Under Armour Gets Investment Downgrade Before Quarterly Results
Some financial analysts aren’t feeling too hopeful about the future of Under Armour.
In the run up to the athleticwear brand’s second-quarter financial release on Aug. 1, Deutsche Bank analyst Paul Trussell downgraded Under Armour to “sell” from “hold” on the expectation that sales for the quarter will continue to show a year-over-year slowdown.
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“A difficult and promotional selling environment along with segmentation challenges dim our confidence in UA’s near-term view, with ongoing changes in consumer preference and increased innovation from larger peers impacting our long-term growth outlook,” Trussell said in a note.
He pointed to Alabama retailer Hibbett Sports, which operates more than 1,000 stores in the U.S. and has Under Armour goods making up more than 16 percent of its inventory, noting comparable store sales there are down about 10 percent on expectations of only a 2 percent decline.
Trussell said Hibbett “could be a reflection of the challenges the sector currently faces.”
This perceived slowdown in retail sales, along with more competition in the athletic wear space from companies such as Adidas, Nike and Lululemon, all count as near-term headwinds for Under Armour, Trussell added.
Under Armour footwear and apparel both have suffered in recent quarters from sales growth lagging behind that of previous quarters, and Trussell said he doesn’t see that changing for the better anytime soon, as the brand has simply “missed the style trends” in running and athleisure while facing a general lack of interest in its basketball offering.
“Big picture, we wonder if Adidas has taken much of the U.S. market share that was perceived to eventually be UA,” Trussell said.
He also pointed to the brand’s overall “lack of lifestyle appeal” and said attempts to rectify this absence with something like its Unstoppable Collection are not enough to “elevate” Under Armour in the category.
The brand also recently launched its “Unlike Any” ad campaign in an effort to appeal to more women with a focus on female athletes and last month named Aldo and VF Corp. veteran Patrik Frisk president and chief operating officer, along with a number of other executive appointments and changes.
The downgrade comes a few months after Under Armour posted its first-ever loss revenue on a 7 percent gain in revenue. Those results were actually better than expected and investors seemed to brush off the loss by sending share up 10 percent.
The street reacted similarly to Deutsche’s downgrade, only pushing Under Armour shares down slightly in the afternoon by 0.84 percent to $20.10. At this time last year, shares of Under Armour were trading at $43.59.
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