Is Under Armour’s Boom Turning Into a Bust?

After a red-hot year defined by its ability to tap some of sports and entertainment’s best and brightest stars and a series of innovative and exciting product releases, Under Armour is showing signs of slowing down.

Early indications came in Q3 — reported in late October — when the brand offered a tempered outlook for the fourth quarter, despite topping third-quarter forecasts.

Then, this week the Baltimore-based brand’s fourth-quarter earnings as well as its guidance for the year ahead fell short of expectations, pressuring the stock and leading to double-digit declines.

Under Armour said its fourth quarter revenues were up 12 percent, to $1.3 billion, but it was just shy of Wall Street’s bet for revenues of $1.4 billion and a deceleration from the brand’s new track record for blockbuster sales growth.

Net income slipped also 1 percent to $105 million, or 23 cents per diluted share, missing analysts’ forecasts for diluted earnings per share of 25 cents.

Susquehanna Financial Group LLLP analyst Sam Poser said he believes the evidence indeed points to challenges — be they long-term or short-term — in the company’s business.

UA’s Q4 miss and disappointing FY17 guide shone a spotlight on the company’s most glaring weakness — the brand’s lifestyle attributes are not quite cool enough to compete with the likes of Nike and Adidas,” Poser wrote Tuesday. “To re-accelerate growth, UA needs to aggressively build-out its lifestyle business quickly.”

If the problem isn’t solved, Poser said he doesn’t believe the brand will experience 20 percent-plus top-line growth again.

Canaccord Genuity Inc. analyst Camilo Lyon believes the brand will need to spend the next year or so “rebasing and resetting” before it can return to growth.

While growth continues to be robust in footwear (up 36 percent), international (up 55 percent) and DTC (up 23 percent), we believe the challenges in UA’s North American apparel business will continue to weigh on the business in 2017,” Lyon wrote Tuesday. “In addition, recent news reports suggest there are more sporting goods retailers on the verge of bankruptcy, which could put further downward pressure on athletic vendors.

Meanwhile, Lyon — who also downgraded the stock to “hold” following the earnings release — said he agrees with the brand’s ongoing “aggressive” investments in its footwear, direct-to-consumer and international businesses. But those long-term investments, he added, mean earnings growth will suffer in the near term.

Under Armour founder and CEO Kevin Plank acknowledged during the company’s conference call Tuesday that the brand faced several challenges leading to an “imbalance” in the fourth quarter but ensured investors that management is taking key steps to get on the right path.

In addition to maintaining appropriate investments in our largest growth drivers, we have begun to work across all areas of the company to look for opportunities to calibrate, streamline and prioritize our business toward a stronger, leaner and more responsible organization,” Plank said. “Our strategy positions us well to navigate the near-term challenges in our largest market, while ensuring the underlying momentum stays squarely on track to drive consistent, profitable growth in our fastest-growing businesses to lift all boats in the harbor.”

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