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Lululemon CEO search sparks concern, market jitters

Christine Day, CEO-designate of Lululemon Athletica, speaks at the Reuters Retail and Consumer Summit in New York in this file photo taken J
Christine Day, CEO-designate of Lululemon Athletica, speaks at the Reuters Retail and Consumer Summit in New York in this file photo taken J

By Susan Taylor and Solarina Ho

TORONTO (Reuters) - Shares of Lululemon Athletica Inc plunged on Tuesday on worries that it will not be easy for the high-end yogawear maker and retailer to replace outgoing Chief Executive Christine Day, the company's very public face.

Day, who announced her surprise departure plans after markets closed on Monday, was behind Lulu's rapid-fire growth rate and its transition from niche to broad-based appeal. But costly quality control problems also occurred during her tenure.

Calling it a "personal decision," Day said she would step down once the Vancouver-based company finds a replacement. But that executive search will be complicated by Lululemon's unique culture.

The company carved out a lucrative niche with its high-end, fashionable yogawear, reporting quarter after quarter of stunning sales and profit growth. But the recall of excessively see-through black pants proved a huge blow, and its latest sales growth forecasts are well below year-ago levels.

About a half-dozen analysts cut their price targets on Lulu stock, and at least two downgraded the equity. The shares dropped about 17 percent to C$69.68 on the Toronto Stock Exchange and $68.52 on Nasdaq.

Belus Capital Advisors chief equities strategist Brian Sozzi said it would not be easy to replace Day from a corporate pool of mostly older, male executives.

"Here's a lady that's been the face of this company for five years," he said. "If (the new CEO) is a 60-year-old guy, or a 40-year-old guy, I don't know if he could share that same affinity, that personal attachment with Lululemon."

Lululemon was founded in 1998 by Dennis "Chip" Wilson, who remains the company's chairman and largest voting shareholder.

The recall of Lulu's signature yoga pants in March will dog Day's successor, as the quality concerns coincide with mounting competition.

Buckingham Research Group analyst John Zolidis said Lululemon had "gotten a free pass from investors" because of its profitability, strong sales and long-term potential.

"We commend Lulu for building a new emerging important athletic brand for women," he wrote in a note. "However, over time, we expect slower sales growth due to maturation in Canada, increased competition and weaker sales in the U.S. versus Canada."

(Editing by Janet Guttsman and Lisa Von Ahn)