Lululemon Athletica Inc. (LULU:US), under pressure from founder Dennis “Chip” Wilson to look beyond short-term results, is working to create value for shareholders in part by improving the product line.
The yoga-clothing maker’s board and managers are “focused on further strengthening the company’s product engine and relentlessly innovating to drive global expansion and create value for Lululemon shareholders,” a Lululemon spokesman said in a statement yesterday.
Wilson, who at the time owned 27 percent of the Vancouver-based company, said on June 11 he voted unsuccessfully against the re-election of Michael Casey, his successor as chairman. Wilson is working with Goldman Sachs Group Inc. on plans that may include shaking up the board, selling his stake or working with private equity firms on a buyout, the Wall Street Journal reported yesterday, citing people it didn’t name.
Lululemon has been trying to regain shoppers’ trust after recalling a popular line of black Luon yoga pants for being too sheer last year. Investors pushed shares (LULU:US) to the lowest level in three years after the company cut its full-year forecast on June 12.
The decline left Lululemon trading near its lowest earnings multiple since 2009, which may encourage an opportunistic buyer to make an approach, said Scott Rostan of Training the Street. Rostan’s New York-based firm teaches new hires at investment banks how to structure mergers and acquisitions.
VF Corp. (VFC:US), the $27 billion owner of the Vans and the North Face brands, is one of the most likely candidates to consider acquiring Lululemon, said Canaccord Genuity Group Inc. Adidas AG also would make sense as a buyer because the $22 billion sporting-goods maker could use its international expertise to help guide Lululemon’s overseas expansion (LULU:US), Wedbush Inc. said.
Lululemon may be a good fit for VF because the larger company already has a presence in athletic apparel, said Camilo Lyon, a New York-based analyst at Canaccord, earlier this month. VF, which traces its retailing roots back to 1899, could also use its expertise to remedy Lululemon’s supply-chain challenges and cut costs, Lyon said.
Omar Saad of International Strategy & Investment Group LLC highlighted Lululemon as a potential takeover target for VF last month. A takeover at $50 a share could be accretive for the maker of Wrangler denim and Ella Moss dresses, he wrote.
Representatives for Greensboro, North Carolina-based VF and Adidas, which is based in Herzogenaurach, Germany, have declined to comment.
Nike Inc. (NKE:US) may also be interested in adding Lululemon’s tank tops and yoga pants to its athletic lineup, according to Jennifer Black, chief executive officer at Lake Oswego, Oregon-based Jennifer Black & Associates LLC, who said earlier this month that the company’s takeover prospects will increase if it continues to struggle this year. A representative of Beaverton, Oregon-based Nike has declined to comment.
Lululemon’s shares declined less than 1 percent to close at $40.23 in New York on the most recent trading day. The shares have been slipping since last June, when Chief Executive Officer Christine Day announced she was stepping down. Former TOMS Shoes inc. President Laurent Potdevin took over as CEO in January.
Sales growth stalled in the last year as increased quality checks slowed deliveries of new apparel. It’s also been forced to re-woo shoppers after recalling a popular yoga pant line because they were too sheer.
Wilson founded the company after taking a yoga class and built a devoted following for the brand in the U.S. and Canada with unconventional methods, such as local brand “ambassadors” and free yoga sessions.
He said in December he would resign as chairman prior to June 11’s annual meeting, handing off the duties to Casey, a former Starbucks Corp. executive. Wilson’s involvement in the company may have scared off some potential candidates to replace Day as CEO, Saad, the ISI Group analyst, said in November.
His decision to resign also followed an interview on Bloomberg Television in which Wilson said Lululemon’s pants “don’t work for some women’s bodies.” He apologized a week later.
Wilson also voted against re-electing director RoAnn Costin, a financial investing executive who has served on the board since 2007.
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