Michael Burry delivers contrary Lululemon stock verdict
Wall Street has plenty of reasons to run from Lululemon Athletica (LULU).
The premium athletic apparel firm trimmed its full-year guidance, warned of lower demand in the second quarter, and highlighted further difficulties in its important Americas sector. But when a once-hot growth stock becomes so-so, investors do what they often do: sell first and ask questions later.
Michael Burry is asking another question.
The big short investor isn't faking; Lululemon had a robust quarter. He's making a more audacious case: The selloff may have driven Lululemon into a value zone investors are too negative to perceive.
That's what makes Burry's latest Lululemon call so startling.
As the price plummeted to the low-to-mid $110s, Burry added to his Lululemon position. He also remarked that the relative value in Lululemon and PayPal (PYPL) is higher than Microsoft (MSFT) right now.
That Microsoft contrast is what investors should not miss.
Lululemon is considered like a busted-up consumer brand. Microsoft is still among the most revered technology and artificial intelligence victors on the market. Burry basically says valuation beats popularity now.
Lululemon stock faces a brutal valuation reset
Lululemon's Q1 report was nasty enough to explain why investors lost their patience.
The company reported revenue climbed 4% to $2.5 billion, but that rise was not widespread. Revenue in the Americas declined 3% while international revenue grew 22%. Sales, at stores open at least a year, rose a mere 1%.
The margin picture was even more troubling.
Gross margin fell 410 basis points to 54.2%, operating margin fell 730 basis points to 11.2%, and diluted earnings per share dropped to $1.69 from $2.60 a year earlier.
That kind of pressure can transform the investor discourse in a hurry.
Lululemon has been known as a premium retail name for a long time because it was not designed to look like a regular garment company. The brand had pricing power, devoted fans, impressive store productivity and a reputation for turning basic sportswear into a high-margin consumer obsession.
Now investors are questioning if that premium still holds.
The corporation also cut its outlook. Lululemon now forecasts second quarter revenue of $2.45 billion to $2.475 billion, down 3% to 2% from a year ago. It predicts revenue of $11.0 billion to $11.15 billion for fiscal 2026, down 1% to flat.
The company is facing sluggish U.S. sales, rising tariff expenses, more clearance sales, competition from Alo Yoga and Vuori, and uncertainty around new CEO Heidi O'Neill.
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Which is why Burry's judgment is so striking.
He's not buying a stock that has clear momentum. He is buying a stock when investors appear to be pricing in a much harsher future.
Michael Burry sees value where Wall Street sees trouble
Burry's point is not that Lululemon's quarter was a good one.
That is, the market may be looking at a thriving company as if it were broken.
Burry pointed to the fact that only two of 32 Wall Street analysts covering Lululemon had Buy ratings. He said that was the least upbeat consensus he had seen for a company in this financial condition without major legal or regulatory liabilities.
"Of the 32 Wall Street analysts covering LULU, only 2 have buy ratings. This is the least cheery consensus I have seen for a company in this financial condition without significant legal or regulatory liabilities pending," Burry wrote.
That phrase is the core of his Lululemon ruling.
Burry seems to detect a disconnect between feeling and financial realities. Investors are looking at brand stumbles, margin pressure, and weak demand in North America. Burry is focusing on the balance sheet, long-term returns on capital, and the risk that tariffs are making current results look worse than the core business really is.
He also pointed to Lululemon's tangible book value per share, which has risen from around $20 to around $40 over the past three-plus years.
This is an important point because real book value growth can be a sign that a company is still creating real shareholder value even when its stock price is falling apart.
Lululemon ended the first quarter with $1.5 billion in cash and cash equivalents and repurchased 2.2 million shares for $358.3 million during the quarter.
Those numbers don't eliminate the company's difficulties.
They do go some way to explaining why Burry could detect a gap.
This is not a retailer with no cash, no brand equity, no path forward. It's a profitable global corporation, with a faltering Americas operation, a wounded stock price and a market that has suddenly been unwilling to give it much credit.
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The Microsoft comparison makes the call even more provocative.
Microsoft is one of the big winners in AI and cloud. Demand is slowing, there's markdown pressure and the company is undergoing managerial changes.
Burry isn't claiming Lululemon is a better business than Microsoft.
He is saying Lululemon may be the better relative value at current prices.
It's a classic contrarian setup: an unpopular stock with evident flaws versus a popular stock with a much clearer tale.
Burry also linked the hostility around Lululemon to the emotion he witnessed around GameStop (GME) in 2019. That doesn't mean Lululemon is another meme-stock candidate. That is, he does witness the traditional form of investor disgust.
The bet is not about the hype.
It's about whether the market has gone too far one way.
Lululemon still has to prove Burry right
But Lululemon still needs to earn Burry's verdict.
Tariffs are not the company's biggest issue. It's a demand.
Lululemon's U.S. revenue dipped 4% in the first quarter and China revenue grew 23%. That split demonstrates the company still has worldwide momentum, but also exposes the market vulnerability that made Lululemon renowned.
Perhaps the product problem is just as critical.
The brand has also not been able to get buyers excited about recent products and has faced greater competition from newer athleisure companies including Alo Yoga and Vuori.
That is when Burry's valuation assessment really gets challenged.
If the firm keeps doing worse, a cheap stock can get cheaper.
Former Nike (NKE) executive Heidi O'Neill is set to take the reins of the company in September. Lululemon shares dropped after her appointment failed to impress investors, showing how little patience the market has for the firm at the moment, Reuters reported.
That makes her task a difficult one.
She needs to reestablish product credibility, steady the Americas business, refine the brand's identity and persuade investors that Lululemon can still thrive without sacrificing margins.
The corporation has also been dealing with governance pressure. Lululemon settled a proxy spat with founder Chip Wilson in May, agreeing to add board members including directors with product and brand expertise, Reuters reported at the time.
That might help management refocus.
It doesn't hold out hope for a turnaround.
Key Lululemon questions investors should watch
- Can Lululemon return the Americas' business to growth?
- Will new product launches reconnect with core customers?
- Can the company defend margins against tariffs and markdowns?
- Will incoming CEO Heidi O'Neill reset the brand strategy quickly enough?
- Is Burry right that investor negativity has become excessive?
But for now, Burry's opinion on Lululemon is a far cry.
Lululemon is a luxury retailer that is losing its cachet on Wall Street.
Burry views it as a profitable corporation with a strong enough financial footing, so the selloff seems overdone.
But that doesn't make Lululemon a safe bet.
Retail turnarounds are tough, and brand harm might take longer to fix than investors think. The stock may stay under pressure unless management can show greater demand, a cleaner inventory and a stronger product response.
But Burry's call makes the stock harder to dismiss.
The key investor question is no longer whether Lululemon had a bad quarter. It did.
A more relevant question is whether the market has punished Lululemon so much that its stock now prices in more bad news than the business is worth.
That's the startling component of Burry's finding.
He's not chasing the biggest story in the market. He's buying one of the most loathed ones.
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This story was originally published June 10, 2026 at 2:17 PM.