Lululemon CEO Calvin McDonald will leave in January

Lululemon It announced Thursday that CEO Calvin McDonald will step down effective Jan. 31 after more than a year of poor performance at the athleisure company.

The company’s board of directors is working with a “leading executive search firm” to identify its next CEO, it said in a press release. MacDonald will remain as senior advisor until March 31.

“Serving as CEO of lululemon has been the highlight of my career, and I am incredibly proud of everything our team has accomplished over the past seven years,” McDonald said in a press release. “Together, we have transformed the athletic apparel industry and the opportunity for Lululemon is significant. I believe the outstanding product pipeline we have built and the business plan we have put in place will deliver positive results and deliver shareholder value in the months and years ahead.”

He said he was “committed to fully supporting the transition process” through his advisory role.

Lululemon CFO Megan Frank and Chief Commercial Officer Andre Maestrini will serve as interim co-CEOs during the search process. Company Chairman Marty Murfitt will also assume the expanded role of CEO. She said in a statement that the company has a strong foundation but needs a new leader who can guide it through the transition period.

“As we look to the future, the Board is focused on identifying a leader with a proven track record of leading companies through periods of growth and transformation to guide the company’s next chapter of success,” Morfitt said.

Shares rose about 10% in extended trading.

The leadership change comes after more than a year of poor performance at Lululemon and calls for change from its founder and largest independent shareholder, Chip Wilson. Two months ago, he took out a full-page ad in the Wall Street Journal saying the company was “in decline” and that it needed to “stop chasing Wall Street at the expense of customers.”

Lululemon announced McDonald’s departure on the same day it reported fiscal third-quarter earnings and another round of weak guidance.

Here’s how the company’s performance compared to what Wall Street was expecting, based on a survey of analysts conducted by LSEG:

• EPS: $2.59 vs. expected $2.25
• profit: $2.57 billion versus $2.48 billion expected

The company’s reported net income for the three-month period ending November 2 was $306.84 million, or $2.59 per share, compared to $351.87 million, or $2.87 per share, in the previous year.

Sales rose to $2.57 billion, compared to $2.40 billion the previous year.

As for Lululemon’s current quarter, McDonald said the company is “encouraged” by its early performance so far in the holiday season — even though guidance was below Wall Street estimates. It expects sales to range between $3.50 billion and $3.59 billion, well below expectations of $3.60 billion, according to LSEG.

Earnings per share are expected to be between $4.66 and $4.76, well below expectations of $5.03, according to LSEG.

In the previous two quarters, Lululemon lowered its full-year guidance. On Thursday, more than a month into the final quarter, it raised its full-year forecast again.

It now expects sales to be between $10.96 billion and $11.05 billion, in line with expectations at the lower end, according to LSEG. It expects earnings per share to range between $12.92 and $13.02, roughly in line with estimates of around $13, according to LSEG.

Lululemon’s business has been under pressure over the past year as it dealt with the impact of tariffs, a fragile American consumer and a variety of products that failed to wow shoppers in the same way they once did. It also faces intense competition in the gym space from startups like Vuori and Alo Yoga as well as a change in consumer preferences. Instead of yoga pants, many shoppers these days are turning to jeans.

To drive growth and reach a broader audience, Lululemon is expanding its business internationally and offering shoppers a broader assortment. Instead of just workout gear, Lululemon has expanded to include shoes and outerwear like coats, jackets and casual pants that can be worn to work.

The company’s overall business is growing, but this growth has been primarily driven by its international business and the opening of new stores. Its largest market, the Americas, is declining.

Lululemon was also hit by the expiration of the de minimis exemption, which allowed low-value packages to enter the US duty-free market, a little more severely than its peers.

In September, it said it expected the tariffs to hit full-year earnings by $240 million, with most of those costs coming from the expiration of the minimum exemption.

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