Under Armour Inc (UA) Stock Is Too Out of Shape to Bother With

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Back on April 27, Under Armour Inc (NYSE:UAA, NYSE:UA) shareholders were cheering the company’s first-quarter results, bidding Under Armour stock up to the tune of 10%. The sports apparel brand managed to top its sales and earnings estimates. Perhaps things weren’t as dire as most investors were led to believe they were.

Under Armour Inc (UA) Stock Is Too Out of Shape to Bother With

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A funny thing quietly happened in the meantime though. That is, UAA stock has given back the bulk of its post-earnings gain, suggesting the market isn’t nearly as optimistic about Under Armour as it appeared to be immediately after earnings.

Despite the earnings beat, those investors are probably right to be scaling out of Under Armour stock at a decent price while they can. Realistically speaking, it’s apt to get worse for the company before it gets better.

Reality Check

That’s sure to be a tough-to-digest premise for some of Under Armour’s die-hard fans, who will be quick to point out some of the company’s recent coups.

One of them is the introduction of its merchandise at retailer Kohl’s Corporation (NYSE:KSS). Though they were only put on the stores’ shelves at the beginning of March, when the retailer reported its first quarter results last week, it made a point of saying its Under Armour sales exceeded their expectations.

Just a few days before that, British boxer Anthony Joshua — one of the sports stars in the Under Armour endorsement stable, added early this year — won a key match that garnered a fair amount of new attention for himself and for his brand/sponsor.

They’re noteworthy coups to be sure. But, neither is the kind of catalyst that can serve up a much-needed reversal of fortune for the apparel company.

To its credit, the addition of Kohl’s as a distribution point adds 1,100 new venues, more than replacing the hundreds lost in a wave of retailer closures and bankruptcies (like Sports Authority) last year.

That’s a two-edged sword to owners of Under Armour stock though. While Under Armour desperately needs partners if it wants to continue its rapid-fire growth of yesteryear, it’s not entirely clear if Under Armour apparel specifically sold well in Kohl’s hands, or if a rising tide of sports apparel sales just happened to translate into a strong launch for the brand at its stores. As it turns out, Nike Inc (NYSE:NKE) sales at Kohl’s weren’t displaced by Under Armour’s presence. The retailer reported strong growth for its entire activewear division, not adding new market share for Under Armour.

Perhaps worse, in that many of the Under Armour items sold by Kohl’s were also available via other retailers, that overlap ultimately led to markdowns of that merchandise elsewhere; Under Armour is at least somewhat cannibalizing itself … and hardly staying in favor with its other resellers.

And as for the recent success of Anthony Joshua, though he’s a fine athlete in his own right, his is a name most people have never heard of from a sport most people don’t care about, underscoring another concern owners of UA and UAA stock should have on their minds — Under Armour’s sports celebrity endorsements are costing more and more, for less and less notoriety. The big spending on some of the top names in the world’s most popular sports worked for a while, but it has become expensive and relatively ineffective given the dollar amounts now in play.

Case in point: Under Armour’s sneakers, which make up only about a fifth of the company’s revenue but have been driving a huge part of its recent growth, saw sales growth of only 2% last quarter. Though no specifics were offered, its Steph Curry shoe sales were described as “sluggish” despite the basketball star’s fame and prior success at peddling shoes.

It can’t be chalked up to a tepid athletic shoe market either. Adidas AG (ADR) (OTCMKTS:ADDYY) has been doing just fine in the sneaker market, taking market share from Under Armour last quarter.

Bottom Line for Under Armour Stock

Yes, sales grew last quarter, but the pace of that growth is slowing down … while the growth of spending isn’t. In many ways it can’t, as the company has established its business on the model of leveraging sports stars’ fame to sell sneakers.

The market has changed though, and that particular model isn’t as potent as it used to be. It’s now where Under Armour’s lack of scale and lack of experience working with retailers — and its premium shtick — turns into a liability. It could take years for Under Armour to revamp itself. In the meantime, Under Armour stock is likely to keep doing what it did beginning the day after its earnings-driven leap. That is, move back into retreat mode.

UAA stock may not be worth the headache/heartache when there are so many higher-growth options in the very same athletic wear space.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/05/under-armour-inc-ua-stock-just-shape/.

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