No matter how much consumers like Lululemon Athletica Inc.?s product offerings, the company is now in the midst of a major management transition that brings with it more uncertainty.
CEO Christine Day announced on Monday that she will step down as soon as a successor is named. This follows the departure of chief product officer Sheree Waterson in early April, which came just weeks after many of Lululemon?s popular black Luon yoga pants were recalled for being to sheer.
Since the CPO role was split into two positions and Lululemon is also looking for a senior vice president of Logistics (a newly created position), the company now has four openings at the most senior level.
?We cannot say with certainty that the strategic vision of the company will not change as the new management team is put into place,? RBC Capital Markets analyst Howard Tubin and Tal Woolley said in a research note.
As a result, they are unable to recommend that investors buy the stock, despite the sharp sell-off.
The analysts continue to rate the stock at sector perform with a US$70 price target.
Lululemon shares were down 15% to US$69.73 at 9:54 a.m. ET on Tuesday.
Credit Suisse analyst Christian Buss called the departure of Ms. Day ?a clear negative? for Lululemon since she has been a clear architect of the company?s success for the past five years.
He pointed out that Ms. Day?s experience as president of the Asia Pacific group at Starbucks Corp. was considered a major advantage as Lululemon makes early forays into international markets such as Berlin, London, Singapore and Hong Kong.
Mr. Buss also noted that Lululemon has lost three executives in the past 18 months, including Chip Wilson stepping down as chief innovation and branding officer in March 2012. The company?s founder, who still serves as chairman of the board, is being cited as a possible candidate to replace Ms. Day.
Mr. Buss lowered his price target on Lululemon shares to US$73 from US$75 and left his neutral rating unchanged.
Canaccord Genuity analyst Camilo Lyon, who believes Ms. Day?s departure was prompted by recent product quality issues, warned that the lack of visibility in key leadership roles heightens near-term uncertainty.
He also noted that it will likely lead to multiple compression in Lululemon shares.
?At this time, we have no reason to believe the fundamental growth trajectory of the business or consumers? desire for the brand has changed, but recognize the risk profile is greater today,? Mr. Lyon told clients. ?Moreover, we suspect less tolerance will be allowed for future stumbles until a successor is named.?
The analyst continues to rate Lululemon shares a buy, but cut his price target to US$87 from US$92.
Source: http://business.financialpost.com/2013/06/11/lululemons-management-void-leaves-future-hazy/
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