Lululemon Athletica’s shares spiked Friday after the company’s CEO Calvin McDonald announced his resignation amid declining US sales, with its founder putting the board on notice about a potential proxy battle.
After seven years at the helm, McDonald is stepping down on Jan. 31 and will remain as an advisor to the company through March, he said on a Thursday earnings call discussing two straight quarters of decreasing North America sales.
“We agreed that the timing is right for a change,” McDonald said of his discussions with the company’s board of directors, which is initiating a search for his successor.
Shares of the Vancouver-based athleisure company rose in Thursday’s after-hours trading and were up about 10% to $208 as of Friday afternoon.
The leadership shake-up didn’t come fast enough for the company’s founder and former CEO, Chip Wilson, who is calling for new directors, as well.
“The board has failed to properly hold management accountable to deliver product innovation and instead has led with complacency,” he said in a Friday statement.
Known for its popular $100 yoga leggings, Lululemon began faltering earlier this year as it pumped out fashions that quickly hit the clearance rack – a shocking development for a company that customers associated with sticker shock more than discounts.
While total sales in the most recent quarter rose by 7% to $2.6 billion in the quarter ended Nov. 2 – fueled by growth in China and elsewhere abroad – its sales in North America were down 2%.
“We know that our current merchandising mix, particularly in North America, does not fully reflect the go-forward vision we have for our brand,” McDonald said on the call.
Lululemon’s Chief financial Officer Meghan Frank, who will serve as interim co-CEO, added: “We’ve let product lifecycles run too long within some of our key franchises and we have not inspired our high-value guests to purchase as we had in the past.”
Others pointed a finger at McDonald.
“The reality is that under Calvin’s leadership, Lulu lost its way,” Jefferies analyst Randall Konik wrote in a research note.
Lululemon alienated its loyal customers with “inconsistent design and expansion into non-core categories” and is a “biz in clear decline,” he added.
McDonald’s exit comes as Lululemon’s controversial founder has been moving toward a proxy fight and meeting with potential investors, The Wall Street Journal reported.
Wilson was famously ousted from the company more than a decade ago over a slew of inappropriate comments, including his explanation for the company’s yoga pants recall in 2013. He said overweight customers were partly to blame.
“Quite frankly, some women’s bodies just actually don’t work for [the pants],” Wilson said when asked about recalled tights that were so sheer they revealed women’s buttocks.
Wilson, who remains one of Lululemon’s largest shareholders, said in a statement: “After overseeing years of poor decisions erode the brand and destroy shareholder value, it is clear to me that only under my increasing pressure has the lululemon Board of Directors finally started to listen.”
New “independent directors” need to be brought on to direct the CEO search, he added.
“I am deeply concerned about what appears to be a tremendous failure by the board to competently plan for the future and manage an effective succession process.”
The Post has sought comment from Lululemon.
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