Updates shares, adds analyst comment

By Juveria Tabassum and Aishwarya Venugopal

April 23 (Reuters) - Lululemon Athletica LULU.O shares tumbled about 12% in early trading on Thursday, as the struggling athletic apparel maker's decision to tap a CEO from turnaround-embattled Nike failed to reassure investors.

The appointment of Heidi O'Neill, who most recently was the president of consumer, product, and brand at Nike, ends a months-long search marked by pressure from an activist investor and Lululemon's founder Chip Wilson.

PARALLELS WITH NIKE

"We do not expect the market to receive this appointment positively given O'Neill's longstanding tenure at Nike, which overlaps with the brand developing many challenges that parallel the ones LULU is currently facing," BTIG analyst Janine Stichter said.

O'Neill, who left Nike NKE.N last year after more than 25 years amid a management reshuffle, will join in September and will be tasked with stalling Lululemon's market share losses and refreshing its image.

Nike's stock hit a more than decade-low earlier this month after CEO Elliott Hill warned of a sharp sales drop and continued weakness in China, frustrating analysts and investors keen on a revival in the storied sportswear giant's fortunes.

Lululemon has also dealt with product recalls for some of its pricey leggings in the recent past and has tried to balance inventory levels as it deals with intensifying competition from upstart brands such as Alo Yoga and Vuori in the U.S.

NOT THE RIGHT FIT?

Meanwhile, analysts at Needham and Evercore ISI attributed the stock decline to the appointment of O'Neill instead of Elliott Investment Management's choice of veteran retail executive Jane Nielsen.

Nielsen was the finance chief at Ralph Lauren for eight years until 2024 and for five years at Tabby handbag-parent Coach when the brands were undergoing a turnaround to move into a higher-margin business model.

"At this juncture, Lululemon needs a turnaround CEO and not a growth CEO," said BNP Paribas analyst Gaston Dimant in a note, adding that Nielsen would have been the right pick to guide the yogawear maker through a change.

Elliott, which has a roughly $1 billion stake in Lululemon, has been pushing ‌for Nielsen's appointment, compounding scrutiny from its founder Wilson.

Wilson, who owns about 4.3% of the company and is waging a proxy fight to install his three director-candidates on the board, said earlier this year that any CEO selected before the board changes would not have his support.

Both Elliott and Wilson did not respond to Reuters requests for comment on O'Neill's appointment.

Lululemon's shares have tumbled 38% in the last 12 months, trimming its market value to $18.8 billion. They were trading at $144.01 in morning trading on Thursday.

With O'Neill not taking charge until September, analysts caution that Lululemon's stock would get little respite this year.

"O'Neill may bring much-needed product experience to drive a brand reset. But for now, the core issues remain: an ongoing proxy fight that adds uncertainty and sky-high productivity that remains far from bottoming," Jefferies analysts said.