In short: BUY — second-worst performer YTD at −53.7%, and on both the Forward-PE (11.2 vs 33.1, 66.2% under) and Earnings-Growth (19.72%) top tens. RDCF −2.5% vs 7.4%.
In short: The episode's headline setup: "one of the worst performing stocks of the year" (−51% YTD, −38% trailing year, −76% over five), forecast at −11% EPS and −1% revenue, and trading at an 11.9 forward PE on shrinking earnings — "well below commodity multiples, meaning that Lululemon is currently being priced for capital destruction." He frames it as Peter Lynch's turnaround play and relays Michael Burry's thesis: "Lululemon is a much better brand than a management team" — great product, affluent customer, terrible marketing (the 78-year-old-influencer ad) against Alo Yoga and Vuori. The mechanical kicker: a low multiple lets the company retire stock cheaply — already >5% share count reduction per year on very low dilution and stock comp, with $1.39B of cash, and "I could see Lululemon going from 5% share reduction to 7% to 10% per year." The test he leaves the viewer with: "deciding whether or not this problem in the company is temporary or permanent."
Lululemon sells yoga and athletic clothing, and its stock has been one of the worst in the market: down 51% this year and 76% over five. Sales that used to grow 15–20% a year have gone flat and are now forecast to shrink slightly, with earnings per share expected to fall 11%.
What makes Carlson stop and look is the price. The stock trades at under 12 times next year's already-shrinking earnings — cheaper than the market pays for commodity businesses like miners or refiners. His phrase for that is "priced for capital destruction": the market is no longer valuing Lululemon as a struggling good business, it is valuing it as a business that will burn through its money. That is the screen — not "cheap," but cheap enough that the price already assumes the worst.
Michael Burry (the investor from The Big Short — a person, not something you can buy) is the case study here. He owned it as a 32% position in his fund at an average of $177, kept buying with his own money on the way down, said he would "load the truck" under $150, and at roughly $100 today it is his single largest personal holding. His argument in one line: Lululemon is "a much better brand than a management team." The product is still excellent and still loved by affluent customers; the marketing and product decisions have been botched, letting private rivals Alo Yoga and Vuori copy the range and take share while Costco sells knock-offs. A management problem can be fixed. A dead brand cannot.
There is also a mechanical benefit to the low price that most people skip. When a company buys back its own shares, a lower price means each dollar retires more stock, so the remaining owners' slice grows faster. Lululemon is already shrinking its share count by over 5% a year, barely issues stock to employees, and holds $1.39 billion in cash — so Carlson thinks it could push that to 7–10% a year, the same borrow-and-buy-back move Salesforce eventually made. If the business merely stabilises, that alone lifts earnings per share.
The question he leaves you with is the one that decides every turnaround: is the damage temporary or permanent? He does not answer it — but he points out that if it is temporary, even a partial recovery produces an outsized move from this starting price.
3:36And while most investors have given up on Lululemon, there's still a few investors that have hope. They believe a turnaround will eventually happen. Michael Burry is one of them. In fact, Michael Burry has been interested in Lululemon for quite a while. In fact, going back to 2025 when he was still managing his fund, he had Lululemon as a 32% position.
In short: Wapner canvasses the desk and gets nothing: "Where are my buyers of Lulu today? Crickets. Nobody interested." Lebenthal supplies the group diagnosis and the verdict. The change he is describing is structural, not cyclical: "something's going on with the space, where what used to be a strong, stable business has become very fickle… this used to be different from an Abercrombie and Fitch or a Gap, where if white T-shirts were in, then the stock went up. Now there seems to be a secular decline in these businesses that they can't get out of the way of." The suspected cause is the market that was supposed to be the growth engine: "China was going to be the next great market. Now there's up and coming brands in China that are taking a…" The conclusion covers the whole group: "whether it's the business or the stock, these are no touch."
Nobody on the desk would buy it, and Lebenthal's explanation is a claim about the category rather than the company.
Branded apparel used to be a cyclical business: fashion turned, a brand caught the trend, the stock went up, and you could trade around it. His argument is that this has become something else — "a secular decline in these businesses that they can't get out of the way of." Secular means it does not turn back with the cycle.
The suspected cause is the market that was supposed to be the growth story. China was where every Western brand was going to expand; instead it has produced competitors of its own that are taking the share. If that is right, no amount of a good season fixes it, which is what makes "no touch" a category verdict rather than a price call.
In short: BUY, and in the top ten of all three screens while being the year's fourth-worst performer at −44.8%. Fwd PE 11.2 against a 33.1 five-year average (66.2% under); ER 19.72%; RDCF −0.4% required vs 7.4% expected. Five-year CAGR −21.6%, ten-year +4.0% — the numbers are cheap and the trend is broken, and the sheet does not reconcile the two.
In short: Raised in the competitive-set question (is On competing with Nike and Under Armour, or with Lululemon, Vuori and Alo?). Belsky places On against Nike and Under Armour on the athletic side, and adds of the other camp: "Lulu is going to a complete reboot as well." Inside the apparel group Brown says to skip entirely today.
In short: The original template for the whole apparel playbook: an underwater IPO in 2008 that his daughter's cohort flagged early — "the gift that keeps on giving." Aritzia, then Groupe Dynamite, each repeated the pattern. Historical analogue, not a current view.
