Lululemon Athletica Inc. is currently navigating a significant crisis as its stock price fell by 3.24% to $180.35. This decline follows a troubling incident involving defective leggings, which has raised serious questions about the company”s quality control and leadership.
The controversy began with the launch of the $108 “Get Low” leggings, which became see-through during physical activity. In a surprising response, Lululemon suggested that customers wear different underwear instead of recalling the product, prompting criticism from retail analysts like Neil Saunders, who deemed the suggestion “a joke.”
Under CEO Calvin McDonald, the company shifted its focus to accelerate product development timelines. This decision, while aimed at bringing new items to market more quickly, appears to have compromised the quality standards that have historically defined the Lululemon brand.
Following McDonald”s announcement to step down amidst this quality crisis, there is speculation regarding his replacement. Elliott Investment Management is advocating for retail expert Jane Nielsen to take the helm, while Lululemon”s founder Chip Wilson has criticized the current direction of the company and nominated new board directors.
Brand confusion is becoming increasingly evident, as Lululemon”s attempts to diversify its offerings have not resonated well with its customer base. The company previously acquired the $500 million Mirror fitness device, which was discontinued just three years later. Additionally, a collaboration with Disney faced backlash on social media, leading to perceptions of the brand as “random” and “basic.”
Over the past year, Lululemon”s stock has plummeted by 56%, with analysts expressing skepticism about its recovery potential. Currently, twenty analysts rate the stock as a Hold, with only one offering a Buy recommendation. The average price target indicates a potential upside of 17.4% from its current level.
Despite these challenges, Lululemon has shown positive revenue growth of 8.8% in the last twelve months, and its operating cash flow margin remains strong at 16.8%. However, the reputational damage from recent events will likely take time to mend, and long-time customers are increasingly questioning their loyalty.
The incoming CEO will face the formidable task of restoring Lululemon”s reputation and returning the company to its roots of high-quality athletic wear that originally set it apart in the marketplace.
