Under Armour Bulls Taking 'Needed' Medicine As Guidance Cut For 3rd Time In A Year

Under Armour Inc UAA’s second-quarter report came with mixed results, the announcement of a restructuring plan and lowered guidance for the third time in the last four quarters.

The athletic apparel retailer reported a Q2 EPS of 3 cents against a 6-cent estimate and sales of $1.09 billion against a $1.08 billion estimate. The company lowered its sales guidance for fiscal 2017, projecting an EPS of 37 cents to 40 cents against a prior estimate of 43 cents.

Canaccord Genuity maintained a Hold on Under Armour and lowered its price target from $21 to $18 in the wake of the quarterly report.

“The more significant development is the company’s announcement surrounding its restructuring, in which it will now use a consumer-led approach to drive its category management strategy,” analysts Camilo Lyon and Pallav Saini said in a Tuesday note.

The restructuring will allow Under Armour to become a more efficient company while “carving its path to improved profitability,” the analysts said.

Canaccord attributed Under Armour’s lowered guidance to the company’s restructuring and a “choppy” North American athletic wear market.

UBS also lowered its price target on Under Armour from $21 to $19 and maintains a Neutral on the stock Wednesday.

Interpreting The Numbers

Under Armour’s 8 percent inventory growth was reined in by aggressive promotions during the quarter, according to Canaccord.

The company’s focus on returns points to Under Armour’s growth trajectory slowing “as it enters the next phase of its life cycle,” the analysts said.

Canaccord is projecting Under Armour’s North American growth at 3.7 percent for 2017 and as flat in 2018.

“Until international scales to a size that can offset the [North American] slowdown, we remain on the sidelines,” Lyon and Saini said.

A Tough Finish To 2017 On The Horizon?

The North American athletic wear market “continues to suffer from unprecedented levels of promotion” driven by Nike Inc NKE, according to Canaccord.

“Unlike last Q4, UAA made it very clear today it was ready to respond in kind and not cede share,” the analysts said.

Canaccord is projecting a “poor product cycle” offering from Nike, meaning the company may continue depending on promotions to hold market share — something that could put Under Armour’s Q4 sales and gross margin in doubt.

The headwinds for Under Armour in the second half of 2017 are not likely to slow, Lyon and Saini said.

“In fact, we believe the 2H could be at further risk as all the growth is weighted to Q4, a notoriously uneven quarter influenced by multiple factors, many of which are out of UAA’s control” — such as the weather, competitors and the iPhone 8 launch.

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