Analysts See Long Road Ahead for ‘Big, Beleaguered’ Under Armour

Market watchers continue to forecast a challenging recovery journey for Under Armour ahead of its first-quarter earnings report Tuesday.

Referring to the Baltimore-based athletic goods maker as a “big beleaguered brand” in January, Wedbush Securities analyst Christopher Svezia doubled down on his concerns about the firm in a new note this month. (Under Armour founder and CEO Kevin Plank has said he believes some of the brand’s struggles have been the consequence of its rapid expansion — i.e., it got too big too fast.)

“We remain on the sidelines, given risks to the fiscal year 2018 outlook in addition to uncertainty around initiatives to return the brand to consistent profitable growth in North America,” Svezia wrote of the label, which has had a hard time keeping pace with early momentum in U.S. markets, led by the buzzy Curry 1 release in 2015.

In line with consensus forecasts, Svezia expects the brand to post a Q1 loss per diluted share of 5 cents. Overall, analysts predict Under Armour sales slid 0.1 percent year over year during the period to $1.12 billion.

Citing “weak” factory and retailer checks, Canaccord Genuity Inc. analyst Camilo Lyon today reiterated his “sell” rating on the firm’s stock.

“Overall, we see no reason to become constructive on UA, as the product creation/segmentation malaise has not improved, personnel issues/discord continue to surface, the competitive landscape is intensifying, and valuation appears indefensible,” Lyon wrote, adding that the brand’s North American wholesale division is likely “years away from returning to growth.” (UA’s North America revenues were down 5 percent in Q4, announced in February, and in the red 1 percent in Q1 ‘17.)

On April 4, Susquehanna Financial Group LLLP analyst Sam Poser was also critical of the brand, noting that recent U.S. Securities and Exchange Commission filings by retailers Hibbett Sports and Dick’s Sporting Goods signaled trouble for Under Armour.

“Domestically, better sporting goods retailers such as Hibbett and Dick’s have been and will continue to plan UA’s business down,” he said. “Overall, we believe there will be ongoing pressure on the Under Armour brands, and UA’s earnings power, until the extremely high inventory levels are reduced.” (UA ended the fourth quarter of fiscal 2017 with inventory up 26 percent to $1.2 billion.)

While UA has enjoyed significant growth internationally — posting a sales gain of 46 percent in Q4 — Poser also suggests that those markets could see some deceleration soon.

“We believe UA’s international business, while growing quickly, is heading down a similar path as North America given optimistic targets — which were missed in 4Q17 — elevated inventory, and deteriorating margins,” he wrote.

For fiscal year 2018, the firm predicts that its revenues will be up at a low-single-digit percentage rate reflecting a mid-single-digit decline in North America and international growth of greater than 25 percent. Adjusted diluted EPS is expected in the range of 14 cents to 19 cents.

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