Lululemon (NASDAQ:LULU) announced Calvin McDonald as its new CEO Tuesday after the close of trading, a move that has some Canadians scratching their heads and warning of impending doom for both the company and LULU stock.
Here’s why they’re flat wrong.
Who Is Calvin McDonald?
He’s a man with an impressive retail track record working in senior roles at Sephora, Sears Canada and Loblaws. He’s the perfect candidate to keep both the company and LULU stock moving higher.
“(He) has an impressive track record leading organizations through periods of significant growth and innovation,” said board chairman Glenn Murphy in a statement. “He is the ideal match for the Lululemon brand and culture.”
Reread those two sentences a couple of times. What stands out for you?
For me, the word “culture” is the vital piece of the statement because, although Lululemon is doing quite well, the company’s work environment had become quite toxic under Laurent Potdevin, a CEO that I thought was doing a good job until it became apparent the company was succeeding in spite of the internal issues.
In another publication I write for, I recommended in April that Glenn Murphy and the board consider McDonald as its CEO because of the excellent work he’s done at Sephora, a company that doesn’t rest on its laurels.
Given a majority of the company’s customers are still women, I would have been equally happy if it had announced a female CEO, but McDonald is more than qualified for the job.
Forget Sears Canada
Readers of the Financial Post in Canada view McDonald’s two years at Sears Canada with disdain, but they’re speaking from a poorly informed perspective that rightfully is tainted by the recent bankruptcy of the department store chain, putting a lot of people out of work.
“I do not know how the board of directors of Lululemon approved the suicide of the company by hiring a CEO whose impressive resume is made up of running a company down to the ground,” commented a Financial Post reader in the story about McDonald’s hiring.
The Sears Canada bankruptcy hurt, and while I don’t want to make light of the situation, McDonald had little to do with the collapse of its business.
That’s all on the shoulders of Sears Holdings (NASDAQ:SHLD) CEO Eddie Lampert who sucked CAD$2.9 billion in special dividends out of the company between 2005 and 2013 instead of investing in the business.
McDonald joined Sears Canada in June 2011 going to work on a three-year turnaround plan to fix what by then was a listing ship on the verge of sinking.
In the year that McDonald joined Sears Canada, it had an operating loss of CAD$70 million, down from an operating profit of CAD$174 million a year earlier and CAD$458 million three years before that.
Following on a very similar path as Sears in the U.S., McDonald had a growth strategy for the company that he knew could work but a little over 27 months into it, Eddie Lampert and the board pulled the plug and like any good gun-for-hire, he bolted to Sephora in 2013, but not without serious reservations.
“I joined with a clear growth mandate,” McDonald told Marina Strauss, the Globe and Mail’s retail specialist, in 2017. “I had an agreement with the board, to show that this business could perform. But it needed investments in almost every area – in the stores, online, in the supply chain, the systems.”
But it never came.
I recommend you read Strauss’s article (she’s an excellent business writer) if you’re at all skeptical of McDonald’s past. Then look at the LVMH (OTCMKTS:LVMUY) annual reports for the last five years focusing on Sephora’s growth.
If you’re at all familiar with retail you’re aware of the company’s efforts to create an above-average customer experience. Like every business, it’s not always spot on, but it’s better than most.
And McDonald had a large part in that. I’m sure LVMH is sorry to lose his services.
The Bottom Line on LULU Stock
As I write this, LULU stock is up only slightly, as investors digest the hire.
I think this is an inspired choice for three reasons.
- McDonald understands what customer service is all about.
- He’s not going to add fuel to the HR fire at Lululemon HQ.
- He’s Canadian.
Lululemon is arguably Canada’s most successful apparel export. To be run by someone other than a Canadian would be shortsighted and wrong. McDonald’s hiring, in my opinion, is an inspired choice and good for LULU stock.
Congrats, to Glenn Murphy and the board. Like the Mounties — you got your man.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.