With Nike Back On Offense, Sell-Side Sentiment Keeps Under Armour On The Bench

With Nike Inc NKE going full throttle to redeem itself from its recent rut, sell-side analysts have relegated Under Armour Inc UAA to the backbench.

Earning Estimates Keep Coming Down

Oppenheimer analysts Anna Andreeva and Samantha Lanman noted that Under Armour continues to lag, as earnings estimates keep coming down. Given that the apparel segment is maturing, the analysts believe all hinges on footwear.

The firm believes the Street earnings estimate for the first quarter of 17 percent growth could be optimistic, given the fading footwear momentum and tougher comparisons.

The Street's optimism may have stemmed from expectations of improvements in hockey stick sales starting in the second quarter of 2017, and new distributions by Kohl's Corporation KSS, which started in February, and DSW Inc. DSW, which would start this back-to-school season.

Competitive Pressure

However, Oppenheimer noted that Nike is back on offense in performance and basketball and adidas AG (ADR) ADDYY is building momentum in both lifestyle and performance. With lifestyle penetration nil for Under Armour, the firm questioned where that leaves the Under Armour brand.

The firm also believes gross margins could come under greater pressure, with the company missing guidance in six of the last seven quarters due to deeper promotions at own stores.

"With ~1/3 of the float short, any good news could cause a squeeze; at the same time, additional sales misses could finally crack UAA's premium valuation," the firm said.

"We think there's a good chance company guides down 2Q17 sales, back-half loading '17; assuming new distribution (KSS & DSW) contributes $130 million–$150 million in '17 sales implies core business up HSD to hit consensus."

Cautious On Under Armour

Credit Suisse also avers with Oppenheimer's view that footwear would be the greatest opportunity for a new growth leg. "Yet, undefined segmentation for premium footwear, inconsistent pricing, and a more challenged outlook for basketball product give us pause," the firm said.

"We remain cautious on Under Armour's strategy to drive topline growth at the expense of its return profile and do not model for earnings growth until FY19 at the earliest."

Ratings/Price Target

Oppenheimer rates Under Armour a Perform, while Credit Suisse reiterated its Underperform rating and $17 price target.

At the time of writing, Under Armour shares were down 2.93 percent at $17.58.

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