Lululemon’s new CEO inherits a mess that looks like the one she left at Nike

When Lululemon Athletica announced in April that former Nike senior executive Heidi O’Neill was becoming its new CEO this month, the athleisure pioneer was already struggling.

Its core North American business was slipping, and there was a sense the yogawear maker had lost much of the magic that had inspired intense devotion among its customers for years.

But in the five months between her appointment and when she assumed the job on Tuesday, Lululemon’s deterioration has only accelerated.

The company, which had been run on an interim basis by two C-suite executives since late January, reported another terrible quarter last week, with a 12% drop in comparable sales in North America.

It cut its full-year outlook for the second time in three months, intensifying worries that first-time CEO O’Neill might not be able to stop the decline.

“Incoming CEO O’Neill has a mountain to climb,” Jefferies analyst Randal Konik wrote in a research note last week.

A steep hill from day one O’Neill, for her part, says she sees Lululemon’s problems clearly—and is plotting a path to fixing them by tapping what made Lululemon so beloved in the first place.

“I truly believe that we have an incredible opportunity in front of us: to re-establish who we are at our core and, from that foundation, take Lululemon into its next chapter,” O’Neill told employees in a memo to staff published on her first day as CEO.

But she has many fires to put out at once.

Among the most worrisome bit of bad news in second-quarter results full of them was the sharp drop in sales of leggings, Lululemon’s bread-and-butter offering and the category that turned it into a cultural phenomenon.

They suddenly plunged last quarter, stunning analysts.

Also ominous: sales in China, which were rising by double-digit percentages as recently as in the spring, fell for the second quarter in a row.

“We did a double take when Lulu called out that leggings were down 20%,” said BNP Paribas analyst Laurent Vasilescu.

Leggings generate approximately one-third of Lululemon revenue by some estimates and are its highest-margin products.