Lululemon’s Founder Picks a Fight With the Board. The Stock Could End Up Winning.

Chip Wilson, founder of Lululemon Athletica Inc., in 2022. (Taehoon Kim/Bloomberg)

Chip Wilson isn’t happy with the way things are going at Lululemon Athletica. He points to the stock’s drop of over 40% in the past year.

So Wilson is considering an activist campaign against the activewear company that he founded—something that one analyst says could give shares the boost they desperately need.

In midafternoon trading Monday, the stock was up 3.6%.

Wilson, who stepped down from Lululemon’s board a decade ago, has often publicly criticized decisions made by sitting members. He did it again last week in an ad in The Wall Street Journal: “Lululemon: in a Nosedive.”

The ad’s text was as biting as its title.

“Lululemon directors have systematically dismantled the business model and lost employees who held the institutional knowledge that made the company great,” Wilson said. “Like a plane crash, decline rarely happens because of a single failure, it’s a series of mistakes.”

Wilson contends that the board focuses on Wall Street’s financial projections rather than on product, design, and innovation. In his words, he wants the board “to put product and brand back at the center” and “to “stop chasing Wall Street at the expense of customers.”

Wilson upped the ante in a CNBC interview. When asked if he wants to team up with an activist investor to replace board members, Wilson said he does think it’s “time for some action.”

A Lululemon spokeswoman told Barron’s that the company communicates regularly with shareholders and that its board and leadership team are acting to drive long-term growth and create value.

“Chip Wilson has not been involved with the company for a decade, and he continues to make inaccurate and misleading statements about Lululemon, our history, and our Board and leadership team,” she said. “We are confident in our ability to capture meaningful growth opportunities ahead and our Board and leadership team remain committed to acting in the best interests of the company and our shareholders.”

Lululemon and Wilson’s relationship has been strained since 2013, when Wilson resigned as the board’s nonexecutive chairman after saying Lululemon’s pants didn’t work for “some women’s bodies.” He stayed on the board two more years, pushing for changes he said would return Lululemon to its “core values of product and innovation.”

Today, Wilson and his associated entities own roughly 9% of Lululemon’s stock, according to the Securities and Exchange Commission—less than a third of what he owned just before he left the board. He pared down his stake, in part because of agreements with the company to settle his disputes. In 2014, he sold half of his 27.7% stake to private-equity firm Advent International for about $845 million.

Wilson’s 9% is enough equity to give him the voice to launch a proxy fight, wrote Laurent Vasilescu, an analyst at BNP Paribas.

The threat Wilson poses could be an unexpected short-term catalyst for the beleaguered stock, Vasilescu said on Monday, upgrading Lululemon to Neutral from Underperform.

“If we do hear about a change in management or an activist, it would be immediate upside risk to the shares on the day,” Vasilescu wrote.

Vasilescu speculated that Advent, a founding investor in Lululemon, “could be an opening for a proxy fight.” Managing partner David Mussafer remains on Lululemon’s board and the firm took an active role in the company during its pre-Covid challenges.

Advent declined to comment.

Write to Sabrina Escobar at sabrina.escobar@barrons.com