Investor Michael Burry is doubling down on Lululemon Athletica Inc. despite a sharp stock decline following weak fiscal second-quarter results. While the company reduced its annual outlook amid U.S. competition and China demand issues, Burry signaled he may add to his position if shares fall below $100.
The athleticwear retailer saw its shares sink more than 15 per cent in early Friday trading. This volatility follows a fiscal second-quarter performance that missed expectations and prompted a downward revision of the company’s full-year sales guidance.
Lululemon’s Revenue Miss and Revised Guidance
Lululemon’s recent financial disclosures reveal a tightening grip on growth. The company posted a larger-than-expected sales decline, prompting another reduction to its annual outlook.
The company’s actual performance also lagged behind analyst expectations. Adjusted earnings per share missed expectations. Revenue similarly underperformed.
Interim co-CEO Meghan Frank stated that the management team is prioritizing product development, increased marketing spend, and expense control to restore growth.
Michael Burry’s Contrarian Bet on LULU
Michael Burry, the investor known for his role in “The Big Short,” currently holds a position in Lululemon that represents about 17.4% of his portfolio. Despite the recent tumble, Burry views the company as a spring-loaded franchise
that is being weighed down by temporary factors. He noted that shares trading around $105 represented roughly 2.5 times tangible book value, the lowest multiple since the first quarter of 2009.
Burry’s optimism is calculated. He expects a roughly 18% CAGR over a 15-year holding period if his assumptions hold. He has previously described Lululemon as a trickster
and noted the company’s history of navigating periods of stress.
However, Burry is not blind to the company’s internal failures. In a Substack post, he identified several own goals
that have alienated customers and squeezed margins, contributing to a price drop from over $400 to under $120 in the last 18 months.
- A
management vacuum
- Product misfires
Burry specifically cited the 2011 move to emblazon bags with the line Who is JOHN GALT
from “Atlas Shrugged” as a mistake, arguing that the book’s appeal to conservatives and libertarians clashed with Lululemon’s core demographic of young, progressive women. He keeps one of these bags framed in his conference room as a reminder of the clash between Yoga and Ayn Rand
.
Broader Portfolio Shifts and the AI Skeptic
Lululemon is part of a broader deep-value strategy for Burry, who recently closed his hedge fund to outside capital to avoid SEC regulations and speak more freely via his Substack, Cassandra Unchained
. He has identified a 2-12B market cap range as the most fertile area for investment today.
| Company | Recent Performance (YTD) | Sector |
|---|---|---|
| Lululemon | Tanked 52% | Athletic Apparel |
| Molina Healthcare | Tumbled 49% | Health Insurance |
| Shift4 Payments | Plunged 32% | Fintech |
| Fannie Mae | Roughly Tripled | Mortgage Guarantee |
While Burry hunts for bargains in apparel and healthcare, he remains aggressively bearish on the artificial intelligence boom. He has disclosed bets against Nvidia and Palantir, suggesting that the massive spending on AI infrastructure could be creating financial distortions. He recently recommended the book “The Smartest Guys in the Room,” which chronicles the collapse of Enron, warning that History is repeating
regarding optimistic accounting assumptions and complex financing in the AI sector.
The tension between Burry’s long-term faith in a “spring-loaded” Lululemon and his warnings of an AI-driven bubble highlights his current strategy: exiting speculative trends while buying into established brands that have fallen out of favor.
The primary uncertainty remains whether Lululemon’s internal pivots in product development and marketing can restore the growth trajectory required to meet its lowered guidance.
