Lululemon Sharply Underperformed Market During Fired CEO’s Tenure

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The chief executive of Lululemon Athletica Inc. (NASDAQ: LULU) is gone, dismissed by the company’s board. In Wall Street’s view, it is not a loss. Under Laurent Potdevin’s management, the stock underperformed the market by a wide margin.

The yoga pants company’s board announced as it dumped Potdevin that he:

… has resigned as CEO and as a member of the company’s Board of Directors, effective immediately. lululemon expects all employees to exemplify the highest levels of integrity and respect for one another, and Mr. Potdevin fell short of these standards of conduct. The Board of Directors has immediately begun a search process for a proven and highly-experienced global Chief Executive Officer.

It was not made clear what “standards of conduct” he had violated.

The company said its forecast financial performance was still valid:

Today, lululemon also reaffirmed its updated guidance provided on January 8, 2018, that reflects the ongoing momentum of the business. In addition, the company’s growth strategies remain on track to achieve $4 billion in revenue in 2020.

Potdevin joined the company in January 2014. Since then, its stock is up 30%, but the S&P 500 is higher by 45% over the same period. The stock dropped another 3% to $75 after hours when it was announced he had been dismissed.

Although revenue grew under¬†Potdevin, the bottom line barely did. Revenue in 2014 was 1.6 billion. In 2017, the figure was $2.3 billion. Net income went from $280 million in 2014 to only $303 million in 2017. That extremely modest improvement is likely what drove the stock’s mediocre performance.

When CEOs are dismissed for conduct reasons, investors often do not look back at why they became CEOs at all. Among public companies, in most cases, that is financial performance. In Lululemon’s case that was lacking.