31:08underwater IPO and I've been to both their head offices in Vancouver for Ritzia and Montreal for Group Dynamite and I think they're great franchises and my secret weapon in analyzing that sector is I have a daughter and her girlfriends that have been gifts that keep on giving to our portfolio since Lululemon went public in08 and was an underwater IPO and then the same thing happened to Aritzia and then the same thing happened to Group Dynamite and so — they tell you when it's cool when
In short: BUY, on two screens, fourth-worst performer at −43.9% YTD with a −20.5% five-year CAGR. FV $209.5 vs $118.3 = 43.6% under; ER 19.7%; fwd PE 11.2 against 33.1 (66.2% under); RDCF 2.1% vs 7.4%.
In short: With Nike, one of "two turnaround stories that are just not turning" — down 26% in Q2.
14:08Nike and Lululemon are two turnaround stories that are just not turning. Nike was down 21% and Lulu was down 26%. Financials were up 9%. Large investment banks are bellwether stocks for how investors feel about the economy. As recession fears faded, they rallied with Morgan Stanley up 34%, Goldman up 27% and Citigroup also up 27%. The payment space remains a place to avoid.
In short: BUY, on two of the three screens. FV $202.4 vs $114.2 = 43.6% under; ER 19.7%; fwd PE 11.2 against 33.1 — 66.2% under, the sixth-largest de-rating; RDCF 3.0% vs 7.4% expected. Fourth-worst performer of the year at −45.7%, with a −19.2% five-year CAGR: the one Buy where the long-run record is also deteriorating.
In short: "They put Lululemon in the S&P at all-time highs. The stock's down 60%" — the case study for index-inclusion timing: people front-run the add, the stock gets dumped into the index, and passive holders eat the drawdown.
Lululemon is his case study in how index membership can hurt you. It was added to the S&P 500 at all-time highs and the stock is now down 60%. The pattern he describes is deliberate: traders work out what's about to be added, buy it in advance, and sell into the wall of forced buying when the index funds have to take it — "the little guy gets to holding the bag."
51:16Remember, if they brought SpaceX public in 2019, it would have been a $30 billion deal, right? And now it's a two trillion-dollar deal, right? And so over time, look at the companies that they're adding to the S&P. They just added CoreWeave to the Nasdaq. They're adding CoreWeave into the Nasdaq. Companies that are really financially a mess. They put Lululemon in the S&P at all-time highs. The stock's down 60%.
In short: Index-gaming exhibit: with ~60–65% of capital passive, "the in crowd" front-runs S&P 500 inclusions like Lululemon's — the same mechanism that lets mega-IPOs be force-fed to retail.
36:55They're just owning things. And when that happens, the indexes can become more and more and more gameable. And you're seeing this on S&P 500 inclusion. Stocks like Lululemon come into the S&P 500. Everybody — the in crowd knows this and they buy it up ahead of time.
In short: The turnaround stalled: revenue +4% to $2.5B but operating income −37%, op margin 11% (from 18%); shares −11% post-earnings, −40% YTD (one of the worst in the S&P 500). Americas comps −6% (the problem) while China Mainland +30%; gross margin −4pp to 54% on tariffs/deleverage. Cut FY26 guide (1% decline to flat). New CEO Heidi O'Neill (ex-Nike) starts in September; settled the Chip Wilson proxy fight ($11M cost behind it).
Lululemon sells premium athletic apparel. The trouble shows up in the gap between two numbers: revenue grew 4%, but operating profit fell 37% and the profit margin collapsed from 18% to 11%. The stock is down about 40% this year — one of the worst performers in the whole S&P 500. The core problem is its home market: sales in the Americas are actually shrinking (comparable-store sales −6%), even though China is booming (+30%). That geographic split matters — a turnaround that's only working overseas while the biggest, most profitable region keeps sliding is a half-fixed business.
Management cut its full-year forecast and is leaning on a leadership change: a former Nike executive, Heidi O'Neill, takes over as CEO in September, and the company settled a bruising boardroom fight with founder Chip Wilson. The open question is timing — can fresher product ("newness") and new leadership revive Americas traffic before the margin damage gets worse? Until the home market comps turn, the read stays negative.
In short: BUY, and the seventh-worst YTD performer at -36.6% (5-yr CAGR -16.3%). EPS growth 7.4%, FWD PE 11.2 against a fair exit 25.0, expected return 19.7%, fair value 236.8 against 133.7 = 43.6% undervalued.
In short: BUY. 13.2x forward against a 33.1x five-year average (60.1% under), expected return 16.3%, +4.4pp reverse-DCF margin. The tension the sheet prints without comment: a −12.7% five-year CAGR and −24.4% year to date, i.e. cheap numbers against a broken price trend.
In short: BUY, and fifth on the forward-PE screen. 15.8x forward against a 33.1x five-year average — 52.3% under — for a 13.2% expected return and a $253.5 fair value against $201.87. The unreconciled fact, as in August: a −10.0% five-year CAGR against a +13.7% ten-year. Cheap numbers on a broken trend.
In short: One of "the Lulus, the Chipotles, the Targets" — oversold quality names set up for a year-end tax-loss bounce.
Lululemon is the athletic-apparel brand. He lumps it with "the Lulus, the Chipotles, the Targets" — quality companies that got oversold in the everyone-sells-at-once dynamic and are set up for a year-end bounce as tax-loss selling ends.
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