Lululemon Stock (LULU) Slides on ‘Weak and Insufficient’ Response to Founder’s Push for Change

Lululemon Athletica’s LULU -0.33% ▼ shares edged lower early Friday after founder Chip Wilson said his efforts to push for a turnaround were met with a “weak and insufficient” response from the board of the athletic apparel retailer.

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Board Nixed Push for Focus on Branding, Wilson Says

Wilson has been criticizing the leadership of the Vancouver-based company over falling sales, and in December nominated three candidates to the company’s board. The founder, who is the company’s second-largest shareholder after investment firm Vanguard, said he proposed a “framework” on December 29 with one of the candidates.

However, Wilson alleged that the board only engaged with the framework after over 70 days, on February 24, providing a “weak and insufficient” response. He added that the board rejected his proposal to establish a Brand Product Committee.

“The heart of the issue is a disconnect between the company’s creative engine and the board’s strategic oversight of how nonquantifiable power of brand and product translates to brand strength, margin durability, and long-term shareholder value,” Wilson explained to shareholders in a letter.

“Brand, creative, and marketing skills are missing from the boardroom,” he further noted, adding that “these problems are fixable, but meaningful change must happen fast.”

Wilson Flags Concern about Board Independence

Meanwhile, Wilson said the only “concrete” proposal he has received from the board is a non-disparagement agreement where each party promises not to make negative or harmful statements about the other party. He argued that the board is only interested in protecting its reputation and has taken several steps that raise concerns about the board’s independence.

An example is tasking David Mussafer, chair of the board’s corporate responsibility, sustainability, and governance committee, with interviewing director nominees. Wilson criticized this, noting that Mussafer is a candidate for election this year.

“If the board engages as shareholders expect, there is no reason to believe we cannot have this resolved before March 13,” Wilson added.

Is Lulu a Good Stock to Buy?

On Wall Street, Lululemon’s shares continue to carry a Hold consensus rating based on one Buy and 20 Holds issued over the past three months.

However, the average LULU price target of $211.71 implies about 14% upside from current trading levels.

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