Under Armour stock tumbles amid balance-sheet health concerns

By

Arati Menon

Published
Jan 19, 2018

Under Armour’s stock woes continue. Last Tuesday stock price tumbled 8.7 percent to $12.39 on analyst concerns that sportswear company may be running out of cash. 

 
Stock price rallied marginally through the week.
 
Under Armour’s stock price has been flagging for a while now, despite a mid-December rally. The company’s two classes of stock ended 2017 down over more than 45%. The S&P 500 hit a 22% gain in comparison.

2017 was a year the Baltimore-based performance apparel company could well want to forget. Besides management shake-ups and layoffs, the company saw two consecutive quarters of losses after a 26-quarter streak of over 20 percent revenue growth.
 
In Q3, revenue was down 5 percent to $1.4 billion. Net income fell to $54.2 million, or 12 cents per share, from $128.2 million, or 29 cents per share, a year earlier. 
 
The company was forced to revise its previous 2017 revenue forecast to rise in the low single digits, heavily down from a 9 to 11 percent increase.
 
Analysts fear that if revenue continues to decline like this, and the company is forced to spend heavily to compete with Nike, Adidas and Lululemon, they could well be in trouble.
 
Unlike its competitors, Under Armour hasn’t expanded its international reach quite enough in recent years. Unlocking growth opportunity in China and India could be more important than ever.
 
The North American market that makes up 77% of Under Armour's revenue has seen disappointing revenue trends for the last four quarters. Comparable North America revenue for Q3 fell by 12%.
 
Under Armour's largest competitor, Nike also witnessed a 3 percent sales declines in the region, but Adidas isn't quite experiencing the same troubles. It racked up 31% growth in North America for its most recent quarter. 
 
Under Armour has also acknowledged the struggles it has had with an aggressive expansion strategy, coupled with not having a strong price-value proposition across footwear.
 
In 2017, a broadened distribution strategy to stave off declining sales saw it selling its product in Kohl's, Famous Footwear and Designer Shoe Warehouse. Whilst adding new wholesale partners has shored up revenue numbers, there has been a critical downside. Retailers like Kohl’s are known for their constant promotions and deep discounts, which has spelled trouble for the company’s bottom-line.
 
In comparison, Nike late last year announced a comeback plan to pull back from some 30,000 retailer partners and focus on better retailers and more high-quality customer experiences.
 
Strengthening consumer perception will be high up on Under Armour’s priorities this year.
 
At CES 2018 earlier this month, the brand debuted its newest tech development, HOVR, applied to two new connected running shoe designs. This is the third generation of smart shoes the brand has released over the past year, signaling that despite having exited from its connected fitness hardware foray last year, performance innovation could still present new avenues for Under Armour to drive growth.
 
The company is also in the midst of a pivot into lifestyle sports apparel to mirror the sportswear industry's shift to more stylish athleisure apparel, but progress has been slower than expected.
 
Wall Street estimates had called for 4.6 percent revenue growth in 2018, but analysts now estimate the company is likely to report a revenue decline this year.