Occasionally, The Economist will post high-level positions in the back of its pages for CEOs, finance ministers, or the like — anyone interested in running a massive yogawear company might consider picking up the next issue. Yesterday, after the markets closed, Lululemon Athletica inc. (NASDAQ:LULU) announced that Christine Day would be stepping down from the CEO role after a five-and-a-half-year run. Today, the stock dropped 16% in midday trading.
The journey, according to Day
The stock’s fall trimmed back a huge amount of the gain that Lululemon Athletica inc. (NASDAQ:LULU) has seen over the last 12 months, and the news puts up a huge warning sign for the future of the company. Day spent the first part of her career at Starbucks Corporation (NASDAQ:SBUX), moving to Lululemon in 2008. Since then, the company has grown from a $275 million in annual revenue minnow into a $1.4 billion leviathan.
Along with Day’s resignation, Lululemon Athletica inc. (NASDAQ:LULU) also announced analyst-beating estimates yesterday, in a scene that’s become familiar to anyone watching the company’s growth. The fact that the stock still fell highlights the value that Day was seen as adding to the company. In her statement, Day said that the company was ready for new leadership as “[plans] have been laid for the next five years and a vision set for the next 10.” That confidence in the ability of the Lululemon machine to continue beyond her reign may be misplaced.
The cost of leadership
While Day may have the hearts of investors, she has recently been a lightning rod for complaints from Lululemon Athletica inc. (NASDAQ:LULU) fans. Since the sheer-pants scandal earlier in the year, customers have called on Day to resign, citing her failure to live up to the brand ideals of Lululemon while expanding the company at all costs.
That allegation certainly has some backing. The product issues of earlier in the year did have a meaningful impact on sales. The company had originally forecast a comparable-sales increase of 11% but only managed an increase of 7% . The product issues may well have stemmed from the company’s — and Day’s — single-minded focus on expansion. When Day joined the company, Lululemon Athletica inc. (NASDAQ:LULU) operated 81 stores — today it runs 218.
What comes next
With Day’s resignation, Lululemon is in an interesting position. The company could probably find an internal candidate fairly easily, but since Day’s appointment in 2008, the competitive landscape has changed dramatically. Now, Lululemon Athletica inc. (NASDAQ:LULU) is facing competition from The Gap Inc. (NYSE:GPS)‘s Athleta brand, as well as from Under Armour Inc (NYSE:UA) and other traditional sporting goods companies.
The Gap Inc. (NYSE:GPS) and Under Armour Inc (NYSE:UA) both make similar products at slightly lower price points, and both have made it clear that yogawear is going to make an impact on their future bottom line. Now Lululemon is in a position where it can conceivably pull an important manager from one of those competitors.
At Gap, Art Peck is managing the portfolio of brands that Athleta falls into. The role is new to him, but he’s been with the company since 2005. His experience as president at The Gap Inc. (NYSE:GPS) North America would be an extremely valuable tool for Lululemon, if it chose to pursue him.
At Under Armour Inc (NYSE:UA), both Charlie Maurath and Henry Stafford would be welcome additions to Lululemon’s team. Murath is the president of Under Armour’s international business, while Stafford is senior vice president of apparel. Both executives have experience that would help Lululemon as it pushes for more international exposure.
In general, I think Lululemon Athletica inc. (NASDAQ:LULU) still has a lot of room left to run. While Day is impressive and important to the company, she isn’t irreplaceable. I’d love to see Lululemon take this opportunity to add a rival to its team, which would give it a strong competitive advantage. If I were on the fence about Lululemon, I’d see this downturn as a real opportunity.
The article Is This the End of Lululemon as We Know It? originally appeared on Fool.com and is written by Andrew Marder.
Fool contributor Andrew Marder has no position in any stocks mentioned. The Motley Fool recommends lululemon athletica, Starbucks, and Under Armour. The Motley Fool owns shares of Starbucks and Under Armour.
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