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New CEO Cannot Save Lululemon

Paul Ausick

How long can a company survive selling high-priced (some might say overpriced) yoga clothing for women? We are about to find out as yoga apparel maker Lululemon Athletica Inc. (LULU) is getting a new chief executive in January and a new board chairman sometime next year.

The beginning of the end for departing CEO Christine Day was the flap earlier this year over transparent yoga pants. No matter how much we believe in corporate transparency, most of us would draw the line at our pants.

Even so, Day will be a tough act to follow. In her more than five years as CEO, Lululemon's revenues and profits have soared and the stock price has risen by a factor of five. New CEO Laurent Potdevin, who takes over next month, has a retail career spanning more than 20 years, but that may not be enough to prepare him to navigate the company's corporate culture and to meet the challenge from competitors like Nike Inc. (NKE) that are moving into the yoga apparel business with big brands and big bucks.

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Nike, Reebok, Under Armour Inc. (UA), L Brands Inc. (LB) and The Gap Inc. (GPS) all want in on the yoga apparel market and the transparent pants issue gave them a chance to get a toehold. Lululemon got more complaints related to the quality of its clothing, and the company's answer was to send founder and soon-to-be ex-chairman Chip Wilson into the public relations wars.

Wilson embarrasses himself and his company every time he opens his mouth, and is likely to continue to be a thorn in Potdevin’s side as well. Wilson will remain on the board and his well-known commitment to the objectivist nonsense of Ayn Rand will make it difficult for Potdevin to do anything about a corporate culture that seems to have gone off the rails.

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Wilson's recent comments that "some women's bodies just don't work" for Lululemon's pants set off as much of a firestorm as the earlier transparency issue. If a women is willing to pay $100 or more for a pair of yoga pants, the least Wilson could do is shut up. But he's special, so he can do whatever he wants, right?

Potdevin is taking over a mature company that will not be able to keep up the pace of growth it set in the past six years. But that has been true since the stock first crossed the $70 a share mark in March of 2012. It bounced to more than $80 early this year, after falling below $60 in June of 2012. The glory days are over.

Lululemon stock is getting a boost on the announcement, trading up about 3% in the premarket on Tuesday, at $72.39 in a 52-week range of $59.60 to $82.50.

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