When only two Wall Street analysts out of 32 have a buy rating on a stock, one of two things is true. Either everyone is right and the company is broken beyond repair. Or the consensus has overcorrected and the price is already reflecting a future that will not materialize.
Michael Burry thinks it’s the second one.
The famed investor has publicly identified Lululemon Athletica as a compelling value opportunity, arguing Wall Street is too focused on short-term setbacks. Burry made his case in a Substack post, contending that temporary challenges have pushed Lululemon’s share price to unjustifiably depressed levels relative to its underlying fundamentals.
The problems are real. That part is not in dispute.
Lululemon cut its 2026 revenue and earnings guidance to flat to slightly negative growth, citing weaker North American demand, softer product launches, tariff and margin pressures, and a major product and brand reset, as interim co-CEOs run the business ahead of incoming CEO Heidi O’Neill’s expected start in September 2026. Management is accelerating product development cycles and pushing global expansion, while dealing with negative media coverage, a recently settled proxy fight with founder Chip Wilson, and ongoing pricing and competitive pressures.
That is a lot of noise. The question is whether any of it is permanent.
The Numbers Behind the Collapse
The stock has collapsed roughly 45% year-to-date, falling from more than $423 in early 2025 to around $104, placing it at a seven-year low.
The company expects Q2 revenue of $2.45 billion to $2.48 billion, which would be 2% to 3% lower than a year ago, and forecasts earnings of $1.76 to $1.81 per share.
Management said tariffs alone reduced product margins by nearly three percentage points in the latest quarter. And yet the Q1 revenue number still beat estimates. That part got buried under the guidance cut. The business is not falling apart. The guidance math is being crushed by a cost structure that tariffs and a leadership transition have temporarily distorted.
The Burry Thesis, Plainly Stated
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, calling it the least upbeat consensus he had seen for a company in this financial condition without major legal or regulatory liabilities.
He is not alone. Elliott Investment Management built a stake of over $1 billion in Lululemon in late 2025. Governance pressure from multiple directions is now a defining part of the LULU story. Elliott does not build a billion-dollar position in a broken business.
Worth adding: the proxy fight with founder Chip Wilson just settled. Lululemon shareholders elected three management-backed directors, including former Levi Strauss chief Chip Bergh, cementing the settlement of a bruising proxy battle with its founder. One source of uncertainty officially resolved.
What the Bears Are Actually Right About
North America is soft. That is real. Lululemon’s U.S. revenue grew from about $2.9 billion in 2020 to $6.5 billion by 2025, but growth has recently stalled, and revenue has fallen slightly to around $6.3 billion. The athleisure brand has faced criticism for its product innovation and for increasing competition from lower-priced alternatives.
The company faces multiple sources of margin pressure including higher tariff rates and increased markdowns, leading to a decline in EBIT margins. Q2 guidance was well below expectations, and there is reduced visibility into estimates due to a tough macro environment and a new CEO who may choose to further rebase numbers.
That last point is the real risk. A new CEO arriving in September could take a kitchen-sink approach to guidance and reset expectations further before building from a cleaner base. That is painful short-term. It’s also exactly how turnarounds tend to start.
The China Offset Nobody Is Talking About
While North American sales have softened, China continues to generate growth for Lululemon. International growth has been one of the few consistent bright spots in an otherwise difficult stretch. The brand maintains genuine premium positioning in markets where it has not yet saturated. That is a long runway.
Forward Scenarios
Bull: Incoming CEO Heidi O’Neill, who brings Nike-scale brand experience, stabilizes U.S. product reception by early 2027. Tariff pressure eases as sourcing diversification accelerates. China continues compounding. The stock re-rates from roughly 14x earnings back toward its historical 25-30x range as growth resumes.
Base: Recovery takes two to three quarters. North America stays soft through year-end. O’Neill resets guidance conservatively in September. The stock grinds sideways near current levels before a 2027 recovery becomes the investable event.
Bear: The CEO transition drags longer than expected. Product issues persist into 2027. Tariff exposure proves harder to offset than management projects. The stock tests lower as the brand perception gap widens further.
The One Number That Anchors This
Burry noted that at 11x forward earnings, the market was pricing the premium global brand like a zero-growth commodity. He bet on the valuation gap, calling it a fundamentally strong brand being discarded by fund managers eager to hide losers from their year-end reports.
That is the question this stock forces investors to answer: is Lululemon a structurally impaired brand, or is it a quality business in a temporary crisis at a cheap price? The answer changes the entire calculus. Burry said he is keeping his current position and may add to it. The next catalyst is September 8, when Heidi O’Neill officially takes over. Everything between now and then is noise.
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