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Shares of Lululemon Athletica Inc. plummeted in after-market trading Monday after the company said the woman credited with much of its explosive growth, Christine Day, would be leaving the yoga apparel retailer.
The surprising news sent the firm’s shares down 14.8 percent. Day, who has been chief executive officer for five-and-a-half years, will leave when a successor is named. The company said it has formed a search committee and “enacted its ceo succession plan.”
She is leaving three months after Lululemon suffered a major black eye when its signature black Luon yoga pant had to be recalled after quality issues were discovered. The company said at the time that the recall cost it up to $67 million in lost sales.
Day said, “Plans have been laid for the next five years and a vision set for the next 10.” She added that now is the “right time to bring in a ceo who will drive the next phase of Lululemon’s development and growth.” Day will “continue to actively lead the organization while the board searches for a new ceo and will work to ensure a smooth transition.”
Day, 51, is a former Starbucks Corp. executive and is considered one of the brightest stars among the ceo’s in specialty retail.
Chip Wilson, Lululemon’s founder and chairman, said, “Christine has been an exceptional leader for Lululemon, successfully embracing the culture while growing the business and returning value to all of our stakeholders, including our guests, employees, partners and shareholders.”
Wilson exited his executive post in January 2012 as chief innovation and branding officer. He founded the company in 1998 and was ceo until 2005. Day joined the company as ceo in 2008.
Shares of Lululemon closed up 1 percent to $82.28 in the regular over-the-counter trading session, but fell 10.1 percent to $74 in after-market trading within minutes after Day’s planned departure was disclosed publicly at the same time the firm posted first-quarter results. An hour later, shares of Lululemon were down 14.8 percent to $70.06.
For the first quarter ended May 5, net income rose 1.4 percent to $47.3 million, or 32 cents a diluted share, from $46.6 million, or 32 cents, a year ago. Net revenue rose 21 percent to $345.8 million from $285.7 million, while comparable-store sales rose 7 percent.
While the firm beat analysts’ consensus earnings per share estimate of 30 cents, investors clearly were nervous about Day’s intention to leave the firm and Lululemon’s succession plan.
According to Day, “The past quarter has been one of the most important in our company’s history. While we regret that we had quality issues with our black Luon [yoga pant] we are proud of the organization’s ability to get Luon delivered back into our stores within 90 days of having pulled it from our line, all the while keeping our guests happy and engaged with the brand.”
In a call to Wall Street analysts in connection to the earnings report, Day said she it was her decision to step down from the ceo role, and that she had notified the board on Friday. She also said she will not stay on the board after she leaves her executive post.
Not much more was said about her decision, although in response to a question from an analyst on what she’ll do next, Day said, “I’m here for awhile. I’m here showing up for work Monday. It’s business as usual.”
She did note in response to another question from an analyst that among the criteria for the new ceo regarding skill set would include a product background, ability to manage well within the Lululemon culture and a readiness to grow the company to a premium brand.
The company is also interviewing candidates for the position of executive vice president for design and merchandising at the same time it conducts a ceo search.
The company said that while gross profit rose 9 percent in the quarter to $170.7 million, as a percentage of net revenue gross profit fell to 49.4 percent for the quarter when compared with 55 percent in the same year-ago comparable quarter. The current quarter’s gross profit report includes a $17.5 million provision for inventories charged to cost of sales related to the pull-back of the Luon pants. The problem with those yoga pants was that some were deemed too sheer and had to be pulled from the shelves. The style is being restocked this month after going through a new series of testing protocols.
Back in April, the company said its chief product officer, Sheree Waterson, would leave as part of a reorganization aimed at tightening up processes that led to the pant recall. She left April 15 after nearly five years at the firm. The Vancouver-based firm also said at the time that the misstep would cost it up to $67 million in lost sales.
Day said during the call that feedback has been terrific on its early capsules to build future product lines, particularly the polo top, tennis skirt and club short. She said the firm has also added more color to its men’s polos, as well as more depth and color in men’s shorts.
For the second quarter, the company provided net revenue guidance in the range of $340 million to $345 million, with diluted EPS between 33 cents and 35 cents. For the year, the company forecasted net revenue at between $1.65 billion and $1.67 billion, with diluted EPS between $1.96 and $2.01.
The company also said it has provided written notice to the Toronto Stock Exchange to delist its common stock on that exchange on June 24, stating that the TSE had minimal trading volume and that the listing on the Nasdaq provides sufficient liquidity for its shareholders.