Under Armour’s Q3 Will Only Highlight Brand’s Challenges, Says Analyst

Confidence in the Under Armour brand continues to wane on Wall Street.

As the Baltimore-based firm readies its third-quarter earnings release, several analysts are calling for lackluster results, citing weak footwear sales, poor product distribution and slow-churning efforts to reinvigorate the label.

“From a product perspective, we have not seen any promising launches outside of the HOVR and The Rock collection, both of which lack the scale to make a material contribution and have only had colorway enhancements this year,” Canaccord Genuity Inc. analyst Camilo Lyon wrote today, reiterating a sell rating on the stock. “More importantly, our discussions with industry contacts indicate there is little excitement around the product pipeline next year, as well.”

Lyon said he also fears Under Armour’s representation at its major retail partners will decelerate into 2019, while “heavy” off-price sales could disrupt the brand’s pricing architecture over the next few quarters.

Similarly, Susquehanna Financial LLLP analyst Sam Poser said Under Armour’s distribution decisions are likely to “continue to undermine the brand,” as it’s one burgeoning footwear business decelerates and apparel strength becomes offset by promotional activity — all serving to hurt the firm’s outlook.

“We continue to contend that elevated inventory levels few compelling new product offerings and inadequate merchandise segmentation will cause UA to miss its fiscal 2019 gross margin guidance, which calls for a ‘slight’ year-over-year increase,” Poser added.

Investment research firm Jane Hali & Associates LLC was also neutral on Under Armour — ahead of Tuesday’s earnings release — noting that its store checks have also offered dismal reads for the brand, compared with those of its competitors.

“As JHA shops stores, we continue to find very basic items for both men and women — there is reduced popularity for UA,” the firm wrote in a distribution note today. “At Kohl’s and Dick’s Sporting Goods, the product offering is smaller and not as prominent on the selling floor. Nike continues to be the focus at both retailers.”

Overall, Wall Street consensus pegs Under Armour Q3 profits at 13 cents per share — a decline of 41 percent from the comparable period. Sales are expected to edge up 0.5 percent to $1.41 billion — although Lyon cautions that growth will come from accessories and its Connected Fitness platform and not from its two key categories, apparel and footwear.

“Overall, we believe Q3 will only serve to highlight the sales challenges Under Armour continues to face,” Lyon added.

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