Lululemon is getting a Nike veteran as its new CEO. An analyst says that could be a problem.

By Bill Peters

Lululemon says its board has picked Heidi O'Neill, a veteran of Nike and Levi's, as its next CEO. But shares fall after hours.

Lululemon's stock has fallen about 40% over the past year.

Yoga-wear maker Lululemon on Wednesday said its board had approved Nike veteran Heidi O'Neill as its new CEO. But analysts said it was too early to tell if that was the right call, and said questions about Nike's current struggles could spill over into her new job.

The appointment of O'Neill, an executive with more than three decades of experience in clothing and sports gear who becomes CEO on Sept. 8, follows a roughly 40% drop in Lululemon's stock (LULU) over the past 12 months.

Shares of Lululemon fell 4.3% after hours on Wednesday, after the company announced the leadership change. Wall Street had been watching those plans closely following the departure of Calvin McDonald from the top job earlier this year.

His departure came as Lululemon grappled with competition, concerns about waning cultural relevance, a departure from core products, and more recent questions about product quality and issues with fabric sheerness. Meanwhile, Lululemon's founder, Chip Wilson, has become a more vocal critic of the company, as he tries to shake up its board.

Meghan Frank and Andre Maestrini will continue to serve as interim co-CEOs until O'Neill comes aboard, Lululemon said.

O'Neill brings more than 25 years of experience at Nike (NKE), where she worked to speed up product development and at one point oversaw consumer and marketplace operations across more than 170 countries. She also oversaw Nike's global direct-to-consumer and digital business. Prior to her work at Nike, she was director of marketing for the Dockers brand at Levi Strauss (LEVI).

But Nike's digital business has faced challenges in recent years, following a complicated rollout and more aggressive discounting from rivals. Cost-conscious consumers, weaker sportswear trends, difficulties in China and a surplus of unwanted casual sneakers have all remained issues for Nike, as investors continue to question its turnaround.

"O'Neill should have knowledge on managing a complex global organization with a focus on innovation, consumer insights, marketing and cultural relevance to drive sales," Raymond James analyst Rick Patel said in a research note late Wednesday.

"We believe the scrutiny will be that Nike is also in turnaround mode itself following execution missteps over the past few years," he added. He said major strategic changes at Lululemon were unlikely until next year.

Elsewhere, Jefferies analyst Randal Konik said it was too soon to say if Lululemon's new CEO was the right pick. However, he said O'Neill's experience at Nike could bring the know-how needed to reset the brand.

But he said the fight over Lululemon's board and store expansion remained issues.

"Without a reset around the core product, tighter inventory discipline, and a credible plan to stabilize the Americas, we expect fundamentals to worsen before they improve," he said.

-Bill Peters

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04-22-26 2020ET