Analyst: The Market Will Struggle With Under Armour's Guidance Cut

Under Armour, Inc. UAA shares plummeted nearly 7 percent Tuesday, despite a second-quarter earnings and sales beat.

The Baltimore-based sportswear company lowered its fiscal-year 2017 sales guidance and expects the rest of the year's EPS to come in lower than consensus. 2017 revenue guidance range was lowered to 9–11 percent, down from 12–13 percent.

EBIT is now expected to come in at $280 million–$300 million, down from $320 previously.

Under Armour also announced a two percent cut of its workforce, the same cut that Nike Inc NKE announced in June.

UBS analyst Michael Binetti believes that the market will struggle with Under Armour’s second-half gross margins cut to manage inventory.

While apparel sales gained 11 percent, footwear sales were down 2 percent compared to UBS's estimate of 8 percent growth.

“Sluggish industry sales reads did result in UAA reducing ’17 revenue guidance by 2–3 percent. Importantly, previous guide for gross margins to improve in 2H was too optimistic,” said Binetti (see his track record here).

Facing intense competition from surging adidas AG (ADR) ADDYY and Nike who is planning a comeback of its own, after announcing a deal with Amazon.com, Inc. AMZN, Under Armour is competing with brands that have decades of experience and significantly higher budgets. The company's aggressive growth brands, particularly in athletic footwear pose an execution risk to the company according to UBS assessment following earnings. 

UBS maintains a Neutral rating on Under Armour with a $21 price target.

At last check, shares of Under Armour were down 4.85 percent at $19.05.