Lululemon Athletica founder Chip Wilson has been agitating for change, and the outspoken critic now has activist investor Elliott Investment Management weighing in on a potential chief executive officer candidate.
The activist is in a position to make moves, and with a stake reportedly valued at more than $1 billion, Elliott’s input might have more sway with the Lululemon board than that of Wilson. And with Lululemon CEO Calvin McDonald planning to step down on Jan. 31, the timing seems perfect for the activist to exert some pressure for the slumping yoga-inspired athletic brand.
The Wall Street Journal first reported that Elliott has been working with Jane Nielsen as a potential CEO candidate. Nielsen is a seasoned executive with a good reputation among the Wall Street crowd. A former chief financial officer at Tapestry Inc., she left in 2016 to join Ralph Lauren Corp. as its CFO and chief operating officer. Nielsen left the company this past April. That was about the time when Elliott and Nielsen are said to have started talking about Lululemon.
Lululemon said last week when announcing McDonald’s departure that it was working with a “leading executive search firm” to find its next CEO. Executives on Thursday did not respond to a request for comment by press time regarding either the activist’s stake or Nielsen as Elliott’s potential CEO candidate.
“We would applaud if the board ultimately chooses Jane as we have deep respect for her leadership and her experience in turning Tapestry and Ralph Lauren around,” BNP Paribas Research analyst Laurent Vasilescu said Thursday. “In our October upgrade, we highlighted the potential for activism and noted that there are four individuals that were consistently discussed with investors. While we didn’t mention any names in the note, Jane Nielsen was at the top of that list now that she has left Ralph Lauren and has voiced her desire to become the next Lululemon CEO.”
Vasilescu cited three approaches Nielsen could take in turning around Lululemon’s fortunes after its stock slide over the last two years.
Citing the mass layoffs at the brand this past summer — the company in June said it was cutting 150 corporate jobs — as well as talent exiting for competitor Arc’teryx, the BNP analyst said Nielsen could bring up morale at the brand — nothing that when at Ralph Lauren, she and CEO Patrice Louvet were able to retain the team during that brand’s turnaround pre-COVID.
Perhaps more importantly was Nielsen’s ability to bring “operational rigor” to the Ralph Lauren organization. “We used to refer to her in our research as ‘The Sheriff’ during the early days of the Ralph Lauren turnaround. She implemented operational disciplines on all fronts from the stock keeping unit rationalization with a focus on the core [to] rightsizing the store base, supply chain logistics as well as corporate overhead,” he said.
The analyst pointed out that Lululemon is currently expanding store square footage — the brand recently launched a new store concept in SoHo — despite the fact that comps are lacking. “We believe Jane’s operational discipline could unlock expense savings to bring Lululemon’s operating margins back to best-in-class levels,” Vasilescu said.
And finally, the analyst noted a series of misses at the athletic brand — from self care to its Mirror platform and secondhand apparel — plus a foray into footwear were all discontinued. He noted that if Lululemon returns to focus on its great core offering, the “core customer may reengage” with the brand again, with Nielsen as an “excellent fit for a potential turnaround.”
Jefferies analyst Randal Konik noted that with McDonald on the way out, “we believe a refreshed board, a thoughtful CEO with real leadership, and a return to Lululemon’s roots are critical.”
At the top of what Lululemon needs is a refreshment in leadership, the Jefferies analyst said. That warrants a management team with deep retail and brand-building experience. He said the priority should be a CEO with a “proven track record in revitalizing premium apparel brands, someone who understands both operational discipline and authentic brand storytelling.”
Other priorities include fixing the Americas first as the region represents 75 percent of sales, as well as rationalization of the store footprint and format. Konik wants to see an aggressive management of inventory levels and forecasting. “Elevated inventories and aggressive newness have led to excessive markdowns and cluttered stores,” the analyst noted.
In Lululemon’s most recent third-quarter results, it posted a 13 percent decline in net income to $306 million on a 7 percent rise in net revenues to $2.6 billion. Comparable sales in the Americas fell 5 percent, although comps rose 18 percent in its international business.
Investors reacted favorably to the news of Elliott’s input, sending shares of Lululemon up nearly 3.5 percent, or up $7.24, to close at $215.11 in Thursday’s trading session.
