Does Lululemon founder's latest spat mean flat quarterly results?

Does Lululemon founder's latest spat mean flat quarterly results?
A woman walks past a Lululemon Athletica store. (Mary Altaffer / Associated Press)

Wall Street analysts expect Lululemon Athletica Inc. to post minimal gains Thursday morning after learning that controversial founder Chip Wilson voted against the reelection of the brand's chairman, Michael Casey, at the company's annual meeting.

Wilson, the largest shareholder with 27% of Lululemon's shares, said he has been concerned that the company is heading in the wrong direction and is too focused on short-term results.


News of Wilson's vote sent Lululemon stock down 95 cents, or 2%, to $44.53 on Wednesday.

"I have found a palpable imbalance in board representation, which is heavily weighted towards short-term results at the expense of product, culture and brand and longer-term corporate goals," Wilson said.

Despite Wilson's public disapproval, shareholders reelected Casey and two other board members, Laurent Potdevin and RoAnn Costin, whom Wilson also voted against.

Shares of the popular athletic-wear company have fallen 23% so far this year, as the Vancouver company has struggled to regain its footing after last year's recall of 17% of its Luon yoga pants for being nearly transparent and Wilson's related comments that rankled its large base of female customers.

Analysts expect the yoga-wear favorite to continue to struggle with earnings for its fiscal first quarter, which ended May 4. They see earnings rising just 1% from last year's first quarter, and same-store sales dropping 1.25% from the same quarter last year.

"Lulu's same-store sales are likely not to exceed positive, mid-single digits until 2016," analyst Sam Poser at brokerage Sterne Agee wrote. "The Lulu brand has been scarred and it will take great product, balanced with strong guest and community engagement, for Lulu to return to its prior greatness."

Known for its signature white and red reusable shopping bags with inspirational quotes, hoodies and colorful patterns, Lululemon has had trouble reclaiming customer loyalty since recalling nearly one-fifth of its most popular kind of yoga pants in March 2013.

Customers complained that the pants, which retail at about $98, were far too sheer. A few months later, more customers demanded refunds after saying the yoga pants pilled, showing wear with short fibers breaking off and clinging to the fabric.

And last November, Wilson said the pants pilled because some customers' thighs wore through the fabric. He said that "some women's bodies just don't work" for the pants and that not every company "needs to cater to every woman."

"I love the clothes and the brand — they have serious Instagram game — but I find myself torn," said Jamie Rosenzweig, 24, a digital marketing specialist in Washington, D.C., and once-loyal Lululemon customer.

"I don't like the idea of supporting a company with a history of misogynistic values appropriated by the founder and the hyper-competitive culture," she said. "But I love their products."

Many consumers also complain about the workout company's high prices.

"They have great marketing but I refuse to pay that much just to look 'cool' when working out," said Cristina Cardenas, 25, of Denver.

Internal feuding over the brand's direction also has marred Lululemon's reputation. Wilson, who resigned as chief executive in 2005 but remained on the board, often clashed with others, including one of his successors, Christine Day. She stepped down three months after the recall.


Wilson said he also wanted to oust board member Costin just hours before the company's annual meeting in Vancouver, B.C.

The company defended Costin and its chairman, Casey, a former Starbucks Corp. finance chief, and reassured investors that it was committed to increasing shareholder value.

"Contrary to Mr. Wilson's assertions, Lululemon's board members are aligned with the company's core values and possess the necessary expertise to successfully lead Lululemon forward," the company said.

Last December, Wilson agreed to hand over reins as chairman this spring and welcomed Potdevin, former president of Toms Shoes. However, Wilson has made it clear that the company is again in need of new leadership.

"My vote today sends a signal to the financial community that the company must address this imbalance if Lululemon is to fully recover," he said.

Wilson founded the company in 1998 and quickly changed how athletic companies market their products to consumers. Now with 250 stores, Lululemon hosts free yoga classes, operates run clubs and offers what it calls brand ambassadors to lead workouts.

"Lululemon does so much more to create a relationship with the community, and that's totally different than other athletic companies," said Courtney Schneck, a Lululemon employee in Calabasas.