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There was a time – not that long ago, really – that Lululemon Athletica Inc. CEO Christine Day was a retail-branding superstar who commanded the kind of investor adoration that most companies can only dream of. Now, as the company's latest earnings report lurches into a new set of stumbles, shareholders are growing impatient that she won't just leave already.
The Vancouver-based apparel retailer's fiscal-second-quarter earnings beat analysts' consensus estimates, but the report included a worrisome warning that sales and profits for the rest of the year won't meet previous expectations. It's the latest cloud hanging over Lululemon's future – but hardly the biggest.
The really dark cumulonimbus obliterating investors' visibility is Ms. Day, who said three months ago that she would leave the company as soon as a successor is found. Many observers thought the company might be waiting for its second-quarter report to unveil their new CEO; instead, all they got on that front was a "we're still looking, hang on for a few more months."
At almost any other time in Ms. Day's history with Lululemon, that might not have been the worst news; many people would have been happy to see Ms. Day stick around for longer. (Indeed, the stock plunged nearly 18 per cent on the day the company announced she planned to leave.)
But months of missteps – an embarrassing recall of see-through yoga pants that made the company the butt of jokes (yes, like that one just now); the subsequent overhauling of the senior management team; now a problem re-stocking its shelves that is holding back sales – has sorely tested investors' faith in a CEO who has one foot out the door anyway. They'd feel a lot happier knowing who is running the company, and whether the new boss will bring a new strategy.
The company's stock still commands valuations that can induce nosebleeds. The price-to-earnings (P/E) ratio of 35 times is roughly double that of the S&P 500's retail apparel index. The market is pricing Lululemon at, on average, double its peers – even after months of pratfalls.
These steep valuations are reflective of a big-growth market darling that still has plenty of lustre. But the P/Es have been working their way downward for the past 18 months, while the stock price stagnated over the same time. It's evidence that the market has cooled to Lulu's runaway growth story.
We've seen it so many times before, in so many industries. A company that can do no wrong, that has seemingly unstoppable growth, comes out with a disappointing product. It starts extending into unfamiliar markets in search of its next growth stage. It has some management turnover. It misses some of the investment community's relentlessly optimistic growth targets. Before you know it, the runaway feel-good growth story is over; the company can't recapture the lost market mojo, and it settles into a more mature stage as an investment.
Lululemon might not be there yet. Its second-quarter growth in sales (22 per cent year over year), same-store sales (8 per cent) and pretax profit (13 per cent) show a company still churning out strong growth in a difficult retail environment. But the doubts are growing with each disappointment, and the investors are restless. Extending Ms. Day's farewell tour for another quarter, or longer, is only obscuring the company's future – a future investors are not so sure of any more.
David Parkinson is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights, and follow him on Twitter at @parkinsonglobe .
David Parkinson