Michael Burry from "The Big Short" has just bought shares of this struggling sportswear company (is not Nike)

Key points

• Michael Burry increased his position in Lululemon with stock and call options in the second quarter.
• The clothing brand faces several issues, but continues to grow in sales and revenue.
• Constantly renews its products to meet the needs of its users, who respond positively.

Michael Burry, director of Scion Asset Management, gained fame after his incredible play during the mortgage crisis, narrated in the book ( and the subsequent movie ) “The Big Short.” Back then, he was just starting out. Today, he manages a portfolio valued at nearly $600 million.

Unlike many hedge funds, yours holds very few stocks and makes options a central component of its strategy. This makes sense for someone who rose to prominence through a contrary bearish scheme. By the end of the second quarter, Scion only held six stocks, in addition to a variety of call options.

One of Burry's new positions is the struggling sportswear giant, Lululemon Athletica. Let's see what this contrarian investor might see in Lululemon and whether it's a good play for the average investor.

It's no longer the new name in sportswear

Lululemon helped popularize the athleisure trend that turned gym wear into a daily staple, contributing to the decline of various office wear brands. It thrived before the pandemic, but remote work was a strong boost when offices closed.

However, Lululemon has recently been struggling, or at least slowing down. There are several reasons why it has lost favor in the market: failing to have key seasonal colors resonate with its consumer base, being subject to tariffs as a foreign company ( headquartered in Canada), not having enough inventory of its most popular items, and facing growing competition in the premium athletic apparel market.

In a way, it has been a victim of its own success, as its wealthy clients want the most premium experience, and there are always new players who can come in and compete for that position. Moreover, with return-to-work orders abound, investors fear that these trends may only deepen. It is quite problematic, and Lululemon's shares have fallen 60% from their all-time highs.

Not just yoga pants

It's not that bad. This is how Lululemon performed in the first fiscal quarter of 2025 ending on May 4th (:

• Revenues increased by 7% year-on-year.
• Comparable sales increased by 1%.
• Gross profit increased by 8%, and the gross margin rose by 60 basis points.
• Operating income increased by 1%, but the operating margin decreased by 110 basis points.
• Earnings per share increased from $2.54 last year to $2.60 this year.

Lululemon had a solid international quarter, with sales increasing by 19% compared to the previous year. CEO Calvin McDonald noted that U.S. customers are being more intentional in their buying behavior, considering the economic pressure.

The business performed particularly well in China, where sales increased by 22% compared to the previous year, and where it expects sales to grow between 25% and 30% this year. It plans to open between 40 and 45 new stores this year, most of them in China. This is a huge market opportunity and demonstrates that even if Lululemon faces more brand competition in the U.S., it remains a hot brand in China.

As a premium brand, Lululemon may lose out when there is high inflation. This indicates its status among mass consumers, who typically struggle to pay for its premium products. This is usually good for the company, but as it relies on these customers to generate growth, it may feel economic changes more acutely than ultra-luxury brands that do not reach a massive consumer base.

Keep your eye on the ball

Lululemon has developed a huge and growing global business, and it remains a popular brand. This gives it some advantage over newcomers, and it is working to protect that by staying true to its successful formula: creating innovative and stylish products that add value for its users. There have been many imitations of Lululemon's best-selling and gender-redefining dress pants for men, for example, but those who pay for the quality and proprietary fabrics of Lululemon understand it.

“The key to our success in all our markets is our product,” said McDonald, “which offers unique and innovative solutions for customers in both athletic and lifestyle product categories.” He mentioned several new lines for women, including Daydrift, Shake It Out, and Be Calm, and said that customers “responded well to the novelty.”

Despite this effort, Lululemon's shares are trading at their lowest future P/E ratio in history. They are trading at just 13 times future earnings for one year, close to a historical low, and probably lower than when Burry took his position.

He also bought call options, which is a direct signal that he believes the stock price will rise. At this price, and with the company's ongoing opportunity, it is likely that this will happen soon. Lululemon reports second-quarter earnings this week, and there is a possibility that the stock may already start to rise with the update.

Will I take the risk like Burry? Maybe, but cautiously. His contrarian history intrigues me, although this volatile market makes me hesitate. China seems to be his lifeline while the U.S. wobbles. We'll see if his bet is worth it.