Under Armour Q4: Expect Painfully Slow Turnaround

Nothing good comes easy — or quickly, for that matter, when you’re trying to turn around a faltering athletic brand.

In the case of Under Armour — which has spent the past year and a half in a product lull — market watchers continue to believe that the brand faces an uphill battle as it seeks to claw its way back.

“We remain cautious on Under Armour, as we believe 2018 will be another year in which the company will seek to stabilize its North America business,” Canaccord Genuity Inc. analyst Camilo Lyon wrote on Jan. 26. “Our negative stance is based on three main factors: the long duration needed to engineer a turnaround of this magnitude, product improvements [are] likely not tangible until 2019 and no macro benefits such as tax reform to boost earnings.”

When the Baltimore-based brand reported Q3 earnings in October its pressured North America business was front and center with revenues down 12 percent in the region. Overall, the company’s revenues also fell 5 percent to $1.4 billion.

For his part, Wedbush analyst Christopher Svezia said he believes Under Armour’s competitive position and long-term outlook are “weaker than the market realizes” but that the brand could pull off a low-grade earnings beat Tuesday due to its conservative guidance — a trend that Svezia said the company should continue.

“Fiscal year 2018 could be rough … Management needs to set beatable targets,” Svezia wrote. “Under should ‘kitchen sink’ fiscal year ‘18 expectations to a realistic and potentially beatable level.”

Among his concerns for Under Armour, Svezia said the label’s products — which have failed to resonate of late — are facing stiffer competition from atypical sources.

“Competition is not only intensifying from the market leaders but also brands not typically a threat, including Asics, Champion, Reebok and New Balance,” he wrote. “Product and marketing need to evolve to address consumers’ lifestyles while its supply chain seems less advanced versus peers.”

Consensus bets peg Under Armour’s fourth-quarter sales at $1.33 billion, a 1.4 percent gain over the comparable period, while earnings per diluted share are expected at 0 cents.

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