Lessons from the Lululemon Divorce
We live in transformational times. While writing this I am watching people running the artificial intelligence community interviewed about whether AI could end the world we have grown used to. This comes a year after we were told AI might render half of all jobs superfluous. It’s a tad disconcerting to say the least.
I recently was asked if I had an interest in trying to teach some judges in another state about business valuation. I love the topic and fancy that I know a fair amount about it. But as I watch current markets, I see things trading at values that seem beyond the pale while other business values whither despite sound numbers. This essay offers a view of what Dickens dubbed: Christmas yet to come. To understand it, we need to visit Christmas past and present in the context of a pending Canadian divorce.
Lululemon is a sportswear manufacturer which started with a single store in 1998. In 2002 its founder married one of the company’s clothing designers, beginning a 24 year marriage that ended last week with a divorce filing. Dennis Wilson is that founder and he currently holds about 9.9 million shares worth- a smidge less than $1 billion. It’s less than 10% of the outstanding stock but Wilson remains the single largest shareholder.
Now let’s do some history. According to the Wall Street Journal, Dennis and Shannon Wilson built Lululemon together. We love to dwell on the lifestyle that the Wilsons have enjoyed since the company went public in 2007. But when you ask folks like this about the history of their marriage, the stories can be fascinating. Mr. Wilson has been afflicted with muscular dystrophy since 1987. The Journal reports that the Wilsons endured some scary times while building their business. Entrepreneurs are driven individuals and when viewed close up, their struggles can be both inspiring and scary. In pursuit of “business” those stories are often mottled with tales of failed product trials, factory fires, repossessed cars and other calamities.
One of those struggles occurs when a company goes public. The investment community has no difficulty making entrepreneurs like the Wilsons instant millionaires, but they often want “control” of management. A year after the IPO Lululemon installed a former Starbucks executive as CEO. That began what the Journal reports is a longstanding dispute over how the company is managed. That’s pretty common. Entrepreneurs are imbued with a belief that when it comes to “their company” they will always know better.
When Lululemon went public in 2007 it commanded $16 a share. It bounced around between $13 and $70 for the next decade. Then it began to take-off. In May 2018 the stock cracked $100. August 2019 $200. May 2020 $300. August 2021 $400. Then the stock started to wobble. In December 2023 it cracked $500. SEC filings suggest Mr. Wilson then held 10.1 million shares worth roughly $5 billion.
Then the bubble burst. By July 2024 the stock lost half its value. Six months later it was back to $400 (Jan 2025). The last 20 months have been a nightmare- stock down 75% to $100 today.
What happened? Well, this is why I confess I don’t understand stock values.
Try this looking at year end data
2025 11B 13.36 2.71 200
2024 10.6 14.24 2.96 400
2023 9.6 12.20 2.59 500
The Journal article talks about the effects of a stock distribution triggered by divorce and the wisdom of considering the cap gains implications when settling the case. What needs to be considered is the attachment people seem to have to hold the company they started in irrational quantities. Here is a business with sales growth, solid earnings. Yet it had lost 80% of value taking the Wilson holdings from $5 billion down below $1 billion.
Not to rub it in. You can’t just dump 9% of a stock on the market. But if the Wilsons had moved to a S&P500 index in late 2023, the $5B would now approach $7B.
Few of us will lament their reduced circumstances yet the crisis can be very real for couples who allow even modest wealth to concentrate in a single asset. During the 2008 financial crisis I represented the wife of a PNC Bank executive. PNC’s retirement plan allowed participants to designate contributions to PNC stock. During the crisis, the stock fell from $71 to $30. The loyal executive’s 401K was “all in” and his retirement account fell by 60% in 6 months. The stock suffered a similar crisis in 2021 but has since recovered. Those old enough to remember Enron will recall a public behemoth that simply collapsed. The stock went from $90 to $0 in 15 months.
The lesson is that even as a founder, you can’t develop romantic attachment to the stock of your company. We recently noted that entrepreneurs often label their business as their retirement. Consider how many bars, restaurants, dry cleaners, and shoe repair shops have disappeared since Covid changed how we live. One of the recent casualties was Pennsylvania based Rite-Aid. 4,500 stores in 2017. As of last September, none.
The Journal story: Lululemon’s founder is getting divorced. What it will mean for his fortune.