Michael Burry's Lululemon test: when a worse quarter becomes a "fat pitch" (2026)

Michael Burry's latest Lululemon note starts with a lower valuation model, not a more confident forecast.

On September 4, after reading Lululemon's 10-Q, earnings-call transcript, and 8-K, Burry wrote:

"My IV15 fell rather dramatically under new assumptions and probabilities. Negative growth in China, negative growth in the U.S. despite store expansion, etc. These are not good. The global comp was -9%, leggings are down 20%, and operating margin was guided to the mid single digits. Not good at all." 1

The public part of the post ends there. The full conclusion sits behind the Substack subscription boundary. Reporting on the paid section, 24/7 Wall St. said Burry called LULU a "fat pitch" below $100 and planned to buy more shares. 2

The useful tension is visible in the two pieces of evidence: Burry marked down the business assumptions, while the lower share price apparently still left enough room for a long-term return. That is the test for a contrarian value idea. A weaker business can become cheaper without becoming a better investment.

The quarter that moved the goalposts

Lululemon released its fiscal second-quarter results on September 3, for the quarter ended August 2. Revenue fell 4% to $2.4 billion, and comparable sales fell 9% globally, or 10% after holding exchange rates constant. Americas comparable sales fell 12%. 3

The income statement also needs careful reading. Lululemon reported diluted earnings per share of $2.92, compared with $3.10 a year earlier. The quarter included $0.86 per share from tariff refunds and related interest. The same release reported an operating margin of 18.8%, down from 20.7% a year earlier. 3

Lululemon's forward numbers were weaker still. The company expects third-quarter revenue of $2.290 billion to $2.320 billion, a year-over-year decline of 10% to 11%. For the full year, management lowered its revenue outlook to $10.350 billion to $10.500 billion, a decline of 5% to 7%, and set diluted EPS guidance at $9.48 to $9.73. 3

The balance sheet gives the turnaround time to develop. Lululemon ended the quarter with $1.4 billion in cash and $593.7 million of available capacity on its committed revolving credit facility. The company also said incoming CEO Heidi O'Neill would arrive the following week. 3

Those figures create the exact split in Burry's view. Current demand is contracting, and the next quarter is expected to contract faster. The company still has cash, access to credit, a large store base, and a management transition close at hand. The price can look cheap because the market is charging investors for waiting through the repair.

What Burry is actually underwriting

Burry's public wording matters because he did not leave his assumptions untouched after the earnings release. He said the new data pushed his IV15 lower "rather dramatically." The phrase makes the valuation question more demanding: the hurdle moved down while the share price also fell. 1

A value investor facing that situation has two separate tasks. The first task is to estimate the business again using the worse demand, margin, and regional-growth figures. The second task is to compare the revised estimate with the new price. A falling estimate can erase the benefit of a falling stock price. A lower price can still create an attractive return when the estimate falls by less than the price.

The paid-section report supplies Burry's apparent answer: below $100, he saw enough upside to call LULU a "fat pitch" and said he would buy more. 2 The original post remains the primary source for his review of the filings and for the assumptions he says became worse. The secondary report is the accessible source for the reported buy-level conclusion.

That distinction matters for readers. The public evidence establishes a deteriorating operating picture and Burry's willingness to revise his model. The public evidence does not disclose every probability, cash-flow forecast, position size, or return calculation behind the reported purchase. Readers can treat the idea as a case study in updating a valuation rather than as a complete trade sheet.

The questions that decide whether the thesis survives

Burry's LULU view leaves four questions for an investor to answer from future filings and calls.

Can demand stabilize without the tariff refund? Lululemon's reported gross margin rose to 60.5%, but the company said the $134.5 million refund lifted gross margin by 560 basis points. A normalized margin gives a clearer picture of the business that the new CEO has to repair. 3
What happens to the Americas customer? Americas comparable sales fell 12%, while international comparable sales fell 3%, or 6% in constant dollars. A turnaround needs more than a cheaper stock; it needs evidence that product, traffic, and full-price selling are recovering in the largest region. 3
What will change under the incoming CEO? Heidi O'Neill's arrival supplies a date for the management part of the thesis. The investment case needs observable changes in product decisions, marketing, inventory, and store economics rather than a title change alone. The company announced her arrival; the results of her plan remain ahead. 3
Which growth path makes the price attractive? Management's current forecast calls for another 10% to 11% revenue decline in the third quarter and a 5% to 7% decline for 2026. Any long-term valuation must state when growth returns, what margins look like after the refund fades, and how much reinvestment the recovery requires. 3

Burry's judgment is therefore a demanding version of "buy the dip." He is reportedly buying after the business became worse, which makes the assumptions more important than the headline price. The reader's job is to rebuild the valuation with the new facts, then ask whether the remaining upside pays for the time and execution risk.

Read the original post: Michael Burry's "Trading Post 9/4/2026". The public post is brief, and its full analysis is available to paid subscribers.