A note on LULU · Equity to Life Freedom

A note on LULU

We used LULU as an example several times during our 6-week crash course in February. Its price has dropped since then — I'd like to update what's happening.

First, as I always mentioned, our course is only for educational purposes. We teach methods, strategies and frameworks, not stock recommendations. LULU has been just one of our case studies to illustrate our option strategies, not financial advices.

That said, let's talk about where it stands. LULU's financials have looked great over the past few years, and our buy price was based on that track record. However, we do acknowledge there's a lot of uncertainty right now, and apparently that's an "EVENT" for this business.

The latest round of selling was driven by the market not buying into the new CEO appointment, the ongoing proxy battle with founder Chip Wilson, and a leadership vacuum until the new CEO officially starts in September. Meanwhile, capital is flooding into AI and storage, etc — for companies with no near-term catalyst, the market simply sells off. That's how it works.

What you need to do is make your own judgment: Is this still a good company? Has the fundamental story changed, or is the market just impatient?

If you believe the fundamentals are intact, the Rule1 approach is to tranche in — keep reducing your cost basis, and keep selling calls on the shares you've owned, and be patient. In value investing, we don't use stop losses. Our goal is to own the company at the best possible price.

But if you believe the fundamentals have deteriorated, then your strategy needs to adjust accordingly. That's your call to make.

A few info:

1. Michael Burry added to his LULU position at $135 and $129, etc. LULU now represents 8.2% of his total portfolio.

2. Phil Town's current approach: "The bottom line is we are focused on reducing basis on LULU while we wait for the proxy battle to end this summer and the new CEO to come on board in September. We could see some price volatility between now and the end of the year so be patient as this event plays out."

Don't blindly follow, you should do your work.

My thoughts on LULU:

the recovery could take quite some time, probably have to wait till 2027, and we don't know yet if it will truly recover. I also own LULU — I won't be adding more or selling more puts on it. My focus is on reducing cost basis while monitoring the situation.

Btw, if you own LULU stocks, you should have received email with this subject line:

Non-Management Is Requesting Your Vote!: LULULEMON ATHLETICA INC.

If you support founder Chip Wilson, you can submit your vote and get involved as a shareholder.

Wendy

2 comments