Michael Burry, the investor famed for betting against subprime mortgages, is taking a contrarian stance on Lululemon (NASDAQ:LULU), a stock that has lost more than half its value this year. In a recent Substack post, Burry called Lululemon his portfolio's "trickster" and said he would buy more shares if they trade below $100. The stock recently fell to $99.10, its lowest level since 2018, after a disappointing earnings report and a cut to full-year guidance.
Burry's move is not a bet on a quick turnaround. Instead, he appears to be wagering that the market is overreacting to current challenges, pricing in permanent damage when the company's brand may still hold long-term value. His largest position, as he described it, is a bet on the valuation collapse rather than an imminent earnings recovery.
Wall Street's bearish view
Analysts, however, are less optimistic. JPMorgan's Matthew Boss cut his price target on Lululemon by 38% to $95 from $154, while maintaining a Neutral rating. The cut reflects concerns about weak Americas sales and the possibility that the brand's struggles are more than temporary. UBS also lowered its target to $106 from $120, citing weak traffic and an assortment that is not resonating with consumers.
The latest quarterly results paint a challenging picture. Fiscal second-quarter revenue fell 4% to $2.42 billion, with comparable sales down 9%. In the Americas, revenue dropped 8% and comparable sales fell 12%. Management reduced full-year revenue guidance to $10.35 billion-$10.5 billion from $11 billion-$11.15 billion and trimmed earnings per share guidance to $9.48-$9.73. Reported EPS of $2.92 included an $0.86 benefit from tariff refunds, masking underlying weakness.
Brand relevance under pressure
The core issue, according to analysts, is not just a weak quarter but a potential loss of brand relevance. Competition from Alo Yoga and Vuori has intensified, and Lululemon has acknowledged inconsistent responses to recent product launches. Jefferies analyst Randal Konik told Barron's that incoming CEO Heidi O'Neill has "a mountain to climb," noting that brand momentum is fading and market-share losses are mounting.
O'Neill, a former Nike executive, is set to take over as CEO on Tuesday. She brings experience in product, merchandising, and brand strategy, but inherits shrinking sales, weaker margins, and lower investor confidence. The market will be watching to see if she can stabilize the business and restore product appeal.
Burry's contrarian bet
Burry's thesis is that Lululemon's current problems may be fixable. Morningstar analyst David Swartz shares some of that optimism, maintaining that the shares remain attractive despite the guidance cut. He believes Lululemon still has a meaningful brand asset that can support premium pricing.
For Burry, the stock does not need to return to its hypergrowth days immediately. It needs O'Neill to stabilize sales, improve product relevance, and demonstrate that the earnings decline is temporary rather than structural. The gap between Burry's view and Wall Street's is stark, and the coming quarters will test which side is right.
Investors looking for similar contrarian plays might also consider Lululemon's slide toward $100 as a cautionary tale, or examine Burry's other recent moves in the AI space. Meanwhile, the debate over Lululemon's premium positioning continues, and Burry's caution on high-flying tech offers a broader context for his value-oriented approach.
This article is for informational purposes only and does not constitute financial advice.
