Bringing in a new chief executive officer always requires a little balance — but Lululemon Athletica Inc. is performing the corner office switch on a high wire.
On top of all the usual troubles that come with changing the guard at a top-tier brand, the process is unusually complicated.
Calvin McDonald made a quick C-suite exit following a seven-year run as CEO, which was characterized by the kind of dramatic growth that seemed unstoppable, until it stopped.
Lululemon’s stock price has fallen back down to Earth from the stratosphere — with the market capitalization dropping from about $60 billion two years ago to under $20 billion.
Activist investor Elliott Investment Management is pushing for change and advocating for Jane Nielsen, the Ralph Lauren Corp.-veteran, as the next CEO.
And founder Chip Wilson has turned out to be not just the company’s biggest shareholder, but its biggest critic and is now waging a proxy battle to remake the board, which will pick the next CEO.
While sources said Lululemon has been interviewing candidates, and has spent time with Nielsen and others, the process is ongoing and the big reveal is not seen as imminent.
That means the company’s fourth-quarter earnings report and conference call with analysts on Tuesday will be something of a platform for some potential internal contenders. They include Meghan Frank, who’s been Lululemon’s chief financial officer since 2020 and is now interim co-CEO along with chief commercial officer André Maestrini.
It is Frank who’s been getting the interest — at least among the betting crowd. And Wall Street will be listening closely on the call to see if there’s the voice of a big-time CEO there.
According to the online prediction site Polymarket, which lets users bet on the outcome of just about anything, Frank is in the lead with a 58 percent chance of becoming CEO. Maestrini has a 32 percent chance and Nielsen is seen as more of a long shot.
But this is a decision that will be made not by the masses, but, as Wilson has pointed out repeatedly, the board.
In an open letter last month, the billionaire founder described his campaign as an effort to “catalyze a quantum of change that is sorely needed” at Lululemon.
“The heart of the issue is a disconnect between the company’s creative engine and the board’s strategic oversight of how nonquantifiable power of brand and product translates to brand strength, margin durability, and long-term shareholder value.”
But that’s not the only take.
Simon Siegel, an analyst at Guggenheim Partners, said there were two “primary schools of thought on how to fix Lululemon.”
The first, which aligns with Wilson’s thinking, posits that the brand’s product and messaging are off.
“Therefore the fix, while easy to say and hard to do, goes back to retail 101: return the focus to the product, have merchandising and storytelling and quality as the be all, end all,” Siegel said. “If you build it, they will come.”
Siegel is not in that camp.
Instead, he thinks the brand has overstretched itself and drove unhealthy sales with less than ideal product.
“You need someone who understands and is willing to take leadership of a company, not announcing growth, but announcing strength, announcing a path to improvement,” Siegel said. “And a lot of public company CEOs believe that growth is the air they breathe. And so in scenario two, the business is best equipped to find someone with the will, with the stomach to announce a pullback in sales, a purposeful pullback in sales, to ultimately see the growth.”
While Wilson has been making a lot of the noise, the process has stirred up the question of just what are the skills needed to be CEO and where can they be found.
There is a belief among some that it’s an uneasy step from CFO to CEO, that whoever is in the big job needs to be first a product person.
Both Nielsen and Frank have done turns as CFOs, for sure, but it’s also a role now that has much more strategic impact than when they were just crushing numbers all day.
A source friendly with Nielson said she is “the whole package,” is “asking the right questions” and “gets the brand piece.”
And Joanne Crevoiserat, CEO and former CFO of Coach-parent Tapestry Inc., has proven that knowing one’s way around a spreadsheet is not necessarily a bad thing at the tippy-top.
Laurent Vasilescu, an analyst at BNP Paribas, said: “These CEOs are not designers. They are leaders. They’re running [the company], thinking about the design team, marketing team, the finance team, real estate team. That’s what they are.
“Anyone who comes in as CEO, she or he will not be designing the product,” he said. “What she or he will need to do is figure out if they have the right design team, right design directive.”
Vasilescu said Lululemon has to boost marketing and also cut back on back office costs.
“That is totally in Jane Nielsen’s wheelhouse,” he said. “That’s what she did at Ralph. She did that. So they need that as well.”
So the company’s fourth-quarter results, when they come out after the market closes on Tuesday, will be the side show.
Instead, everyone will be watching for which way the wind is blowing as Lululemon takes to the high wire.
The Bottom Line is a business analysis column written by Evan Clark, deputy managing editor, who has covered the fashion industry since 2000.
#Challenges #Candidates #Future #Strategy