WHEN: TODAY, WEDNESDAY, June 1, 2016
WHERE: CNBC'S "POWER LUNCH"
In a CNBC EXCLUSIVE interview, Lululemon Founder Chip Wilson speaks with CNBC's "Power Lunch" today. Following is a link to a story on CNBC.com: http://www.cnbc.com/2016/06/01/lululemon-founder-wilson-rips-board-for-dismal-performance.html and video of the interview: http://video.cnbc.com/gallery/?video=3000522203.
All references must be sourced to CNBC.
CARUSO-CABRERA: TWO SPORTS GIANTS FALLING TODAY. NIKE IS LOWER AFTER A PAIR OF DOWN GRADES ONE AT MORGAN STANLEY THE OTHER BOFA. UNDER ARMOUR SHARES ARE ALSO IN THE RED AFTER THE COMPANY CUT GUIDANCE CITING FEARS AROUND THE LIQUIDATION OF SPORTS AUTHORITY. FOR THE YEAR, BOTH STOCKS DOWN DEEP IN THE RED. OFF BY 13% EACH.
MATHISEN: NOT THE SAME STORY THOUGH FOR LULULEMON. THAT STOCK HAS BEEN RISING THIS YEAR, UP ABOUT 27% SO FAR. DESPITE THE GAIN, LULU HAS FAR UNDERPERFORMED AT NIKE AND UNDER ARMOUR OVER PAST 2 1/2 YEARS. THAT'S ABOUT THE TIME ITS CURRENT MANAGEMEN WAS PUT IN PLACE IN AN OPEN LETTER TO THE BOARD JUST POSTED MINUTES AGO ON CNBC.COM, FOUNDER CHIP WILSON WRITES, UNFORTUNATELY, LULULEMON HAS LOST ITS WAY AND I BELIEVE A CALL TO ACTION IS NEEDED. GOES ON TO SAY, WE CANNOT CONTINUE TO SEED THE MARKET OPPORTUNITY WE CREATED TO UNDER ARMOUR AND NIKE. LULULEMON FOUNDER CHIP WILSON JOINS US NOW FOR A POWER LUNCH EXCLUSIVE. CHIP WELCOME GOOD TO HAVE YOU WITH US. THIS IS A PLAINTIFF LETTER THAT YOU HAVE WRITTEN TO THE BOARD AND BASICALLY TO THE SHAREHOLDERS OF THE COMPANY THAT YOU FOUNDED. I WAS DOING YOGA THIS MORNING WITH MY DEER TEACHER WITH MY DEAR TEACHER WHO WEARS LULULEMON ALL THE TIME AS I DO I LOVE THE STUFF. I SAID TO HER THAT I WAS GOING TO INTERVIEW YOU. SHE SAID, WHY? I SAID BECAUSE HE HAS WRITTEN A LETTER. WHAT DOES HE WANT? I SAID I THINK HE WANTS HIS BABY BACK. DO YOU WANT YOUR BABY BACK? NUMBER ONE. AND NUMBER TWO, WHAT WOULD YOU SPECIFICALLY DO DIFFERENTLY THAN THE CURRENT MANAGEMENT AND BOARD?
WILSON: DO I WANT MY BABY BACK? MY LIFE HAS GONE FURTHER THAN PROBABLY LULULEMON AT THIS TIME ALTHOUGH I'M STILL THE LARGEST SHAREHOLDER. IT IS MY CHILD TO A GREAT EXTENT. IT'S EVERYTHING WHO I AM AND WHO I -- HOW I LIVE MY LIFE. I BELIEVE THAT IT'S REALLY UP FOR ME AT THIS POINT OF VIEW TO BRING FORWARD WHAT HAS BEEN HAPPENING OVER THE LAST THREE YEARS AND BE VERY CLEAR WITH PEOPLE THAT LULULEMON IS GREATLY UNDERPERFORMEDED. UNDER ARMOUR HAS GONE UP 75%, NIKE 45%. THE S&P 500 HAS GONE UP 19%. AND LULULEMON HAS ACTUALLY GONE DOWN 8%. THESE ARE REALLY, REALLY TOUGH NUMBERS. IT'S REALLY UP FOR ME RIGHT NOW TO BRING THIS FORWARD AND TO TRY TO GET THE BOARD TO CHANGE THE CONTEXT OF HOW THEY OPERATE IN ORDER SO THEY CAN TAKE ADVANTAGE OF THE BIGGEST CHANGE IN THE WAY PEOPLE ARE DRESSING.
