Lululemon founder wins 2 board seats

Incoming CEO Heidi O'Neill now tasked with ambitious turnaround plans.

Lululemon Athletica has reached a settlement with activist founder Chip Wilson, conceding two board seats in exchange for an 18-month truce.

The Canadian-American athletic apparel maker said that Wilson's nominees Marc Maurer, a former co-CEO of sneaker maker On Holding, and Laura Gentile, a former chief marketing officer of ESPN, would join the board after the June 25 annual meeting.

Lululemon and Wilson, who owns an 8.7% stake in the company, will also collaborate on appointing a third director with product and brand expertise by October 1.

In return, Wilson agreed to stop disparaging the company for 18 months and to cap his stake at around 10%.

Over the past few months, Wilson argued that Lululemon's brand has lost its "premium" positioning and "cool factor" by chasing broader lifestyle and fashion trends and failing to protect merchandising quality, in-store experience, marketing focus, and innovation.

However, the company argued that Wilson, who left the board in 2015, has "outdated perspectives" about how to position Lululemon as well as a "troubling conflicts of interest" relating to a separate apparel startup, Kit and Ace, launched by his wife and son.

Wilson was also opposed to the April appointment of Heidi O'Neill as CEO, a move the company made to help revive its growth amid worsening brand perception and rising competition.

O'Neill is due to begin work in September, and with operating margins shrinking to below 20% of revenue and gross margins narrowing to 56.6% for fiscal 2025, the path forward is not without risk.

However, Lululemon has a secret weapon that O'Neill can tap into to fuel a transformation strategy. Namely, $1.8 billion in net cash that could be deployed to fund investment in products, revamp retail locations, and expand into new markets like China and Europe.

Alfredo Poretti & Co and JPMorgan Chase provided financial advice on the settlement, while Sidley Austin provided legal advice.

Shares in Lululemon closed at $127.35 on Tuesday, down 0.74% during the day. The stock remains down 59.67% over the past twelve months.

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