McDonald Takes The Fall As Investors Sweat On Gloomy Lululemon Results

Lululemon CEO Calvin McDonald is stepping down after six years in the top job. (Evan Buhler/The Canadian Press via AP)The Canadian PressFor a decade, Lululemon defined – and arguably created – the modern athleisure category, commanding premium prices and customer devotion through its mix of product quality and lifestyle aspiration.It now confronts the uncomfortable reality that it is competing in a market it no longer controls and, as a result, Lululemon’s long-serving chief executive Calvin McDonald is stepping down at the end of January.The unexpected change, announced after markets closed Thursday, brings to an end nearly six years in the top job and draws a line under a period of faltering performance at the once-high-flying athleisure group.McDonald, who will remain as a senior advisor until March 31, told analysts the “timing is right for a change” and described the role as his “dream job,” in an unusually valedictory tone for a chief executive leaving under pressure.Lululemon’s chair, Marti Morfitt, will expand her responsibilities to executive chair, while chief financial officer Meghan Frank and chief commercial officer André Maestrini will jointly serve as interim co-chief executives.MORE FOR YOUMorfitt said the board was working with a leading executive search firm to find a successor with experience guiding companies through “periods of growth and transformation,” signaling that Lululemon expects an extended strategic reset.Lululemon Results Disappoint AgainThat the announcement coincided with the release of another soft earnings outlook only underscored the sense of drift. Despite beating expectations for the third quarter, with earnings per share of $2.59 against the anticipated $2.25 and revenue of $2.57 billion ahead of the $2.48 billion analysts expected, the company’s guidance again disappointed.Net income fell to $306.84 million, down from $351.87 million a year prior, and while sales rose from $2.4 billion to $2.57 billion, investors were more focused on the downbeat projections for the crucial holiday quarter. The company anticipates revenue of $3.5 billion to $3.59 billion, missing the $3.6 billion Wall Street had pencilled in.Shares briefly rallied as investors appeared relieved the board had finally acted but are down by nearly half on the year and even further off their peak at the end of 2023.The leadership turmoil follows a year marked by repeated guidance cuts, operational missteps and public pressure from founder Chip Wilson, who remains the company’s largest independent shareholder. In November, he took a full-page in the Wall Street Journal accusing Lululemon of entering a “nosedive” and prioritizing Wall Street appeasement over product innovation and customer loyaltyWhile Wilson has long been an outspoken critic, his intervention crystallized broader concerns that Lululemon’s well-drilled formula of premium fabrics, fashion-forward basics and a cult-like community had lost some of its lustre.Home Woes Hit LululemonThose doubts are borne out in the company’s regional performance. Lululemon may have continued to post growth overall, but almost all of it now stems from the brand’s international expansion and an aggressive roll-out of new stores abroad.During the most recent quarter, revenue in the Americas, the company’s largest and most mature market, fell 2%, with comparable sales down 5%. International revenue, by contrast, surged by around a third and comparable sales rose 18%, underscoring the degree to which the brand has grown reliant on newer markets such as China and Europe to compensate for stagnation at home.Built on customer advocacy, Lululemon has lost ground to rivals. (Photo by Tim P. Whitby/Getty Images for lululemon athletica)gettyMcDonald acknowledged that while Lululemon saw a strong Thanksgiving weekend that helped clear older inventory at a discount, trends slowed in the weeks that followed, prompting the cautious fourth-quarter guidance.And the company’s challenges cannot be separated from the broader cooling in the U.S. athleisure market. After years of pandemic-fuelled growth, the category has matured and consumer tastes have started to shift. Denim has resurged as office attendance normalizes, while the relentless proliferation of leggings, sweats and yoga pants has created a more competitive and less differentiated landscape.Emerging rivals such as Vuori, which has pursued a California-casual aesthetic with an emphasized men’s offering, and Alo Yoga, which leans on high-gloss influencer marketing, have chipped away at Lululemon’s once-unassailable appeal among younger consumers. Even mass-market players, including Gap’s Athleta and Nike’s lifestyle collections, have increasingly blurred the boundaries Lululemon once controlled.The rise of British brand Gymshark also illustrates the evolution of athleisure’s competitive dynamics. Gymshark recently opened a debut flagship store in New York, betting that a physical presence in one of the world’s most important retail hubs can push its digitally-native model to a broader audience. Gymshark’s success highlights how upstarts can rapidly scale brand affinity through social-media communities.Lululemon has also tried to expand its remit beyond its core yoga and training categories, pushing into shoes, outerwear and casualwear designed for office-appropriate comfort. McDonald has frequently described the brand’s ambition to become a “uniform for the way people live today.” But some of these extensions have lacked the clarity that propelled earlier hits such as Align leggings or Define jackets. Analysts noted that Lululemon’s womenswear pipeline has looked less inventive in the past year, while its nascent footwear division remains too small to meaningfully offset softness in core categories. The company’s menswear, once seen as a substantial opportunity, has also grown more slowly than hoped.Lululemon Battles New BrandsOperational headwinds have compounded these strategic challenges. Lululemon has been disproportionately affected by the end of the de minimis exemption, which had allowed low-value packages to enter the U.S. without duties. The company had projected the resulting tariffs would reduce full-year profit by $240 million, later adjusting that figure to $210 million.But none of these issues fully explain the abruptness of McDonald’s exit. Lululemon’s brand remains powerful, its margins enviable, and its international business offers genuine runway. Yet the symbolic resonance of the leadership change is hard to ignore.As the board begins the search for a new chief executive, investors will expect a leader capable not only of operational discipline but of rediscovering the company’s cultural edge. Lululemon requires a clearer articulation of what differentiates it in an increasingly crowded field and how it intends to reignite demand at home.The choice of the next chief executive and the strategic course that follows will determine whether Lululemon can again lead the athleisure market rather than chase it.