Chip Wilson is not a happy Lululemon shareholder.
After the founder of Lululemon Athletica Inc. was denied a request to speak with shareholders for 10 minutes during the annual meeting on Thursday, Wilson elected on Wednesday to disclose a letter he sent to fellow shareholders stating that he felt the company “has lost its way…I feel strongly that our current board and management team must clearly articulate and execute a strategy with urgency towards regaining Lululemon’s competitive advantage and profitable growth and they must take responsibility.”
Wilson emphasized that three years ago, Lululemon shares were double the value of Under Armour’s and now they are “worth less than half.” He noted that Under Armour’s stock is up 79 percent and Nike’s is up 45 percent. In contrast, Lululemon stock is down 8 percent.
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Wilson’s answer is a call for the company to voluntarily de-stagger the board, adding that boards are responsible for choosing the right chief executive officer. His point is that if the board can’t implement the changes needed to “increase shareholder value,” then shareholders should be able to make that change, even if it means changing the entire board.
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An investment banker who requested anonymity said the request is in line with current corporate trends, that about 90 percent of companies in the S&P have a de-staggered board. Lululemon, apparently, is an outlier in that regard.
Wilson said in an interview that he couldn’t put forth a proposal to declassify the board so shareholders can vote for a full slate in 2017. That’s because two years ago he had an agreement with the company not to do certain things, such as solicit votes or disparage the firm for a period of two years until after the 2016 annual meeting. He’s had a dispute with the company before about the firm’s board composition. The sale of half his stake in Lululemon to private equity firm Advent International last year for $845 million resulted in the addition of two directors to the company’s board.
His public relations adviser, Michael Sitrick of Sitrick & Co., said sending Wednesday’s letter a day before the annual shareholders’ meeting was OK because it was “business criticism” and not a point of disparagement.
Wilson, who stepped down from the board last year, still holds a 14.2 percent stake in the company.
For the quarter ended Jan. 31, Lululemon’s net income was up 5.9 percent to $117.4 million, or 85 cents a diluted share, on a 16.9 percent increase in net revenues to $704.3 million. For the year, net income grew 11.3 percent to $266 million, or $1.89 a diluted share, on a 14.7 percent increase in revenues to $2.06 billion.
Wilson said, “When you’re a high-margin business sitting on top of a pyramid, you can’t rest on your laurels. You need to be best in class; you have to have new technology and product.”
In that regard, the yoga apparel firm’s founder believes the company’s board doesn’t understand the business. “Lululemon is in the technical business,” he said, adding that the company hasn’t grown as it should have because it doesn’t have a huge international business, e-commerce has shown modest growth and there are product categories — such as sports bras — that it should be in, but hasn’t yet entered.
A spokeswoman for Lululemon said: “Mr. Wilson has had no involvement with Lululemon since stepping down as chairman of the board in May 2014 and from the board of directors in February 2015. As evidenced by our strong operational performance, we have the right board of directors and leadership team in place with the broad and deep expertise necessary to support the execution of our strategic five-year plan. This solid foundation gives us the tools to innovate and create as we deliver long-term sustainable growth for all stakeholders. We remain focused on our commitment to inspiring our guests in their sweaty pursuits and bringing the best of Lululemon to communities around the globe.”