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Will Lululemon's New CEO Embrace Downward Dog?

Stocks in this article: LULU

NEW YORK (TheStreet) - Lululemon Athletica's (LULU) shares slipped on Tuesday as investors took in the news of a new CEO stepping in and its founder and chairman stepping out.

Six months after Lululemon's CEO Christine Day announced her intention to resign, the yoga and apparel maker said  Laurent Potdevin, who's had brand and management experience at Louis Vuitton, Burton Snowboards and most recently as the president of TOMS Shoes, the socially responsible company known for matching every pair of shoes purchased with a pair of shoes given to a child in need, would replace her.

The Vancouver-based company also said Chip Wilson, its founder and chairman would resign from the position prior to Lululemon's annual meeting next June. Michael Casey, Lululemon's lead director and a former Starbucks' (SBUX) executive, will assume the chairman position.

Lululemon hired Laurent Potdevin, the former president of TOMS Shoes, as its new CEO.

Potdevin will step into his role in January; Day will stay on until the end of the company's fiscal year to help with the transition.

Shares were down 0.51% to $69.98 in mid-Tuesday tade.

The management shift -- Potdevin's brand and operational knowledge combined Casey's experience -- may just be the thing that the specialty yoga retailer needs to get it back to being the Wall Street darling it once was.

The stock is down roughly 8% this year, compared to Under Armour's (UA) stock up 70% in the same time frame.

"It's a good fill because clearly [Potdevin] is coming from a very creative, ambitious place prior and that's what this company has been until now and probably just needs a shot of creativity in the arm", said David Tawil, co-founder and portfolio manager at Maglan Capital, a hedge fund that focuses on distressed companies. Maglan does not own any positions in Lululemon.

"I don't think they're looking to become a mundane, mass-merchandiser," Tawil said. "They don't need someone to sell down; they need someone to continue to push the envelope up."

Lululemon has been barraged with bad publicity after it was forced to recall its popular luon pant over sheerness complaints this past spring. More recently, customers have been complaining about pilling on the expensive yoga pants. Wilson stirred up quite the public relations nightmare by publicly saying during a media interview that: "Quite frankly, some women's bodies just actually don't work for it."

Wilson's resignation was prudent, especially for a company that looks to be moving out of its growth stage and maturing, Tawil noted.

"It's a company that that now needs to be concerned about things like that," Tawil stated. "I think [the resignation] speaks to the maturity of the company and that, as an investor, could be the most important takeaway."

"It's now a very important part of athletic apparel" industry, he added. This was "a pretty good time to show the market 'We are serious,' ... 'We are going to be good stewards" with managing the company.

Credit Suisse analyst Christian Buss reiterated his "outperform" rating on the stock. "We view both of these moves favorably, as it: 1) consolidates management to a single executive (the absence of which precipitated the resignation of a CEO that we much admired); and 2) puts the business under the control of an executive who has demonstrated the ability to successfully manage two cult brands (Burton and TOMS shoes)," Buss wrote in a note. "We are increasingly comfortable with our outperform rating as a result."

Despite this, analysts' biggest concern with Lululemon's new CEO is that while at TOMS and Burton, his responsibilities were primarily as a vendor selling into stores, not opening stores.

"Mr. Potdevin may not be the people person needed to lead LULU," Sterne Agee analyst Sam Poser penned in a note. "Based on comments on this morning's company call, we believe that the new CEO will increase investments in processes and people in order to properly position LULU for global expansion, but pressure near-term earnings." Poser rates the company at "underperform."

That said, Potdevin's first order of business will be to rebuild consumer trust.

"The major unknown with respect to lululemon's future growth prospects is the possible impact of recent missteps on customer loyalty and willingness to purchase," Credit Suisse's Buss wrote. "We believe this creates an opportunity for LULU to reach out to its unnerved customers and re-engage them. We will be looking for evidence that the new CEO can find ways to rebuild trust and reinforce the company's status as the premier women's athletic apparel brand."

Potdevin said on a short conference call this morning that he didn't anticipate any "major" changes. "It's really a matter understanding all facets of the business and collaborating with the team and continuing to make it better," he said.

Not everyone thinks the CEO hire is a good one. Comments surfaced on Twitter this morning with concerns.

Lululemon reports earnings on Thursday, Dec. 12. 

Written by Laurie Kulikowski in New York.




Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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