Lululemon's stock falls 4.4% after yoga-gear maker says its chief product officer is leaving

By Ciara Linnane

Wedbush says the move is overdone and highlights slowing U.S. sales - but there's still strong international demand

Lululemon Athletica Inc.'s stock was down 4.4% premarket Wednesday, after the company announced the departure of its chief product officer and said it would overhaul its product and brand teams.

Sun Choe, who held the post for the last seven years, has resigned to pursue another opportunity, the yoga-gear maker said in a statement late Tuesday.

The company (LULU) will now have Jonathan Cheung, global creative director, report directly to Chief Executive Calvin McDonald and oversee product design and innovation. Cheung has more than 30 years of experience in senior leadership roles at global brands.

Lululemon will also create a new team of leaders from merchandising and brand functions to manage global and regional go-to-market strategies, the company said in a statement.

Nikki Neuburger will become chief brand and product activation manager to oversee merchandising, footwear and product operations on top of her current responsibilities.

Elizabeth Binder, chief merchandising officer, will report to Neuburger.

Wedbush analyst Tom Nikic said the selloff seems overdone and is likely due to how well-liked and well-respected Choe was by Wall Street.

Lululemon has been a "notable laggard" in Wedbush's coverage this year with the stock down 37%, while the S&P 500 SPX has gained 12%, according to Nikic.

That's due to concerns about competition from upstarts such as Alo and Vuori that are causing U.S. growth to slow, the analyst wrote in a note to clients.

During Choe's reign, Lululemon's revenue grew by about 4%.

"While this can't be attributed entirely to Ms. Choe, we do believe that she played an instrumental part in LULU's success over the past 7+ years," said Nikic. "Clearly, the narrative around the company has worsened, and as a result, we no longer think LULU will command the valuation multiples it has achieved in recent years. "

Wedbush lowered its stock price target to $397 from $492, but said the company's strong growth in international sales in the fourth quarter should provide a cushion against slowing U.S. sales, and that reduced discounting online may signal that U.S. trends are starting to stabilize.

The international business grew sales by 56% in the fourth quarter on a constant currency basis, he wrote, driven by low-80s growth in Mainland China and mid-80s growth in the rest of the world.

See: Lululemon's stock drops on soft revenue forecast

"We'd also note that management believes the Q1 slowdown is due more to internal execution (issues with sizing and colors), and if this is really the case, LULU has historically bounced back from these missteps very quickly," he wrote.

Lululemon is scheduled to report its first-quarter earnings on June 5 after market close. The company is expected to report per-share earnings of $2.41 on sales of $2.202 billion, compared with $2.28 and sales of $2.001 billion in the year-earlier period.

Read now: The battle between athleisure and wider-leg pants is here. That means more trouble for Lululemon, analyst says.

-Ciara Linnane

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05-22-24 0711ET

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