Lululemon Athletica shares rose nearly 8% in early trading on Thursday after reports Elliott Management has built a $1 billion stake in the athleisure wear maker and is working with former Ralph Lauren executive Jane Nielsen for a potential CEO role.
The Canada-based retailer said last week that Calvin McDonald will step down after nearly seven years as its top boss, sparking hopes for a leader who can reverse slowing growth and win back younger shoppers amid fierce competition from trendier players like Alo and Vuori. The stock has lost nearly half of its value this year, underscoring investor concerns over Lululemon's struggles. The company's shares were trading at $224 on Thursday.
"Elliott is famous for agitating for change. These positions aren't built overnight, so Lululemon's board probably saw this coming," said Brian Jacobsen, chief economic strategist, Annex Wealth Management.
The activist investor has been working closely for months with Nielsen, a retail veteran, a source told Reuters on Wednesday. Nielsen, who sits on the board of Cadbury parent Mondelez, has also served as finance chief at Tapestry-owned Coach.
"Lululemon is one of the most powerful brands in retail, defined by exceptional products, deeply engaged communities and significant global potential," Nielsen said in a statement to the Wall Street Journal. "I would welcome the chance to discuss this opportunity with the Lululemon board."
Elliott, Lululemon and Nielsen did not respond to Reuters requests for comment.
Analysts have said the company will need to upgrade its fabrics, use fresher designs and accelerate product launches that click with Gen Z to reclaim its "cool factor" and lure shoppers back.
With much of its sourcing tied to Asian factories facing higher import duties, Lululemon will also need to streamline its supply chain to blunt US tariff pressures and protect margins next year, analysts have said.
"Lululemon should implement fast fashions and introduce an assortment that will pull customers from Alo and Vuori - especially Gen Z customers.
Fast fashion requires a much better supply chain than is currently in use at Lululemon," said Brittain Ladd, a strategy and supply chain consultant at Florida-based Chang Robotics.
The brand's struggles have drawn sharp criticism from founder and largest individual shareholder Chip Wilson. He has also called for an urgent CEO search, led by new, independent directors with deep company knowledge to restore a product-first focus.
Wilson did not respond to a Reuters request for comment.
With a 4.3% ownership, Wilson's stake is valued at about $988 million, according to LSEG data, making Elliott one of the top shareholders in Lululemon, which is valued at nearly $25 billion.
Lululemon trades at a forward price-to-earnings ratio of 16.37, while Gap trades at 11.88 and American Eagle at 16.81, according to LSEG data.
