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Lululemon founder Wilson rips board for 'dismal' performance

Lululemon founder Chip Wilson has taken aim at the athletic apparel company's board, pushing for reforms amid what he calls "dismal" financial performance.

In a letter to shareholders released Wednesday, Wilson contended Lululemon has "lost its way" and fallen behind competitors Under Armour and Nike. Wilson, who said he still owns roughly 14 percent of the company's shares, argued Lululemon's leadership should adopt a "strategy with urgency" to regain "competitive advantage and profitable growth."

The retailer, an early player in the so-called "athleisure" space, has taken some steps to improve performance. Last month, it appointed Jon McNeil, Tesla Motors' head of global sales, delivery and service, to its board. Lululemon shares have climbed more than 25 percent this year, easily beating Under Armour, Nike and the S&P 500.

Chip Wilson, founder and former CEO of Lululemon.
Adam Jeffery | CNBC
Chip Wilson, founder and former CEO of Lululemon.

Still, Wilson, who stepped down from the company's board last year, sees room for improvement in both stock performance and financial results. He called for changes in strategy, contending the company would function better if shareholders could vote for a full slate of directors.

"As a long-term investor in Lululemon, I am uncomfortable with the lack of urgency, stewardship and performance of our great company. I have not heard a strategy nor seen actions that lead me to believe we will regain our competitive position and secure long-term returns. This is unacceptable and the board needs to understand that I – indeed all shareholders – will be watching closely," Wilson wrote.

For the fiscal year ended Jan. 31, Lululemon posted net revenue of $2.06 billion, up 15 percent from $1.8 billion in the prior year. Diluted earnings per share climbed to $1.89 from $1.66 in the previous fiscal year.

At the end of March, Lululemon said it expects fiscal 2016 sales in a range of $2.29 billion and $2.34 billion, with diluted earnings between $2.05 and $2.15 per share. The company is set to report first-quarter results on June 8.

Laurent Potdevin currently serves as Lululemon's chief executive. He took over in 2013.

Earlier this year, Lululemon announced a five-year plan to grow its revenue to $4 billion by 2020. The company said it hoped to achieve that through product developments, e-commerce growth and store expansion, among other efforts.

In a statement Wednesday, Lululemon said, "As evidenced by our strong operational performance, we have the right board of directors and leadership team in place with the broad and deep expertise necessary to support the execution of our strategic five year plan. This solid foundation gives us the tools to innovate and create as we deliver long-term sustainable growth for all stakeholders."

Wilson cited long-term earnings growth as a justification for change. For instance, Lululemon reported diluted earnings of $1.91 per share in fiscal 2013, higher than its fiscal 2015 figure.

He also criticized the company's long-term stock performance. Lululemon shares had dropped more than 16 percent in the last three years as of Tuesday afternoon, compared with gains of 136 and 79 percent for Under Armour and Nike, respectively.

Wilson argued Lululemon should declassify its board and effectively make it easier for shareholders to vote out board members if they choose. He said the board as currently composed may result in "entrenched directors and management."

Wilson, who founded Lululemon in 1998, stepped down as chairman of the company's board in 2013 after remarking that some of the company's pants do not "work" with certain women's bodies. He left the board entirely last year.

The company said it has "had no involvement" with Wilson since he stepped down.

In a statement when he stepped down, Wilson said "the company has returned to the core values that made it great — product, brand and culture — and is back on track."

Wilson added that he left behind "a new and talented management team and new board construct." In 2014, he brought about the addition of two board members in connection with a share sale to Advent International, a private equity firm.