June 11, 2013, 1:41 PM

Lululemon’s CEO steps down in the wake of trouser troubles

The apparel retailer posts a 40% increase in direct-to-consumer sales for fiscal Q1.

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It's been a tough few months for Lululemon Athletica Inc. After the company announced in March it was recalling defective yoga pants for being too transparent across consumers' backsides, the athletic apparel retailer not only became the widespread butt of jokes but also took a hit as it had to work with its manufacturer to fix the material problems, issue refunds to consumers and pull the popular luon pants line off shelves for nearly three months.

Lululemon CEO Christine Day may be paying the price for the pants problems. In its Q1 fiscal 2013 earnings report announced yesterday after market close, the retailer said Day would be stepping down after more than five years with the company.

"The board has formed a search committee and enacted its CEO succession plan," Lululemon, No. 162 in the Internet Retailer Top 500 Guide said in its earnings release.

Day said the decision to step down was her own. "This was a personal decision of mine," Day told analysts on a conference call according to a transcript from SeekingAlpha. "I’ve had a great run and I’m really proud of what the team and I’ve accomplished." 

In the company's earnings release, Day notes that the retailer's first quarter was challenging. "The past quarter has been one of the most important in our company's history," Day said. "While we regret that we had quality issues with our black luon we are proud of the organization's ability to get luon delivered back into our stores within 90 days of having pulled it from our line, all the while keeping our guests happy and engaged with the brand. Now is the right time to bring in a CEO who will drive the next phase of Lululemon's development and  growth. I will continue to actively lead the organization while the Board searches for a new CEO, and will work to ensure a smooth transition." Luon is Lululemon's trademarked fabric is uses for its yoga pants. 

However, despite a challenging, as well as embarrassing, quarter, the retailer posted year-over-year web sales gains for its fiscal Q1 ending May 5.

For its fiscal Q1 the retailer reports:

• Direct-to-consumer sales, which is comprised mainly of online sales, rose 40.6% year over year to reach $54.0 million compared to $38.4 million in Q1 of 2012.

• Direct-to-consumer sales accounted for 15.6% of total company revenue compared to 13.5% a year earlier.

• Total net revenue increased 21.0% to $345.8 million compared with $285.7 million in fiscal Q1 2012.

• Comparable-store sales for the first quarter increased by 7%, compared to a hike of 25% in Q1 2012.

• Gross profit for the quarter increased 8.5% to $170.7 million, from $157.3 million a year earlier. That includes a provision of $17.5 million for inventories charged to cost of sales related to the pull-back of black luon pants. As a percentage of net revenue gross profit decreased to 49.4% for the quarter from 55.0% in the first quarter of fiscal 2012.

• Income from operations for the quarter decreased 9.8% to $65.9 million from $73.1 million, and as a percentage of net revenue was 19.1% compared to 25.6% in the first quarter of fiscal 2012.

• Net income increased slightly to $47.3 million compared with net income of $46.9 million in the first quarter of fiscal 2012.

 

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