Lululemon chief government Calvin McDonald simply discovered the laborious means that in trend, cool typically speaks louder than numbers on an earnings assertion.
McDonald joined the activewear retailer from Sephora in 2018, and managed to triple gross sales to over $10 billion in 2024. On Thursday the corporate lifted its annual steering, forecasting gross sales progress of 4 p.c for the fiscal 12 months. Third-quarter gross sales rose 7 p.c year-on-year, pushed by sturdy worldwide demand. McDonald’s plan had been to quadruple Lululemon’s international market share between 2021 and 2026.
That wasn’t ok for Lululemon’s shareholders, which have despatched the corporate’s inventory tumbling by greater than 50 p.c this 12 months. Or founder Chip Wilson, who has waged a struggle towards McDonald and the remainder of the model’s management from outdoors the corporate (he stays its largest particular person shareholder), memorably lamenting Lululemon’s “loss of cool” in a full web page commercial in The Wall Street Journal.
On Thursday, Lululemon mentioned McDonald can be exiting the corporate on the finish of January. He’ll additionally depart the board of administrators, however keep on as a senior advisor by way of March to assist conduct a seek for his successor. Marti Morfitt, the board chair, will develop into government chair, whereas chief monetary officer Meghan Frank and chief business officer André Maestrini will act as interim co-CEOs.
The information — together with the better-than-expected outcomes — was well-received available in the market. Lululemon shares soared 10 p.c in after-market buying and selling.
So what precisely accounted for McDonald’s abrupt exit?
Behind the scenes, Lululemon was going through plenty of looming challenges. While loads of manufacturers would gladly settle for 7 p.c progress, the corporate has persistently posted double-digit will increase for many of its historical past. While internationally Lululemon has continued to surge, in its residence territory of the Americas, revenues had dropped within the final two quarters. The activewear area general has grown saturated within the years following the pandemic, with manufacturers like Vuori and Alo Yoga seemingly popping out of nowhere to mount severe challenges to Lululemon’s dominance. Newcomers like Adanola are even going after Lululemon’s core class of leggings, touting choices they declare are simply as prime quality at a fraction of the worth.
Like its rivals, Lululemon has confronted important margin strain from tariffs and different rising prices. But it had the misfortune of transport on-line orders to the US from Canada, resulting in a shock revelation earlier this 12 months that the Trump administration’s new tax guidelines would power it to start out paying important sums on the border.
But if there was something that marred McDonald’s ultimate 12 months on the job, it was Wilson’s very public, very abrasive marketing campaign.
What’s Chip Wilson bought to do with it?
Lululemon didn’t point out Wilson in saying McDonald’s departure. But it’s laborious to separate his critiques from McDonald’s exit.
In October, Wilson took out the Journal advert, titled “Lululemon: in a Nosedive,” claiming that its leaders now not understood what makes a terrific product or a cool model. “On paper, Lululemon still looks good, but it’s losing its soul,” he wrote.
Although Wilson left the corporate over a decade in the past, he’s nonetheless a significant shareholder of the inventory. According to the Journalhe had been making ready to wage a proxy struggle earlier than Thursday’s information to exert direct affect over administration of the model he based in 1998.
Is Lululemon really shedding its cool?
Wilson himself has a historical past of sparking controversy by way of blunt public remarks. He stepped down as CEO in 2005, and resigned from his submit as chairman of the board in 2013 after he made crude feedback about how Lululemon’s leggings weren’t designed for “some women’s bodies.” (Lululemon was not with out controversy underneath McDonald. In a 2023 investigation, BoF spoke to greater than a dozen present and former staff who characterised the company tradition as unfriendly to Black folks.)
But although Wilson’s ways this 12 months have been inflammatory, his core argument — that Lululemon had misplaced a step, culturally — largely wasn’t.
There are indicators that what as soon as appeared easy model momentum has flattened in key areas. In the US, comparable-store gross sales have lagged, and a few analysts and customers have pointed to an absence of contemporary, breakout merchandise relative to rivals like Vuori and Free People Movement.
It doesn’t assist that Lululemon’s signature product, the legging, is falling out of favour amongst younger customers. After dominating trend underneath the moniker of “athleisure” for greater than a decade, cosy, body-skimming leggings are shedding cultural cachet, with Gen Z girls gravitating towards looser, relaxed silhouettes like parachute pants, joggers and dishevelled exercise bottoms.
How do tariffs issue into it?
Tariffs have develop into a significant headwind for Lululemon, notably within the US market and past what a lot of its rivals are experiencing. Changes to U.S. import obligation guidelines — together with the elimination of the de minimis exemption for small worldwide shipments — have elevated the corporate’s prices considerably.
The announcement got here as a shock in Lululemon’s late‑August earnings report, prompting seven analysts protecting the inventory to downgrade their outlook, citing the surprising tariff affect on margins.
In its third-quarter report on Thursday, the corporate mentioned its earnings outlook for 2025 contains an estimated discount in earnings of $210 million on account of tariffs and the elimination of the de minimis exemption, although it has undertaken mitigation measures akin to negotiating with distributors and rolling out worth will increase.
How can McDonald’s successor handle these issues?
Right now, Lululemon’s greatest progress potential is outdoors the US and Canada, the place it’s nonetheless a comparatively new amount to many consumers, and has sufficient time to launch progressive new merchandise and contemporary advertising and marketing to keep away from what’s occurred to the model nearer to residence.
Whoever its subsequent CEO seems to be, Lululemon’s subsequent part relies on regaining cultural prowess. The model’s early power got here from shaping a way of life, not simply promoting stretchy garments, and that’s the place it has fallen out of step. It’s an identical problem to what new CEOs at Nike and Gap are going through, as in addition they attempt to revive manufacturers that leaned for too lengthy on their historic cultural cachet gone its sell-by date.
To keep related, Lululemon will want product tales and collaborations that really feel plugged into the identical present powering youthful customers’ wardrobes: bolder silhouettes, sharper types and advertising and marketing that makes an announcement. Footwear, tennis, golf, and males’s are all progress lanes.
But the true alternative is to create items that may dominate a class once more, the best way the unique Align pant as soon as did — or at the least create some dialog.