The 'Big Short's' Michael Burry Has Seen His Largest Position Fall Over 50% This Year. Should Investors Sell the Stock?

Lululemon’s Q2 EPS of $2.06 beat expectations, but revenue of $2.42B missed and comparable sales fell 9% YoY, leading the stock to drop nearly 18% (as of Sept. 4). The company cut full-year revenue guidance from $11.00–$11.15B to $10.35–$10.50B, implying a 5%–7% annual decline and including tariff refunds. Margin held up with gross margin rising to 60.5% (+200 bps YoY), but analysts remain split and BNP Paribas cut its price target by 50% to $44 with an underperform rating.

Analysis

This is less a one-quarter miss than a multi-quarter brand elasticity problem. In premium apparel, margin usually looks intact until markdown cadence and mix shift force a reset; the reported profitability is also flattered by non-core items, so the market is likely still capitalizing an earnings power that has not bottomed. If management keeps using promotions to defend traffic, the fixed SG&A base turns every additional point of comp decay into an outsized EPS downgrade.

The second-order read-through is more important than the single-name move. A prolonged LULU reset raises skepticism on the whole athleisure premium basket and makes it harder for peers like NKE or ONON to earn multiple expansion on “category growth” narratives; investors will ask whether demand is cooling or simply migrating to fresher brands. Off-price and value channels such as TGT can capture some trade-down dollars, but only if the slowdown broadens beyond brand-specific fatigue into a more normal consumer pullback.

Contrarianly, the market may be over-fixated on the low forward multiple and underpricing the earnings revision cycle. A 9x forward P/E is not compelling if the denominator is still sliding and fiscal 2027 consensus is vulnerable to further cuts. The CEO transition is a months-long catalyst at best; near-term upside likely requires evidence that full-price sell-through is improving before holiday inventory builds, otherwise this remains a relief-rally-fade setup rather than a durable bottom.

Key Decisions for Investors

• Fade strength in LULU on any move back toward $105-$110 over the next 1-3 weeks; thesis is that estimate revisions are still incomplete and the stock can re-rate lower if the next print or holiday commentary fails to show comp stabilization.
• Buy a 3-6 month LULU put spread rather than outright puts to express downside while limiting theta burn; target a move back to the prior low-90s if the brand reset deepens, with invalidation on two consecutive months of improving traffic/full-price sell-through.
• Watch the premium-athleisure complex for relative shorts vs longs: short LULU against a basket of more diversified discretionary names only if other names show stable margins; otherwise stay single-name because this looks more idiosyncratic than sector-wide.
• Use TGT as a weak beneficiary watchlist name, not a high-conviction long; only get constructive if consumer commentary shows a trade-down effect and apparel mix improves, which would argue the pressure is macro rather than brand erosion.
• Set a falsifier alert: if management stops cutting FY revenue, or if gross margin ex-tariff distortions stabilizes next quarter, cover shorts quickly; that would signal the earnings base is finally resetting rather than still leaking.