Lululemon CEO Calvin McDonald to depart in January

lululemon It announced Thursday that its CEO, Calvin McDonald, will step down effective Jan. 31 after more than a year of underperformance at the athletic apparel company.

The company’s board of directors is working with a “leading executive search firm” to identify the next CEO, a news release said. McDonald will remain senior advisor until March 31.

“Serving as CEO of Lululemon has been the highlight of my career, and I am incredibly proud of everything our team has accomplished over the past seven years,” McDonald said in a news release. “Together, we have transformed the athletic apparel industry, and the opportunity ahead for lululemon is significant. I am confident that the exceptional product line we have created and the action plan we have implemented will deliver positive results and deliver shareholder value in the months and years to come.”

He said he was “committed to fully supporting the transition” through his advisory role.

Lululemon’s CFO Meghan Frank and Chief Commercial Officer André Maestrini will serve as interim co-CEOs throughout the search process. Marti Morfitt, the company’s executive chairman, will also assume the expanded executive chair role. The company has a strong foundation but needs a new leader who can guide it through the transition, he said in a statement.

“Looking ahead, the Board is focused on identifying a leader with a successful track record of leading companies through periods of growth and transformation to guide the company into its next chapter of success,” Morfitt said.

Shares rose nearly 10% in extended trading.

The leadership change comes after more than a year of underperformance at Lululemon and calls for change from its founder and largest independent shareholder, Chip Wilson. Two months ago, he took out a full-page ad in the Wall Street Journal saying the company was “headed for failure” and should “stop chasing Wall Street at the expense of customers.”

Lululemon announced its departure from McDonald’s on the same day it reported fiscal third-quarter earnings, which also gave weak guidance.

Here’s how the company is performing compared to Wall Street’s expectations, according to a survey of analysts conducted by LSEG:

• Earnings per share: Expected $2.59 while it was $2.25
• Revenues: 2.57 billion dollars, while the expectation was 2.48 billion dollars

The company’s reported net income for the three months ended Nov. 2 was $306.84 million, or $2.59 per share, compared to $351.87 million, or $2.87 per share, a year earlier.

Sales rose to $2.57 billion from $2.40 billion the previous year.

For Lululemon’s current quarter, McDonald said he was “encouraged” by the company’s early performance so far this holiday season; but guidance fell short of Wall Street forecasts. According to LSEG, it projects sales to be between $3.50 billion and $3.59 billion, substantially below expectations of $3.60 billion.

According to LSEG, earnings per share are expected to be between $4.66 and $4.76; This is well below expectations of $5.03.

In the previous two quarters, Lululemon lowered its full-year guidance. On Thursday, more than a month into the final quarter of the year, it raised its full-year expectations again.

According to LSEG, the company estimates sales will be between $10.96 billion and $11.05 billion, in line with expectations on the lower end. According to LSEG, it expects earnings per share to be between $12.92 and $13.02; This is in line with estimates of around $13.

Lululemon’s business has been under pressure last year due to the impact of tariffs, a shaky U.S. consumer and a product assortment that failed to impress shoppers the way it once did. It also faces stiff competition from athleisure startups like Vuori and Alo Yoga, as well as a shift in consumer preferences. These days, many customers are choosing denim over yoga pants.

To spur growth and reach a broader audience, Lululemon is working to expand its business internationally and offer shoppers a broader selection of products. Instead of just workout clothes, Lululemon has expanded into shoes, outerwear like coats and jackets, and casual pants that can be worn at work.

The company’s overall business is growing, but that growth has primarily been driven by international business and new store openings. There is a decline in the American continent, which is its largest market.

Lululemon is also affected by the end of the de minimis exemption that allows low-value packages to enter the U.S. duty-free; This one is a little harder than its counterparts.

It said in September that it expected the tariffs to add $240 million to its full-year profits, and that most of those costs would come from the end of the de minimis exemption.

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