Lululemon Athletica shares surged nearly 11% in after-hours trading on Thursday after the retailer reported stronger-than-expected third-quarter results and said Chief Executive Calvin McDonald will step down early next year.
Revenue rose 7% from a year earlier to $2.6 billion, exceeding Wall Street estimates of $2.48 billion. Adjusted earnings of $2.59 per share also topped analyst forecasts of $2.21 per share, according to FactSet.
Alongside the earnings beat, the company raised its full-year outlook, projecting net sales between $10.962 billion and $11.047 billion, slightly higher than its previous range.
Full-year earnings per share are now expected to come in between $12.92 and $13.02.
Leadership transition coincides with slowing momentum in American market
The company said McDonald will step down on January 31, though a permanent successor has not yet been named.
Chief Financial Officer Meghan Frank and Chief Commercial Officer André Maestrini will serve as interim co-CEOs while the board searches for a long-term leader.
“Lululemon has a strong foundation in place,” executive chair Marti Morfitt said, adding that the board is seeking a leader experienced in guiding companies through periods of significant expansion and transformation.
The leadership shake-up comes at a challenging time for the apparel giant, which has struggled to reignite momentum in the Americas, its largest market.
Comparable-store sales rose 1% globally but declined 5% in the region.
Founder Chip Wilson has pushed for changes in the board as stock underperforms
Despite a strong Black Friday weekend, demand softened in the weeks that followed, prompting the company to issue a more cautious fourth-quarter forecast.
Sales in the Americas fell 2% in the most recent quarter, underscoring the slowdown in Lululemon’s core market.
Founder Chip Wilson has applied pressure on the board in recent months, pushing for changes to revive innovation and restore what he describes as an entrepreneurial culture.
Wilson has expressed frustration with the company’s marketing strategy, though it remains unclear whether McDonald’s exit will influence his next moves.
Analysts say the slowdown has weighed heavily on investor sentiment, with shares down more than 50% this year.
“They lost share in a increasingly competitive athleisure market and specifically have not been able to successfully address its weakening share of the core women’s pants despite multiple attempts to address that,” said Matt Jacob, analyst at research and analytics firm M Science.
“So that will be a challenge for the new permanent CEO.”
Morningstar Research analyst David Swartz said while McDonald has been an effective CEO, investors seem to be satisfied that Lululemon’s board is taking “aggressive action”.
Growth abroad but questions at home
Under McDonald’s leadership, Lululemon expanded to more than 780 stores worldwide, grew its men’s segment, and entered new categories such as tennis and golf.
But recent decisions — including partnerships with Disney and the NFL — have puzzled some analysts.
“Lulu’s NFL partnership looks less like a bold growth initiative and more like a Hail Mary from a management team struggling to regain momentum,” Jefferies analyst Randal Konik wrote in October.
Meanwhile, the company said it expects a smaller impact from tariffs than previously forecast, citing progress in negotiations with vendors and efficiency improvements across its distribution operations.
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