3 Reasons Under Armour Inc Stock Will Come Crashing Down… Again

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Last week, things went from bad to worse for athletic apparel maker Under Armour Inc (NYSE:UA). The firm released disastrous third quarter results and UA stock nosedived, giving up 30% of its value to trade below $11 per share. Not only were the third-quarter numbers disappointing, but the firm’s guidance for the remainder of 2017 didn’t inspire any confidence either.

3 Reasons Under Armour Inc (UA) Stock Will Come Crashing Down... Again
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While some analysts have taken the 30% decline in UA’s stock price as a sign that the firm has hit rock bottom, I think there’s further to fall. With the holiday shopping season upon us, retailers like UA are thrust into the spotlight and, by management’s own admission, the fourth quarter isn’t expected to be any kind of lifeline. That’s going to wreak havoc on UA stock, and I wouldn’t be surprised to see it dip into the single digits in the lead-up to the firm’s fourth quarter results.

Business is Bad

Under Armour’s third quarter results should be enough to sway you away from the stock. The firm reported a 5% decline in overall sales from the year-ago quarter and net income fell a whopping 59%.

There were literally no bright spots to ease the pain for investors either.

UA management pointed to international growth as a silver lining — but even that is far-fetched. Under Armour does about 80% of its business in North America, a market that has been deteriorating rapidly. Percentage-wise, the growth UA is seeing internationally is not nearly enough to offset the sting of its losses in the US.

No Future Plans

Perhaps the most worrying part of the third quarter earnings call was management’s guidance for the full year. Operating profits aren’t expected to make it above $10 million in 2017 and considering that operating costs are near the $2 billion mark, UA is on its way to reporting a full-year loss.

That’s a big problem, because not only does it suggest that the upcoming holiday shopping season is likely to be a wash for UA, it proves that management hasn’t yet figured out a way to stop the bleeding.

CEO Kevin Plank and his team are not exactly known for execution, but add to that the fact that UA’s future plans are questionable and you have a recipe for disaster. Plank has said he is planning to build “the greatest retail store in the world” by 2019. Really? A brick and mortar store in an age when online shopping is absolutely crushing traditional retailers doesn’t exactly sound innovative.

There’s definitely an argument to be made for creating shopping experiences and  boosting consumer awareness, but the likelihood of UA pulling something like that off is slim. Focusing his efforts on brick-and-mortar rather than, say, getting new products on the shelves in time for the holidays, is a big part of the reason so many analysts are bearish on UA’s future.

Digital Death

Speaking of poor execution, Under Armour also appears to be giving up on what many believed was one of its most promising strategic initiatives — wearables. The firm is discontinuing its UA HealthBox, a bundle of wearable devices designed to monitor users’ health. The devices will be pulled from the market at the end of this year and Under Armour will phase out its support for the wearables in 2018.

Talk about disappointment. One of the reasons a lot of investors bought UA stock in the first place was the firm’s connected fitness initiatives. Under Armour owns popular health tracking apps like MapMyFitness and MyFitnessPal — items many believed would provide a solid foundation for the firm to create a wearables empire.

Bottom Line on UA Stock

UA stock is unlikely to make any kind of recovery as long as Plank and his team continue to drive the ship in the same direction. Under Armour is failing as a brand — waning popularity in North America coupled with poor execution and no promising future growth drivers makes UA a risky company to own.

Add to that the fact that UA is operating in the retail sector — perhaps the most turbulent industry out there — and you have a worrisome situation. UA needs to turn things around in North America and tighten up its operations before it can make any real progress. However, based on the most recent reports from the company, things look like they’re going to get a lot worse before they get better.

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

Marie Brodbeck has a Finance degree from Duquesne University and has been a financial journalist for more than a decade. Her work can be seen in a variety of publications including InvestorPlace, Benzinga, Yahoo Finance and CCN.


Article printed from InvestorPlace Media, https://investorplace.com/2017/11/3-reasons-under-armour-ua-stock-crash/.

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