Lululemon (LULU) stock plunged about 20% in Friday’s pre-market trading after the athletic-apparel company reported weaker-than-expected sales and cut its full-year outlook. The sharp decline pushed the stock below $100, the level where The Big Short investor Michael Burry said he would “buy more” of the stock.
Lululemon is already the largest position in Burry’s portfolio. He called the company a “trickster,” saying it has repeatedly found itself in a crisis over the years.
Why Did Lululemon Stock Plunge?
Lululemon’s fiscal Q2 results showed that its sales problems are getting worse in key markets. Revenue fell 4% to $2.4 billion, missing Wall Street’s $2.46 billion estimate. Comparable sales declined 9%, while Americas revenue fell 8% and comparable sales dropped 12%.
The weakness was particularly noticeable in leggings, one of Lululemon’s core categories. Management said leggings sales declined about 20% during the quarter as shoppers showed more interest in looser, “away from body” styles.
Lululemon also expects another difficult quarter ahead. It sees Q3 revenue of $2.29 billion to $2.32 billion, down roughly 10% to 11% year over year. The company cut full-year revenue guidance to $10.35 billion–$10.50 billion, from $11 billion–$11.15 billion previously.
Burry Is Ready to Buy the Dip
Investor Michael Burry remains confident in Lululemon despite the ongoing challenges facing the brand. He also said his latest Lululemon purchase is down about 20%, but he remains willing to add to the position.
Incoming CEO Heidi O’Neill is set to take over on Sept. 8. She will inherit a business that is struggling to maintain sales growth in the Americas.
Is LULU Stock a Buy?
On TipRanks, LULU has a Hold consensus rating based on zero Buys, 19 Holds, and three Sell ratings. The average Lululemon Athletica price target of $122 implies that shares are almost fully valued at current levels. Year-to-date, LULU shares have dropped 41.4%.
