×

Can Under Armour Get Back on Track? How Coronavirus Became the Latest Brand Hurdle

As it prepares to reopen stores and continue executing its turnaround plan, Under Armour is hoping to get back on track — but analysts remain bearish on the brand.

The athletic giant, which today posted mixed first-quarter earnings, continues to disappoint Wall Street. Its stock plummeted more than 10% to $8.92 on the heels of those results and has shed nearly 60% of its value year to date. What’s more, investors have expressed concerns that the company might not be able to stave off the long-term impact of the coronavirus pandemic across its business.

Retail research firm Jane Hali & Associates remains negative on Under Armour, noting that its emphasis on the performance sector of the activewear market has led it to neglect a larger audience, which competitors Lululemon and Nike have managed to capture.

For the period ended March 31, Under Armour’s footwear sales fell 28% to $210 million, while apparel slid 23% to $598 million. Accessories revenues also dipped 17% to $68 million.

Watch on FN

“These results prove the brand isn’t resonating with the consumer,” said Jessica Ramirez, retail research analyst at Jane Hali & Associates. “Under Armour was struggling before COVID-19, and it was in the middle of a turnaround. Still, we hadn’t noticed the company taking steps in the right direction.”

Since introducing its ambitious five-year turnaround plan over a year ago, Under Armour continues to face persistent headwinds. On its home turf, the brand has faced heavy competition from its athletic rivals, and it heavily depends on wholesale partners — such as Kohl’s and Sports Authority — that have seen challenges amid a changing retail environment, the latter succumbed to Chapter 11 bankruptcy in 2016.

In the first quarter, the Baltimore-based company’s lagging demand dragged on in North America — its largest region of business, representing about 65% of its total sales — with revenues down 28% to $609 million. (International sales also tumbled 12% to $287 million.)

“Under Armour operates in a healthy athletic, health and wellness market but continues to underperform athletic peers,” JPMorgan analyst Matthew Boss wrote in a distribution note, where he lowered the brand’s price target to $8 from $9, taking into account the financial repercussions of the COVID-19 outbreak.

This year, Under Armour is also embarking on a restructuring plan that could add between $475 million to $525 million in pretax charges, compared with prior estimates in the range of $325 million to $425 million. To reduce its expenses, the company in mid-April temporarily laid off its workers in its retail stores and distribution centers and reduced compensation for top executives throughout the year, as well as tightened hiring efforts, contract services and discretionary costs.

However, the worst could be yet to come for Under Armour: Since mid-March, about 80% of its global business has been at a standstill, and the company forecasts that revenues could be down as much as 50% to 60% in the second quarter.

“Although we do anticipate that our business will gradually reopen in the coming weeks and months, we believe there will be a number of challenges ahead for us and a greater global retail space, including a slow and progressive return in normalization, a highly promotional environment and significant uncertainty in brick-and-mortar traffic and conversion as consumers return to stores,” president and CEO Patrik Frisk said in the brand’s first-quarter earnings conference call.

The company did not provide an outlook for the year but warned that the current health crisis will have a “significant adverse impact” on its fiscal year financial and operating results.

Access exclusive content