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Lululemon is entering a major transition as CEO Calvin McDonald prepares to step down on Jan. 31 after a tough year of slowing sales and increasing competition in the athleisure market.

The company announced the leadership change Thursday, along with its latest quarterly results, which showed continued weakness in its largest market, the Americas.

According to AP News, McDonald, who has led the company since 2018, will stay on as a senior advisor through March 2026 while the board searches for a new chief executive.

Lululemon said it is working with a top executive search firm to find someone who can guide the brand through this challenging period.

Board chair Marti Morfitt will immediately take on an expanded role as executive chair to help keep the company's long-term strategy on track.

At the same time, CFO Meghan Frank and Chief Commercial Officer André Maestrini will step in as interim co-CEOs once McDonald officially leaves.

Morfitt said Lululemon needs a leader "with a track record of driving companies through periods of growth and transformation" to help shape the company's next chapter.

Lululemon Battles Falling US Sales

The leadership announcement comes as Lululemon continues to struggle with falling US sales and growing pressure from rivals like Alo Yoga and Vuori.

The company has also faced rising costs tied to tariffs and ongoing criticism from its founder, Chip Wilson, who has publicly argued that the brand is "in a nosedive."

Analysts say the intense competition and shifts in fashion — including a return to denim over yoga pants — have created a tougher landscape for Lululemon.

In its latest quarter, the company reported that revenue in the Americas fell 2%, while international sales grew 33%, CNBC reported.

Overall profit dropped 13%, reflecting the uneven demand the company has been facing.

Despite lower earnings, shares rose more than 10% in after-hours trading after the company announced the leadership shake-up and posted results that were better than some analysts expected.

Industry expert Neil Saunders said Lululemon has lost some of the strong positioning it once had.

"The perfect pose that the brand used to execute with ease has given way to a much scrappier posture," he wrote, noting that competition is tougher and customers have more choices.