Did Lululemon’s CEO Have To Go?

Lululemon announced Thursday that Calvin McDonald, its CEO over the last seven years, will step down at the close of the current fiscal year as the yoga-themed retailer faces slower growth, new competition, and rising costs.

McDonald’s planned departure comes as the yoga-themed retailer reported third-quarter results that topped guidance due to stronger-than-expected sales in China. A smaller-than-expected hit from tariffs also lead Lululemon to lift its full-year outlook.

However, investors have been particularly concerned about slowing growth in the U.S. region, where it’s facing newer competitors such as Vuori and Alo Yoga. Same-store sales in the Americas fell 5% in the third quarter, marking the third straight quarter of declines in the region.

The Vancouver-based chain is also facing cost pressures — not only due to higher U.S. tariffs, but also the removal of the de minimis provision, which allowed shipments valued under $800 to enter the country duty-free. Lululemon had taken advantage of the loophole, with about two-thirds of its U.S. e-commerce orders historically fulfilled through Canada.

On its second-quarter analyst call, McDonald had admitted that while Lululemon’s performance product continues to grow in the U.S., lifestyle offerings had underperformed — some franchises had “run too long” and become “stale” to top consumers.

On its third-quarter analyst call, McDonald and Meghan Frank, CFO, further detailed an “action plan” to reignite growth in the U.S. That plan includes increasing the penetration of new styles — from 23% of its mix in Q2 to 35% by next spring — and speeding turnaround times to increase the frequency of updates and restocking of strong sellers. Other steps include better curating stores based on local tastes, and more loudly calling out new styles in stores and in marketing.

Shares of Lululemon Still Down as Investors Eye New Leadership

Shares of Lululemon were trading up about 10% on Friday, at least in part because some investors were looking for a fresh leadership approach after efforts over the last year to inject more newness into offerings failed to revive U.S. growth. Shares had tumbled more than 50% since the year’s start.

On the analyst call, McDonald highlighted numerous accomplishments during his tenure, including tripling revenue, developing China into the brand’s second largest market, accelerating growth online, significantly expanding men’s assortment, and ranking as the leading women’s active apparel brand in the U.S. Based on 2025 guidance, Lululemon’s earnings will have expanded at ~20% CAGR (compound annual growth rate) from 2018 to 2025.

He said, “Lululemon is a very different and much stronger company today than when I first joined the organization in August of 2018.”

McDonald nonetheless noted that in conversations with the board, they agreed that the “timing is right for a change as we near the end of our 5-year plan cycle.”

He will continue as an advisor through March of next year after stepping down as CEO in January. Frank and André Maestrini, chief commercial officer, will serve as interim co-CEOs following McDonald’s exit, with the search for his successor already underway.

McDonald’s pending departure also comes as Chip Wilson, Lululemon’s founder and still-major shareholder, has criticized McDonald and the company’s board over its performance. Following news of McDonald’s pending departure, Wilson said in a statement, “The Board has failed to properly hold management accountable to deliver product innovation and instead has led with complacency. The erosion of premium brand value in the company’s core markets demonstrates that the board does not understand its target customers anymore.”