Michael Burry Likes Lululemon Stock. But the Math Only Works If Sales Stop Shrinking.

Lululemon Athletica (NASDAQ:LULU) stock closed at $96.88 on Thursday, touching a fresh 52-week low during the session. Shares now trade below $100 for the first time in more than eight years.

The latest leg down came after the athletic-apparel retailer cut its full-year outlook for the second time this year alongside last week's earnings report. Together, they sent the stock down 17% in a day.

Michael Burry sees an opportunity. The famed investor wrote on Substack the evening the report landed that Lululemon is now the largest position in his portfolio.

In a follow-up note the next day, he reportedly called the stock a fat pitch below $100 and said he plans to buy more. By his estimate, the stock could return 15% to 20% annually over the next 15 to 20 years if the brand regains its footing.

Those are bold numbers for a business whose sales are falling. But at about 10 times the midpoint of this year's guided earnings, the projection deserves a closer look.

Image source: Getty Images.

Cash and buybacks

Burry disclosed a full-sized stake in the spring, and Lululemon's financial strength is central to his case. Lululemon ended the fiscal second quarter of 2026 (the period ended Aug. 2, 2026) with nearly $1.4 billion in cash and no debt on its balance sheet.

The company is also buying back stock while it is down: 2.7 million shares for $330 million during the fiscal second quarter, more than 2% of all its shares in three months. And each dollar spent goes further as the stock falls. Lululemon's guided earnings for this year now equal nearly 10% of its share price.

What would 15% a year require?

From about $97 a share, a 15% annual return over 15 years puts the stock near $790. At the top of Burry's range, 20% a year for 20 years, shares would top $3,700 -- nearly 40 times today's price.

If the stock's price-to-earnings multiple stayed at about 10, earnings per share would have to compound at those same rates -- heroic for a company whose earnings are guided to fall this year. But earnings don't have to do all the work. If the price-to-earnings multiple simply doubled to 20 times earnings over 15 years, that change alone would add almost 5% a year. Additionally, profits recycled into buybacks at today's valuation could grow earnings per share at a high-single-digit rate even if total profit never grew. With even modest growth on top, the bottom of Burry's range arguably comes within reach.

In other words, I think the bet doesn't need Lululemon to become a growth story again. It needs earnings to stop falling.

Sales are still shrinking

That condition is the problem right now. Showing how quickly demand has deteriorated, comparable sales decelerated from 3% growth in the final quarter of fiscal 2025 to 1% growth in this year's fiscal first quarter, then swung to a 9% decline in the fiscal second quarter. Americas comparable sales fell 12% in the latest period. Further, the revenue decline is accelerating. Revenue fell 4% in the fiscal second quarter, and management expects a drop of 10% to 11% year over year in the fiscal third quarter.

Earnings guidance has followed the same path. March's initial outlook called for earnings per share of $12.10 to $12.30. June's cut took the range to $10.95 to $11.15.

Now it is $9.48 to $9.73. Since Lululemon earned $13.26 per share last year, the new midpoint implies a decline of about 28%.

Even the second quarter's reported $2.92 in earnings per share leaned on one-time help. Tariff refunds of $134.5 million, plus associated interest, added $0.86 to the figure. Without that boost, earnings would have fallen by about a third year over year.

Burry read the report the same way. He wrote that things had clearly changed for the worse, and that the headline earnings beat amounted to a big miss once the tariff benefit was accounted for.

Of course, new CEO Heidi O'Neill, a Nike veteran of more than 25 years, took over this week. But her impact isn't showing up in the numbers yet.

Does Burry's math hold up at today's price? Much of it does. The cash, the buybacks, and the low price-to-earnings multiple all support his case, and I believe he is right that the stock could deliver strong returns without recapturing its former growth rate.

However, his return estimate leans on the brand finding its footing. And every recent number says it hasn't found it yet. I'm not buying alongside him today. If comparable sales stop sliding, I would consider changing my mind.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Nike. The Motley Fool recommends Lululemon Athletica Inc. The Motley Fool has a disclosure policy.