On June 10th Lululemon Athletica (LULU) CEO Christine Day stunned Wall Street when she announced she would leave the company as soon as a replacement was found. Day was the very public face of the company as it built a slavish fan base with a focus on high-quality, predominately female yoga athletic wear.
Amid rumors that Day had disagreed with the board's long-term strategic view, the outgoing CEO only fanned the flames by cryptically telling CNNMoney.com "my values include discretion," by way of explaining her departure. Investors hit the exits with shares of Lululemon dropping more than 20% in two days.
Day left the company on a roll but without much of a growth strategy. There wasn't any question that Lululemon had proven the doubters wrong in terms of how far it could go with it's focus almost entirely on women, but it's going to have to figure out a way to expand its appeal to get to the next level. Lululemon is now a $10 billion company trading at 38x earnings. They need to do more than be the leading brand for yoga-centric females.
Two months after Day's departure there's still no word on a replacement. Brian Sozzi of Belus Capital Advisors isn't afraid to say it's time for Lululemon to man up.
"They need to figure out some way to get into the men's business and it's not putting men's product in the back of the store."
The reality is Lululemon already sells incredibly high-quality men's sports apparel. The issue is the company is almost willfully bad at making that fact known. A visit to Lululemon.com reveals well made, bland product shown in uninspired settings on bored looking models. Trying to actually purchase even a basic golf shirt is impossible for most American males: the best brands are hard to find in size greater than medium.
Sozzi thinks the company needs to start from scratch in the men's business. It's going to mean heavy spending on marketing and probably a whole new brand. Even if Lululemon succeeds in penetrating a market packed with well-known jock juggernauts Nike (NKE) and Under Armour (UA), margins will likely shrink.
What the company has going for it is quality. If you can get over the stigma of shopping at a predominantly women's apparel maker and find items that fit, Lululemon really does have the best athletic wear on the market. The just need to a hire a CEO dedicated to not keeping it such a secret.
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