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Elliott Management and Michael Bury have invested heavily in Lululemon, but Wall Street and other investors are selling the stock, sending its price crashing from $511 to less than $ 100, while the S&P is near its peak. Is this really a good investment idea, or will stocks continue to fall? In this video I will look at why Elliott and Bury are buying them and can we make money from it?
I found out that the biggest problem is that people don't like Lululemon clothes anymore. They find it boring. The new models were not sold. Nothing new aroused enthusiasm. So people stopped paying full price. The company had to make bigger discounts just to sell the product, which, of course, hurts profits and the brand.
Meanwhile, buyers have moved on to Alo and Vuori. I don't know how to pronounce it. They say trouble doesn't come alone. And when I started digging deeper about Lululemon, I found a lot of bad news. Lululemon has become popular among young women, millennials, and Zoomers. It grew even faster in 2020, when lockdown forced people to train at home.
Then the clothes became boring. The new collections have hardly changed. In May 2024, product director Soon Cho left the company. She helped build the brand and almost quadruple its sales. She was never replaced. In January 2026, Calvin McDonald also left. Meanwhile, Lululemon began selling shoes, golf, tennis, and hiking apparel, instead of repurposing the leggings and yoga wear that had brought it fame; Elliott Management wanted the board of directors to elect Jay Nielsen, the former head of Ralph Lauren, as CEO.
But the board of directors refused. Instead, they chose Heidi O'Neill, a longtime Nike executive. Well, investors weren't too happy, as the stock fell more than 5% on the day of the announcement. Currently, about 70% of Lululemon's sales still come from America. This part of the business continues to shrink.
Sales fell 8% last quarter. Growth abroad previously hid problems at home. Now it is also slowing down . Comparable sales in China fell 2%. The rest of the world showed a decline of 3–4%. Now, almost every part of Lululemon's business is being cut simultaneously. So, what is their solution? Lululemon just appointed a new CEO, Heidi O'Neill.
She worked for over 25 years at Nike, helping to grow the company's sales from $9 billion to $45 billion. Her task now, of course, is to fix Lululemon's problems. The company is also trying to create more interesting new products. In 2026, they released a new fabric called Show Zero, designed to hide sweat during intense workouts.
Before we get into the numbers, please know that this is not financial advice. I am not a financial advisor. This video is made for educational and entertainment purposes only. Always do your own research. The company's ticker is LULU. The shares are trading at $90. The market capitalization is $10.9 billion, and the enterprise value is $11.7 billion.
Let's start with the balance sheet. The first thing I notice is $1.3 billion in cash and $1.7 billion in inventory. Looking at non-current assets, we see property and 2 billion in leases, but almost no goodwill. So how is this all financed? We see long-term lease obligations of $1.7 billion, and beyond that, there is almost no debt.
So, we can conclude that the company is built on money earned from its own sales. Now when I look at the revenue, I see that it is still growing, which surprised me a lot . I thought it would go down. But looking at sales by region, America accounted for 75% of total sales in 2024 and 71% in 2025. China grew from 3% to 16% of total sales.
The rest of the world accounted for 13% in 2025, up 1%. If you look closer, sales in America stopped growing last year and fell by 1%. Meanwhile, mainland China and the rest of the world are also showing double-digit growth, but even there, growth began to slow from 2024 to 2025. Now let's look at the first half of this year.
Revenue decreased by 4% to 2.4 billion, which is 5% less in constant dollar terms. Comparable sales decreased by 9% or 10% in constant dollars. We are seeing a decline in overall revenue. America is in a state of recession. They sold for $195 million less. China grew by $136 million in revenue, while the rest of the world is also in decline.
So, the losses in America are now greater than the gains from other regions combined. Now I want to look at free cash flow. It turns out something like this . In 2024, it was 1.2 billion, and in 2026, almost 1.4 billion dollars. For the first half of this year, it is $525 million. Last year it was approximately $590 million.
So, a decrease of 11%. This gives us a rate of return of 9.2% to 12.8%. And what do they do with this money? Management compensation is not excessive. They do not pay dividends , but they do buy back shares. $3.3 billion in share buybacks over the past 3 years. And if the company survives this huge problem, then buying back shares at such low prices is money well spent.
So , what is fair value? With 110 million shares outstanding, I think it would be fair to say around $165 per share. At today's price of $99, that's real growth potential if everything works out. We know that Elliott Management's bet was that Gene Nielsen would be able to turn things around at the company.
But she was not selected, and it is not yet clear what Elliott's next step will be. If he will at all , because Michael Bury loves such situations. Companies with low debt and high free cash flow because the stock price is very low compared to the real value and cash flow. He even stated that he would buy more shares if their price continued to fall.
Here is my opinion. When you invest in Lululemon, you are essentially betting that the transformation will be successful. That the new direction will provide more sales. And now we do n't observe this. Last year, losses were offset by foreign sales. This is not happening this year. So, the main question is: will they be able to stop the losses and even grow at the rate of inflation or slightly above?
That would already be a great success. Especially if free cash flow remains stable and the company returns funds to shareholders through share buybacks. So, in my opinion, this situation is worse than the PayPal story I recently reviewed. Lululemon has yet to prove the success of its transformation, and more importantly—will the brand be able to bring its customers back, or will they not come back?
And our third option: they buy something from Lululemon, but they also spend money at competitors. So this is something that only time will tell . As for my portfolio, I consider it too risky at this point until things stabilize in America . And of course, when they stabilize, the stock will quickly go up, and I will lose the opportunity to buy it at this low price .
I'm curious what you think about Lululemon? Let us know in the comments. If this video was helpful, just let me know.
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