Lululemon may eat the dust of other sports apparel retailers after management woes (LULU)

pulse

February 6, 2018 3:32 PM

Lululemon's CEO Laurent Potdevin resigned on Monday in a spate of management changes that has some analysts worried.

The athleisure company installed Glenn Murphy, the former
The management changes will likely slow the growth trajectory of the company, a Jefferies analyst warns.

After the abrupt departure of Lululemon CEO Laurent Potdevin last Monday, the management changes will likely slow down the company's growth trajectory and keep it from remaining above its rivals in the sports apparel space, one Wall Street analyst said.

Potdevin's exit marks the second time a high-level executive left the company in the past few months. Last November, Lee Holman, Lululemon's creative director, who played an integral role in improving the brand's product execution, resigned.

"We are wary of the current level of management turnover at LULU, as it could lead to instability at a time when the company is looking to drive its next leg of growth as it works toward its goal of becoming a $4B brand by 2020 (from ~$2.6B currently)," Randal Konik, an equity analyst at Jefferies, said.

Lululemon's management team has installed Glenn Murphy, the former Gap CEO, as the company's interim executive chairman and has given the company's key executives more responsibilities as it searches for a suitable replacement for CEO. Konik thinks Murphy would be a strong leader, but said that he does not know the organization well enough yet to "effect significant change."

Given Lululemon's high valuation and lower margin opportunity prospects, Konik sees opportunity in other brands, particularly Under Armour because its valuations are lower than Lululemon's. He also sees a slowdown in the demand for athleisure goods.

"LULU is a good brand, but we remain wary of decelerating athleisure momentum, a margin recovery story where the low hanging fruit has already been picked, and tough compares," Konik said.

By the time Lululemon sorts out its management changes, it will have already lost its growth momentum, making it harder to compete with other brands, he said.

Shares of Lululemon were trading at $77.36 per share. Its stock was down 4.91% for the year.