Wall Street gave Heidi O’Neill an uncordial welcome as the next chief executive officer of Lululemon Athletica Inc., trading shares of the company down 11.6 percent to $144.44 in midday trading on Thursday.
But the Nike veteran’s success in the corner office is not going to hinge on any one day in the market, but how she approaches the already-underway Lululemon product reset and positions the company to take advantage of its still-considerable strengths.
Despite the stock market decline, many analysts seem to be keeping an open mind and are waiting to hear more from O’Neill, ratcheting up the pressure for when she does eventually roll out her plan.
William Blair analysts Dylan Carden and Sharon Zackfia in a research note pegged the stock decline on “the timing of O’Neill’s expected start date — nearly five months out — and lack of familiarity with O’Neill.”
They described the appointment of Lululemon’s “tradition of out-of-left-field CEO picks.”
“O’Neill was not a name bandied around on Wall Street given no prior public company CEO experience, although she brings a significant breadth of knowledge in women’s performance apparel and her experience accelerating speed-to-market is particularly welcome at Lululemon.”
They said product lead times at Lululemon have “ballooned to about 24 months — eroding much of the brand’s historical competitive advantage of adding beauty to function via short lead times.”
“We look forward to hearing O’Neill’s initial thoughts on her plans for Lululemon,” they said, adding that the new CEO might not give a glimpse at her playbook until the third-quarter earnings report in early December.
O’Neill, who left Nike in May after 26 years, was most recently the Swoosh’s president of consumer, product and brand. When she departed, the division she headed was divided into three distinct areas: consumer and sport; marketing, and product creation.
O’Neill was a key player in Nike’s Consumer Direct Acceleration strategy, which was revealed in 2017 and centered around building direct relationships with its consumers.
Nike began to deemphasize wholesale and put more money into its own consumer channels — a change that would prove to be a devastating blow to the company when consumer behavior shifted after the pandemic.
Unlike Nike, though, Lululemon is already a direct-to-consumer company and is instead seen as needing to focus on winning over shoppers with sharper design.
Jefferies analyst Randal Konik said it was “too early to say whether she’s the right fit.”
“We like Ms. O’Neill’s Nike background, but the key question is whether she brings the product muscle Lululemon needs to truly reset the brand,” Konik said. “Under [former CEO Calvin] McDonald, company fundamentals suffered as product diversification into non-core categories diluted the brand and drove customers to the competition — that damage is not easy to undo.”
But Lululemon still comes with plenty of advantages.
Konik called the brand’s productivity “sky high” and said that even after a roughly 9 percent decline, its sales per square foot tallied $1,426 last year, or nearly four-times the mall average.
But some are more inclined toward the glass-half-empty view of Lululemon.
“We are disappointed with the announcement and investors are too,” said Laurent Vasilescu, an analyst at BNP Paribas. “At this juncture, Lululemon needs a turnaround CEO and not a growth CEO. With today’s announcement, fundamentals will come into focus and we are incrementally more negative on Lululemon.”
Vasilescu zeroed in on a quote from O’Neill describing the brand as “in the early stages of its potential.”
“This clearly tells us that the board thinks Lululemon is still a growth company,” he said. “We also know this because the board approved plans for this year to grow square footage low double digits despite comps remaining negative. We all know it ends in tears when square footage is growing but comps are negative.”
Chip Wilson, Lululemon’s founder, largest shareholder and chief agitator, has not weighed in on the pick yet, although he previously advocated for waiting to name a new CEO until the board could be reset. He is in the midst of a proxy battle to force change on the board at the company’s annual meeting, which is typically held in June.
