Lululemon Athletica Inc. is going to Just Do It.
The active company named 27-year Nike veteran Heidi O’Neill its next chief executive officer, setting course for the future after a couple years of lackluster performance and Calvin McDonald’s exit as CEO earlier this year.
O’Neill, who left Nike last year, will take her new post on Sept. 8 and be based at the company’s headquarters in Vancouver.
“Heidi is the best, perfect, right next leader for this company,” said Marti Morfitt, executive chair of Lululemon, in an interview with WWD. “I and the other board members had spent a great deal of time with her and were impressed by her creativity, her consumer orientation, her deep product and brand perspective and her global experience. And besides all that, she’s done it all at scale in her numerous leadership roles at Nike. She basically was our bull’s-eye candidate.”
But Morfitt said the hire was not an attempt to bring a little of the Nike magic over to Lululemon.
“What we really liked about how Heidi has shown up over her career is that she’s developed a reputation for always starting with the consumer and the brand context and bringing fresh thinking to established ideas and established organizations,” Morfitt said. “She has not been about applying a fixed playbook. When you think about how she’s operated, the fact that she’s operated and generated growth at scale, coming at challenges in new and different ways, that’s really what we were looking for, what we’re admiring in Heidi. It has far less to do with where she has come from and more to do with who and how she is.”
With $11 billion in sales last year, Lululemon is not far off from where Nike was when O’Neill joined that business — which she helped to build from $9 billion to $45 billion, overseeing product pipeline, brand voice and operations.
The difference between growing a brand and doing it at real scale is a significant one.
And Morfitt pointed to two key skills that were needed to successfully make a big company even bigger.
“The first one is being able to imagine a new future beyond what you already are. In the case of Lululemon, this is an $11 billion business. It’s been a wildly successful brand. It continues to grow. Creating its next future is really important,” she said. “And then the second half, which we’ve seen in Heidi’s background, is the ability to then take that new vision and to set up the processes and the structure and the oversight to ensure that you can execute it.”
As is typically the case, the company is paying big money to bring in a big name.
According to a regulatory filing, O’Neill will receive an annual salary of $1.4 million with an annual target bonus of 200 percent of that salary. She will also be eligible for equity awards equal to about $10 million, a onetime grant of $2.8 million worth of time-vesting restricted stock units and a onetime grant of $4.2 million in stock options. To stay on for at least two years, O’Neill will also receive a $2 million cash retention bonus.
The changing of the guard at a big fashion company is always fraught with complications, but O’Neill is stepping in at an especially complicated time for Lululemon, which McDonald built up into a powerhouse on Wall Street only to stumble with product misfires and a slowdown in the U.S. over the last couple years.
Looks from Lululemon.
Courtesy
While course corrections are common in fashion, Wall Street saw something else and the company’s market capitalization has fallen from about $64 billion at the end of 2023 to just $19 billion. And investors remain wary, reacting to news of the new CEO by trading shares of Lululemon down 4.8 percent to $155.56 in after-hours trading on Wednesday.
Simeon Siegel, an analyst at Guggenheim Securities, said in a research note that with the long-awaited CEO announcement made, “now comes the hard part.”
While Siegel said the choice of CEO would be “a surprise to many investors,” the analyst said he’s waiting to hear more about O’Neill’s plans to turn around the business.
“We fear Lululemon remains a strong, but overstretched, brand, having eclipsed our domestic ‘brand ubiquity’ level, and our analysis suggests a necessary revenue reset will drive more P&L pressures than savings, keeping us cautious,” he said.
O’Neill reached employees in a company-wide email with the promise of a new chapter.
“The year Lululemon opened its first store in Vancouver, I was just beginning my career at Nike,” she wrote. “I watched from a distance as this company grew into something genuinely rare: a global brand with a distinctive point of view on product, a deeply loyal guest relationship, and a culture that actually lives its values. That is not something you build by accident. You’ve built something special, and I don’t take that lightly.
“What drew me to this role — and what I believe is Lululemon’s greatest opportunity — is the intersection of extraordinary product, design and community. I’ve spent my career at that intersection: building businesses where innovation in product and deep consumer connection are the engine of growth. Lululemon has achieved so much already. I believe the best chapter for this brand is ahead of us, and I can’t wait to help write it with you.
“As we get to know each other, I’ll ask a lot of questions, and I have a lot to learn,” she wrote.
It’s always a good sign when the incoming CEO of a large company is able to acknowledge they don’t know everything.
And that attitude should be helpful to O’Neill as there are so many investors who already have a lot of thoughts on how the company should be run.
Activist shareholder Elliott Investment Management started agitating for change at Lululemon last year, advocating for Ralph Lauren Corp.-veteran Jane Nielsen to take the top job. And founder Chip Wilson, the company’s biggest shareholder, has been pushing to remake the board with product-first directors who would then pick the next CEO.
For now, Meghan Frank and André Maestrini, who stepped up to become interim co-CEOs after McDonald’s departure, will continue to lead the company until O’Neill joins and then take up their prior roles as chief financial officer and chief commercial officer, respectively.
