Elliott Takes $1 Billion Stake in Lululemon, Swaying CEO Search

In 2023, The New York Times declared “soft pants” were “The Postpandemic Benefit That’s Here to Stay,” citing Lululemon’s $148 fleece-lined pleated trousers. Two years on, the soft-pants standout has lost some of its flex, and it’s time for a workout that it would just as soon skip.

According to a report in The Wall Street Journal on Thursday, Elliott Investment Management has built a $1 billion stake in the athleisure company. The reveal comes just a week after Lululemon CEO Calvin McDonald announced he would step down from the top job in January following a tough year for the business, and you can be sure that Elliott is planning to take an active role in hiring his replacement.

Making Lemonade from Lululemons?

While the company’s annual revenue has tripled to about $11 billion since McDonald took the top job in 2018, growth is starting to stall, especially at home. In its third-quarter earnings call last week, Lululemon reported a 5% dip in comparable sales in the Americas and a 3% net revenue decline in the US as it faces threats both below, from smaller rivals like Vouri and Alo Yoga, and above, from retail behemoths like Nike and Gap’s Athleta.

Worse, analysts, customers and perhaps most importantly, founder Chip Wilson, say the brand is losing its premium patina as its store racks are increasingly stocked with discounted clothes often bearing NFL emblems and corporate mascots. “Finance-focused CEOs […] think they understand great product when they don’t,” Wilson wrote in a scathing full-page ad in the WSJ earlier this year.

Translation: The company that grew off the reputation of its perfectly stylish and stretchable leggings might now be finding itself stretched too thin. Enter Elliott:

• The activist firm has already held talks with former Ralph Lauren CFO and COO Jane Nielsen to take over the top spot, sources tell the WSJ. During her stint selling Polo, the brand cut back on discounts and saw its share price double as profit margins widened.
• It’s a turnaround Lululemon could use; shares of the company are down roughly 40% year-to-date, even after a significant rebound following the news of McDonald’s imminent departure.

Add It To The List: For Elliott, the Lululemon stake is just the latest venture in the consumer space. Last year, the firm took out a major stake in Starbucks — helping to push former Chipotle CEO Brian Niccol into the coffee chain’s top job — and, in September, it revealed a major stake in PepsiCo.