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Despite optimism about Lululemon’s results, major investors won’t jump in until the retailer names a new leader, analysts say. (LUCAS JACKSON/REUTERS)
Despite optimism about Lululemon’s results, major investors won’t jump in until the retailer names a new leader, analysts say. (LUCAS JACKSON/REUTERS)

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Lululemon set to put yoga-pants debacle behind it Add to ...

Three months after Lululemon Athletica Inc. revealed that long-time chief executive officer Christine Day was departing, the question of who will replace her still hangs over the company.

That question will certainly be asked Thursday, when the fitness clothing retailer releases its second-quarter financial results. An announcement about the new CEO is not expected that day, but could be only weeks off.

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“We believe we could have an announcement within the month,” Canaccord Genuity analyst Camilo Lyon said in a recent report, noting Lululemon may fill another key position that is open – head of design – at the same time.

Ms. Day – who vowed in June to stay on until a new CEO was named – has recently presided over a rough patch at Lululemon. In the spring, the company was forced to pull a key line of yoga pants from its shelves because they were too sheer, a move that generated a $17.5-million (U.S.) inventory writedown in the first quarter.

Lululemon stock, which took a hit over the problem, recovered substantially before Ms. Day’s departure knocked the stuffing out of it again. It is now trading at about $70 (U.S.) a share on Nasdaq, and analysts’ 12-month targets range wildly from around $50 to $100. (The company delisted from the Toronto Stock Exchange in June.)

There could be some lingering impact from the sheer-pants crisis in the second-quarter numbers, although most analysts say the company has successfully replaced the problem inventory with a new line, and is now fully restocked.

“I think they have put the quality issue behind them,” said Liz Dunn, an analyst with Macquarie Securities in New York. “The product that they have in the store now is up to the historic quality standards.”

Ms. Dunn noted that many retailers have been reporting poor results lately, so if Luluemon can buck that trend, it could light a fire under the shares.

“They were back in stock with the black pants in the quarter, and so they should be able to turn in a solid report,” Ms. Dunn said. “I think that will be enough to get the stock going again in the near term.”

Still, she said, many long-term investors “want to know who is leading this organization,” and they won’t jump in until that issue is settled and they see the new CEO’s vision and strategy. “Any new leader could potentially have a different viewpoint on international growth, on products, or on a whole host of things.”

In its first-quarter report, Lululemon projected second-quarter revenue of $340-million to $345-million, and earnings per share of 33 cents to 35 cents. Ms. Dunn said she expects the numbers to be in line with that guidance, though “there could be a positive surprise.”

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