Lululemon Stock Plunges 17% as Michael Burry Eyes Aggressive Buying
Lululemon shares, the largest holding in Michael Burry's portfolio, crashed 17% following weak Q2 guidance. Despite rising competition from Alo Yoga, Burry plans to buy more shares if the price drops below $100.
A major shift occurred in Michael Burry's investment portfolio on Friday. Shares of the fashion brand Lululemon (NASDAQ: LULU), which represents his largest single position, collapsed by approximately 17% following the release of its second-quarter financial results.
While the company beat earnings-per-share estimates, it missed on top-line revenue and disappointed investors with weak forward guidance. For the third quarter, Lululemon projects a sales decline of about 10%, and a 5% to 7% drop for the full fiscal year.
Notably, the earnings beat was primarily driven by a one-time tax refund resulting from a US court decision that struck down an import tariff program in its original format.
Burry's Strategy and an 80% Drop
Despite the poor financial outlook, Michael Burry remains unfazed. He previously declared his intention to aggressively purchase additional shares of the company if the stock trades below $100. Lululemon closed Friday's session at $100.60, after briefly touching a low of $98 during intraday trading.
Looking at the broader picture, Lululemon stock has now plummeted 80% from its all-time high. The sharp decline of this once-dominant brand is rooted in shifting market dynamics. New, agile competitors like Alo Yoga have rapidly captured market share in Lululemon's core segment.
The Value Trap Risk
Previously, Lululemon commanded premium valuations with P/E multiples of 40 to 50, fueled by massive growth. However, as competition intensified, profit margins shrank, triggering a double blow: falling earnings combined with a contracting multiple as the market adjusted to slower growth.
Based on management's full-year guidance of $9.48 to $9.73 in earnings per share, the stock currently trades at a forward P/E of around 10. While this appears cheap, analysts warn of a potential "value trap"—where a stock looks inexpensive on paper, but deteriorating business fundamentals continue to drag earnings down.
Unlike diversified giants such as Nike, Lululemon operates in a highly competitive fashion niche without the same brand buffer, making its recovery path highly uncertain.
