A little more than a year after resigning as a director, Lululemon Athletica Inc.’s founder Chip Wilson is back in the grill of Lululemon’s board.
In an open letter to the company’s board of directors, Wilson, who remains the largest shareholder in the yoga-themed retailer with a 14.2 percent stake, criticized Lululemon’s stock and financial performance over the last few years in comparison with its competitors. He charged that the company had “lost its way” and fallen behind competitors Under Armour and Nike.
While noting that Lululemon had “created the global athleisure market,” he opined that the company’s current management was failing to take advantage of “the most significant change in the way people dress in the history of the world.”
Wilson also called for Lululemon’s board to be declassified to make it more effective and not staggered. Currently, only three of 12 seats are up for re-election at every annual meeting. Becoming declassified means the entire board would stand for re-election each year.
He wrote that he penned the letter only after being denied a request to speak at Lululemon’s annual shareholder meeting, which was held on Thursday. Showing his commitment to his effort to become more involved with Lululemon, Wilson also set up a website, elevatelululemon.com, which included the letter and some of his core points.
Lululemon Founder Chip Wilson. Photo courtesy chipwilson.com
In a statement that came out last Wednesday after Wilson’s letter arrived, Lululemon said, “As evidenced by our strong operational performance, we have the right board of directors and leadership team in place with the broad and deep expertise necessary to support the execution of our strategic five year plan. This solid foundation gives us the tools to innovate and create as we deliver long-term sustainable growth for all stakeholders.”
In his letter, Wilson criticized the company’s long-term stock performance. Lululemon shares had dropped more than 8 percent since December 2013 when Laurent Potdevin was appointed CEO while Under Armour has increased 79 percent, Nike is up 45 percent and the S&P 500 is up 16 percent.
“Under Armour has taken our leadership role, and the market recognizes this with a premium valuation,” wrote Wilson. “Under Armour trades at double our EBITDA and P/E multiples. If Lululemon were rewarded with the same multiple as Under Armour’s, our stock would be almost 90 percent or approximately $8 billion higher today, or another $60 higher per share.”
But Wilson claimed the “most frustrating thing” was Lululemon’s “dismal financial performance.” He noted that since the new management was brought on, Lululemon has grown revenues by half a billion, but earnings have declined. In 2015, the company’s earnings reached $1.89, down from $1.91 in 2013.
“Management competence is uninspiring at best,” wrote Wilson. “I am not convinced we have the right leadership in place to catalyze the change necessary to win in the current global, multi-channel and dynamic environment.”
He said he had two questions for the board. The first was: “Do you plan to get back to our original leadership position compared to our competitors, in a market we invented and built? If yes, by when, and what are the exact signs, metrics and signals we should be looking for to indicate your plan is working?”
The second was whether they would declassify its board by the 2017 board meeting and effectively make it easier for shareholders to vote out board members if they choose. He said the board as currently composed might result in “entrenched directors and management.”
Wilson wrote, “If the board that is currently in place cannot implement the changes that are required to increase shareholder value, then shareholders deserve the right to vote on all of the Board members and, if they so choose, make a change.”
Under Potdevin, who is a former president of Toms Shoes and a former CEO of Burton Snowboards, Lululemon has worked to improve quality and fix supply-chain problems while accelerating plans to support international growth. Offerings have also been expanded to include more seasonal and fashionable items to be worn outside the gym. Earlier this year, Lululemon streamlined its men’s and women’s divisions into one management unit in a move aimed at unifying the company’s branding for both product lines.
Also this year, Lululemon set a goal of reaching $4 billion in sales by 2020, up from $2.1 billion for 2015. However, Lululemon also issued a soft earnings forecast for the current quarter as the retailer continues to clear inventory and improve its supply chain. The retailer is expected to report earnings on June 8.
For the first quarter, Lululemon has said it expects earnings to land in the range of 28 to 30 cents, which compares to 34 cents in the year-ago quarter. For the full year, EPS is expected to be in the range of $2.05 to $2.15 for the full year, which would represent a gain of 8.5 to 13.8 percent.
Wilson founded Lululemon in 1998 and was CEO until 2005 just before the company’s highly-successful IPO in 2007. He withdrew from day-to-day management in early 2012, and stepped down as chairman in December 2013. He eventually left the board in February 2015 after clashes.
He also faced harsh criticism for various public snafus. The biggest one came in 2013 after the board asked him to return to help Lululemon manage a crisis over see-through yoga pants that led several executives to leave the firm. In an interview with Bloomberg, social media uproar occurred after Wilson asserted “some women’s bodies just actually don’t work for” Lululemon’s tights.
In 2014, Wilson launched his first open fight with the board, voting against the election of two members and also pushing to declassify the board. The squabble was settled after Wilson sold half of his stake to private-equity firm Advent International, which was granted two board seats at the company.
Wilson stepped down from the board after another dispute over Wilson’s wife and son in 2014 launching Kit and Ace, a higher-end version of Lululemon that includes some dressier items but also fitness offerings.
Wilson indicated he had no plans to launch a proxy war and supported the three directors set for election this week. Those include Kathryn Henry, Jon McNeil, and Robert Bensoussan.
But Wilson, whom Forbes estimates has a net worth of $2.3 billion, appears determined to continue to seek ways to push Lululemon to articulate its plans for regaining its leadership status.
“I have not heard a strategy nor seen actions that lead me to believe we will regain our competitive position and secure long-term returns,” wrote Wilson in his letter. “This is unacceptable and the board needs to understand that I – indeed all shareholders – will be watching closely.”
Photo courtesy Lululemon
