Michael Burry Just Made a Big New Bet...

Michael Burry has made a notable investment in Lululemon, a company currently facing significant headwinds that have made it unpopular with Wall Street analysts. The stock has declined approximately 75% from its highs, driven by five major concerns: slowing sales growth (particularly in North America with negative comparable sales), tariffs reducing gross margins by nearly 3 percentage points, self-inflicted management mistakes (failed product launches like the 'Breeze through' leggings), increased competition from brands like Alo and Vori, and uncertainty around new leadership with incoming CEO Heidi O'Neal from Nike.

Burry's investment thesis centers on distinguishing between temporary and permanent problems. He notes that Lululemon experienced a similar crisis in the early 2010s with the 'John Gol' controversy, transparent yoga pants recall, founder controversies, and margin collapse—yet the company recovered strongly over the following decade. He argues that the current problems are largely execution-based rather than fundamental to the business.

On the brand moat, Burry contends that Lululemon retains significant competitive advantages, with 95% of customers not using competitors like Alo or Vori, and notes the men's business has quietly grown into a multi-billion dollar segment. Regarding profitability, he identifies most current pressures as temporary: tariffs are cyclical policy factors, inventory mistakes are management fumbles, and product launch failures are short-term execution issues.

Financially, the company remains strong with $11 billion in annual revenue, $1.5 billion in cash, minimal debt, and $1.1 billion in free cash flow over the last 12 months. The company continues aggressive share buybacks with a recent $1 billion authorization, suggesting management confidence rather than survival mode.

Burry's valuation framework uses expected long-term returns rather than price targets. He classifies Lululemon as an 'IV18,' suggesting it could generate approximately 18% annual returns over 15 years if his assumptions prove correct. He notes such opportunities typically emerge when markets treat temporary problems as permanent for quality businesses. Burry has already added to his position, bringing his average purchase price to approximately $125 per share, indicating confidence in this thesis as a long-term investment rather than a trade.