Michael Burry of "The Big Short" Just Bought Shares of This Beaten-Down Activewear Stock (Not Nike)

Michael Burry's Scion Asset Management significantly increased its stake in Lululemon Athletica (LULU) during Q2, acquiring both stock and call options, signaling a contrarian bet. Despite LULU stock being down 60% from its peak due to U.S. market deceleration and competition, the company reported Q1 FY25 revenue growth of 7% and strong international performance, notably 22% sales growth in China. Burry's move coincides with Lululemon trading at a historically low 13x forward earnings, suggesting a perceived undervaluation and potential upside despite ongoing challenges.

Analysis

A significant contrarian signal has emerged for Lululemon Athletica (LULU) as Michael Burry's Scion Asset Management established a position in both the company's common stock and call options during the second quarter. This move comes despite considerable market headwinds that have driven the stock down 60% from its all-time highs. The challenges facing Lululemon are material, including decelerating growth and increased competition in the U.S. market, inventory management missteps, and concerns over shifting consumer behavior amid return-to-work trends. However, the company's fiscal first-quarter results demonstrate underlying resilience, with revenue growing 7% year-over-year and gross margin expanding by 60 basis points. Critically, international sales provide a powerful growth catalyst, increasing 19% overall and a robust 22% in China, where the company plans to focus its store expansion. The juxtaposition of these operational strengths against the stock's performance has resulted in a historically low valuation, with LULU trading at just 13 times forward one-year earnings, suggesting Burry's position is a calculated bet on a valuation re-rating driven by strong international growth and brand persistence.

Key Decisions for Investors

• Given the stock is trading near an all-time low forward P/E ratio of 13 and has attracted a notable contrarian investor, Lululemon could be considered an undervalued opportunity for those willing to look past current U.S. market challenges.
• Investors should closely monitor the upcoming second-quarter earnings report, paying specific attention to sales growth in China and management's commentary on U.S. inventory levels and consumer demand, as these will be key validation points for the bull thesis.
• The purchase of call options by Scion Asset Management signals a strong belief in near-term upside, suggesting investors could evaluate short to medium-term catalysts, such as the upcoming earnings update, for a potential share price recovery.
• A key risk to monitor is the brand's performance among its U.S. customer base; any further deterioration in domestic comparable sales or failure to align with seasonal trends could invalidate the recovery narrative despite international strength.