Lululemon chief executive Calvin McDonald just learned the hard way that in fashion, cool sometimes speaks louder than numbers on an income statement.

McDonald joined the activewear retailer from Sephora in 2018, and managed to triple sales to over $10 billion in 2024. On Thursday the company lifted its annual guidance, forecasting sales growth of 4 percent for the fiscal year. Third-quarter sales rose 7 percent year-on-year, driven by strong international demand. McDonald’s plan had been to quadruple Lululemon’s global market share between 2021 and 2026.

That wasn’t good enough for Lululemon’s shareholders, which have sent the company’s stock tumbling by more than 50 percent this year. Or founder Chip Wilson, who has waged a war against McDonald and the rest of the brand’s leadership from outside the company (he remains its largest individual shareholder), memorably lamenting Lululemon’s “loss of cool” in a full page advertisement in The Wall Street Journal.

On Thursday, Lululemon said McDonald would be exiting the company at the end of January. He’ll also leave the board of directors, but stay on as a senior advisor through March to help conduct a search for his successor. Marti Morfitt, the board chair, will become executive chair, while chief financial officer Meghan Frank and chief commercial officer André Maestrini will act as interim co-CEOs.

The news — along with the better-than-expected results — was well-received in the market. Lululemon shares soared 10 percent in after-market trading.

So what exactly accounted for McDonald’s abrupt exit?

Behind the scenes, Lululemon was facing a number of looming challenges. While plenty of brands would gladly accept 7 percent growth, the company has consistently posted double-digit increases for most of its history. While internationally Lululemon has continued to surge, in its home territory of the Americas, revenues had dropped in the last two quarters. The activewear space overall has grown saturated in the years following the pandemic, with brands like Vuori and Alo Yoga seemingly coming out of nowhere to mount serious challenges to Lululemon’s dominance. Newcomers like Adanola are even going after Lululemon’s core category of leggings, touting offerings they claim are just as high quality at a fraction of the price.

Like its competitors, Lululemon has faced significant margin pressure from tariffs and other rising costs. But it had the misfortune of shipping online orders to the US from Canada, leading to a surprise revelation earlier this year that the Trump administration’s new tax rules would force it to start paying significant sums at the border.

But if there was anything that marred McDonald’s final year on the job, it was Wilson’s very public, very abrasive campaign.

What’s Chip Wilson got to do with it?

Lululemon didn’t mention Wilson in announcing McDonald’s departure. But it’s hard to separate his critiques from McDonald’s exit.

In October, Wilson took out the Journal ad, titled “Lululemon: in a Nosedive,” claiming that its leaders no longer understood what makes a great product or a cool brand. “On paper, Lululemon still looks good, but it’s losing its soul,” he wrote.

Although Wilson left the company over a decade ago, he’s still a major shareholder of the stock. According to the Journal, he had been preparing to wage a proxy fight before Thursday’s news to exert direct influence over management of the brand he founded in 1998.

Is Lululemon actually losing its cool?

Wilson himself has a history of sparking controversy through blunt public remarks. He stepped down as CEO in 2005, and resigned from his post as chairman of the board in 2013 after he made crude comments about how Lululemon’s leggings were not designed for “some women’s bodies.” (Lululemon was not without controversy under McDonald. In a 2023 investigation, BoF spoke to more than a dozen current and former employees who characterised the corporate culture as unfriendly to Black people.)

But though Wilson’s tactics this year have been inflammatory, his core argument — that Lululemon had lost a step, culturally — largely wasn’t.

There are signs that what once seemed effortless brand momentum has flattened in key areas. In the US, comparable-store sales have lagged, and some analysts and consumers have pointed to a lack of fresh, breakout products relative to competitors like Vuori and Free People Movement.

It doesn’t help that Lululemon’s signature product, the legging, is falling out of favour among young consumers. After dominating fashion under the moniker of “athleisure” for more than a decade, snug, body-skimming leggings are losing cultural cachet, with Gen Z women gravitating toward looser, relaxed silhouettes like parachute pants, joggers and baggy workout bottoms.

How do tariffs factor into it?

Tariffs have become a meaningful headwind for Lululemon, particularly in the US market and beyond what many of its competitors are experiencing. Changes to U.S. import duty rules — including the removal of the de minimis exemption for small international shipments — have increased the company’s costs significantly.

The announcement came as a surprise in Lululemon’s late‑August earnings report, prompting seven analysts covering the stock to downgrade their outlook, citing the unexpected tariff impact on margins.

In its third-quarter report on Thursday, the company said its earnings outlook for 2025 includes an estimated reduction in income of $210 million due to tariffs and the removal of the de minimis exemption, though it has undertaken mitigation measures such as negotiating with vendors and rolling out price increases.

How can McDonald’s successor address these problems?

Right now, Lululemon’s best growth potential is outside the US and Canada, where it is still a relatively new quantity to many shoppers, and has enough time to release innovative new products and fresh marketing to avoid what’s happened to the brand closer to home.

Whoever its next CEO turns out to be, Lululemon’s next phase depends on regaining cultural prowess. The brand’s early strength came from shaping a lifestyle, not just selling stretchy clothes, and that’s where it has fallen out of step. It’s a similar challenge to what new CEOs at Nike and Gap are facing, as they also try to revive brands that leaned for too long on their historic cultural cachet long past its sell-by date.

To stay relevant, Lululemon will need product stories and collaborations that feel plugged into the same current powering younger consumers’ wardrobes: bolder silhouettes, sharper styles and marketing that makes a statement. Footwear, tennis, golf, and men’s are all growth lanes.

But the real opportunity is to create pieces that can dominate a category again, the way the original Align pant once did — or at least create some conversation.