Michael Burry’s latest stock moves are out and Wall Street is paying attention. According to media reports, Burry has piled into (NASDAQ:LULU) and MercadoLibre (NASDAQ:MELI).
Lululemon: Down 40% This Year
Lululemon (NASDAQ:LULU) sells yoga wear, running clothes, and athleisure. The stock has lost more than 40% year to date. Fiscal Q1 revenue was up just 4%. North America stayed soft. Gross margin dropped 410 basis points, while operating margin fell to 11.2% from 18.5% a year ago. Management also cut revenue guidance.
But bulls say market is ignoring the positives. China revenue grew 23% year over year in constant currency in Q1. International revenue overall grew 16%. Lululemon carries no debt and sits on $1.51 billion in cash.
The stock trades at just 10.5x forward earnings. That’s a multi-year low. The 5-year average sits closer to 29x. Burry reportedly thinks Lululemon is a value opportunity. A new CEO takes over next month. Heidi O’Neill is joining from Nike.
Bears say the cheap multiple could get cheaper. Apparel names that lose growth momentum often stay depressed for years. Skeptics think the China story also has a catch. That 23% Q1 growth got an 8 percentage point lift from Chinese New Year. Strip that out and comparable sales grew just 13%. Tariffs are piling on. About 40% of Lululemon’s manufacturing sits in Vietnam. Another 18% is in Cambodia, 11% in Sri Lanka, and 11% in Indonesia. A 10% to 15% tariff on these countries will keep squeezing margins.
Insider Monkey’s data shows smart money was not bullish on LULU overall. Lululemon Athletica Inc. (NASDAQ:LULU) had 61 hedge fund investors in its stock at the end of the first quarter, down from 78 in the fourth quarter. That’s 17 funds gone in three months. The dollar value of those positions dropped harder, falling to $1.14 billion from $2.09 billion, a 46% decline.
Michael Burry of Scion Asset Management
MercadoLibre: Growing With a Margin Problem
MercadoLibre (NASDAQ:MELI) is Latin America’s largest e-commerce marketplace. It lets sellers and everyday consumers buy and sell goods online across Brazil, Mexico, and Argentina. But it’s not just a marketplace. They also run Mercado Pago (a digital payment app), offer credit cards, make loans, and run a free shipping membership called Meli+.
Q2 revenue soared 50% year over year to $10.2 billion, the fastest growth in four years. But shares dropped 6% after the print because operating margin fell 550 basis points. Bulls say the margin drop is the whole point of the thesis. MercadoLibre is deliberately sacrificing near-term profit to lock in customers. Free shipping is now available on cheaper items in Brazil to pull in lower-income customers. Once these customers are in, they subscribe to Meli+, pay through Mercado Pago, and take out a credit card.
MercadoLibre (NASDAQ:MELI) had 102 hedge fund investors at the end of the first quarter, down from 113 in the fourth quarter. That’s 11 funds out, but the dollar value barely moved. Positions were worth $7.83 billion, down just 3% from $8.08 billion. So the money stayed put even as the holder count slipped.
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