Key Takeaways:
Under Armour shares fell 22% this week after Q2 revenue missed estimates and management cut full-year guidance on softer consumer demand.
"The results reflect a reset as we build a more focused Under Armour," CEO Kevin Plank said, citing softer demand in North America and Asia Pacific and a promotional retail environment.
Revenue slipped 3% year over year to just under $1.1 billion in the fiscal first quarter, while adjusted earnings rose to $0.05 a share from $0.02, beating the $0.02 consensus. Management lowered its full-year revenue outlook to a mid-single-digit decline, with North America sales now expected to drop mid-single digits.
The stock closed at $5.26 on Wednesday, near its 52-week low of $4.13. Barclays' Adrienne Yih downgraded the shares to underweight from equal weight, keeping a $5 price target, citing market share losses and tariff pressure.
Plank said traffic weakened sharply starting in late May, especially in North America and Asia Pacific, while the market grew more promotional. The company kept its profit targets unchanged, relying on cost cuts, particularly in marketing, to protect the bottom line.
The earnings beat was helped by a one-time tariff refund and spending cuts rather than stronger sales, according to the company's disclosures. Under Armour has leaned heavily on discounts for years and is now trying to break that habit, a process Plank described as selling "so much more of so many less products at a much higher full retail price."
Yih said the company's long product development cycle likely won't yield major improvements in fundamentals this fiscal year, and flagged a delay in brand recovery and stiff competition in athletic apparel. Rivals including Nike and Lululemon continue to pressure Under Armour's market share.
Not all analysts agree with the bearish call. UBS and Williams Trading kept buy ratings, with Williams Trading pointing to marketing wins such as soccer player Ferran Torres wearing Under Armour boots at the World Cup. Truist and Stifel share some of Barclays' concerns about weak traffic and heavy discounting across the industry.
The guidance cut shows management expects demand to stay soft through the fiscal year. Investors will watch the rollout of new products such as the Helix Tee and further SKU reductions for signs the turnaround is taking hold.
This article is for informational purposes only and does not constitute investment advice.
