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Lululemon seeks a chief: ‘You report to no one, you are the CEO (duh)’

These are stories Report on Business followed this week.

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(Editor's note: Mr. Babad enjoys childish jokes and, unfortunately, we give him too much leeway.)

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Lululemon shareholders are bummed out.

The week began with the yoga wear retailer riding high. Then, after markets closed Monday, it announced that Christine Day plans to quit as chief executive officer when her successor is named, sparking a plunge in its stock price despite an accompanying report of a strong first quarter.

While one person doesn't make a company, there are other key jobs still be filled, as well, leaving what one analyst referred to as a "state of turmoil" at the Vancouver-based company. While some analysts have slashed their price targets on the shares, many still see a rebound in the cards, and better times ahead when things settle down.

"There is no other retailer that competes with the likes of LULU, in our opinion," said analysts at Jennifer Black and Associates, referring to the company by its U.S. stock symbol and suggesting Lululemon is just in the midst of "significant" growing pains as it expands.

"However, we feel the company has gotten off course and has realized the necessity to adjust its offering to appease this dedicated and very loyal customer. We believe in this company and its product."

As The Globe and Mail's Marina Strauss reports, Lululemon was hit in the first quarter by the widely-publicized recall of (what weren't supposed to be see-through) versions of its black Luon pants. As well, she writes, it featured too many colourful shirts, with insufficient neutral colours, which will probably lead to bigger-than-normal discounts.

Those pants are now being restocked.

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As Ms. Day announced her resignation, Lululemon chalked up a 21-per-cent increase in first-quarter revenue to $345.8-million, and a 7-per-cent gain in same-store sales, a key retailing measures. Profit climbed to $47.3-million or 32 cents a share, from $46.6-million, also 32 cents, a year earlier.

Lululemon also forecast second-quarter revenue of between $340-million and $345-million, and sales of $1.65-billion and $1.67-billion for the full year. It also projected earnings per share of between 33 cents and 35 cents for the second quarter, and $1.96 and $2.01 for the year. Next year, it will expand to Europe and Asia.

"The key call-out is that the company is beginning to see pent-up demand and guests are returning as the black Luon has begun to flow back in stores and on the e-commerce site (just this week)," Jennifer Black said.

"The loyal hardcore LULU enthusiast knows what she likes and will not accept anything less. Guests may have tried other brands during the black Luon hiatus, but they also expressed their disappointment in the fit, style, colour and performance of the product trade off. Once you go Luon, there is no going back to anything else, in our opinion."

Men are also jumping on board.

Analyst Camilo Lyon of Canaccord Genuity met with Ms. Day and board members in Chicago, an event he said reminded him that Lululemon's "culture and success are bigger than one person," according to his research note.

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"Our key takeaway is that the growth strategies that have been implemented over the last five years are fundamentally intact and should not change going forward," Mr. Lyon said.

"While we believe Ms. Day's reasons for stepping down largely reflect personal choices about the next steps in her career path, her decision was in no way influenced by the product quality control issues ... As the initial shock of her departure dissipates, and more comfort is gained in the succession plans, we expect the stock to rebound."

The Jennifer Black analysts also cited Lululemon's culture.

"It is not only the merchandise that is inspiring, but it is also the culture of the company that is unique and differentiated from any other sports retailers we have followed," they said.

Unique culture, indeed.

On Friday, Lululemon posted an online ad for the CEO job:

"You report to no one, you are the CEO (duh). You are passionate about doing chief executive officer type stuff like making decisions, having a vision and being the head boss person."

(There is the not-insignificant question of the board of directors, but why quibble.)

The rest of the ad - you can apply online here - is so Lululemon. You have to know how they got the caramel in the Caramilk bar, and you just have to have voted for Pedro. And you must be a direct descendant of Phidippides, the ancient Greek who inspired the marathon.

Required reading
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The president of the World Bank made his first official visit to Canada this week, highlighting the group's goal to eradicate extreme poverty by 2030. Read Kevin Carmichael's interview with Jim Yong Kim.

With rivals making big gains, Apple Inc. released a slew of software upgrades to try to get the buzz back for the iPhone. Omar El Akkad reports on the overhaul.

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Just weeks after his contract was renewed, Canadian Imperial Bank of Commerce's chief executive officer is tweaking his management team and adding a woman to the bank's executive group, Tim Kiladze writes.

The CRTC is launching a major review of the rules governing the rapidly-changing TV business, as consumers turn to alternative devices and the companies that sell television subscriptions face online competitors nobody could have imagined during the last review, Steve Ladurantaye and Marsha Lederman report.

Retail experts said Hudson's Bay Co. was too broken to fix. So far, Richard Baker is proving the smart folks wrong, Marina Strauss writes.

Grocers are bracing for a new round of consolidation as Sobeys Inc. prepares to swallow Safeway Inc.'s Canadian division and rivals feel the heat to bulk up to compete with bigger players. Marina Strauss reports on this week's blockbuster deal.

National security concerns are causing the federal government to delay two deals that would formalize foreign control of Wind Mobile, one of the upstarts in the Canadian wireless industry. Rita Trichur, Boyd Erman and Steven Chase have an exclusive look.

The week in Business Briefing

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About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More


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