Lululemon shares ticked slightly lower on Monday, after the company's controversial founder Chip Wilson announced he's stepping down from the board of directors.
In announcing his departure, Wilson said "the company has returned to the core values that made it great."
While the news came as a bit of a surprise to the markets, Belus Capital Advisors analyst Brian Sozzi said the headline won't do anything to derail the athletic wear firm's turnaround, which has finally started to take shape.
"Lululemon is on the comeback trail and it's being very much driven by new, interesting products," Sozzi said.
Because of the new inventory and an improved supply chain, "there's really no need for Chip to hang around there like a dark cloud," Sozzi said.
End of a 'great and terrible' tenure
Wilson founded Lululemon in 1998 and helped it build the company to more than 250 stores. However, his time there was also peppered with controversy.
Back in 2013, the firm was subjected to backlash from consumers, who reported its marquee black luon pants could pill and become sheer. Making matters worse, Wilson later said in a TV interview that "Frankly some women's bodies just don't actually work for [the pants]."
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He stepped down as chairman of the board in December 2013, but made headlines again a few months later when he said certain board members were too focused on the firm's short-term results.
"Having him around was great and terrible all at the same time," Sterne Agee analyst Sam Poser said. "I think there's good and bad [from his resignation]…but it probably pushes slightly more to the good."
Lululemon's sales slowed significantly following its controversies, despite the fact that sales growth in the athletic wear market has significantly outpaced that of the overall apparel market. It also faced external pressures from new competitors like Gap's Athleta.
Lululemon had been consistently posting same-store sales growth in the double digits at its peak in popularity. Still, it hasn't done so at a constant exchange rate in a single quarter since 2012.
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Last month, however, analysts became more bullish on the company when it raised its fourth-quarter forecast on strong holiday sales in both men's and women's products. Lululemon now expects revenue between $595 million and $600 million, driven by comparable-store sales growth between 6 percent and 7 percent on a constant dollar basis. That compares to its previous guidance of sales in the range of $570 million to $585 million, based on same-store sales growth in the low-single digit range.
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In the past year, the company's shares have risen 42 percent, after touching as low as $36.26 in June. That compares to an all-time high of $82.50 in June 2013.
"Following the second consecutive quarter of sales acceleration and consistent with our channel checks, we believe [Lululemon] is demonstrating that customers have not walked away from the brand," Wells Fargo analyst Paul Lejuez wrote in a note to investors following the firm's updated forecast.
Janney Capital Markets analyst Adrienne Yih-Tennant also said following the brand's revised forecast that she's encouraged by its momentum.
Still, she remains "on the sidelines" due to increased competition in the category, as well as Lululemon's shift toward more fashion-driven seasonal product. That area is more susceptible to swings in consumer taste, and costs more for the company to produce.
"Merchandise margins could be pressured by the shift to more seasonal goods," Yih-Tennant said. "At the same time, the seasonal goods are the items that can drive traffic and conversion, as these are the products that are differentiated from competitor products."
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Sozzi sounded a positive note on the firm's trend-driven product, adding that the company has added more technical improvements to its items, including pockets where you can store your phone while you work out.
"You're seeing new fashionable designs that you can wear from workout…to happy hour right after the gym," he said.
For his part, Poser said he remains uncertain about Lululemon's international strategy, which runs the risk of testing too many markets at once. Instead, he said he'd like to see the firm focus all of its international attention on one market, and then expand into other areas from there. That, he said, would put less strain on the firm from an operational standpoint.
"It's a question of focus," he said. "If they can pull it off great, but I still wonder."