Ahead of Q2 Earnings, Under Armour’s North America Market Takes the Spotlight

Athletic market watchers are keeping a close eye on Under Armour Inc. as it prepares to report its second-quarter earnings results before tomorrow’s opening bell.

The Baltimore-based company has trumped analyst expectations for three consecutive quarters, beating revenue estimates for six straight quarters. For Q2, Wall Street is forecasting an adjusted loss of 5 cents per share versus last year’s loss of 8 cents and is betting on a 2% gain in sales to $1.2 billion.

In the spotlight is the company’s North American business — a region that saw a 3% drop in sales to $843 million in the first quarter, when the company reversed year-ago losses. International sales, on the other hand, continue to advance for the brand, rising 12% to $328 million during the same period.

Although experts are more upbeat about the firm compared to 2018, Under Armour hasn’t recorded a positive year-over-year advance in North America since Q4 2016, when it recorded a 6% increase.

“It is still inconclusive if Under Armour is creating product platforms that enhance consumer demand and if it will regain critical shelf space in North America,” Wedbush Securities Inc. analyst Christopher Svezia wrote in a distribution note. “Under Armour in North America is a brand that needs to earn its place, and while there has been stabilization, rebuilding will likely take time.”

The company’s growth has also been stalled amid competition from rival sportswear giants Nike and Adidas, as well as heritage brands like Champion and Fila. Nike has been the clear frontrunner in the athletic space for years, with a market capitalization of $110 billion — compared with Adidas’ $55 billion and Under Armour’s $10 billion.

“We remain skeptical of [Under Armour]’s path to recovery,” Susquehanna Financial Group LLLP analyst Sam Poser said. “We believe [Under Armour]’s view that fashion and performance are mutually exclusive will hinder its ability to compete with Nike, Adidas, New Balance and others for consumer mindshare and retail partner confidence.”

Under Armour is still in the midst of a turnaround plan introduced in 2017. That year, the athleticwear brand announced the appointment of Patrik Frisk as president and overhauled its product pipeline and distribution.

Cowen analyst John Kernan is more bullish on Under Armour’s fate as it continues to put its restructuring plans into action. In particular, the investment banking firm predicts improved online traffic and an acceleration of 6% in footwear sales, specifically through the Hovr line (including the Sonic and Phantom styles) and the Project Rock collection with action star Dwayne “The Rock” Johnson.

“Under Armour showed gains among upper age and income groups in athletic apparel preference and saw 18- to 34-year-old men reach the highest level [at] 19% since 2017, versus Nike at 43% and Adidas at 21%,” Kernan added, calling the demographic “a critical cohort in a category that is challenging to break through.”

The sports company previously forecast its revenue growth to be in the 1% to 2% range in the second quarter, driven by international sales and its direct-to-consumer business and partially offset by a marginal decline in the North American market.

All three analysts lifted their target price for Under Armour’s stock this month. (Susquehanna adjusted the figure from $13 to $16, while Wedbush went from $20 to $23 and Cowen from $23 to $25.) Under Armour’s share price currently sits at $27.

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