MATHISEN: WHAT WOULD YOU DO DIFFERENTLY THAN THEY ARE DOING? APART FROM BOARD STRUCTURE WHICH IN THE LETTER YOU TAKE THEM TO TASK FOR HAVING A STAGGERED BOARD THAT MAKES IT MORE DIFFICULT TO EFFECT CHANGE ON THE BOARD. WHAT WOULD YOU DO SPECIFICALLY TO REORIENT THE COMPANY? CULTURAL? IT IS WHAT?
WILSON: FOUR OR FIVE YEARS AGO I STARTED BRINGING THIS UP TO THE BOARD. THE REAL THING IS THAT EVERYTHING THAT I AM IS VISION, CULTURE, INNOVATION, TECHNOLOGY PRODUCT. THESE THINGS ARE ALMOST IMPOSSIBLE TO QUANTIFY. WITH THE BOARD STRUCTURE THE WAY IT'S SET UP, YOU HAVE EIGHT MEMBERS THAT ARE MOSTLY INTERESTED IN THAT AND MOSTLY INTERESTED IN THE 1% SHAREHOLDER AND REALLY SCARED OF LITIGATION. FOR THEM TO JUMP IN AND SAY THAT I WANT TO HAVE -- I WANT TO BELIEVE IN THIS GUY. IT IS JUST NOT IN THEIR NATURE.
CARUSO-CABRERA: I GUESS I -- WHAT I'M STILL WAITING TO HEAR AND WHAT TYLER IS ASKING, SO IF YOU WERE ABLE TO EFFECT A CHANGE YOU WANT WITH THIS LETTER, IF YOU GET A NEW BOARD OR CHANGE THE BOARD, HOW WOULD THE COMPANY BE DIFFERENTLY RUN OR WHAT WOULD YOU DO OR HAVE THEM DO TO NOT LOSE MARKET SHARE TO UNDER ARMOUR AND NIKE AS YOU SUGGEST HAS HAPPENED.
WILSON: VISION IS WHAT IS REALLY MISSING. IF YOU SEE WHAT LULULEMON IS DOINGTHEY'RE JUST ROLLING OUT STORES. BUT THEY'RE NOT MORPHING INTO ANYTHING NEW. THEY'RE NOT -- THEY SAY THEY HAVE TECHNOLOGY. THEY SAY THEY'RE DOING INNOVATION. BUT I MIGHT BE THE NUMBER ONE PERSON IN THE WORLD TO UNDERSTAND THAT. I DON'T SEE IT ANYWHERE. SO WORDS ARE DIFFERENT THAN REALITY.
MATHISEN: CAN WE PUT UP A TWO YEAR CHART OF LULULEMONBECAUSE THAT IS BASICALLYTHE TIME FRAME THAT WE'RE TALKING ABOUT HERE AS WE LOOK AT THAT. SO FAR THIS YEAR THE STOCK HAS PERFORMED PRETTY WELL IT IS UP 20 SOME PERCENT. A LOT OF PEOPLE WOULD LOVE A 20% SOME PERCENT RETURN THIS YEAR.OVER THE PAST TWO YEARS, THERE IS TWO YEAR CHART, CHIP. THAT SAYS IT'S UP ALMOST 50% FROM JUST TWO YEARS AGO. I'D LOVE TO HAVE A 50% RETURN. SO SOME PEOPLE WOULD SAY WHAT IS YOUR BEEF?
WILSON: TWO YEARS AGO I SOLD 50% PERCENT OF MY SHARES I WENT FROM 30% DOWN TO 15% OF THE OWNERSHIP IN ORDER TO BREAK UP THE STAGGERED BOARD WHICH IS REALLY HOLDING SO MUCH OF THE VALUE OF THE COMPANY INSIDE OF IT. SO BY BRINGING IN TWO PRIVATE EQUITY PEOPLE THAT I CAN MAKE A CHANGE, SO THE STOCK WENT RIGHT UP AFTER THAT TO WHERE IT IS NOW. AND THEN BECAUSE OF MISMANAGEMENT, THE STOCK DROPPED. AND NOW IT ONLY FOUND ITS WAY UP. THIS IS IN THE MIDST OF LULULEMON REALLY BUYING BACK HALF A BILLION DOLLARS OF SHARES. SO HAS THE MANAGEMENT DONE ANYTHING? I WOULD SAY NO.
