Citi analyst Paul Lejuez on Monday described the appointment of former Gap chief executive officer Glenn Murphy to Lululemon Athletica Inc.’s board as co-chairman an “incremental positive” for the brand as “Glen instilled a good amount of operational discipline” while at Gap.
Lejuez went on to note that while at Gap from 2007 to 2014, Murphy brought “expense, inventory and real estate discipline to the company. He also brought a strong focus on returns on capital.” The Citi analyst added that during Murphy’s tenure, Gap operating margin improved from 8.5 percent to 12.5 percent, “largely the result of his initiatives.”
The analyst also said that while there have been some recent fashion misses, Lululemon is a strong brand that “generally has the product part of the equation right. But they could use some help with the operational aspects of the business.” While chief financial officer Stuart Haselden has helped with improvements in gross margin through sourcing initiatives, Lejuez said that with the addition of Murphy, “we believe the company can better scale its business as it expands internationally.”
The analyst recently downgraded the shares of Lululemon to “Neutral” from “Buy,” and said there is a concern that guidance for the remainder of the year isn’t as conservative as it typically is. He explained that the company’s “guidance assumes an acceleration in trends to get to plus-low single digits for the year.” Lejuez reasoned that while the fashion issue is correctable, it would still be difficult to drive increases on top of already industry-leading productivity levels.
Lululemon on Friday said in a regulatory filing with the Securities and Exchange Commission that it named Murphy to its board. His appointment to the board increases board membership to ten members from nine. Murphy is currently ceo of FIS Holdings, a consumer focused investment firm. He will replace Michael Casey in the co-chairman role. Casey has held the co-chairman role since 2014. While he will step down in that role, Casey will continue as a member of the company’s board of directors. Casey’s term will expire this year, and he is up for re-election at the annual shareholders’ meeting on June 8, 2017.