Nike In The '80s Vs. Under Armour Today: 4 Takeaways

Under Armour Inc UA UAA seems to be in the early stages of its first-ever “speed bump” and there are concerns around the company’s ability to return to top-line growth in excess of 20 percent, Wells Fargo’s Tom Nikic said in a report.

While maintaining a Market Weight rating on Under Armour with a valuation range of $16–$18, Nikic mentioned four takeaways from Nike Inc's NKE when the company stumbled for the first time in the 1980s.

Key Takeaways

1. There are a number of parallels to Under Armour’s current situation, which is of having hit a “wall” in its core business following two decades of hyper-growth, heavy inventories, expensive growth investments and a competitor benefiting from “brand frenzy,” Nikic stated.
2. When Nike stumbled for the first time, it took the company four years to return to top-line growth of above 20 percent, including a “clear the deck” year during which sales declined by 18 percent.
3. Nike’s shares lost 75 percent from peak to trough levels, which is worse than what Under Armour’s stock has experienced so far. To match Nike’s share performance, Under Armour’s shares would need to decline another 35–40 percent from the current levels.
4. Some of Nike’s turnaround strategies represent opportunities for Under Armour. These include adapting to new consumer tastes, global expansion, enhanced marketing and improved inventory management. The analyst added, however, that the other levers that Nike pulled do not seem easily replicable, such as taking the brand upstream, changes in the management team and M&A.

Related Link: Under Armour: The Company Is More Exciting Than The Stock