CARUSO-CABRERA: SOME WOULD SAY THAT LULULEMON ESSENTIALLY INVENTED ATHLEISURE. IT EXISTS AS A CATEGORY IT IS FASHION WOMEN CHANGE THE WAY THEY DRESS ON THE A DAILY BASIS NOT JUST FOR YOGA BUT FOR EVERY DAY. THEY WEAR THEM LIKE PANTS. WE ARE AT A MOMENT THOUGH WHERE FASHION IS SHIFTING. A LOT OF PEOPLE THINK ATHLEISURE HAS PEAKED. FLAIR IS IN AND FLAIR IS VERY DIFFERENT THAN WEARING A TIGHT YOGA PANT. IS PART OF THE ISSUE THAT THE GAME HAS CHANGED SINCE YOU INVENTED THIS COMPANY?
WILSON: WELL, SURE. I WAS IN THE SURF, SKATE, SNOW BOARD INDUSTRY AND THEN INTO YOGA. SO THEY ALL WENT FROM THREE TO 500 AND DOWN. SOMEONE I THINK FROM GLAMOUR MAGAZINE OR SOMEONE CAME UP WITH THE WORD ATHLEISURE, BUT I WOULD – I'VE NEVER USED THAT. AND AS I INVENTED THE MARKET, I'D LIKE TO SAY THAT THE NAME IS MORE LIKE STREETNIC. AND I SAY THAT BECAUSE IT IS A COMBINATION OF STREET, TECHNICAL AND STRETCH. SO, YES, YOU CAN SAY OH, THIS ATHLEISURE THING HAS GONE BY, BUT I WOULD SAY TECHNOLOGY NEVER CHANGES. AND TECHNOLOGY, AS LONG AS YOU KEEP PUSHING IT, WILL ALWAYS AFFECT FASHION.
CARUSO-CABRERA: DON'T YOU ALWAYS ALSO HAVE A LOT MORE COMPETITORS BOTH AT THE HIGH END AND THE LOW END? EVERYBODY IS PRODUCING ATHLEISURE AT THIS POINT.
WILSON: YES, BUT THERE IS A DIFFERENCE BETWEEN ATHLEISURE AND TECHNOLOGY. I MEAN, IF YOU LOOK AT HOW LULULEMON WAS BUILT, EVERYTHING WAS AROUND THE FABRICS, THE SILVER THREADS IN IT, THE THUMB HOLES, THE 12% STRETCH, THE PRESHRINKING, COMPRESSION. SO AS LONG AS THAT IS – YOU KEEP PUSHING THAT, THEN YOU MOVE YOURSELF OUT OF THE COMMODITY MARKET.
MATHISEN: YOU BASICALLY SAY WHAT KEVIN PLANK AT UNDER ARMOUR SAYS. I'M A TECHNOLOGY COMPANY THAT HAPPENS TO MAKE APPAREL AND FOOTWARE, IN HIS CASE, RIGHT? I MEAN, THAT'S SORT OF WHAT YOU'RE SAYING HERE IS THAT YOU'RE A TECHNOLOGY COMPANY. YOU LEFT THE COMPANY. WENT ON A SABBATICAL. THEN AS THE COMPANY WENT INTO ITS HARD TIMES THERE, WE ALL REMEMBER WHAT IT WAS ALL ABOUT, YOU CAME BACK. AND WHEN YOU FINALLY STEPPED AWAY FROM THE BOARD ABOUT 15 MONTHS AGO IN FEBRUARY OF 2015, YOU SAID SOME VERY NICE THINGS ABOUT THE THEN MANAGEMENT AND THE THEN BOARD. I WONDER WHAT'S CHANGED IN THOSE 15 SHORT MONTHS IN THE FACE OF A STOCK THAT HAS ACTUALLY TURNED PRETTY NICELY IN THE LAST SIX MONTHS, WHAT HAS CHANGED SINCE YOU SAID THOSE NICE THINGS ON THE WAY OUT THE DOOR AND WHAT ARE THE QUESTIONS YOU WANT TO ASK THE BOARD AND THE MANAGEMENT TODAY?
