Core Viewpoint - Lululemon Athletica is struggling to regain investor confidence after a disappointing financial update, leading to a significant drop in stock price, yet there are underlying strengths that may present investment opportunities [1]. Group 1: Financial Performance - Lululemon's stock has decreased by 53% over the past five years and is currently trading 67% below its peak from less than two years ago, indicating substantial market pessimism [4]. - The company's price-to-earnings (P/E) ratio is 14, which is a 44% discount compared to the S&P 500 index, while Nike trades at a P/E of 34.9, highlighting Lululemon's undervaluation [3]. Group 2: Profitability and Growth Potential - Despite challenges such as sluggish sales and intense competition, Lululemon maintains strong profitability, with a Q2 gross margin of 58.5% and an operating margin of 20.7% [5]. - Management is optimistic about future growth, planning to open 40 to 45 net new locations in fiscal 2025, with a significant portion of these openings expected to be in international markets, particularly China [6]. - Lululemon experienced a 17% increase in same-store sales in China during the second quarter, indicating strong performance in that market [7].