Lululemon Shares Are Tanking After CEO Announces She Will Step Down (LULU)

Yoga clothing retailer Lululemon just reported earnings, and the stock is tanking.

The numbers aren't bad – the company beat expectations on earnings and revenue – but the CEO used the opportunity to announce that she would be stepping down.

Shares are down 9% in after-hours trading.

Below is the full text from the press release.

VANCOUVER, British Columbia--(BUSINESS WIRE)-- lululemon athletica inc. [NASDAQ:LULU; TSX:LLL] today announced financial results for the first quarter ended May 5, 2013. lululemon also announced today that after a five and half year tenure Christine Day will step down as the Company's Chief Executive Officer when a successor is named. The Board has formed a search committee and enacted its CEO succession plan. Ms. Day's decision is being announced at this time so the Board has the benefit of a healthy transition period, and can openly use that time for a thorough search for the next CEO.

"Being a part of lululemon for the past five and a half years has been an incredible journey. I am proud of building a world class team that has produced one of the best growth, brand and profit stories in retail," said Ms. Day. "Plans have been laid for the next five years and a vision set for the next ten. 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."

"Christine has been an exceptional leader for lululemon, successfully embracing the culture while growing the business and returning value to all of our stakeholders including our guests, employees, partners and shareholders," said Chip Wilson, Chairman of the lululemon Board of Directors. "I thank Christine for her leadership, contributions and commitment to lululemon. I am confident that we will find the right person to lead this strong team and continue to build on this excellent foundation."

RESULTS FOR THE FIRST QUARTER ENDED MAY 5, 2013

Commenting on events of the first quarter Ms. Day added: "The past quarter has been one of the most important in our company's history. 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."

For the first quarter ended May 5, 2013:

Net revenue for the quarter increased 21% to $345.8 million from $285.7 million in the first quarter of fiscal 2012.Comparable stores sales for the first quarter increased by 7% on a constant dollar basis.Direct to consumer revenue increased 40% to $54.0 million, or 15.6% of total Company revenues, in the first quarter of fiscal 2013, an increase from 13.5% of total Company revenues in the first quarter of fiscal 2012.Gross profit for the quarter increased 9% to $170.7 million, including a provision of $17.5 million for inventories charged to cost of sales related to the pull-back of black luon pants, and 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 10% to $65.9 million, and as a percentage of net revenue was 19.1% compared to 25.6% of net revenue in the first quarter of fiscal 2012.The tax rate for the quarter was 29.8% compared to 36.5% a year ago. The lower effective rate reflects the ongoing impact of revised intercompany pricing agreements.Diluted earnings per share for the quarter were $0.32 on net income of $47.3 million, compared to diluted earnings per share of$0.32 on net income of $46.6 million in the first quarter of fiscal 2012.

The Company ended the first quarter of fiscal 2013 with $588.4 million in cash and cash equivalents compared to $424.3 million at the end of the first quarter of fiscal 2012. Inventory at the end of the first quarter of fiscal 2013 totaled $143.7 million compared to $107.7 million at the end of the first quarter of fiscal 2012. The Company ended the quarter with 218 stores in North America and Australia.

Updated Outlook

For the second quarter of fiscal 2013, we expect net revenue to be in the range of $340 million to $345 million based on a comparable-store sales percentage increase of 5% to 7% on a constant-dollar basis. Diluted earnings per share are expected to be in the range of $0.33 to$0.35 for the quarter. This assumes 146.0 million diluted weighted-average shares outstanding and a 30.0% tax rate.

For the full fiscal 2013, we now expect net revenue to be in the range of $1,645 million to $1,665 million and diluted earnings per share are expected to be in the range of $1.96 to $2.01 for the full year. This assumes 146.2 million diluted weighted-average shares outstanding and a tax rate of 30.0%.

Voluntarily Delist from Toronto Stock Exchange

The Company has provided written notice to the Toronto Stock Exchange ("TSX") regarding the delisting of its common stock. The Company anticipates that its common stock will be delisted from the TSX at the close of trading on June 24, 2013. The Company believes that the minimal trading volume of its shares on the TSX no longer justifies the expenses and administrative efforts associated with maintaining this dual listing. The Company's listing with NASDAQ provides its shareholders with sufficient liquidity, as NASDAQ accounts for nearly all of the Company's current trading volume. Further, administrative and regulatory efficiencies will be achieved by focusing on the single listing. The Company's common stock will continue to be listed and trade on NASDAQ and its Canadian shareholders will be able to continue to trade through their brokers on that market.

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