Big Short Prototype Michael Burry: Lululemon Becomes Largest Position, Plans to Increase Holdings
Investor Michael Burry, known from "The Big Short," stated that Lululemon has become the largest position in his portfolio and indicated he would increase holdings if the stock price continues to trade below $100, rather than selling.
The company recently reported Q2 revenue of approximately $2.42 billion, a 4% year-over-year decline, with same-store sales down 9%; revenue in the Americas fell 8%. The full-year revenue guidance was lowered for the second time to $10.35 billion to $10.5 billion, corresponding to an expected annual sales decline of about 5% to 7%; full-year earnings per share guidance was reduced to $9.48 to $9.73.
The stock price fell sharply by about 18%, dipping below $100 during trading, marking a multi-year low, with a market value evaporating by over $2.5 billion in one day, and the year-to-date decline expanding to about 40% to 50%. The forward P/E ratio is approximately 11.5 times, lower than Nike's approximately 20.8 times. The new CEO, Heidi O’Neill, will take office on September 8.
Burry referred to this stock as a "trickster" in his subscription newsletter, stating it is "determined to take him to places even mermaids dare not go." He has previously allocated about 17.4% of his portfolio to this stock and mentioned that relative to Microsoft, Lululemon has a higher relative value compared to PayPal; only about 2 out of 32 analysts rated it a buy, which he views as a rare pessimistic crowd.
Wall Street has simultaneously cut target prices, with Piper Sandler setting a low target of about $80, and BNP Paribas once slashing its target to $44. The company still has buybacks and cash on hand, but gross margins are expected to decline by about 250 basis points, and operating margin guidance has been reduced from about 17% to approximately 6.5%.
In market mechanics, the sellers are growth funds and quantitative momentum traders exiting after downgrades, while the buyers are contrarian funds pricing based on tangible book value and single to ten times earnings. This is a performance-driven valuation kill: funds are flowing from "athleisure premium" to "apparel retail discount." The beneficiaries are concentrated holders who can increase their positions below $100 and withstand time, while the pressured parties are institutions holding based on growth stock models that cannot accept simultaneous weakness in North American demand and same-store sales in China.
Source: Public Information
ABAB AI Insight
Burry's trading fingerprint has always been: when the market writes off cyclical issues as permanent damage, he picks targets based on tangible book value and free cash flow. In 2008, he shorted housing; this time he is going long on abandoned consumer brands while simultaneously shorting hot AI stocks like Nvidia and Palantir. Lululemon's fall from growth pedestal to single to ten times earnings aligns perfectly with his analogy of "1999 old economy being abandoned."
The capital path is through buybacks and concentrated holdings, rather than waiting for new product cycles. The company uses cash to buy back shares to maintain per-share book growth, while Burry amplifies the same logic with a 17% portfolio weight. Money is flowing out of active funds chasing AI capital expenditures into apparel retail with a price-to-sales ratio of about 1.3 times and a price-to-book ratio of about 2.4 to 2.9 times. He views private equity acquisitions as options, not the main script.
The analogy is not Nike's 2017 share defense battle, but the brand discount of Gap and Abercrombie: the channels are still there, but the premium is gone. Alo Yoga and Vuori are diverting in the U.S., and same-store sales in China have turned negative, indicating that the moat has retreated from "cultural symbols" back to "inventory and discounts." The industry position has shifted from an expansion phase to a contraction and growth candidate list, and the new CEO will first have to accept lower profit margins.
Structural changes belong to the transfer of pricing power. The pricing power of athleisure has shifted from brand premium to consumer budgets and social media reputation. The mechanism is: when same-store sales continuously stall, Wall Street cannot provide a price using growth models and can only switch to liquidation multiples; whoever first changes the pricing anchor can deal with the "trickster" below $100.
ABAB News · Law of Cognition
- The largest position often appears at the most awkward times.
- When analysts are most unanimously bearish, the pricing anchor has already changed.
- The graveyard of growth stocks is often the entrance to value stocks.