Lululemon Stock Plummets After CEO Announces Departure


0  Updated at 9:29 am, June 11th, 2013 By: ABC Digital
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Kevork Djansezian/Getty Images(NEW YORK) — Lululemon stock plummeted Tuesday morning after the apparel company’s announcement that CEO Christine Day will step down when a successor is named.

Day, 51, joined Lululemon in January 2008 and oversaw the company as its annual revenue quintupled to $1.37 billion.

“This was a personal decision of mine,” Day said during the question-and-answer portion of a conference call with investors Monday about its first quarter earnings.  “And, look, it’s never a perfect time to leave a company you love.  I’ve had a great run.”

Lululemon stock was down about 17 percent Tuesday morning.

The company declined to comment to ABC News about its stock and the CEO transition plan.

Lululemon, based in Vancouver, British Columbia, has loyal customers for its high-end yoga and active gear who participate in the company’s free yoga classes and community events.  But Lululemon took a hit in profits with the recall of its popular black Luon pants in March, saying they were too transparent when wearers bent over.

The company’s first quarter earnings increased only 1.5 percent to $47.3 million, while revenue increased 21 percent to $345.8 million, compared to the same quarter a year ago.

Lululemon said it delivered the Luon pants back into stores within 90 days of pulling the line.  But the company said its yoga pants won’t be back in stock at full levels until the end of its second quarter.

Jamie Katz, equity analyst with Morningstar, said the CEO’s departure contributed to investor jitters because a number of other upper-level positions in the company now remain open.  The firm’s chief product officer, Sheree Waterson, left her post in early April, two weeks after the company’s recall.

Day told investors she informed the board of her decision last Friday.  

The Wall Street Journal reported she was exhausted working 18 to 20 hours a day and “didn’t want to commit to the three to four years of heavy business travel needed to implement international expansion plans,” according to a person familiar with the matter.

The company recently opened two new showrooms in London, plus one in Berlin and another in Singapore.  Day said the company expects to have three showrooms in China by the end of the year.

Other factors contributing to the drop in Lululemon’s stock price are lower gross margins because of the Luon pants recall costs and a lower mix of higher-margin items, like the Luon pants.

Katz said the company’s gross margin was mostly affected by the recall of the Luon pants, but it is “still disappointing.”

The company’s outlook for same-store sales in the second quarter was also weak, Katz said.

But Katz said the company’s investment on strategic investments, international expansion and systems updates “will set Lululemon up for success in the future.”

Copyright 2013 ABC News Radio

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