Under Armour Slides After Five-Year Plan Fails To Excite Investors

Under Armour Inc UAA shares took a nosedive Wednesday after the highly anticipated five-year plan unveiled at its Investor Day meeting failed to impress investors.

CEO Kevin Plank introduced the company’s 2023 strategic growth plan at the meeting and said it was designed around two strategic priorities: to protect and perform.

Among the core elements of the plan are a single-minded focus on innovative athletic performance product and experiences, emphasizing engagement, conversion and retail excellence, protecting the brand through selective wholesale distribution and continuing to invest in the largest long-term growth opportunities — namely international, footwear, women’s and direct-to-consumer.

The company also announced its intention to shift production away from China due to the ongoing trade war. Under Armour said it will source 7 percent of its product from China by 2023, down from 18 percent today. 

Analysts Weigh In

The analyst updates came in droves following the investor day. 

◘ Cowen analyst John Kernan said Under Armour’s presentation was impressive, but may prove to be overly optimistic in some areas. 

“While we think the revenue targets are achievable and may prove conservative, the margin targets, even with the benefit of supply chain efficiencies and higher AURs, place a good deal of pressure on everything going right,” said Kernan.

Cowen maintains a Market Perform rating with a $21 price target.

◘ Raymond James analyst Dan Wewar called the five-year target heavily back-weighted and said the company’s double-digit annual revenue growth rate estimate looks too good to be true.

“From which brands does Under Armour expect to steal market share? Nike, Adidas, The North Face?” the analyst said. 

“These are great competitors that we do not see losing market share. Further, the rapid revenue growth expected by 2023 will be heavily leveraged on Asia Pacific, while North America is only expected to grow revenue at a five-year CAGR of 1-3 percent,” he said.

Raymond James maintained an Underperform rating on Under Armour. 

◘ Wedbush analyst Christopher Svezia said Under Armour is making progress toward becoming a more efficient organization, but continues to face execution risk.

“It remains uncertain as to whether UAA can leverage SG&A out of its 40-percent EPS CAGR target,” he said.

Wedbush maintained a Neutral rating with a $20 price target.

◘ Ivan Feinseth of Tigress Financial Partners said Under Armour trades at an unsustainable valuation and at multiples double that of its much stronger competitors.

“I believe Under Armour still faces changes in consumer trends and increasing competition along with a brand that has reached saturation as it continues to show up in greater quantities in discount channels, and is losing favor with consumers,” said Feinseth.

◘ In even more bearish comments, Canaccord Genuity analyst Camilo Lyon questioned the company’s innovation pipeline and said Under Armour is not the growth company it was a few years ago.

Lyon said his firm was intentionally excluded from attending the investor day meeting based on his negative view on the stock, and reiterated a Sell rating with a $13 price target.

◘ KeyBanc analyst Edward Yruma took a much different stance and said that while patience is required, Under Armour’s absolute long-term upside could be some of the most significant in his coverage. Yruma maintains an Overweight rating with a $30 price target.

“We believe that UAA’s refined customer targeting matrix as well as a more methodical and robust development pipeline will help return the business to growth. We were very impressed by the new product we saw," the analyst said. 

◘ Bank of America Merrill Lynch analyst Robert Ohmes maintained an Underperform rating and raised the price target from $10 to $15.

Improving EBIT margin is Under Armour’s No. 1 objective, outlining its strategy to improve from 3 percent in 2018 to 10 percent by 2023, the analyst said. 

Under Armour shares were down 4.8 percent at $18.86 at the time of publication Thursday. 

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