Is Lululemon CEO Resignation Over Misconduct a Setback for the Brand?

Lululemon Athletica Inc. announced Monday the resignation of CEO Laurent Potdevin, effective immediately, citing his inability to meet the company’s standards of conduct.

“While this was a difficult and considered decision, the Board thanks Laurent for his work in strengthening the company and positioning it for the future,” said Lululemon executive chairman Glenn Murphy, who is taking on an expanded role in the wake of Potdevin’s resignation. “Culture is at the core of Lululemon, and it is the responsibility of leaders to set the right tone in our organization. Protecting the organization’s culture is one of the board’s most important duties.”

While little is known regarding the nature of Potdevin’s alleged misconduct — in the era of #MeToo (movement) and #TimesUp (campaign), both of which call attention to misconduct of a sexual nature in the workplace — it seems more and more companies are feeling the pressure to act quickly to remedy ethical concerns of their employees and prevent public backlash.

“Initially, this seems like a far better handling of high-level personnel issues than the last time, when founder Chip Wilson made ill-advised comments around ‘pantsgate,’” wrote Canaccord Genuity Inc. analyst Camilo Lyon in a note today. “To the board’s credit, it appears that it has moved quickly to quarantine any public fallout that could have ensued if details were to have been made public. With this swift course of action, it is highly unlikely that Lululemon customers will know of the CEO’s departure and the details surrounding it, and therefore not attach any ill views to the company.”

The company said it has begun a search for a “proven and highly experienced global” CEO — with one viable candidate being former Ralph Lauren chief Stefan Larsson, Lyon posits. Larsson — who also previously served as the global president of Gap Inc.-owned Old Navy — is nearing the end of a non-compete in May 2018.

On the business side, Lyon said he also doesn’t expect much of a fallout for Lululemon from its CEO’s abrupt exit.

“We do not see Potdevin’s departure as a major setback for Lululemon, although uncertainty will remain elevated until the CEO position is filled,” Lyon wrote. “While the company achieved significant operational improvement with him at the helm, we believe the strategic guidance provided by Advent played a far more meaningful role in [its] operational improvement. As such, we believe his departure is not likely to have a material impact on the company’s prospects.” (Private equity firm Advent International took a 50 percent stake in Lululemon in 2014.)

Also in the wake of Potdevin’s depature, the company has elevated three senior leaders who will report to Murphy: Celeste Burgoyne, EVP, Americas, will oversee all channel and brand-facing aspects of the global business, including stores and e-commerce, as well as brand marketing; Stuart Haselden, COO, will have responsibility for all operations related to finance, supply chain, people and technology; and Sun Choe, SVP of merchandising, will guide all aspects of product development, design, innovation and merchandising.

Lululemon yesterday reaffirmed its Q4 guidance and continues to expect adjusted diluted earnings per share of $1.25 – $1.27.

As of 12:30 p.m. ET, the firm’s stock was up a modest 0.3 percent to $77.68.

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