(Reuters) — Lululemon Athletica shares tumbled about 12% to their lowest level since March 2020, as the struggling athletic apparel maker’s decision to tap a CEO from turnaround-embattled Nike failed to reassure investors.
The appointment of Heidi O’Neill, who most recently was the president of consumer, product, and brand at Nike, ends a months-long search marked by pressure from an activist investor and Lululemon’s founder Chip Wilson.
Investors balked at the appointment, noting that O’Neill’s tenure at Nike coincided with years of slowing demand, brand fatigue and execution missteps — challenges analysts say increasingly echo those facing Lululemon.
Parallels With Nike
“We do not expect the market to receive this appointment positively given O’Neill’s longstanding tenure at Nike, which overlaps with the brand developing many challenges that parallel the ones LULU is currently facing,” BTIG analyst Janine Stichter said.
O’Neill, who left Nike last year after more than 25 years amid a management reshuffle, will join in September and will be tasked with stalling Lululemon’s market share losses and refreshing its image.
Nike’s stock hit a more than decade-low earlier this month after CEO Elliott Hill warned of a sharp sales drop and continued weakness in China, frustrating analysts and investors keen on a revival in the storied sportswear giant’s fortunes.
Lululemon has also dealt with product recalls for some of its pricey leggings in the recent past and has tried to balance inventory levels as it deals with intensifying competition from upstart brands such as Alo Yoga and Vuori in the U.S.
Wilson, who owns about 4.3% of the company, continues to believe that a board overhaul should have come before the CEO’s election, a source familiar with the founder’s thinking told Reuters.
Wilson has been waging a proxy fight to install his three director-candidates and had said earlier this year that any CEO candidate picked by the current board would not have his support.
Not the Right Fit?
Meanwhile, analysts at Needham and Evercore ISI attributed the stock decline to the appointment of O’Neill instead of Elliott Investment Management’s choice of veteran retail executive Jane Nielsen.
Nielsen was the finance chief at Ralph Lauren for eight years until 2024 and for five years at Tabby handbag-parent Coach when the brands were undergoing a turnaround to move into a higher-margin business model.
“At this juncture, Lululemon needs a turnaround CEO and not a growth CEO,” said BNP Paribas analyst Laurent Vasilescu in a note, adding that Nielsen would have been the right pick to guide the yogawear maker through a change.
Elliott, which has a roughly $1 billion stake in Lululemon, has been pushing for Nielsen’s appointment.
Elliott did not respond to a Reuters request for comment.
Lululemon’s shares have tumbled 38% in the last 12 months, trimming its market value to $18.8 billion. They were at $144.01 on Thursday.
“O’Neill may bring much-needed product experience to drive a brand reset. But for now, the core issues remain: an ongoing proxy fight that adds uncertainty and sky-high productivity that remains far from bottoming,” Jefferies analysts said.
(Reporting by Joel Jose, Aishwarya Venugopal and Juveria Tabassum in Bengaluru; Editing by Janane Venkatraman and Sriraj Kalluvila)
