Michael Burry Heavily Invests in Lululemon, Stock Falls 18% After Hours
Michael Burry, head of Scion Asset Management, previously made a significant purchase of Lululemon shares around $238. After the company released its Q2 fiscal 2026 earnings report, the stock price fell by about 18% in after-hours trading, reaching around $99.6.
According to the 13F filing, Scion established a new position of 50,000 shares in Q2 2025 at an average reported price of about $237.58; in Q3, it added another 50,000 shares for a total of 100,000 shares at an average reported price of about $177.93, with the stock at one point accounting for over 20% of its publicly disclosed equity position. Tracking data estimates its average purchase cost at about $238, and the market value of its holdings has significantly decreased following the stock price drop.
Lululemon reported net revenue of $2.416 billion for the quarter, a 4% year-over-year decline, and a 5% decline at constant currency; global comparable sales fell by 9%, with a 12% decline in the Americas, an 8% decline in the U.S., and a roughly 9% decline in Canada at constant currency. Revenue from mainland China increased by 4% on a reported basis but decreased by 2% at constant currency, with comparable sales down 8% at constant currency, which management described as below expectations.
Diluted earnings per share were $2.92, down from $3.10 in the same period last year; net profit was $329.2 million, an 11% decline. Gross margin was reported at 60.5%, which included $134.5 million in tariff refunds and $4.1 million in related interest, with the refunds alone boosting the gross margin by about 560 basis points; excluding one-time factors, operating margin was still pressured by weak traffic in the Americas and promotional pressures. Cash at the end of the quarter was about $1.4 billion, with inventory around $1.7 billion, and the company repurchased 2.7 million shares at a cost of $330 million during the quarter.
Full-year guidance has been lowered again: net revenue is expected to be between $10.35 billion and $10.50 billion, a year-over-year decline of 5% to 7%; diluted earnings per share are projected to be between $9.48 and $9.73, including about $0.86 from the tax refund contribution, significantly lower than the previous range of $10.95 to $11.15. Q3 revenue guidance is set at $2.29 billion to $2.32 billion, a year-over-year decline of 10% to 11%, with earnings per share of $0.93 to $0.98. Since the end of 2025 until September 2026, Burry has repeatedly referred to the stock as "ear-piercingly cheap," noting that only 2 out of 32 analysts have given a buy rating.
The after-hours sell-off was driven by the lowered guidance, with growth funds and momentum investors accelerating their sell-offs after negative revenue and double-digit declines in same-store sales in the Americas; the buying support mainly came from value funds waiting for the new CEO Heidi O’Neill to take office on September 8, as well as buyers re-evaluating based on book value and cash flow. Brand owners and repurchase accounts provided limited support, while short sellers and event-driven hedge funds benefited, putting pressure on heavily invested long positions and accounts following Burry's lead.
The stock closed at $121.77, with after-hours quotes around $99.6; market capitalization fell from about $13.8 billion to a lower tier. Burry stated before and after the earnings report that Lululemon has become a "troublemaker" in his portfolio and is his largest position.
Source: Public Information
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Michael Burry rose to fame by shorting mortgage-related securities and has long combined concentrated holdings with public bullish and bearish calls: in 2025, he closed external fundraising and switched to paid communications to express his views, simultaneously shifting funds from overvalued tech to neglected consumer and healthcare stocks. His approach to Lululemon is similar to his previous bets on companies deemed "permanently impaired" by the market—first establishing a position around $238 in Q2 2025, then doubling down after the stock price fell, interpreting management chaos as a source of value. Public records also show reverse cases: his bet on Tailored Brands ended in permanent capital loss, which he classified as a small position error but acknowledged that bankruptcy cut off the path to asset realization.
In terms of capital allocation, Scion has concentrated its limited long positions on a few names like Lululemon, Molina Healthcare, MercadoLibre, and JD.com, while hedging AI premiums with shorts in Nvidia, Palantir, and semiconductor ETFs. The motivation for increasing the position in Lululemon is not optimism about yoga pants growth, but rather interpreting the slowdown in the Americas, near-universal analyst downgrades, and the book value rising from about $20 to about $40 as "bad management creating a discount." The resource allocation method is through real cash increases and repurchases, rather than industry mergers; concurrently, the company uses cash buybacks to hedge against valuation shrinkage, effectively providing liquidity for external shareholders through its balance sheet.
In industry comparisons, Nike and Under Armour can be observed: Nike similarly uses North American same-store and full-price sales as a litmus test for pricing power; once core market traffic declines, the global narrative immediately shifts to a destocking cycle; Under Armour has demonstrated that brand premiums can be permanently eroded by promotions, leading to an irreversible decline in P/E multiples. Lululemon is currently transitioning from growth pricing to liquidation pricing—China no longer contributes enough to hedge, and the new product lines extending into running and tennis indicate that the premium of its main category, yoga pants, is being diluted, representing a forced transformation after failing to control market share rather than a second round of expansion.
Structurally, this represents a transfer of pricing power. The mechanism is as follows: high-margin athleisure relies on full-price sales and social reputation in North America; when negative media and social feedback, product mismatches, tariffs, and clearance sales converge, the one-time tax refunds that boost profits cannot repair comparable sales; buyers are now discounting the brand based on tangible book value and free cash flow, while sellers rewrite future growth from positive to a year-over-year revenue decline of 5% to 7% through guidance. When buybacks can only slow the float but cannot restore customer traffic, pricing power shifts from the brand to clearance and hedge funds.
ABAB News · Cognitive Laws
Ear-piercingly cheap often just indicates a continuation of the decline.
Buybacks can reduce share capital but cannot restore customer traffic.
Shorts gain fame through structure, while longs lose money through faith.