The sudden departure of a CEO almost always hurts the stock in the short term. This is happening with Lululemon Athletica inc. (NASDAQ:LULU). At the recent earnings report, Christine Day announced her plans to step down after five and half years of being Lululemon’s CEO.
At the same time, the results of the company look solid. The company has earned $0.32 per share, beating analysts’ estimates. Net quarterly revenue increased 21% to $345.8 million in comparison with the first quarter of fiscal 2012. Comparable stores sales for the first quarter increased by 7%.
If put on the scales, which one is more important – the departure of CEO or good quarterly results?
Lululemon Athletica inc. (NASDAQ:LULU) specializes in the production and selling of athletic apparel, mostly for yoga, running and fitness. The company has been growing fast. Lululemon has almost doubled its revenue during the last two years. Its competitors, like NIKE, Inc. (NYSE:NKE) and Under Armour Inc (NYSE:UA) were not able to show such growth rates. Nike’s revenue rose 27% in two years, while Under Armour managed to grow its revenue by 72.5%.
If Lululemon wants to see its stock rising again, it needs growth. It is difficult to gain momentum in the U.S. and Canada, where the market is established. Lululemon Athletica inc. (NASDAQ:LULU) has stated that it has just received licenses in China, which allows the company to proceed with its showroom strategy there. The wealth of Chinese citizens is growing every year, which makes China a very attractive entry point for producers of consumer goods. In Europe, Lululemon is focusing on stronger countries like U.K. and Germany, opening showrooms there.
Strange moment to leave
Here comes the reason why Lululemon lost 17.5% after it announced that Christine Day would be leaving the company. Lululemon is about to become a really global player, with serious expansion out of the North America. It is confusing to know that CEO voluntarily departs at such an important period of the company’s life.
It is even more stunning as Lululemon Athletica inc. (NASDAQ:LULU) starts expanding its product offerings beyond yoga-oriented ones. Sure, the company has had them before, but it has recently focused more attention on men’s, golf, swim and tennis lines.
When Lululemon was more of a niche yoga player, the company achieved tremendous success. There was not much competition in the field, although Under Armour Inc (NYSE:UA), for example, offers yoga apparel. By expanding the product line, Lululemon is expanding its competition.