Lululemon Athletica Inc. (NASDAQ:LULU) (TSE:LLL) Chairman Dennis “Chip” Wilson sold $50 million worth of stock in the company four days before the shares plummeted on the chief executive officer’s sudden departure.
Shares of yoga-apparel retailer Lululemon Athletica Inc. (NASDAQ:LULU) (TSE:LLL) plunged after CEO Christine Day quit. Some of the biggest fans of Lululemon Athletica have been demanding the CEO’s resignation since the yoga gear maker’s most popular pants styles tanked in the fashion market because they were too sheer.
The Securities and Exchange Commission permits executives to trade their own shares as part of a prearranged trading plan known as a 10b5-1. The preset plan enables executives to buy or sell shares in their own company according to preset conditions, even if they have insider information at the time of the sale that could affect the stock price. The SEC, however, doesn't require executives to disclose that they have such plans or how the plans are configured, but the executives can't be privy to nonpublic information at the time the plans are created.
Lululemon Athletica's Board was Notified about CEO's Departure
According to The Wall Street Journal, Mr. Wilson, who founded the company 1998, said he set up his plan with Merrill Lynch in December. The preset plan calls for him to sell up to 5.7 million shares over an 18-month period. On Friday, the day Lululemon Athletica Inc. (NASDAQ:LULU) (TSE:LLL)'s board was notified that CEO Christine Day intended to vacate her post, the chairman sold 607,545 shares at a price of $81.50 apiece, aggregating $49.5 million.
The yoga-apparel retailer Lululemon Athletica Inc. (NASDAQ:LULU) (TSE:LLL) announced Christine Day’s departure plans after the market closed on Monday. Shares fell over 17 percent on Tuesday to $67.85. Had Wilson sold the 607,545 shares on Tuesday, he would have been poorer by $8 million.
The company’s shares fell another 5.2 percent on Wednesday.
The yoga-apparel retailer’s shares have been quite volatile this year, after a disclosure in March that the company was pulling some yoga pants from its shelves because the fabric was too see-through.
Lululemon Athletica Inc. (NASDAQ:LULU) (TSE:LLL) Chairman Dennis “Chip” Wilson’s only other sales during 2013 were made between January 10 and January 14, when the chairman disposed of 300,000 shares aggregating $21.3 million, according to InsiderScore.
Interestingly the professionals who track insider activity under 10b5-1 plans say it is difficult to draw conclusions from the timing of stock sales, because so little is known about how the plans are formulated. However, a pattern of favorably timed sales by certain corporate directors under such plans has drawn the attention of regulators and prosecutors.