WILSON: WELL, WHAT HAS CHANGED IS THAT CEO HASN'T PRODUCED AND MANAGEMENT HASN'T PRODUCED. BUT IS IT REALLY THE MANAGEMENT OR IS IT THE STRUCTURE OF THE BOARD THAT CAN'T AFFECT THE MANAGEMENT? THAT WOULD BE MY QUESTION. THE QUESTIONS I WOULD LIKE TO ASK THE BOARD ARE LULULEMON WAS WORTH DOUBLE THE AMOUNT OF UNDER ARMOUR TWO YEARS AGO. IT'S NOW WORTH ABOUT HALF. DOES THE BOARD PLAN TO GET THAT MONEY BACK? THAT IS ABOUT $8 OR $9 BILLION ON TOP OF A BUNCH OF OTHER STUFF THEY COULD DO. IF SO, WHAT ARE THE METRICS THAT WE SHOULD BE LOOKING AT QUARTERLY TO SEE THAT HAPPEN? THE SECOND QUESTION I WOULD LIKE TO ASK IS AROUND THE STAGGERED BOARD BECAUSE THIS MEANS THAT THE SHAREHOLDERS CAN ONLY VOTE FOR THREE SHAREHOLDERS AT A TIME EVERY YEAR. NOW, I WOULD SAY THE STAGGERED BOARD WORKED VERY WELL IN THE 1980s, BUT THE FACT IS IT'S NOW 2016, THE WORLD IS CHANGING TOO FAST AND WE CAN'T LET BOARD MEMBERS PETER PRINCIPLE.
MATHISEN: SO DO YOU WANT YOUR BABY BACK? DO YOU WANT TO TAKE BACK THIS COMPANY AND RUN IT?
WILSON: YOU KNOW WHAT? THE COMPANY CAN'T AFFORD ME, QUITE FRANKLY.
MATHISEN: THAT IS A NICE PLACE TO BE.
WILSON: YEAH, IT IS. THE REAL IMPORTANT THING THOUGH IS THAT IT'S VERY FRUSTRATING FOR ME KNOWING THAT IF LULULEMON COULD GRAB THE CULTURE, INNOVATION AND VISION BACK, THE ABILITY TO GET TO $8 BILLION OR $9 BILLION IN INCREASE IN VALUE IS VERY EASY.
CARUSO-CABRERA: SO THEN I STILL DON'T UNDERSTAND WHAT YOU WANT. IF YOU DON'T WANT YOUR BABY BACK, IF THEY CAN'T AFFORD YOU, I DON'T BUY, RIGHT? I MEAN, YOU'RE THE BIGGEST SHAREHOLDER. I MEAN, THIS IS YOUR MONEY ON THE LINE. BUT, OKAY. IF YOU GET WHAT YOU WANT AND THEY CHANGE THE STRUCTURE OF THE BOARD, THEN WHAT?
WILSON: WELL FIRST OFF, THEY WOULD HAVE TO CHANGE THE STRUCTURE OF THE BOARD IN ORDER FOR ALL SHAREHOLDERS TO DO THAT.
CARUSO-CABRERA: YEAH. OKAY. IF THAT HAPPENS?
WILSON: AND THEN I WOULD HAVE, I BELIEVE I COULD HAVE MORE BOARD SEATS AND I COULD EFFECT THE MANAGEMENT AND THEN I COULD – I BELIEVE I COULD GO AND HELP AS A CONSULTANT BECAUSE WHAT'S HAPPENED NOW IS THAT THE MANAGEMENT HAS GOTTEN RID OF EVERYBODY THAT ACTUALLY KNOWS HOW TO USE THE BUSINESS MODEL. THEY BROUGHT IN WHOLESALE PEOPLE THAT DON'T UNDERSTAND HOW TO LEVERAGE IT. THEY HAVE NOBODY LEFT TO TRAIN THE PEOPLE ON WHAT/HOW THE
BUSINESS MODEL WORKS. ALL THERE NEEDS TO BE IS A SHORT AMOUNT OF TIME IN ORDER TO PUT THAT BACK IN PLACE AND LULULEMON CAN BE A ROCKET SHIP.
MATHISEN: I DON'T WANT TO LET YOU GO WITHOUT REMARKING ON YOUR KIT AND ACE SHIRT, WHICH IS THIS TECHNICAL CASHMERE. IT IS VERY COOL. I TOUCHED IT, FOLKS. YOU THROW IT IN THE WASH, RIGHT?
WILSON: RIGHT.
MATHISEN: THIS IS THE NEW VENTURE WITH YOUR FAMILY. CONGRATULATIONS ON THAT. AND WE GOT THROUGH THE INTERVIEW WITHOUT CALLING HIM FLIP WILSON.
CARUSO-CABRERA: RIGHT.
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