Lululemon CEO rebuts founder’s latest criticism
Wilson questioned competence of management, company culture
Lululemon’s chief executive fired back Wednesday at a recent barrage of criticism from the company’s founder and largest shareholder, Chip Wilson.
On the company’s first-quarter conference call Wednesday, Laurent Potdevin seemed to address some of the barbs voiced in a public letter that Wilson released before the Vancouver company’s board meeting last week. Potdevin didn’t refer to Wilson by name or mention his latest public swipe at the athletic apparel company.
“Our leadership team is the strongest Lululemon has ever assembled,” Potdevin told analysts. “It is global, diverse, and a combination of people with tenure combined with new additions to the team.”
Lululemon’s current team, he added, has “deep experience and knowledge in design and innovation, vertical retail, digital as well as a real focus on culture, talent and operational excellence.”
And the company long known for hiring athletic people who champion the brand has hit a high employee loyalty benchmark. “Our (sales staff ) and store man- ager turnover is at its lowest level ever in the brand’s history, which is a testament to the commitment and investment we make in our people’s development.”
The CEO’s remarks came as the retailer revealed higher sales and earnings for the period ended May 1.
Wilson, who founded Lululemon in 1998 and resigned from the board last year, took aim last week, saying current “management competence is uninspiring at best,” and the company’s culture is eroding.
Wilson believes the company has lost ground to rivals such as Nike and Under Armour and is lacking in strategy and innovation. Wilson also wants board members to be elected by shareholders each year.
Potdevin countered Wednesday by noting the company outlined a clear five-year strategic plan in the fourth quarter that includes a goal to double 2015 sales and more than double earnings growth.
He touted two recent additions to the board, former Lululemon CIO and Gap Inc. executive Kathryn Henry, and Jon McNeill, president of global sales at Tesla Motors, Inc. “Both are bringing talent, insight and energy to our discussion.”
Analysts asked no questions re- lated to Wilson’s views, preferring to focus on performance metrics.
Lululemon posted net income of $45.3 million in the period ended May 1, or 33 cents per share, compared with earnings of $47.8 million (34 cents), a year ago.
Adjusted for non-recurring gains, earnings were 30 cents per share, a penny below average analyst estimates of 31 cents from Thomson Reuters.
Revenue was up about 17 per cent to $495.5 million from $423.5 million, rising 19 per cent on a constant-dollar basis.
Same-store sales, an important benchmark of retail performance, which strips out the effects of new store openings, rose three per cent, or by five per cent on a constant dollar basis.
Executives noted the retailer’s same-store sales performance was higher in Canada than it was in the U.S. — they did not specify by how much — citing it as evidence of perennially loyal customers.
Lululemon’s gross margin rate dropped to 48.3 per cent in the first quarter from 48.6 per cent in the same period a year ago, and decreased inventory by three per cent per square foot as it worked to recover from supply chain disruptions a year earlier.
“In a quarter riddled with retail earnings shortfalls, Lululemon’s results and inventory progress are encouraging,” said Andrew Burns, retail analyst at D.A. Davidson in a note to clients Wednesday. “After a multi-year build out, Lululemon has turned the corner operationally and our confidence in its ability to stabilize and ultimately improve operating margin has increased.
Lululemon also said it expects second-quarter earnings of 36 cents to 38 cents per share and raised its 2016 revenue forecast to $2.31 billion to $2.35 billion, compared with a prior forecast of $2.29 billion to $2.34 billion in March.
Annual profit guidance was also boosted to a range of $2.08 to $2.18 a share, or $2.05 to $2.15 normalized for tax and related interest adjustments made during the first quarter.
In a quarter riddled with retail earnings shortfalls, Lululemon’s results and inventory progress are encouraging.