Christine Day is stepping down as chief executive officer of Lululemon Athletica Inc. as the fast-growing yoga wear retailer grapples with its black-pant glitch and girds for further global expansion.
In a surprise move, the Vancouver-based company announced that Ms. Day, CEO since 2008, will leave at an undetermined time and the board of directors is searching for a new leader.
She informed the board on Friday of her decision, and told analysts Monday it was a "personal" one.
"Look, it's never a great time to leave a company you love," Ms. Day said.
"I've had a great run at Lululemon over the past five-and-a-half years … Now as the company embarks on the next 10-year vision, the timing is right to bring in a new person to lead."
In after hours trading on the Nasdaq in New York, Lululemon shares fell 12.7 per cent, dropping $10.44 (U.S.) to $71.84.
Ms. Day's decision to step down came as Lululemon took a $17.5-million (U.S.) inventory provision following the retailer's decision in mid-March to pull almost 20 per cent of its women's yoga pants because they were too sheer.
Lululemon also struggled with other miscues in the first quarter, including too many colourful tops without enough neutral colours to match, which will lead to higher-than-usual discounts this spring and summer to clear out unsold merchandise.
Even so, Lululemon beat analysts' profit forecast for the latest quarter – as it often does – leaving it in the position now to find a new leader who can provide discipline for the quickly expanding business. The company plans to start opening stores in Europe and Asia next year, at a time when its basic operations already are feeling the strains of growth.
"There was a quality issue on the pants and they've taken care of that rather dramatically," said John Williams of retail consultancy J.C. Williams Group. "Now their challenge is … making sure the growth and the systems are sustainable as they become another retail giant."
The company learned other lessons from its black pant setback. It is replacing its chief product executive and introducing more checks of the products, including weight tests. It also found it needs the black bottoms to sell more shirts. "The more pants we have, the more tops we sell," Ms. Day observed.
The missing signature stretchy black pants hurt sales in Canada more than in the United States, where it has more stores, analysts were told. Canadian customers are more attached to their "luon" black pants than their U.S. customers, who were introduced to Lululemon later and got to know some of its newer fabrics better, she suggested.
Still, the problems and style misses this spring will lead to deeper markdowns in the current and coming quarter – about 15-per-cent discounts to clear merchandise rather than the usual 10 to 12 per cent, chief financial officer John Currie said.
And while the pant problem pinched first-quarter profit by 12 cents a share – at the high end of what it expected – Lululemon was able to get some product back into stores faster than it anticipated, which will mean sales will probably be $15-million better than its original estimate of as much as a $67-million revenue hit this year, he said. He expects profit will be reduced for the year by 21 cents, which is lower than Lululemon's initial outlook of a squeeze of 25 cents to 27 cents.
In the quarter ended May 5, Lululemon's profit grew to $47.3-million or 32 cents a share from $46.6-million and 32 cents a share. Revenue increased 21 per cent to $345.8-million while sales at stores open a year or more rose 7 per cent on a constant dollar basis.
Of the first quarter, Ms. Day said: "While we regret that we had quality issues with our black luon, we are proud of the organization's ability to get luon delivered back into our stores within 90 days of having pulled it from our line."
Lululemon also announced it plans to drop its Toronto Stock Exchange stock listing at the close of trading on June 24. Most of its trading volume takes place on Nasdaq, where it will remain. "The minimal trading volume of its shares on the TSX no longer justifies the expenses and administrative efforts associating with maintaining this dual listing," the company said.