. “I am not the culture of Lululemon,” she said. “Everyone is the culture of Lululemon.”
She said she is confident the company will find “another great CEO” to steer its expansion over the next five to 10 years. In the meantime, “the reality is that I am coming back to work on Monday, and I’m there until the next CEO is in place.”
Lululemon’s stock plunged almost 18 per cent the day after the news of Ms. Day’s departure was released along with the company’s relatively strong first-quarter financial results. Indeed, chief financial officer John Currie told the conference: “We actually felt good about our results, but apparently none of you noticed.”
Lululemon stock fell again Wednesday, then recovered somewhat Thursday, rising 3.7 per cent on the day to $68.03, although it is still 19-per-cent below where it was before Monday’s announcement.
Ms. Day said the company is well under way in the search process for several other executive jobs that are open in the company. Lululemon has a small number of candidates in line for the positions of senior vice-president of logistics and senior vice-president of product operations, she said, and it is halfway through the selection process for executive vice-president of design.
From an operational perspective, Ms. Day and Mr. Currie said Lululemon is on track to accelerate expansion in Europe and Asia, with its first stores stores set to open in those regions in 2014. It already has showrooms in Hong Kong, Singapore, London and Berlin.
There is still a substantial growth opportunity in North America, they said. The company is halfway to its target of having 300 Lululemon stores in the United States, and will add 35 to 40 more this year. It will also open some standalone stores that sell products for men, starting in 2016.
Ms. Day said the problem with Lululemon’s too-sheer yoga pants – which forced it to pull stock from the shelves and take a $17.5-million inventory write-down – “is behind us.” However, Mr. Currie acknowledged the financial consequences of that issue are not quite done. “[Second-quarter] revenue will be impacted” because of restocking issues, he said, and gross margins will also be compressed in the quarter.
Analysts are divided over Lululemon’s prospects. About half of those who cover the stock rate it as a buy, while the other half rank it as neutral or “underperform.” John Zolidis of Buckingham Research in New York has an underperform rating on the shares, and said in a recent report that the company “has gotten a free pass from investors despite recent execution issues.” He said sales growth is likely to slow going forward.
At the other end of the spectrum, Camilo Lyon of Canaccord Genuity maintained his “buy” rating on the stock, with an $87 target, despite Ms. Day’s pending departure. The growth strategies Ms. Day put in place “are fundamentally intact and should not change going forward,” he said. “The fundamentals of the business are sound and the supporting team is strong.”
One rumour that Ms. Day quashed in her speech Thursday is the speculation that the company is planning to move its head office from Vancouver. There was talk that shift might be a corollary of Lululemon’s decision to drop its listing on the Toronto Stock Exchange. However, “Vancouver is our home town and we will stay there,” she said.