Occasionally, The Economist will post high-level positions in the back of its pages for CEOs, finance ministers, or the like — anyone interested in running a massive yogawear company might consider picking up the next issue. Yesterday, after the markets closed, Lululemon Athletica inc. (NASDAQ:LULU) announced that Christine Day would be stepping down from the CEO role after a five-and-a-half-year run. Today, the stock dropped 16% in midday trading.
The journey, according to Day
The stock’s fall trimmed back a huge amount of the gain that Lululemon Athletica inc. (NASDAQ:LULU) has seen over the last 12 months, and the news puts up a huge warning sign for the future of the company. Day spent the first part of her career at Starbucks Corporation (NASDAQ:SBUX), moving to Lululemon in 2008. Since then, the company has grown from a $275 million in annual revenue minnow into a $1.4 billion leviathan.
Along with Day’s resignation, Lululemon Athletica inc. (NASDAQ:LULU) also announced analyst-beating estimates yesterday, in a scene that’s become familiar to anyone watching the company’s growth. The fact that the stock still fell highlights the value that Day was seen as adding to the company. In her statement, Day said that the company was ready for new leadership as “[plans] have been laid for the next five years and a vision set for the next 10.” That confidence in the ability of the Lululemon machine to continue beyond her reign may be misplaced.
The cost of leadership
While Day may have the hearts of investors, she has recently been a lightning rod for complaints from Lululemon Athletica inc. (NASDAQ:LULU) fans. Since the sheer-pants scandal earlier in the year, customers have called on Day to resign, citing her failure to live up to the brand ideals of Lululemon while expanding the company at all costs.
That allegation certainly has some backing. The product issues of earlier in the year did have a meaningful impact on sales. The company had originally forecast a comparable-sales increase of 11% but only managed an increase of 7% . The product issues may well have stemmed from the company’s — and Day’s — single-minded focus on expansion. When Day joined the company, Lululemon Athletica inc. (NASDAQ:LULU) operated 81 stores — today it runs 218.
What comes next
With Day’s resignation, Lululemon is in an interesting position. The company could probably find an internal candidate fairly easily, but since Day’s appointment in 2008, the competitive landscape has changed dramatically. Now, Lululemon Athletica inc. (NASDAQ:LULU) is facing competition from The Gap Inc. (NYSE:GPS)‘s Athleta brand, as well as from Under Armour Inc (NYSE:UA) and other traditional sporting goods companies.