Under Armour Inc (NYSE:UAA) is rallying on Monday, a day ahead of its second-quarter earnings report, after a Jefferies analyst dropped a positive note and reiterated his “Buy” rating on UAA stock.
The athletic apparel company, which is scheduled to report its Q2 financials ahead of Tuesday’s bell, is up about 4% today. Clearly, investors are pricing in something positive before the numbers even hit the tape.
That is a dangerous place for bulls to tread.
Seemingly nothing has gone right for Under Armour over the past couple of years. After UAA stock hit highs above $50 in the second half of 2015, shares have plunged roughly 60%. That includes a 35% YTD drop, most of which came in late January and was followed by mostly rangebound trading around the $20 mark.
Shares are reflecting the collapse of Under Armour’s hyper-growth story. Apparent secular catalysts (the endorsement of NBA superstar Stephen Curry and expansion into international markets, to name a few) have simply lost their firepower.
The bulls would like to believe today’s move higher is a signal that UAA stock is at a critical inflection point. But it’s much more likely that this is yet another head-fake for a still-troubled stock.
Under Armour Probably Didn’t Have a Good Q2
A number of reports and other checks indicate that Under Armour isn’t likely to report the kind of second quarter that will have analysts screaming “turnaround!”
Hibbett Sports, Inc. (NASDAQ:HIBB), which makes up nearly 17% of Under Armour’s sales, recently telegraphed weak Q2 comps — far worse than expected.
Deutsche Bank’s Paul Trussell also recently downgraded UAA shares to “Sell” over concerns of heightened competition and slowing in the company’s direct-to-consumer segment.
Web traffic checks aren’t that great. The good news is, according to website analytics platform SimilarWeb, Underarmour.com’s traffic share is trending up relative to all other websites. The bad news is that relative to other sporting goods websites, underarmour.com’s traffic share is trending down. That implies market share losses to competitors like Nike Inc (NYSE:NKE) and adidas AG (ADR) (OTCMKTS:ADDYY).
Search interest trends also aren’t all that bullish. Search interest related to Under Armour has been more-or-less flat year-over-year for the past several months. Ever since Under Armour search interest growth slowed back in 2016, UAA stock has fallen sharply. Search interest is now flat — seemingly another strike against the athletic apparel company.
Online channel checks indicate that Under Armour’s struggles persisted in the quarter.
The best-selling shoe list on the Foot Locker, Inc. (NYSE:FL) website is dominated by Nike and Adidas styles. This is true in both the Men’s and Women’s departments. In the basketball market, Under Armour’s Curry shoes are also struggling to sell on footlocker.com. These checks hold largely true for Finish Line Inc (NASDAQ:FINL) and Dick’s Sporting Goods Inc (NYSE:DKS) as well.
Bottom Line on UAA Stock
Even Jefferies isn’t optimistic about Under Armour’s second-quarter earnings, and instead merely thinks that the bearishness is overdone, and that the short crowd is being too optimistic.
But the clawback today seems to set shares up for a big disappointment come tomorrow’s report.
The data suggests tomorrow could be painful. Under Armour isn’t showing any signs of a return to significant growth, search interest trends indicate popularity has flatlined, and online channel checks imply Nike and Adidas continue to eat market share.
UAA stock is a sell into the earnings report.
As of this writing, Luke Lango was long NKE.