Lululemon announced Thursday its CEO Calvin McDonald will step down effective Jan. 31 following more than a year of underperformance at the athleisure company.
The company’s board of directors is working with a “leading executive search firm” to identify its next CEO, it said in a news release. McDonald will stay on as a senior advisor through March 31.
“The timing is right for a change,” McDonald said on a call with analysts, “I’ve described being CEO of Lululemon as my dream job. It truly has lived up to every expectation and given me the opportunity of a lifetime.”
Lululemon’s CFO Meghan Frank and Chief Commercial Officer André Maestrini will serve as interim co-CEOs during the search process. The company’s board chair Marti Morfitt will also take on the expanded role of executive chair. In a statement, she said the company has a strong foundation in place but needs a new leader that can guide it through a transition.
“As we look to the future, the Board is focused on identifying a leader with a track record of driving companies through periods of growth and transformation to guide the company’s next chapter of success,” said Morfitt.
Shares rose about 10% in extended trading.
The leadership change follows more than a year of underperformance at Lululemon and calls for change from its founder and its largest independent shareholder Chip Wilson. Two months ago, he took out a full page ad in the Wall Street Journal saying the company is “in a nosedive” and it needed to “stop chasing Wall Street at the expense of customers.”
Lululemon announced McDonald’s departure on the same day it posted fiscal third-quarter earnings and another round of weak guidance.
Here’s how the company did compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:
Earnings per share: $2.59 vs. $2.25 expectedRevenue: $2.57 billion vs. $2.48 billion expected
The company’s reported net income for the three-month period that ended Nov. 2 was $306.84 million, or $2.59 per share, compared with $351.87 million, or $2.87 per share, a year earlier.
Sales rose to $2.57 billion, up from $2.40 billion a year earlier.
For Lululemon’s current quarter, McDonald said the company is “encouraged” by its early performance so far this holiday season — though guidance fell short of Wall Street estimates. It anticipates sales will be between $3.50 billion and $3.59 billion, largely below expectations of $3.60 billion, according to LSEG.
It’s expecting earnings per share to be between $4.66 and $4.76, well short of expectations of $5.03, according to LSEG.
In the previous two quarters, Lululemon cut its full-year guidance. On Thursday, more than a month into the final quarter of the year, it raised its full-year expectations again.
It now anticipates sales will be between $10.96 billion and $11.05 billion, in line with expectations at the low end, according to LSEG. It expects earnings per share to be between $12.92 and $13.02, roughly in line with estimates of about $13, according to LSEG.
The company saw strong demand during its Thanksgiving weekend, which allowed it to clear through stale inventory at a discount, said McDonald.
“I also want to acknowledge we’ve seen trends slow a bit since Thanksgiving, which we’ve taken into account in our Q4 guidance,” said McDonald. “However, despite this, we expect revenue trends in the U.S. and Q4 to be modestly improved relative to Q3.”
Lululemon’s business has been under pressure over the last year as it navigates the impact of tariffs, a shaky U.S. consumer and a product assortment that’s failed to wow shoppers in the same way it once did. It’s also facing steep competition in the athleisure space from upstarts like Vuori and Alo Yoga as well as a change in consumer preferences. Instead of yoga pants, these days many shoppers are reaching for denim.
To drive growth and reach a wider audience, Lululemon has been working to expand its business internationally and offer shoppers a wider assortment. Instead of just workout gear, Lululemon has expanded into shoes, outerwear like coats and jackets and casual pants that can be worn at work.
The company’s overall business is growing, but the expansion has largely come from its international business and new store openings. Its largest market, the Americas, has been declining.
During the quarter, revenue in the Americas decreased 2%, with comparable sales down 5%, while international sales jumped 33%. Comparable sales abroad increased 18%.
Lululemon is also being hit by the end of the de minimis exemption, which allowed low value packages to enter the U.S. duty free, a bit more acutely than its peers.
In September, it said it expects tariffs to hit its full year profits by $240 million and most of those costs will come from the de minimis exemption ending. Following progress with vendor negotiations and other mitigation efforts, it now expects tariffs to reduce its profits by $210 million.
