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Aug 24, 2018

What shareholders really want from Lululemon’s new CEO Calvin McDonald

Former Sears Canada CEO lands top job at Lululemon

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Shares in Lululemon Athletica Inc. may be climbing, but as the Canadian yogawear brand’s new chief executive Calvin McDonald makes his debut, investors will be looking for one key thing: stability.

While Lululemon’s stock (LULU.O) has more than doubled in the last 12 months and total comparable sales jumped 19 per cent through April, the company has been without a permanent CEO since February when Laurent Potdevin abruptly departed due to improper conduct. The exit set off the Vancouver-based company’s second CEO search in four years.

“Investors are looking for stability – somebody very strong at the helm of the organization, somebody that can lead them through their growth plan,” said Farla Efros, president of HRC Retail Advisory, in a telephone interview with BNN Bloomberg.

“There was an interim CEO there but given the growth plan … it’s important that they have someone full-time and on-the-ground to lead them to that next stage in their life.”

McDonald, a 46-year-old Canadian who most recently ran the Americas business at makeup chain Sephora, comes to Lululemon after Potdevin focused on the company’s overseas expansion.

Efros says she expects McDonald – who started his role on Aug. 20 – will not seek to make radical changes to Lululemon’s growth plan right from the start of his mandate.

“I think he’s probably going to massage the plan and essentially get it even more focused to ensure that they’re moving in the right direction,” Efros said.

Investors will also be looking for a steady path forward from McDonald’s leadership given Lululemon’s rocky public relations history.

That includes controversial comments made by Lululemon’s founder Chip Wilson in 2013 after its see-through pants debacle, suggesting that “some women” shouldn’t wear its signature product. In 2015, Wilson resigned from Lululemon’s board after a high-profile feud with the company’s directors over its strategy.

“That was probably another reason why [McDonald’s] the right one,” Efros said, noting McDonald’s previous roles not only at Sephora, but also as CEO of Sears Canada and Loblaw Co. where he was a top executive. “He came from a big job from many different organizations and there were little to no PR issues … That’s obviously important to [Lululemon].”



At the same time, McDonald has taken on a role that will be closely watched by investors and the retail fashion industry alike. Indeed, in a June column for industry publication Retail Insider, Wilson took another shot at the company’s board, criticizing their executive hiring strategy.

“[Vancouver] has a large population of athletes and creatives, including expats from Europe and Asia who bring global experience and a distinct sense of style,” Wilson wrote. “Unfortunately for Lululemon, the board tends to overlook these resources, instead preferring to hire fashion and wholesale executives from the very companies Lululemon does not want to be.”

But that’s something Efros says McDonald won’t have a problem with.

“I think he has an incredible pedigree,” she said. “If you look at what lifestyle represents and the fact that he’s very fit, he’s involved with all kinds of triathlons, I really think that’s the demographic they’re going after with that brand.”

Lululemon reports second-quarter financial results on Thursday. On average, analysts expect adjusted profit will rise 26 per cent year-over-year to 49 US cents per share.