Lululemon shares drop as new CEO appointment leaves investors unimpressed

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

Lululemon Athletica shares fell 5.5 per cent before the bell on Thursday as investors reacted cautiously to the struggling athletic apparel maker appointing a former Nike executive as its next CEO amid recent challenges at the larger rival.

The decision to appoint 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.

“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.

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O’Neill, who left Nike last year after spending more than 25 years at the company 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 price 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.

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 and former Ralph Lauren RL.N finance chief Jane Nielsen.

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

Wilson, who owns about 4.3 per cent of the company and is waging a proxy fight to install his three director-candidates on the board, said earlier this year that any CEO selected before the board changes would not have his support.

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

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Lululemon’s shares have tumbled 38 per cent in the last 12 months, trimming its market value to $18.8 billion.

“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)